Tuesday, July 7, 2009

Find Yourself a Hammock

I've been more stagnant than I want to be with regard to writing the blog, and I swore I didn't want to start making recommendations, but for one this is one of those situations I can't help but get excited about and second it's a good opportunity to start delving into -drumroll- applied theory.

Basically what you're looking at is the bottom of the recent crash and the recovery stalling at the first major resistance test. I'm going to go on my experience and say we're looking at the first indications of some major summer doldrums during which the bottom will be solidified as the market continues to weigh the impact of recent events on back-half seasonal profitability as well as long-term profitability. If Dow 7000 roles around again, I'll be about as surprised as I am about seeing a hurricane on the Weather Channel.

The second exhibit is one of my favorite trading stocks in one of my most favorite situations: the pointless breakout in an unfavorable market. In short, since I'm short on the market, the fact that I'm short on AMD has insurance. It will take more than just a minor Leeroy event to derail this breakdown. AMD, during most of its ascent and breakout, demonstrated what you call "weak buying," where the stock is bleeding a lot of red even as it trades higher, indicating that there is a lot of selling into the springback off the bottom. Basically it's a dead cat bounce that created an opportunity to dump shares, and now the bouncing dead cat is headed back to the ground.

I'll continue to revisit these two examples as I move forward into the conclusions of my model. I'm feeling pretty certain at this point I want to go back and re-approach some of the material. I've had a decent time getting my head around the material in the context of writing the book, so a little reorganization seems more than appropriate.

Good luck trading.

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