Trade Ideas for 06/04/09

We did get a gap down today after all, but it was followed by further selling. The pullback has deepened, exposing some weakness in this rally. The possibility that yesterday's high was the peak of the rally is remote given the resilience of the bulls; it's more likely, given recent history, that the market will mount a charge to new highs over the next few sessions. The day ended on a sharp uptick, perhaps marking the beginning of such a charge.

The June 4-8 timeframe marks 90 days from the rally's beginning, depending on whether you count the rally as having started on the 6th, 7th, 8th or 9th of March. This is a significant number in Gann cycle theory, as are 45 and 60. Upon review, the 45-day cycle completed on April 20-21, marking a peak and a low. The 60-day cycle, too, marked a peak of some degree with the May 8th high, but eventually this market overcame that. These time cycles end up being turning points a lot of the time, but a better way of thinking of them is as levels of resistance. We tend to think of resistance as price levels, but the time dimension is just as "real." With the 90-day cycle almost upon us, we may see a turning point by Monday. My preferred Elliott count has the next move up as the final subwave up in this 3-month rally. Other confirming indicators include the negative divergences in oscillators such as MACD, RSI, on-balance volume, money flow, and also volume, all on the daily chart with respect to the May 8th high. A preponderance of evidence suggests that it's time to play our final longs. But, and this is a big but, if the market should overcome all these obstacles, it will have a very solid base from which to rally.

We sold DGP today; this was one of our lengthier holds from the beginning of May. It was a solid performer, but not a huge winner at around +14%.

Current Holdings
Ticker	Basis	Closing Price	Perf.	Sell-Stop	Additional Exit Guideline	Chart
SSO	25.06	26.95	+7.5%	26.43	N/A	Chart
ASIA	20.68	21.95	+6.1%	20.70	N/A	Chart
UYG	4.11	4.03	-1.9%	3.89	N/A	Chart
JACK	27.01	27.84	+3.1%	26.79	N/A	Chart
CPSL	2.26	2.45	+8.4%	2.39	N/A	Chart

The following ideas look poised to benefit from a final spike to new highs. If any turn out to be big winners on the day, I'd look to book partial profits.

New Trade Ideas

Ticker	Entry	Exit A	Exit C	Chart
HW (Headwaters)	4.27	3.98	3.92	Chart
UWM (Ultra Russell 2000)	20.86	19.85	N/A	Chart
PAG (Penske Auto Group	15.38	14.30	N/A	Chart
TIF (Tiffany)	31.32	30.09	N/A	Chart

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