Sunday, July 11, 2010

Bear flags and pennants galore...

I am already short 200 shares of PWRD. However, with a huge number of bearish set ups all over the place I am planning to add new short positions. It must be noted, however, that I am not very bearish on the markets. For this reason I will be focusing on those set ups with the best risk/reward (risk = distance from entry to current pivot high, reward = distance from entry to last pivot low), I am only going to enter full short positions in set ups that confirm (break below previous day's low) or take partial positions late in the day in stocks with set ups that have completed a bearish reversal candle while the market indexes themselves have printed a distribution day.

I am leaning bearish short term. That is, I think the markets will make another leg down. However, I do not believe that we will see a sell off like the previous one or that we will even get near the July lows. Hence my caution. The reasoning behind this is my belief that the markets are going to put in some sort of intermediate term bounce over the next month or so as the T2108 and T2107, and VIX are printing bullish divergences and the approaching Late July - October season has historically been bullish. Even in 2008, during the brutal bear, the markets managed to bounced from July to late August. Longer term I am leaning bearish with a large number of stocks forming longer term tops like head and shoulders, breaking down from late stage patterns and have 10 week MA crossing below 30 week MA.

So my plan in a nut shell is to get gradually short in the first half of next week if the market action and individual stock price action confirm my hypothesis with a view to taking either quick losses or quick profits in a 1 - 2 day time frame. Other wise I will refrain from shorting and look to take partial long positions in the stocks that are holding up best with a view to holding for a week or two.

Good luck and good trading!

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