Securities Research Services

Tuesday, January 23, 2007

In Between a Rock and a Hard Place

Sellers remained heavily in control of the market yesterday. The Semiconductors are at important support levels and the broad tech sector, as measured by the QQQQ has pulled back to its 50-day average. As such, there remains a chance that stocks will hold today. However, if sellers keep on hammering at support levels, we may see prices continue to bleed lower for a week or two.

We had hoped that bulls would have remained optimistic enough to try and rally the market back up again this week. That would have created a nice short set up. The fact that selling has remained relentless so far makes for tough going.

Very aggressive traders have a trade if the short some of the weaker tech stocks here, but in doing so they take on an additional risk of shorting against an already oversold market.

We strongly advise focusing on preserving your trading account by tightening trailing stops and not opening any new trades until better set ups emerge. Long side set ups are in jeopardy of failure here, so it's not a good idea to buy weakness in this market. And, as we already stated, oversold bounces put new shorts in jeopardy as well.

On Tuesday we find ourselves in that middle ground market where risk is very high on both the long and the short sides. When the going gets this tough, the tough may get going, but the smart ones move to the sidelines and wait for better times.

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