Trade Ideas for 12/04/09

Today the S&P broke out to new recovery highs early on, and then fell back (just like yesterday). This time, however, the market was unable to hold on. Led by financials and real estate, the S&P ended up dropping 18 points from the high, closing near the lows of the day. The dollar, meanwhile, has been making a series of higher highs and higher lows.

Last week the markets plunged as a result of the Dubai crisis and then went on to new highs, crushing the bears. If the bounce reflected a successful ascent of that particular wall of worry, we'd need to see sustained follow-through to the upside. If instead the bounce served mainly to throw the bears off the scent, we'd see a reaction high and then the real drop. This pattern of behavior might be more recognizable at bottoms. A stock plunges, seems to hit bottom and bounces. People buy in, only to see the stock fall to new lows. This dispirits the participants, many give up, and only then does the stock truly begin its rise.

The Dubai crisis may or may not prove to be a significant event, but it certainly catalyzed the deterioration in market internals to act on price. The subsequent bounce this week shook the weak hands (like us) out, but meanwhile the technical picture worsens. In other words, there's a good chance the drop that began today is for real. Bears are w[e]ary after last week's failed campaign, and yet the evidence of deterioration has only gotten starker, particularly in the secondary indices. The Russell 2000 may have just put in its third lower high, and today price was rejected by the declining 50-day moving average:

This index is downtrending. Also, the low put in by the dollar last week was not breached when the market reached new highs today and yesterday. There are good arguments for a drop tomorrow, but it all comes down to price. Let's see if there's downside continuation tomorrow. We bought SH today.

Current Holdings
Ticker	Basis	Closing Price	Perf.	Sell-Stop	Addl Exit Guideline	Chart
TWM (trending)	27.58	28.69	+4.0%	27.27	N/A	Chart
AONE	16.81	17.85	+6.2%	16.71	N/A	Chart
ARIA	2.36	2.51	+10.6%	2.21	N/A	Chart
SH	53.19	53.43	+0.5%	52.57	N/A	Chart

Be very wary of opening gaps tomorrow. More likely than not, they will be faded. In fact, look to close partial long holdings into a gap up, and partial shorts into a gap down.

New Trade Ideas

Ticker	Entry	Exit A	Exit C	Chart
JDAS (JDA Software)	24.51	23.64	N/A	Chart
H (Hyatt)	30.01	29.09	N/A	Chart
GG (Goldcorp)	46.26	44.61	N/A	Chart
EGLE (Eagle Bulk Shipping)	6.04	5.75	N/A	Chart
SRS (Ultrashort Real Estate)	8.56	7.92	N/A	Chart
MZZ (Ultrashort Midcaps)	24.66	23.49	N/A	Chart
EEV (Ultrashort Emerging Markets)	11.31	10.73	N/A	Chart

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