Trade Ideas for 10/26/09

Friday capped off a volatile week, but looking back, the market has been in volatile trendless mode for two weeks now: going nowhere, but choppily. The market has experienced trendless consolidation periods of 1-2 week durations several times in the past few months, which has been its way of marking short-term tops. The difference this time has been the larger-than-normal range (30 S&P points, rather than 20) as well as the absence of doji candlesticks. This last observation means that the market has tended to close at the extremes of the range. Considering examples from the recent past, the next move is for the market to either make a higher intraday high before falling, or to begin falling without further preamble.

One other chart I want to share is that of the Russell 2000 the past two weeks. Price action reveals a potential dome top in the making, which can result in a sheer drop if fulfilled. The pattern is similar across the averages but pronounced here.



The volatility and closes at the extremes wreaked havoc on the daily setups. The losses that sting come from whipsaws, which we had plenty of, losing SKF, SRS and newly-purchased DGP, as well as AONE. SKF and SRS were stopped out by less than .10 early on. If you didn't get stopped out (likelier for SRS than SKF), new stops are at Friday's lows.

Current Holdings
Ticker	Basis	Closing Price	Perf.	Sell-Stop	Addl Exit Guideline	Chart
TWM	27.58	28.41	+3.0%	26.99	N/A	Chart
DUG	12.33	12.36	+0.2%	11.79	N/A	Chart
EEV	12.42	12.13	-2.3%	11.67	N/A	Chart

If the market should make new recovery highs, I have two long ideas we could play in URE and GE. Given the market's tendency to rebound off intraday highs, it might make sense to book profits should the market reach a new high. The other two ideas are shorts. If the market breaks below Thursday's low, these should trigger. However, if the trendless volatility should continue, we could see yet another whipsaw. Given these risky conditions, prudence suggests risking less all around.

New Trade Ideas

Ticker	Entry	Exit A	Exit C	Chart
GE (General Electric)	15.59	15.09	N/A	Chart
URE (Ultra Real Estate)	6.02	5.72	N/A	Chart
DXD (Ultrashort Dow 30)	33.51	32.09	N/A	Chart
SDS (Ultrashort S&P 500)	38.78	37.17	N/A	Chart

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