Trade Ideas for 11/03/09

Another topsy-turvy day saw the averages complete what could be five waves down from the top. On the daily chart the waves are rather clear-cut, whereas it gets messy on intraday timeframes. But this is the most straightforward way of viewing the decline:

If the count holds, a bounce is underway. The alternative counts, of which there are many, include the prospect of a fifth-wave extension (perhaps to the October low of 1020) and the very bearish count numbering the move down as a cascading series of 1-2s, target mid-900s. (On the intraday timeframes, the shape of the waves favors the latter count, because 2s tend to be deep pullbacks whereas 4s tend to be sideways.) However, with the FOMC announcement Wednesday, the fact that the averages painted a spinning top/doji near the 50-day moving average and the deepening of the positive divergences I mentioned yesterday, the least controversial reading is that a bounce is underway.

We bought CEF today, and optionally booked partial profits in our shorts. I'm continuing to treat TWM as a trending position, but the others are strictly trades. Unless there's a fifth-wave extension or an upcoming crash to the mid-900s, the other short positions will get stopped out. To convert them to trending positions, set sell-stops to the low of October 23.

Current Holdings
Ticker	Basis	Closing Price	Perf.	Sell-Stop	Addl Exit Guideline	Chart
TWM	27.58	32.21	+16.8%	26.99	Alternate sell-stop: 31.15	Chart
DUG	12.33	13.49	+9.4%	12.99	N/A	Chart
SDS	38.78	40.90	+5.5%	39.99	N/A	Chart
QID	22.51	23.97	+11.4%	23.45	N/A	Chart
CEF	13.46	13.31	-1.1%	12.99	N/A	Chart

I don't think it's a great time to enter new positions. If we do get a bounce, it'll be countertrend, lasting maybe 5 days, and we'll probably have to guess the exit. If there's an extension to the downside, most likely it'll be short-lived. So if you choose to play either direction, risk little.

New Trade Ideas

Ticker	Entry	Exit A	Exit C	Chart
ZSL (Ultrashort Silver)	5.61	5.18	N/A	Chart
EEV (Ultrashort Emerging Markets)	14.16	13.15	N/A	Chart
WX (WuXi Pharmatech)	13.34	12.72	12.66	Chart
ICO (International Coal)	4.36	3.99	N/A	Chart

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