Click chart to enlargeClearly a decisive breakout for the market on Friday. Next stop... 200dma. The 200dma shown on the chart of the Dow above is at roughly 13100 (approx 250 points away). While a bull market is running, the 200dma is of little use, as the market tends to stay well above it. But in times like this, it is used to mark major changes in direction. Despite how strong the recent rally has been (1100 points in six weeks), all of this strength can just be categorized as typical bear market action as long as the market remains below its 200dma. Considering that half of that 1100 point rally took place over the past 4 sessions (550 points gained since last Tuesday), the market is quickly approaching a short term overbought level. If we do get to the 200dma this week, we're going to dump all longs and just hold shorts (adding a large position in DXD). We typically hold longs and shorts at all times. But when the market adds 800 points in under 2 weeks, we feel 100% comfortable holding nothing but shorts. There has been a lot of confidence restored to this market. Sentiment is positive, and even returning to speculative. Still, nothing goes straight up.
It's important to note that while the Dow broke resistance, the S&P500 reversed course on Friday at exactly its early February highs of 1395. Those that follow the S&P are actually looking for a break of 1400. The S&P500 did break its 100dma on Friday, but the Nasdaq turned around just shy of its.
We're awaiting a breakout in the drybulk sector (which we realize may never actually happen), and are awaiting a pullback in commodities (agriculture in particular). We feel confident adding to SMN if it drops further. All it takes is one day of fear in the commodities market and SMN pays off.
4 comments:
Curious. When you suspect a pullback in the ag sector, why do you look to go long SMN and not AGA?
Sorry if you've already addressed this in the past.
Please disregard the earlier question. I suppose it's because AGA has no volume to speak of...
We're aware of these Ag ETN's, but like you said, there isn't much activity in them, and they have no trading history.
Perhaps when they mature a little, they'll be more viable trading vehicles.
http://biz.yahoo.com/bw/080415/20080415006467.html?.v=1
Thanks. A follow-up on SMN: Given that SMN is comprised of significantly more than just the ag sector, have you seen from your experience enough of a direct inverse correlation between SMN and just the ag sector?
Oh, and have you maintained your position in FXP, or had you dumped it at some point?
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