The market is still in a very dangerous environment now, an environment we call "whipsaw," where it whips back and forth. All indexes are still in this range, a few up days followed by a big volume down day. Today, by far, was the biggest volume down day of this year, mostly attributed to news of Chinese banks tightening restrictions for lending. I cannot lie and said I bought into this move today, as I was already cautious 3 days before. And when you do not understand what the market is doing, it is best to step away from it and watch. Once again, I do not see many buy set ups and I see several juicy short set ups (namely FSLR and RIMM). But until this follow-through day, which I discussed a few posts before, comes to fruition, I will be watching from the sidelines, waiting for my opportunity.
However, if the market does break out through this range to the upside, I will be watching a small stock named CREE. It's main products are LED lights and has significant exposure to Asia to capture the infrastructure boom. It came out with earnings early today and busted out to new highs, opening at all time highs. Relative strength and weakness of stocks in the market is a powerful, predicative tool in the market because it an obvious sign of which companies institutions are putting or pulling their money out of. More importantly, on such a weak day in the market as today, a strong move is even more eye-popping.
I just took a look at CREE, and it is pretty impressive, have been going up non stop since the beginning of last year. Is that strong track record what you meant by relative strength? How do you handle a stock like this? It'd be unrealistic to expect to go keep going up forever, but it hasn't shown signs of slowing down.
ReplyDeleteAlso, can you discuss the how you would have done the short set ups for FSLR and RIMM specifically?
Hey Steven, thanks for the comment.
ReplyDeleteRegarding CREE, yes, it's rise from the March bottom of the high teens to where it is now certainly constitutes as being relatively strong to even the stronger Nasdaq index vs. the S&P. But more micro, I meant it's strong performance on 1/20/2010 after earnings came out, along with a weak overall market. It "gapped" up, meaning no shares were exchanged, from 55.50 to 60 and was bought into the rest of the day with one of its highest volume days in its existence. It is an event driven move but its extreme strength is something to take note of. I personally will be watching this stock to see if it resists any market correction and will be looking to get long once the market begins its uptrend again.
I am currently not short either FSLR and RIMM as I am waiting for them to finish their set up. But if I am to enter into a position, I looking to enter into a pullback, in this case, an upmove. It lowers my risk and would allow me to hold onto the stock for a bigger move. My risk would be too much, for me, if I am to enter into a downmove. Look at the daily chart of FSLR and you can see it's been down 9 straight days. Now stocks tend to move in trends but stocks usually do not go straight down or up.