re: ST trading (and macro picture):
I use that header, when I talk about short-term trading, or other OT stuff, so those who want to can skip it.
In spite of events of the last few days, I think we are still in a bear market. I posted my thoughts on the macro situation here: Message 15662633
Basically, as long as I see falling consumer sentiment, and falling consumer spending, I'll assume the fundamentals of tech companies will continue to deteriorate, and it's still a bear market (at least in the Nas).
In a bull market, going long when stocks break above resistance, is a successful tactic. In a bear market, it isn't. The reason is, in a bear market, rallies mostly fail. Even when stocks break above resistance, the next most likely move is new lows. And, the higher they go, the further they usually fall, when the rally fails.
In addition, I think valuations are still way to high, in some sectors. The semi-equips in particular, also the Dow stocks.
In a bear market, IMO, the best shortterm (= expecting to hold a few days, to a couple of months at most) strategy, is to turn the "buy-the-dip" strategy (that worked so well in the bull market), on its head. "Sell the Rally" is my motto. I've used this rally to steadily get out of my long positions. I'm willing to consider buying puts on almost any tech that makes a 30% move off its lows, especially if it is at a PE over 40. Lots of targets, at the moment.
I was LTB&H from when I started investing, in early 1996, up through January 2000. I went to 70% cash then, as the valuations scared me. I got back into the market, and started establishing LT positions in techs, beginning in July 2000, and got seriously hurt. At the time, I thought we would get a soft landing in the economy, and I thought valuations were reasonable. Those valuation-based decisions turned out to be seriously wrong, when many companies saw 12M forward EPS expectations radically cut. In January 2001, I re-evaluated. I decided we were probably looking at a recession, and, for a prolonged period of time, were going to have a volatile stock market with no net upward movement in stocks. So, I shifted my tactics.
I've been very successfully trading the ranges on several tech stocks this year. For instance, I have (5 times this year) bought at-the-money calls on TXN when it was at 30-31, and sold them at 36-37, or done puts in the other direction. So far: 4 profitable trades (35-50% each trip), and one small loss, when I got faked out by a brief trip out of the horizontal trading range. I post each buy and sell in realtime on the TXN thread.
I think this rally stalls before the SOX takes out the January high (750). |
