The Contrarian Trader

Stock market, economic and political analysis for the intermediate term stock, commodity and equity option trader.

Contrarian Commentary, The Week Ahead 01/06/07

with 5 comments

The two V V’s (Volatility and Volume) have returned to the markets and can either make or break a speculator. It’s at this point the savvy speculator shows patience, turns off CNBC and researches the historic support levels of those stocks that they had been wishing to buy in this recent run up in the stock market. It’s at those support levels that you will find the best entry levels. You can then place your stop loss orders below the support level. By buying in this fashion you greatly reduce the risk of being shaken out of your position.

The one saying that Crammer has that I must agree with is when you are not trading well then you simply “stop trading”. Just like in sports when you trade well your confidence is high and you trade smarter. When you trade poorly your confidence is low and your trade on emotion. When you trade on emotion you trade on impulse. I address these points for one reason If you believe as I do that we will see a continuation of this market correction which could last from one to three months you’ll see many attempts at a counter trend rally caused by anything from an M&A announcement or a manipulated short covering rally. Normally these end up as head fake rallies which only serve to separate the little guy from his or her hard earned dollar. So, what do we do?

If the S&P 500 breaks and closes below 1400 level it will be a signal to many technicians as well as program trading systems to sell. On the NASDAQ we are looking for support to hold at the 2400 level. It closed on Friday atop its 50 day moving average at 2413. Looking at the NASDAQ chart on a daily basis it looks like a real nice consolidation. But, pull back to a Weekly Chart we are looking at an index that is extremely overbought. Can the index break out? YES! We want to see some heavy distribution days that will give us the green light to load up on the short side.

You’ll remember that during the Santa Claus rally I kept referring to how the bank and brokerages were manipulating the market by buying back stock of their own companies. By doing so they created an atmosphere that lent itself to create a feel good rally. You’ll note that since Christmas the Financial Sector has been correcting. This is no surprise but it’s good to revisit why the markets rallied for no good reason. It was bonus season and compensation dictated behavior. They’ll be back again later this year and it will be the same all over again.

I have also been referencing the Utilities Sector as it is a leading indicator for the future direction of interest rates. This rally has been based purely on the hopes of an interest rate cut in the first quarter of 07′. Well here we are in the first quarter of 07′ and it doesn’t look good. Wage inflation was reported on Friday and that is what has Mr. Bernanke most nervous. The Utilities Sector closed beneath its 50 day moving average on Friday. What is the market telling us? It’s telling us that this much anticipated rate cut is unlikely and institutional investors are giving us an honest heads up by their actions. They are selling the interest rate sensitive utility stocks. Actions speak much louder then their hollow words as when they appear on CNBC to pump these stocks as they are selling.

It’s at this point of the cycle that I am begging everyone to start paying more attention to the weekly charts with particular attention to the MACD. As with bull markets the daily charts can stay overbought for a long time. During a correction the daily charts can stay oversold for a long time as well. The problem is that many people think that stocks are cheap and then buy. After they buy the markets continue their decline. A weekly chart gives you a better perspective of as to how the momentum of selling is either accelerating or declining. Weekly charts also give you a clearer picture of as to where your support and resistance levels are. It’s critical to identify these support levels and when we begin buying again to buy at those levels. This reduces your risk. We are all about the preservation of capital so remember this phrase before you make an impulse buy “today’s highs may be tomorrow’s lows”. Think about it.

To our members we will be covering in detail our current holdings and watch lists in Monday nights Contrarian Commentary. For those interested in becoming a memeber please take advantage of our 30 day free trial. WWW.TheContrarianTrader.com

Advertisements

5 Responses

Subscribe to comments with RSS.

  1. tribe in africa

    tribe in africa friends

    tribe in africa

    May 30, 2007 at 9:11 am

  2. maria bello

    Info about maria bello.

    maria bello

    May 31, 2007 at 9:03 pm

  3. knight cross

    Aggregator of knight cross sites

    knight cross

    June 7, 2007 at 5:45 pm

  4. mature women pic archives

    ka-ka-sh-ka 1294039 Actual news on mature women pic archives category.

  5. Hi! I was surfing and found your blog post… nice! I love your blog. 🙂 Cheers! Sandra. R.

    sandrar

    September 10, 2009 at 8:46 pm


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: