Is the correction about to start?

[tokyopua]

Good discussion, guys.

Yesterday's selloff might have been an over-reaction to China, as most of the analysts and pundits seem to be billing it, but at the end of the day, my bottom line is: "What does the chart look like?"

This is a candlevolume chart of the SPY.  The width of the candle expresses volume, so we can see that, not only were all of the gains since November 28 (3 months) given back, they were given back on huge volume.

Independent of the fundamental factors, that's some serious selling, and some technical damage to the chart, so we could be in for a bit more selling than the "few days to a week" of selling that I've been hearing on CNBC.

Short-term, what I would expect on any rally is what I personally experienced in my GIGM trade yesterday.  It gapped down on me from 13.12 and fell to 11.21 in early trading. 

YEEKS. 

That certainly seemed like an over-reaction to me, but my opinion about that doesn't matter much when a huge part of my gain evaporated in minutes.  I didn't expect GIGM to rally all the way back to the gap above 13.00, so I was real happy to get out it, and sell into strength at 12.69 on the late morning recovery.

A lot of stocks didn't have the kind of recovery that GIGM did yesterday, and if they do, I suspect that players will react the same way that I did, and sell into strength.

If this is more than than "just a blip" of a few days to a week that I've been hearing on CNBC. the 200DMA currently is at 134.40.  A 50% retractement of the rally off the summer low is 134.38. 

Below that is horizontal support, at 132.77-132.80.

If I had my druthers, I'd like to see a selloff to one of those levels.  Corrections of the kind of gains that we've had are healthy.

Excellent post Melf.  That candlestick volume chart tells the story more eloquently than any of us can    I hadnt thought there was much use to using candlestick volume charts until I saw your chart.

If anyone is still questioning the significance of yesterday and feels complacent after the calm today, take a good look at the chart Melf posted and that HUGE candle.  If we had seen a candle like that to the upside we would all be talking about how much farther the market can go higher, clearly the converse has to apply.

[tokyopua]

Crazy day for my second day as a bear!  Woke up with green all over my screen, closed the day slightly net down as I put on a few more shorts at the wrong time intraday, i.e. when the market was way down already.  That is of course like buying long when you have a gap up, but I didnt think about it that way until the market moved to fill its gap.

So timing was bad, but IBD still says market is in a correction, and again until a strong 2% up on heavy volume day happens, the correction is still the name of the game.  Corrections last at least a month in recent years, and the May correction last year lasted over 2 months.  If you are still long, IBD says to sell into strength, go to cash, and build your watch list.  If they are right, then its not too late.

Nikkei down 1.12% as I write, though China is up.   Europe will be the true test, but if we open down tomorrow there wont likely be good data like the ISM number today to spark a rally.  However, a strong session in Europe should allow an up open in the US which I think would give a decent up day to close out the week.  We will soon see....

[lancefur]

I have to admit that I will have to be on my own with my trading. The entire focus has switched to a bear market and given I have a self-directed IRA, I cannot short a thing. I took a pounding today but that's because I bought intra day and not in the beginning like I should have.

I intend to still try and use the stock screener to purchase stocks for long positions but I am sure that will be tough given the current climate. Now with most of my gains eroded for the year, I am at square one. Sucks as I wasn't prepared to be on my own yet. Guess I have to sit on cash and start being more of watcher right now and become a quick learner of fundies and tech stuff.

[dnickers]

Hi Lance -

Are you sure you can't buy the ETFs that are in effect, shorts?

[lancefur]

I cannot short in my account as I cannot get a margin account. ETF's, yes. but looks like they are doing no better than anything else out there.

[lancefur]

I cannot short in my account as I cannot get a margin account. ETF's, yes. but looks like they are doing no better than anything else out there.

I guess I was looking around and maybe a tad misinformed. I was looking at AMEX and their ETF funds. Some did quite well today, nothing on fire but SRS, SMN and SKK all did above 3%. But if I understand these ETF's, they are just like shorting stock but without a margin account?

[dnickers]

But if I understand these ETF's, they are just like shorting stock but without a margin account?

Yes, that is correct...making them a good tool for bear markets, without having to go short individual stocks.

But hold on a second, ETFs in general do not all short stocks.  In fact, I'm sure a most of them have long postitions within them.  ETF stands for exchange traded fund...meaning it is like a mutual fund, but one can trade it like a stock.  They are comprised of many stocks, and different ETS hold different stocks/sectors within them.  Like SDS, which David owns now, it tracks the S&P500, but inversely.  When the S&P goes down, SDS goes up.  Another one is QID, which tracks the QQQQ, albeit inversely.

[jorgegr]

LANCE:

ETF's work like ordinary stocks except that:
1) Are composed of many different stocks and/or indexes
2) Others are inverse and even double results.
     For instance QID shorts and doubles the NASDAQ
     SDS shorts and doubles the S & P
     DXD shorts and doubles the DOW

You can read about them at
http://finance.yahoo.com/etf/education/01

You can find 289 different ones to pick at
http://finance.yahoo.com/etf/browser/mkt?c=0&k=5&f=0&cs=1&ce=20&o=d

David has suggested and has in the portfolio SDS
If you read today's threads in "the market is open" you
will also find specific suggestions for SDD  and TWN

All of these are ultra shorts that double inverse, in other words
if the Nasdaq goes down:  QID will double up but if the Nasdaq
goes up, this ETF will double down.

Good luck

[nullzero]

David what do you think of the FXY etf?

To play with the trend up yen due to the yen carry trade.