Minyanville's T3 Daily Recap: Extreme Volatility a Nation's Nightmare, But a Trader's Paradise
Watching how we bounce over the next week or so will be an important indicator of future action.
QE2 gains that took over a year to put in place were wiped out in several days. This shows you what can happen when markets are artificially propped up. We need more private business and less government with less spending. European problems are going from denial to reality, and it’s very similar to the path of our banking crisis. Strong banks bought the weak banks – and it weakened all of them. This is happening right now as the PIIGS are relying on the strong countries like Germany and France to prop them up. Eventually the weaker ones will likely have to default, nuking the entire system.
There are structural problems around the world that will need years to sort through. The S&P’s are in a 12 year range, and I continue to believe that active trading, using a tier system and strict discipline, is the best way to protect your capital and potentially profit in today's broken markets. Such an approach gives you the ability to sell longs early when you see a pattern like a head and shoulders.
I still believe that during corrections, cash is king. While many had a great day buying capitulation, waiting for a better environment to buy the best stocks is more my cup of tea.
Market participants that need to park some money should look at mega cap tech names with clean balance sheets and yield, such as Microsoft (MSFT) and Intel (INTC).
I still feel buying the best high growth names at the right time when the trend is in your favor is key. Apple (AAPL) just held the 50-day moving average. Amazon (AMZN) is still holding above its 200-day. VMWare (VMW) held the $80 area. Caterpillar (CAT) is in the $80’s. Colgate (CL) held the 200-day moving average. These are all the best companies in their sectors and showed some relative strength vs. the indices. This is what you look for in times like this.
Lower oil should help. I was looking for oil to get to $75 and it hit $76 last night. If we see oil in the 60’s, It will help the economy. Every $0.10 gas falls is a billion in consumers' pockets per month to spend.
We will get through this, but you need to wait for a new rally to set up before macro money should be put to work. Right now we're in a traders' market.
Today the Fed basically said we are going to be in a slow growth environment for 2 years or so. They will take a bottoms up approach so the 30-year can stay low. That is great for housing and the real economy, and also might put pressure on commodities -- which could put more in consumers' hands. This will make stock picking that much more important, since these indices might act more like Japan and need more time before making a big move.
Today was a classic technical reversal (or RedDog Reversal, if you will) which can be considered Day 1 of a new attempted bounce. We will now need to see follow through on Days 4 to 7 to put a new attempted rally in place.
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