Securities Research Services

Friday, February 08, 2008

On Day Up Does Not A Bottom Make

We warned that whipsaw risk remained high and yesterday we saw how this risk could come into play and murk up the situation.

Realistically there are few advantages in this market. It is oversold, but still trending down. Yesterday's high volume bounce was interesting, but it didn't break the downtrend. Moreover, scans today once again revealed very little to work with.

Right now short positions are risky as this oversold market has the potential to turn on a dime and squeeze shorts hard when sentiment turns overly bearish like it did yesterday following a poor CSCO earnings report. At the same time, until we get a follow through day to the upside and a better base to buy off, buying this market is even riskier than shorting it.

The only reasonable thing to do here is to stand aside and wait while big risk takers allow their accounts to get ground up in the day-to-day reversals.


Long term, the market is in a confirmed downtrend.

The market is getting jumpy and is likely close to a tradable bottom. But, until we get a follow through day, this market should be considered guilty until proven innocent.


Prices may test recent lows; especially in tech. However, we continue to look for a rebound rally back up to the 40- and 50-week averages at some point over the next few weeks. Until prices regress back to their mean, risk of whip saw will remain high and position sizes should be kept small.

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