Securities Research Services

Monday, January 28, 2008

Upside Untrustworthy

Prices rolled back lower out of a pullback in the downtrend on Friday. This is a classic downtrend rollover. However, with the Fed potentially lowering rates again this week, prices may not gain much downside momentum just yet. It's probably a good idea to be stingy with your short entries here. It's better to miss some downside momentum than it is to get too aggressive shorting this oversold market too low.

That said, we believe that lower prices are in store before a true tradable bottom will be put into place. We have yet to see a true fear-inducing shake out that would mark a good tradable bottom. We would love to see the Dow down 300 points mid day at some point over the next week or two. And, if the Dow can experience such a fear inducing event, a mid day reversal would give the all go signal to go long.

Until we get something like this scenario unraveling, this market is going to be very, very hard to trust on the upside.

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