Securities Research Services

Tuesday, October 23, 2007

Any Rally This Week Should be Shorted Into

The market bounced yesterday, but as we mentioned in yesterday's report, any bounce this week should be considered highly suspect. The Nasdaq is still in an uptrend, but the broader market has collapsed and is likely to continue to be a lead weight around the neck of the majority of stocks.

Under these types of conditions, long set ups tend to fail, frustrating those who fight the trend by giving them just enough encouragement to buy again. Once they buy, however, they find that prices refuse to make new highs and then within a few days prices bleed frustratingly lower until stops are triggered.

We don't know what type of correction we are facing here, but probabilities are high that long positions are going to struggle for a while. For now, it's best to focus on selling the weakest areas of the market rather than trying to buy the strongest areas.

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