Feb 4, 2008 - Issue #096


Bottom? Undetermined. We got the rally we were looking for and what an impressive rally it was. Has it run its course? I think so. The real test will be if the low of 1/25 holds.

If the previous weeks low is, in fact, the bottom, you can sell this rally. The first rallies off a bottom can usually be sold because the newly installed bottom usually has to be tested by hammering at it to see if it holds.

If the bottom cracks, then continue with 'business as usual', which is to say short the rallies and cover on the declines.

If the bottom holds, then your swing trading strategy changes to buying on the declines and selling on the rallies.

Position traders, having a longer time horizon, put on long positions at the first sign of a rising market, hold during rallies, and raise their protective 'stops' just below each successively 'higher low' as it's identified. If they have a 'target', they sell when it arrives. They may have a series of targets in mind (1st target, 2nd target) and sell in stages, perhaps in thirds, selling 1/3 at the 1st target, another 1/3 at the 2nd target, and letting the market take out the final 1/3 with a 'trailing' stop order.

Some position traders also trade from the 'short' side of the market in a similar fashion, only in reverse, putting on their 'short' positions and attempting to cover in stages on the way down and entering protective buy 'stop' orders just above each successive 'lower' highs.

Possible short candidates: MO (stop loss at 77.90) and WMT (stop loss at 51.49).

Dow score card for the week ending 2/1/08.

DJ-30: 12743.19 +536.02 +4.39%. The Real World DJ-30: 52.25 +2.19 +4.39%. UP: 28, Down: 2.

Trends (weekly charts): This is the subjective part.

Rising (Generally Higher Highs/Higher Lows) 15 (+11) 50%:

+*AA, +*AXP, +*BA, +*C, +*CAT, +*GE, GM, HD, +*HON, +*IBM, +*INTC, JPM, +*MMM, UTX, +*WMT.

Consolidating (Generally Lower Highs/Higher Lows) 14 (n/c) 47%:

+*AIG, DD, DIS, +*HPQ, IBM, +*JNJ, +*KO, MCD, +*MO, +*MRK, +*PFE, +*PG, +*T, +*VZ, +*XOM.

Declining (Generally Lower Highs/Lower Lows) 1 (-11) 3%:


+/- denotes change of direction.

* denotes change of category.

Comments? Ideas? Feedback? Let me have it, right between the eyes! I'd love to hear from you. Just reply to this zine and tell me what you think!

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