Monday wrap

Let's be clear about expectations for a bottom and a possible new rally. The market is in a primary downtrend. I suspect we will see DOW 7,000's again (actually much lower) before we see DOW 14,000's again, so trading counter trends is not for weak stomachs. What looks like a "bottom" and the onset of a new rally are is most likely a retracement to the mean. Volatility can change hope to fear quickly. But in light of our recent plunge the implications of just such a retracement are big. For many stocks a retracement to moving averages indicate 50-100% gains within the span of weeks or months.

The powerful sell-off we've seen in the past few weeks was amplified by deleveraging. Margin calls make valuations irrelevant. Cash to maintain capital ratio's or bolster investor confidence is the differance between living to play another day, or dying a quick and ugly death. Just ask Bear Stearns, Lehman or any number of Hedge funds. When it is over or even "over for now" opportunities will be left among the ashes.

And now for a chart:

Notice the weak volume. The price action indication confirms a new uptrend, but volume leaves a little to be desired.

I expect some profit taking but a violation of the lower trend line is the first que to an exit.

The Credit Market continues to show improvement which bolsters confidence in a new uptrend.

The Bloomberg chart hasn't updated for some reason

The Trade...

Probing buys have led to followup buys in Ag's, the OIH and Coal. I cut a laggard loose (RIMM) and still have a cash reserves and nothing on margin. I await a mild pullback to consider adding to existing positions. At this point I have no short positions but am building a watchlist while the bulls frolic.

So things appear to be easing, if only for now.