Tuesday, January 8, 2008

The Markets Is Still Nervous

After that absolutely atrocious performance by stocks on Friday, following one of the worst employment reports in years, the major U.S. equity market indices closed little changed on Monday, thanks to that late session buying spree that helped pull most of them off some of their worst levels of the day.

There is a ton of nervousness out there on Wall Street and the wall to wall coverage of the recent U.S. Presidential primaries isn't helping to soothe anybody's fears at this point. We believe that our nation's economic leaders are simply out to lunch. Maybe it's because it is a presidential election year and everything has to be filtered throught the elected pinheads on Capitol Hill to see how a recession heading into an election will or will NOT benefit them. Maybe it's because it's the 8th year of a two term President and he doesn't have alot of political capital left to spend. Who knows, but a defensive strategy at this point is undoubtedly the way to go.

A quick look at the price chart pattern and the near term technicals for the small cap Russell 2000 appear to be quite clear. The next few months could be a bruiser for those bullish on small caps. That means this is obviously turning into a stock picker's market. That said, the trend has also obviously turned bearish, so there will be a lot more stocks likely to head down than up. If that's the case, it may be time to look at those small caps which are optionable and consider employing a risk averse short strategy of just buying near term put options on stock's whose technicals tell us clearly that their best days may be behind them for a while.

Remember, while it always less confusing and usually much easier to make money in a bull market, there's also always ways to make money in these markets regardless of what is happening with the overall trend. If that trend flips to the downside, a good trader simply 'flips' his mindset and concentrates on how to make money off of that trend and one way to do that is to short the market. That said, not all sectors typically do badly in a downturn. In fact, some sectors such as healthcare and consumer staples can actually do quite well.

So while we may be making some suggestions over the next few weeks (or months) that are quite unorthodox to those of you who've been members for a while - like shorting a particular stock or buying put options on another, we also will be looking for those sectors and stocks within bullish sectors that still could have decent upside potential. Obviously, in those cases, we'll be making bullish suggestions.

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