Securities Research Services

Monday, February 11, 2008

A Tradable Bottom May Be In Place - But Be Careful

The QQQQ has now found support at its 5 year trend two weeks in a row. The SPY is trading a meager 1% from weekly Bollinger Band support. Bollinger Band support is unreliable when downward momentum is strong, but momentum has stabilized so we believe that this support level will hold here.

While technically prices are oversold and at levels where we would expect them to find support, talk of recession has reached near fever pitch in the media. People who have no experience in the markets and no viable knowledge about the economy are talking recession.

With bearish sentiment so high and with stocks at support we have to believe we are very near a tradable bottom. We can't justify jumping in and buying yet; not with the 5, 10, 20, 30, 50, and 200 day averages all trending down. But, we would certainly want to keep stops on shorts very tight and we would be putting together a wish list of stocks to buy when the market turns the corner and the 5- and 10-day average turn back up again.


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With sentiment bearish and with prices near support levels, we are looking for stocks to rally back up from near current levels. As noted above, it's hard to justify buying when all major moving averages are still pointed down, but we wouldn't want to be very short here either. In fact, it might be a good idea to put a toe or two in the water (using tight stops of course) here in some of the stronger areas of the market.


The rebound rally back up to the 40- and 50-week averages we have been discussing will likely occur sooner rather than later. 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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