Meet Me At The Cross-roads

Technically we are at cross-roads. Wednesday or possibly Thursday may turn out to be an important direction-indicating day from a short term view. Why you may ask? The charts paint the story. The best example is the S&P 500 charts. The daily chart is hitting against the 200 day moving average (MA). The same MA that barely two weeks ago was a major support is now a major resistance. The weekly and monthly charts are slightly encouraging too with some potential upside. But the candles are looking, shall we say highly under-nourished? Bottomline - pay a close eye not only to the close tomorrow but also to the lower and higher end of the candle. If there is a decisive move on either side with sustained action for the following 2-3 days, it could be used with reasonable reliability to portend the short-term action. Note that 1454 is the 200 day MA. My personal bias is towards the upside due to other technical indicators flashing a buy. But I have learnt not to ever take 200 day MA for granted..ever! If there was one single MA that you had to use, it would be 200 day. It is not overused and abused as much as the 10, 20 or even 50 day MAs due to obvious reason that most of the traders don't have patience for it, which makes it all the more meaningful to determine bounces or fall throughs. Also notice how major news events always seem to happen around a 200 day MA. Spooky, isn't it?

Technical speak aside, the markets would finally have gotten time to digest fed actions and fed speak in the last few days. Needless to say, it was a potpourri and media has remain divided as I elaborated in my last post. Not only that, the last few days have also seen institutional buyers gradually step back in as evidenced by the NYSE Tickscore, usage of which was first pioneered by Bret Steenbarger. The rest of the week could tell us if the institutions are finally gonna get off the fences and join the procession with greater numbers.



Finally the Feds are on offensive right now. My experience suggests it is better to align with them on for the short-term as also voiced in my last post.



Note that I am only suggesting betting on short-term direction and not intermediate term direction. For intermediate direction, situation is still murky. And thats true not just from a technical point of view but also fundamentally as more dirt or uncertainty would likely come out from the mortgage muck (Keep in mind we may also see guidance from brokerage houses in the next two weeks who would almost certainly be prudent. And you know what prudence means in the current markets!).

And then there is the whole fed angle and what it means in intermediate term. Lets suppose the Fed actually cuts the rates yadi yada yada, which the futures are betting with a certainty it would. How would the Fed really know by early September, the outcome of something that is still unwinding at that point in time? It would be interesting to understand what happens when the Fed takes action in the midst of a situation that has still not unfolded completely i.e. lack of enough data points. Some argue this may lead to a negative trend. I found one of the better illustration of this hypothesis in this article from Doug Kass in theStreet.com who recently got sorta pooh-poohed for his bearish undertones on a CNBC show.

New Picks


AAPL Long - This is based on technicals and the fact that Apple got dragged down along with other stocks. Redemption trades by the Hedgies may have also taken a bite out of it. At current prices, it looks attractive for a quick trade. Candles are pointing upwards with the rest of the technical indicators. That said, it is hitting against its 10-week resistance and its 20 day MA. Ergo, we are gonna keep a tight stop on it. 5 % decline and we sell the sucker. I will later post a mini-update when I am able to buy it successfully. My entry point is 129 or lower. I am guessing the futures will be higher driving the prices higher in the morning and the best entry point would be during a pull back after an initial surge of the morning, if there is a pull back.

A Stray Thought
How do you know the difference between someone feeling young or old? My answer - If you are young, technology tries to keep up with you and if you are old, you try to keep up with the technology

Stay young :)

-------------------------------------------------------------------------------------------
Rathi Portfolio Holdings

Open List

• BZH (Stock) - Sell Short - Opened on 2/14/07 at $41.54. Currently at $11.21 with 73.01% Gain
• ISRG (Option) Jan08 130 Call - Buy Long-Opened on 3/8/07 at $9.60. Current at $79.50 with 728.13% Gain
• GLD (Stock) - Buy Long - Opened on 7/10/07 at $65.61. Currently at $65.07 with 0.82% Loss
• PLUG (Stock) - Buy Long - Opened on 7/16/07 at $3.25. Currently at $2.56 with 21.23% Loss
• SNDK (Option) Jan 08 50 Call - Buy Long - Opened today on 8/20/07 at $9.70. Currently at $9.30 with 4.12% Loss
• ANF (Option) Sep 07 70 Call - Buy Long - Opened today on 8/20/07 at $9.60. Currently at $10.80 with 12.5% Gain
• AAPL (Stock) - Not yet bought.
  

Closed List

• CRDN (Stock) - Buy Long - Opened on 2/14/07 at $56.44. Closed on 07 at $79.37 with 40.63% Gain
• TSO (Option) Jan 50 call - Buy Long-Opened on 7/10/07 at $14.40. Closed on 7/14/07 at $12.70 with 11.81% Loss
• CTXS (Option) Jan 08 30 Call - Buy Long - Opened on 7/18/07 at $6.90. Closed on 7/23/07 at $9.20 with 33.33% gain

Total Percentage Gain/Loss of Closed List Since Inception: 32.7% Gain