This coming week is turning out to be looking a bit nasty - for the market.
There are some signs that at least a short term top has been created in the stock market...here are a few.
On Thursday, both the nasdaq and the NYSE had classic market reversal days. The day started out strong and finished off extremely weak, and most importantly on very, VERY heavy volume.
On Friday, a recovery was attempted in the morning , only to be squashed during the early afternoon. Another recovery was attempted just before 3 p.m. with the DOW only off 10 points, but that recovery failed again. Once again, the volume was high, though not as high on the NYSE but over 700 million shares on the nasdaq.
A more disturbing fact is that the number of new highs on Friday fell below 100 for the fist time in a very long time. and the new lows was above 30. Actually, friday, there were 60 new highs and 31 new lows on the NYSE. A rule of thumb is that if the new lows are more than 40 for more than 5 days in a row, the market is likely to be in a corrective phase or at the end of its current uptrend.
I tend to suspect that we will see more than 40 new lows on Monday, given the two recovery failures that we saw today.
Having said all of that....If the market indeed goes into a corrective phase (in my opinion, it has started), it will take many stocks with it.
The stategy now is to look at your porfolios and analyze what you are comfortable with and what is a bit overpriced. The overpriced stuff will fall faster and harder. If you are holding calls in a company that you really believe in, like INTC, there is a decision to be made.
If you really think that a 5-7% market correction is in the hands, you could sell the calls if you have a profit in them or get ready to average down.
Personally, I got out of all my call positions yesterday...and into puts on thurs and yesterday...although not intel puts.
Given the market activity of the past two days, i don't feel comfortabe holding calls.
Paulo |
