Securities Research Services

Wednesday, April 02, 2008

Time To Buy Again

Yesterday we posted "The market remains very vulnerable at this point, though there seems to be some sort of a short squeeze brewing. Given deteriorated technical conditions, it's doubtful that a squeeze can take the market far."

We were correct about the fact that a short squeeze was brewing. It remains to be seen whether we were correct that the squeeze can get far.

Indeed, it may be the case that yesterday wasn't merely a short squeeze, but that it represented actual buying. In other words, money that has been sidelined looked to have moved in to the market yesterday, meaning that the price action represented more than just short covering.

The falling 50-day average has now been conquered and probabilities have now increased that we are on the verge of a rally that could offer some excellent profits on the long side.

Just don't forget that we are still in a bear market. It's important to keep taking profits off the table as they come. It's also important to be quick to switch allegiances should it become necessary.


The market turned 180 degrees yesterday and as such, the recommended position flipped to long. Over the past few days we have argued that it was too late to add new short positions and to protect last Friday's lows with stop losses. Indeed, this should have protected everyone from a loss, thus we were accurate in assessing that risk was manageable on the short side.

With the strong reversal that not only took out Friday's highs, but which blew through the 50-day average on strong volume, long side risk is now quite manageable with stops to be kept below Monday's lows.

No comments: