Friday, April 10, 2009

To be a bull or a bear, that is the question!

Before I start, just want folks to know that we are moving locally and I may not be able to post much in next 2-3 weeks.

The raging bulls kept the rally going for the 5th straight week and almost recouped all the steep losses occurred in Feb. While the bulls become more assertive, bears are seemingly on life-support now. Some observations and thoughts:

On overall TA pictures of major indices

1. Weekly charts:
While the intermediate trend is poised to turn up, the overall picture still looks like a spectacular bear market rally, at least till this point. The growing positive momentum suggest that the overall trend could continue go up for another 1-4 weeks. But as they get into the overbought region, further upside movement may become increasing difficult to sustain.

2. Daily charts:
Solid uptrend, but the bearish divergences start to emerge (momentum, volume, candle body, etc.). The over-stretched price over the still declining (flat for NASDAQ) MA50 in persistent overbought region makes market increasingly vulnerable to pullbacks.

Some thoughts:

1. Next week features lots of bank ERs, and just like WFC, I suspect they are going to a lot of "positive surprises ". However, judging from what the big boys did yesterday (huge negative money flows on major bank stocks), I also suspect that the big boys will use these spiking-up as the opportunity to sneak out the back doors.

2. With M2M and short-sell rules all nicely re-written for the financial bulls, the only big remaining event is the stress-test results in 2 weeks. Ever since the Fed went all in, I have little doubt that the results will be overall favorable.

3. After 5 weeks' of fiece rally, I suspect that the easy money on the long side has been made, and the risk/reward ratio is becoming very unfavorable for initiating any new long positions from this point further.

4. While I won't be surprised that the MM may stage some sizable drops in the OE week to protect their call-selling premiums, I feel that bears need to be patient for at least another week or two to start aggressive SW short positions.

On trading plan for next week:

I will focus on the finanicals by using SKF as the handler. I will consider aggressively shorting April SKF OTM puts (50 or below) if banks spike higher on their all good ERs. I will also gradually build up May SKF OTM puts (40-60, ideally) short positions. SKF is obviously in a tremendous run away down spiral, but the chance that it will at least revisit the 80/100 zone in next 1-2 months is pretty good, IMHO.

The bottom line? Things are looking up and rosy for bulls, and the market has pretty much priced in a nice economic recovery in the 2H of this year, the problem? No one knows for sure if that bullish scenario will pan out, and if not, watch out below.

Thanks for reading all the trash talking by the Easter Bunny, now enjoy your weekend!


1 comment:

Anonymous said...

Hi Wabbit, Thanks for your thoughts. I have been reading your blog since about 10 months. Your thouts are realistic and reasonable.

While writing the commentary about market, you mentioned that "M2M and short-sell rules", can you please explain little more about it. Appreciate your help, my email id is