Securities Research Services

Thursday, March 27, 2008

The Path Of Least Resistance...

The SPY continued to struggle with its 50-day average yesterday.

The low volume rise into resistance can reasonably be interpreted as short covering, not actual buying. Now that the price has stalled at the falling 50-day average shorts have been reloading their positions.

Without a new catalyst it is reasonable to look for a resolution to the downside and perhaps a retest of this month's lows.

Check the XLF. While the SPY hasn't yet rolled over, the XLF has already turned back down carving out yet another lower high.

It makes zero sense to bet on a bottom in this sector. Let others assume the risk as gamblers try to pick a bottom.

One of the arguments we hear a lot is that the time to buy is when things look the worst. That may be true at some point, but we would then ask, didn't things look like they were at their worst back in 2001? In 2001 bottom catchers took a full 50% haircut before prices actually began to stabilize. And then they weren't vindicated until almost 2004.

Buy when there is blood in the streets is the mantra your stock broker whispers in your ear as he tries to unload inventory that has been collecting dust on the broker's shelves.

Leave bottom picking to those with deep pockets and long time frames.


With volume shrinking as the SPY tags the 50-day average, it's time to start putting on short positions again.

1 comment:

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