Trade Ideas for 10/30/08

The rally has begun, and all told it should last at least 2 or 3 months, with the 200-day moving average as the target. The action of the past few weeks illustrates why buying a bottom is so difficult. We got the bottom on 10/10, but needed time to form a base off that bottom. And even though the Dow and S&P never breached the intraday low of that day, so many charts fell below their respective lows. It's misleading, but in the record books we'll see 10/10 as the day that marked the temporary bottom, and not 10/27, which is when the basing process finally completed. Just remember this for next time; buy after the bottom, after the base has formed.

As expected, the FOMC announcement caused the market to move in 3 different directions. It sold off, rallied, and then sold off again. Take a look at action in the Russell 2000.

Note that the action was a neat staircasing pattern up until 2:15pm when the announcement was made. At that point, the candles became longer and more unpredictable. The major averages ended up closing near where they opened, and thus their charts show today's action as the gravestone doji, presaging (short-term) downside. This massive rally from mid-day yesterday really does need to correct, preferably sooner than later.

Both of yesterday's ideas gapped up on open, and PQ touched back to the buy price. CEF didn't go that low, so I'm not including it in the table. If you bought it, stop is 8.39.

Current Holdings
Ticker	Basis	Closing Price	Perf.	Sell-Stop	Additional Exit Guideline	Chart
PQ	8.07	8.53	+5.7%	7.21	None	Chart

Ideally we correct tomorrow, maybe even into Friday, so I would avoid buying the open. If you agree with my read that the bottom is in, then most stocks that have rallied off their 10/27 lows should not see price go below those lows. For your favorite stocks, you can try to buy on a pullback in the next couple of days, using as a conservative stop their lows of 10/27. This is only for stocks that have rallied since 10/27, preferably a strong rally (e.g., AAPL, GDX, SSO).

Trade Ideas for 10/30/08

Ticker	Entry	Exit A	Exit C	Chart
GOOG (Google)	371.01	352.36	346.19	Chart
AMAT (Applied Materials)	12.47	11.84		Chart

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