Monday, February 15, 2010

My 3-Month Prediction for the Stock Markets

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I am currently slightly bullish (short/intermediate term) on account of the recent sub-25 T2108 readings. My stance longer term, however, is a bit uncertain at this point. I am waiting to see: (1) If the markets break down to new lows without bouncing further or; (2) If they put in a weak bounce and then continue lower or;(3) If they put in a strong bounce and follow through to new highs.

Although I am contemplating sort of hedging my current longs with a short position; if scenario one turns out to be the case I am doubtfull I will take short positons as the risk/reward on shorts at this point is not good with the T2108 already below 30 for sometime now. I will, however, hold onto at least half of my current longs and hope I do not get stopped out before the markets put in some sort of bounce but I will not initiate new longs. Finally, I will continue looking at stocks holding up comparatively better than most others for opportunities to go long as I believe that the markets will eventually bounce from these oversold levels.

With scenario two, I will stick with my current longs and look to scale out on any signs of weakness mean while looking out for former leaders that have started breaking down and setting up short patterns like double tops, head and shoulders, pullbacks to the 50 DAY MA (like TSTC highlighted in my last post) to establish short positions in sync with the markets as they are starting to rollover before the T2108 gets below 50.

Under scenario three, I am already positioned long so I will stick with my positions and open new ones on pullbacks as the markets pick up steam.

I have no idea what will happen in the weeks and months ahead. However, based on the monetary tightening by the Chinese Government; the hints that the US may start fiscal and monetary tightening in the not too distant future; and the patterns that I am seeing in leading stocks such as TSTC, CAAS and RINO and the indexes like FXI and NYSE the most probably outcome seems to be between scenarios one and two.

So keep your eyes pealed and do not be afraid to act when either of the scenarios become apparent but NOT BEFORE!

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