Sunday, February 15, 2009

Getting better before getting worse, or the other way around?

The market has become increasingly bipolar in the past 2 weeks, and the schizophrenia can be clearly seen on the charts of the major indices: while SP500/DOW are not only bearish both mid/near-term, but poised to break down further, NASDAQ has been unmistakeably bullish (mid/near term). At this point, the market could either break down as both DOW/SP500 overpower NASDAQ or break out to the upside as NASDAQ lifts all the boats. Another likely scenario is that the market continues its maddening and muddling way and stays within the trading range of the past 3 months for a few more weeks.

At this point, I am unsure which of the above scenario will play out, and as such, I will continue not to initiate positions (short or long) meant to be held for more than 3 days. I day-traded only (mostly on AAPL and GS) in the past 2 weeks and got some pretty good profits.

A couple of more observations and thoughts:

1. The Chinese stock market has finally broken out the multi-month range and now in pretty solid rallying mode. TA wise, I expect the rally to continue for next 2-3 months with 20-30% of gain. FA wise, I think the rally will fizzle out when people find out that the Chinese economy will not thrive on just domestic consumptions. Before that happens, however, it is possible that the Chinese rally ignites sympathetic rallies in stock markets around the world.

2. Obama administration has been really pressing hard and marching ahead with success in terms of passing important bills, but the "Yes we can" mantra will hit a iron wall pretty soon as both the Republicans and the economy are increasingly unfriendly, to say the least. If the market disappoints again next Weds when the details of the new housing bill reveal, the honeymoon may end sooner rather than later.

Might post some trading calls later if I get chance.


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