Conditions ripe for a bounce | stockbee

3/06/2007

Conditions ripe for a bounce

Monday was another bad day for indices. Yesterday there were 426 stocks down 4% or more in my universe. Levels like that after a few days weakness have historically shown a tendency for a bounce. Several Jame Altucher kind of short term trading systems are signalling buy for a day trade based on yesterday's action. Downside moves have above average propensity for counter trend rallies.

Because the markets have fallen hard and fast, pressing any shorts here is unlikely to work. I covered my short yesterday. When playing shorts, short holding periods, work best in my experience so far. Currently there is pathetic buying but these things can often change on a dime. All it takes is some large speculator kicking off a programme buy and others will come out of woodwork.

Trading such bounce requires some nimbleness and forward planning, I have 3-4 stocks on my watch list for such bounce (GOOG, MA, UNH, AIG,ICE, COP, IBM, etc.) The thing to remember, however, is to not get too aggressive chasing such names. Large institutional players typically like buying on such weakness, they will move back in, some stocks will attract buy interest.

Other stocks which will attract buy interest are stocks which recently had good earnings and due to market conditions have dived back in to range. Playing such bounce is risky, the other alternative is to wait in cash for good opportunities later. All the methods IBD200, 100% plus, earnings based breakouts, and episodic pivots show best results after a few months of weakness, so in my scheme of things this correction is more than welcome.

9 comments:

Amit said...

I am counting on PTT & HMX from the IBD 200 list for a bounce today

garytt said...

looking fore a pssible entry into QID on this rebound. Looks like a dead cat bounce to me.

F. said...

Mixed signals. Conditions favor gap fill but looks like bounce is underway.

F. said...

Beating up on shorts.

walter said...

any ideas why UNP, BNI, CSX, etc arent participating today?

Pradeep Bonde said...

Something to do with coal demand in light of TXU deal possibly.

walter said...

ok thanks for insight

Jerry King said...

If you're long the markets, you better buy while things are still cheap. In 2 month's time, you'd regret not buying at these levels. Downside risk has been eliminated and yesterday, a lot of people got flushed out of the markets.

IM said...

Weak close. DH Horton CEOs comments killed the market.
Jerry- How has downside risk been eliminated ?