Today, the S&P futures stayed in this severe downward channel, so that's my story and I'm sticking to it. Although the channel runs up to 845, the 834 range is gonna be a hard resistance point - it took us 5 weeks to break it when it was support. The channel runs all the way down to 760. Pivot points are: R1 - 851; P - 828, S1 - 789 and S2 - 766. So, 760-835 has a lot of reasons to be the boundaries for tomorrow.
Picking shorts in a bear market
I've gotten some comments about how easy this must be, the market is down, so pick shorts and you'll win, but if we have an up day, you'll lose. The comment presupposes that there is unanimity as to whether it's a good time to buy or sell. But I see many people buying in this environment because they think this is a great time to buy. Maybe it is, but these people are traders, not investors. So, if you think this is a bottom and you want to invest, go for it. So far, you'd be wrong. I think the market is going down further, so that's how I approach my stock picks. If you day trade, you can probably make money going long or short on any stock. But if you have the discipline to only day trade with the wind at your back, whipsaw is less likely, or less severe, or shorter. You can stick with a trade longer because we have higher confidence that the prevailing wind will ultimately prevail.
I pick stocks that have intermediate price targets in the direction of the market. If I guess the direction wrong, I'm hosed for a few days, they that goes into the determination of the next direction. (Right now the S&P is dropping below 807 in aftermarket, so I'm guessing "lower" for tomorrow.) With this volatility, though, it's almost like we have 3 sessions a day - either one long and two short, or one short and two long - so keep your powder dry and wait for the turn. If you were die-hard long today you had like a 3% chance of picking the right stock. So guessing the direction right is more important than picking the stock.
Anyway, I'm all shorts and I made money, but the market went down so it's gotta be easy, right? The S&P closed Friday at 872 and it closed today at 809, a three-day loss of 7.2%. My picks over the same period are up 14.8%, that's more than double the market. I don't know how much is luck and how much isn't, but if the magic formula was just to be short on bad days, you'd think my return would have been closer to 7.2%. I'm sure I'll eat humble pie soon, but just not this week so far. :)
Portfolio Changes for Thursday
For Thursday, I'm removing the following shorts from the list since we've harvested enough potential from the picks: ISRG, CCK, and JBHT. I also don't want to play with GGB because the price is under $5 - I like to see dollars not pennies. Kept in the portfolio are: ANR, AIV, BK, CMA, MET, MS, PCU, and UBS. Each of these has at least another 60% downside in the stock price so I like the odds.
To keep the number to 10 securities, I'm adding the following to the list:
TRA - closed $13.39, target $5
LM - closed $14.00, target $5
TEX - closed $10.21, target $4.50
Honestly, I looked for longs, I do, there just isn't anything that is technically appealing. We've had a lot of up days lately (well, a few) and they all were in fact down days for most of the stocks in the index. Tuesday was saved by Home Depot and Chevron (I think). It just isn't a bottom when everything else goes down. Check this out: http://finance.yahoo.com/advances 826 Nasdaq-listed companies saw new 52-week lows today. Yesterday, an "up" day, we had over 600. Last week, the numbers were from 100-300/day. You'll know the bottom when you see it - this number will get smaller and smaller. In the meantime, we're bears.
Remember, I daytrade and/or swingtrade these. They are the most likely to go down hard when the market is going down. But if I hold a bunch of shorts all at once overnight, a good day is the market is a bad day for me. So, I look for good entries only on the short side on these, then I hold them until they make me money. Be patient and pick a good entry.
There are a bunch of other good shorts if you are interested: X, KGC, WLL, FTI, MOS, TROW, EGLE, AA BUCY.
Tomorrow it looks like financials will continue to lead us down, followed by energy. Oil is down another $1 in the aftermarket. There really is no motivated money on the sidelines after we crushed 834, which took 5 weeks. It's too close to the end of the year for anyone to risk anything, that's my guess. We probably break 700 before Christmas.
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