18 June 2008

Dow Falls to 12K. Time to Go Long?

The bear has returned, setting aside the spring's bear market rally.
Sell in May and go away, indeed.

But is the market oversold in the short-term? Is there too much bad news priced into the market? Are certain indices at extreme points, ready to bounce against the bears? Is it time to put in a trade on the long side?

The Dow has 4 out of 30 components trading above their 50-day moving averages. Using the $DOWA50 chart at stockcharts.com, I found that when 4 or fewer components trade above their 50-day moving averages, it's time to look at going long.

Which four companies are fighting the tape? Alcoa, Chevron, IBM, and Wal-Mart. However, IBM is trading only $.04 above its 50DMA; WMT is $.56 above its 50DMA. Only AA and CVX have a cushion of more than 1% above their 50DMA. If tomorrow's a down day, then the $DOWA50 chart will scream "go long." I'll try to follow through by closing out my DXD position, and shifting those proceeds into a position in DDM.

The Dow is at a tradeable extreme. How about the Nazz and S&P 500?

The broader NASDAQ 100 has 39 out of 100 components trading above their 50-day moving averages. I have previously discussed that when this indicator ($NDXA50 at stockcharts.com) falls below 20, or even 15, then I'll look at going long the NASDAQ via picking up shares of QLD or QQQQ.

The even-broader S&P 500 has 168 components trading above their 50-day moving averages. I won't be interested in the $SPXA50 indicator until it falls below the 75-100 range.

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