Securities Research Services

Monday, April 16, 2007

It's Hard to Trust the Market Here

The market is dull here. There's an old rule that says never short a dull market. Many times that is good advice. At the same time, it's difficult to get too long in a dull market as well.

The QQQQ is trading just below the gap opened on February 27 and there seems to be a better than even chance that that gap will be filled this week. What happens after that is difficult to tell.

Essentially, it is a good idea to take only those trades on stocks that are showing something unusual or extraordinary this week. Be really, really picky in this environment. Traditional set ups are not very compelling in a market that is trading much closer to neutral than it is to either a bearish or bullish bias. For just as easily as we could get a gap fill, we could also see another negative week that takes us back near the bottom of the market's range.

In the case of the QQQQ, that would be back to $44. In fact, we would give the odds of a gap fill or a move back to $44 about a 55%-45% chance respectively. These aren't very good probabilities on either side of the trade.

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