26 June 2008

When the Market Grabs for the 'Oh Shit' Handle, I Go Long

Today, the market reached for the 'oh shit' handles as it swerved further into bear territory. When the talking heads on CNBC panic, it's time to look at going long.

For the time being.

So what did I do today?

I sold off my ultra-short NASDAQ-100 ETF (QID) position a bit too early in the trading day at $43 even, from a cost basis of $41.49, for a gain of 3.6%

I sold off some additional shares of the ultra-short China Xinhua-25 ETF (FXP) at $86.32, from a cost basis of $90.50, for a loss of 4.6%.

I added to my ultra-long Dow ETF (DDM), bringing the cost basis down to $64.21, and to my ultra-long financials ETF (UYG), bringing the cost basis of those shares down to $23.09.

We're back to having absolutely zero Dow components trading above their 50-day moving average, as shown in the below chart. The RSI(2) for the Dow index fell below 1 today. The Dow is clearly at an extreme point, and I expect the market will rebound very shortly. I'm backing up this assertion with my growing DDM position.

As I have recently relayed repeatedly, when the number of NASDAQ-100 components trading above their 50-day moving averages falls below 15, it's a profitable time to go long. Well, the chart below shows only 14 components above their 50-DMA. I exited my QID position today; one that I made profitable by supplementing with shares at $36.89, when nearly 85 components were trading above their 50-DMA.

I may just have to pick up some QLD tomorrow.

1 comment:

Arun said...

Mate, Whats your opinion on this market? Seems everyday we are down few points. Do you think we will see snap back rally soon or index has to go future down. bit confused, when you get time pls write details. Cheers, Kumar