| Gar's Market Blog
Outlook for Monday, 8 February 2010
Downtrend
Remains in Tact
In
spite of Friday's late spike
It
appears that the market has reversed its
overall trend---not withstanding Friday's
last-minute spike to the upside.
When
you consider the definition of trend,
the newly established trend is downwards,
because we have been making lower lows and
lower highs since mid January. Hence, proceed
with caution when considering long positions,
unless they are brief daytraders in between
downslides.
A
Sure Method
One
of the most powerful techniques for trading
I have ever developed is the simple, 3-step
method, as follows.
- Wait
for the market to do something stupid.
- Wait
a little longer for the market to keep
being stupid, then
- Go
the other way.
By
"something stupid" is meant just
that---there is some overreactive action,
either on an individual stock or across
the market as a whole. Although market patterns
can change, and although bear and bull markets
come and go, the one thing that remains
consistent over time is that the market
overreacts. It will overreact first,
last, and always.
Hence,
when you see a stock plummet on "bad"
news, but the news doesn't seem all that
bad, assume that the market is overreacting,
and the stock is getting oversold.
But
don't forget step 2---wait a little longer---because
when something is getting oversold, there
is a tendency to keep getting oversold a
while longer. After you exercise patience,
go the other way (go long), and 9 times
out of 10, you will be rewarded handily.
The
reverse situation is true as well. If you
like to go short, look for a stock ramping
up steeply on what you feel is not-so-great
news (an analyst "upgrade" being
a good example). Wait for the buyers to
keep being stupid a tad longer than is rational,
and then go short.
Outlook
for Monday
Statistically,
we should see a little upside tomorrow,
even if only briefly, because the last 15
or so Monday's have been positive. Of course,
this can change, and there are is certainly
a possible catalyst that can result in downside.
But the odds favor upside, as that has been
the pattern currently locked in.
However,
until you witness a confirmed uptrend, it
is highly probable that the market will
reverse course mid week and continue its
downslide. Pay particular attention to whether
or not we make lower lows. If so, then the
downtrend remains in tact.
Sector
Watch
For
Monday and (possibly) Tusday, look for Precious
Metals, Mining, and Energy stocks to ramp
up sharply, as these will appear badly oversold
by traders. Don't hold on to these very
long, as the downtrend for these groups
could very well continue after a brief rally.
Look
for Financials to go sideways, while Tech
might drift higher until the market re-confirms
its downtrend later in the week.
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