November 12, 2007

After last week’s tumultuous action, Wall-Street woke up with the hopes that they would see a bounce off of the horid performance from last week. However, E-Trade (ETFC) then decided to become the latest subprime victim, announcing that they had overexposed themselves to mortgage-backed securities. While the market performed most of the day in a sideways fashion, by the end of the day, the bulls had lost its footing and the bears were pouncing on them as a result.

It is becoming a recurring pattern for the afternoon to sell-off any gains that it might have prior. For traders this type of extreme sell-off is very frustrating even for those trying to establish a short position. Reason being, is that the market provides very little in terms of solid entry prices for a short position. Instead, the only way, currently, seems to be chasing the sell-off, rather than waiting for a rally to initiate a new short position. With that said, we still believe that extreme caution is recommended no matter which direction or style you are trading in.

Let’s take a look at some charts…


The NASDAQ (using a QQQQ chart as an illustration) still has a long term trend in place and if it is going to rally at some point, this would be the time. If it breaks this trend-line then all bets are off with no support area in site.

The S&P continues to fall with no support area in sight. The best to hope for is an oversold rally back close to resistance levels, in order to create some short positions.