Monday, February 2, 2009

Staying the course

On my shorts. Nothing tells me to go long or get out of shorts and gold and gold stocks so far are dropping as anticipated. KSS is being stubborn but I smell a waterfall decline coming that I think will begin before the week is out. When watching intra-day charts, it is easy to get spooked on counter-trend moves. It is important for traders who have a time horizon of more than a few hours to not only monitor the intra-day activity, but also keep a bigger picture framework in mind. A current example is instructive. First, a 6 month daily chart of the S&P 500 with my favored "road map" for the next 1-2 weeks:

Because I believe we are in a corrective pattern, it makes sense for the first down wave "A" to nearly equal the second suspected downward thrust that I believe has already started, labeled "C". This would take us down to a re-test of the fall panic lows and we may even exceed them by a few points just to draw in a few more unsuspecting bears.

When watching the intra-day action on a one minute chart (instead of paying attention at work like I am supposed to do), the quick movements can seem confusing. This is why the bigger picture must be kept in mind. On a one minute chart, it seems reversals and countertrend moves are almost always imminent! Below is a 30 minute intraday chart over the past month:

I personally believe that being short almost any sector right now should work, although individual stocks (when not trading sector or general market ETFs) have to be evaluated on their own merits/chart patterns. I remain in my put option contracts on KSS and NEM and I couldn't resist buying some puts on PAAS (silver miner) and GFI (gold miner) today near the highs this morning.

Remember, though, that these are short term trades. I may even be out of them by the end of the week if a waterfall decline of 10-20% occurs. The more important move is what comes after mid-February, which I think will be a blistering rally upward that will take every stinky old stock with it until at least mid-March and possibly until the end of April. Both gold stocks (GDX ETF is a basket of miners) and the double levered bullish oil stock ETF (ticker DIG) should be good for a 50% gain or so once the bottom is in and I believe the bottom will be in within 2 weeks.

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