August 16, 2007 at 9:35 am | | Comments 5

Bulls in Pain

Bulls continue to suffer, and they are anything but content at the moment. Short-term support levels have been breached, lower highs have been created, and bounces have thus far merely served as selling opportunities for limping bulls to raise more cash. It’s really getting ugly out there, and their accounts and egos have been badly bruised!

Over at, we closed out our last long position back on 7/24 and have exclusively been swing trading the short side ever since. It has paid off nicely with some big quick moves like over $9 profit in ESI in 6 days and more than $10 in FWLT in 2 days. The fast money sure beats staying long and wrong! However, we can’t just load the boat on the short side until some relief comes in from this nonstop punishment of the bulls. A bounce will come, and at this point it’s too late in the current decline to press. Waiting for new bearish chart patterns to emerge will pay off much better than jumping the gun here and chasing stocks lower.

As I said 11 days ago, if ever there was a time to be sitting in cash, this is it! There’s absolutely zero reason to try to arbitrarily call a tradable bottom, so don’t fight this downdraft.

Catch some short sales when you can, and otherwise wait for the storm clouds to clear. Eventually they will, and Wendell will have his day again. But for now, he’s certainly not content!

Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service

[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]

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  1. Financials have been leading the market down and I don’t think we see an up market until there is some recovery in that sector. Perhaps a rate cut would do it.

  2. Maybe so David, but there is a fairly good-sized camp out there who thinks a rate cut might signal worse things if it comes right out of the blue, which could stimulate more selling if interpreted that way. At any rate, I agree that the financials do need to improve in a big way if they are going to help the S&P in particular.

  3. So the rate cut came and as it looks like it wasn’t interpreted as a negative signal. Do you think we are going to have another up-tick on Monday too?


  4. Emad, This was not a rate cut. The Fed lowered the discount rate so that banks can borrow money more easily, but this was not a lowering of the Fed Funds rate (not a rate cut).

    It does keep liquidity in the financial system, which is necessary, but it’s a temporary solution. It was viewed very positively, but the bulls are still a very long way from safe and most anyone who bought anything in the past couple of months is in the red. As they move to raise more cash at higher prices, it may slow the momentum considerably, and at that time we’ll have a better feel for if this bounce will simply get sold and create a lower high on the daily charts, thus keeping the downtrend intact.

    A relief bounce was badly needed as I stated in this post (“a bounce will come”), and the sharp nature of it shows it caught many offguard. The intraday action today was far from impressive, as the high was set at the open. And for all the recovery off Thursday’s lows, it was *still* a down week for the market.

    Once we see a pullback then we can better determine if it’s being embraced or not. No predictions here – that’s not my job as a trader, but regardless of how this bounce plays out it will certainly help to create more tradable charts in the days ahead. Plus I’d rather have a wild market like this than a range-bound one which offers no opportunity. At least this way we get good moves every couple of hours. 🙂

    Enjoy your weekend!


  5. Thanks again, Jeff.

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