Trade Ideas for 01/05/08

The market exhibited impressive action during the three days I took off last week. Many breakouts occurred, and the major indices hit multi-week highs. Even better, the 50- and 200-day moving averages on many charts have finally flattened out. So either a rally has begun, or the market is doing a repeat of the Thanksgiving week rally (which, you may recall, flopped big-time the following Monday.) Nevertheless, the medium-term trend is up, so whether or not we get a pullback Monday, it's still time to think bullishly. In fact, a pullback next week might pose a good buying opportunity (risking to the late December lows).

Now that 2009 has begun, I'm looking for a couple plays to unfold. First, the sucker's rally, with a target of Dow 10,000-11,000, followed by a fall to new lows, or at least a test of the November low. As far as timing is concerned, I don't think the rally can last past May. That would mark the final opportunity to sell any long-term holdings you haven't been able to part with. The second play is the gold play. In 2008 we learned that when the big players need to raise cash, very few asset classes are safe (yen and treasuries being a couple of glaring exceptions). Gold fell with the rest of the market, though not as hard. With the rise in deflation expectations, commodities have continued to suffer. But gold is a different type of commodity, since it's not a raw material but rather a monetary metal. Its value ought to increase as more dollars (and other currencies) are printed.

I had a solid 2008, but I expect to do better in 2009. My 2008 performance was hurt more by mediocre risk management than by the inability of most asset classes to trend. Therefore, my main trading-related resolution for 2009 is a renewed dedication to risk management, which means: cutting losses at a pre-determined point, and on each trade putting at risk an amount that balances the profit and loss scenarios.

Current Holdings
Ticker	Basis	Closing Price	Perf.	Sell-Stop	Additional Exit Guideline	Chart
LIHR	16.21	21.92	+35.2%	20.37	Consider selling on a close < 21.42, or upon attainment of the 200-day moving average (~23)	Chart
FAF	28.07	28.56	+1.7%	27.19	N/A	Chart

Will momentum from last week continue? It might, at least initially. A pullback really seems imminent, though. All told, we could be in for a wild open Monday, so I'd consider waiting until 10:30 to enter new positions.

Trade Ideas for 01/05/08

Ticker	Entry	Exit A	Exit C	Chart
TSL (Trina Solar)	10.41	9.62	9.25	Chart
CZZ (Cosan)	3.82	3.11	N/A	Chart
DNA (Genentech)	83.29	81.95	81.16	Chart

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