Traders saw stocks rise today on the back of extremely oversold conditions and better than expected economic data. We have been under some serious pressure, but the market has been on quite a tear since the beginning of September 2010. Today’s bounce was quite weak with volume coming in well under yesterday’s levels showing institutions were not behind today’s move. At this point, a quick resolution to the current market situation is not in the cards. The market is under serious pressure and will take time to resolve. This bounce can last much longer than you can expect, it is best to stay in cash.
At Big Wave Trading we are interested in helping our members and not trying to constantly trade. There are times when sitting in cash and waiting out the storm. Many services out there will continue to offer up long ideas when the probabilities of these ideas working are slim to none. Buying the dip is even worse, no one KNOWS for sure if a stock will come back. It is best to put the odds in your favor rather than hope for a stock to move higher.
For those who have the stomach, we are actively scanning for new short ideas. We aren’t looking for stocks to collapse like they did in the fall of 2008, but there are opportunities out there. If you get a 15-20% decline in a stock it is best to take your profits and run rather than trying for a big decline. Markets like the 2008 crash do not come at every market correction, it is best to be nimble than to hold out for more.
The AAII investor sentiment figures were released today showing Bears jumping over 40 and the Bulls under 30. A quick move to the downside for the bulls, but II sentiment survey of newsletter writers are bulls above 50%. Again, sentiment is too difficult to time the market with, but it is interesting to see where the crowd is. At the very least we are seeing fear entering the market and is important for the overall correction process.
Sometimes it is best to sit on your hands and move away from your account to wait for a better market to go long stocks. If you are able to go short stocks, now is the time to begin hunting them down for entry levels. Have a great weekend!
