Trade Idea for 10/09/08

Further new lows, and another close at the lows, but the slaughter was noticeably less intense than the past two days. Also, it feels as though people are becoming deadened to the losses. They are accepting that each new day brings further downside. This resignation is a key step in forming a turn. Once the vast majority believes that only downside lies ahead, that's when the reversal tends to happen. So what's the next step? Maybe one more gut-wrenching fall, as the final holdouts toss their cookies. Just one pleasant idea for what might come in the next couple of days. For your viewing pleasure, a cross-section of stocks that were high-flyers not long ago:



The one bright spot? Major gold miners. After gold's huge performance the past few sessions, the miners finally joined in. Harmony was up over a third. But I have to say, this move in gold as well as the miners feels really rushed. The odds favor a pullback from here, and from an Elliott Wave perspective, it looks like a B wave to me. Also, noticeably absent from the festivities were silver miners and most of the gold juniors. It's not a good sign when you don't have broad participation; in fact it's a sign that the move might be hollow. I'll still take a setup if it happens; and I actually did buy some, but I'm playing it as a bounce.

We sold AIG today for a loss, but there were plenty of opportunities to take nice profits. If you traded it, I hope you came out ahead overall. Its chart still looks pretty good. If you didn't sell it, use 2.99 as the sell-stop. A break above 5 would look really nice. For SCC I have chosen a very aggressive "official" sell-stop. This is because I think that's what you have to do as stocks approach a major wave 5 peak. Don't give it too much room to fall, but give it a little room to surprise you in case it can keep rocketing up. It's a tough balance. Feel free to use my recommended sell-stop as a closing basis-only suggestion.

Current Holdings
Ticker	Basis	Closing Price	Perf.	Sell-Stop	Additional Exit Guideline	Chart
SCC	104.53	140.00	+33.9%	129.99	Feel free to use the sell-stop as a closing basis-only suggestion. Be open to the possibility that there is only one more surge ahead, to come tomorrow or Friday.	Chart

The dollar and gold have enjoyed an inverse relationship, but that seems to be breaking down now that the other currencies (excepting the yen) are suddenly so much weaker than the dollar. A flight from euros into dollars AND gold? I notice that both gold and the dollar have been in uptrends since mid-September. Old relationships are hard to shake though, and if gold weakens as I think it might, the dollar still stands to benefit. So in the short term it could win either way.

Trade Idea for 10/09/08

Ticker	Entry	Exit A	Exit C	Chart
UUP (US Dollar Bullish ETF)	25.24	24.67		Chart

Please refer to "How To Trade The Ideas" (right-hand side) to read this table.