Almost a 2% drop today in the major averages.  Financials got whacked, profit taking in certain tech names, and oil keeps chugging along.  Was this caused by the Democratic election results last night?  Perhaps, but the more you get to know me, the more you’ll figure out that I think news driven moves are just excuses for markets to go down or up.  When markets are overbought as they’ve been for a short while now, the media will spin the fall on some piece of news that came out.  You and I don’t care why it went down, we just don’t like to lose money.

Here’s what I saw today.  I see the S&P 500 sitting underneath its 200-day moving average, the downside volume was extremely high today, and the market is still overbought.  So, I’m looking at taking profits on some stocks that have gone up too far too fast, sell some laggards, and potentially add more short positions.  But, the building cash will be first.  You don’t want to jump the gun and get whipsawed.  But, I’m still seeing a lot of confidence by retail investors out there and that concerns me because the supply/demand picture is still just awful.  So, for those that were wondering if the foreign buyers were coming in, the answer is no.  Protect yourself by either hedging if you haven’t already done so and look for areas to build cash.

My short positions and material related stocks did quite well today.  Oil has some tiny little warning signs, but gold is still under pressure.  I believe it’ll go to $800 an ounce and oil could just keep running.  It’s important to look what’s outperforming on a day like today and what’s underperforming.  Rank the groups, stocks, etc. and that’ll really show you where the strength is.

Again, caution is warranted.  And with the internals this bad, when the market flinches, we have to jump.  At least for now.


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May 2008
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