Weak Pullback

I wrote two days ago we were due for a pullback and what I’d be looking for is a weak pullback.  Well, we got it yesterday.  Not much news yesterday and we just drifted down on low volume.  The internals weren’t too bad for a down 250 point day.  The more we pull back weakly, the higher we can go I believe over the next few days and potentially weeks.  Today as I write, the Dow is up 120 points after there may be a deal with the automakers.  Now, key Republicans and some key Democrats are saying they will will not go for this deal.  We’ll see.  I personally don’t think this will affect the markets.  Although, the emotions are reminiscent of the bailout package everyone fought over just a couple of months ago when we had the wild swings.

Two days ago, we failed at the 50-day moving average on some of the indices.  So, that’s the next hurdle.  If we go through that, you’ll get another round of buying.  I’ve kept my short positions on the general market but have added some specific positions in infrastructure, investment grade bonds, and even some emerging market debt.  As I mentioned a couple of weeks ago, look for your dream team stocks and you can start accumulating them if they are at reasonable levels.  But, that doesn’t mean we’re out of the woods and you go hog wild.

There have been some characteristic changes in the markets the last few days but we’re still overbought and we still don’t see overwhelming demand that would cause me to abandon short positions.  We may get into a period over the next month where we just gyrate and go sideways.  As I’ve written before, if we get that, then pairs trades work well because in a sideways market, some sectors and stocks will thrive but overall the market won’t go anywhere.  So, my position is to accumulate attractive positions, keep my shorts on the overall market, and have plenty of income coming in each and every month.


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December 2008
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