Weak Pullbacks Welcome

After going up almost 800 points on the Dow in two days, a weak pullback would be welcomed by me and probably by most on Wall Street.  Markets don’t go straight up.  They breathe, they consolidate.  So, don’t be scared if the market pulls back today or for a few days.  We just need to monitor the internals of that pullback.  If it’s strong, then we have no choice but to get defensive again.  But, if it’s down and it’s on lower volume, a lot of stocks are still up, then we buy more. 

Fear is still very high and many are doubting this rally.  That’s a good thing.  Remember, the more people doubting this rally means that there is still fuel to get this market higher.  Things haven’t changed overnight but there are some tailwinds I believe for the short-run.  Keep in mind also that the whipsaw risk is still very high as volatility hasn’t gone away.  So, if you bought last week and we get one down day, don’t panic.  If this rally doesn’t pan out and we end up selling, that means there will be plenty of downside yet to come.  It’s much easier to trade this market looking at it from a helicopter.  Otherwise, it’s very easy to get confused and get whipsawed.

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2 Responses to “Weak Pullbacks Welcome”


  1. 1 Lee September 22, 2008 at 10:09 am

    Karl,
    Your recent post is confusing about where you believe the market is headed. Do you believe we are starring into the headlights of a meaningful bull run or ?

    Thank you

  2. 2 Hedge Fund of One September 22, 2008 at 5:31 pm

    Looks like we got the start of that weak pullback you mentioned. S&P 500 closed at 50% retrace of the move from Wednesday close to Friday close.


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