Weakness is good | stockbee


Weakness is good

Looks like we are gapping down. Now the action like what you see today is coming after a long and enduring rally. So it is not a bad thing. Now the usual perma bears will be dancing in the street saying we told you so. But if you want to make money, you should not be very worried. And also if you want to make money in a market with 100 years of updrift, you should any way never follow perma bears.

Most sell offs have an intense selling phase. This last few days or few weeks. The risk is highest during such periods on existing positions depending on where your entry was. The moment the intense phase gets over, slowly you will find the 100% list blossoming again. In fact you will find very good set ups after few days of weakness.

On an individual stock if there is a catalyst, barring the intense sell off phase, you would find it will still rally. The universe narrows and you might need larger stops but there are opportunities.

On the short side you will find good opportunities in the same 100% plus universe once the market turns. Later I will talk about how using the same concept of 100% plus moves in 260 days you can build a short system. It works best when market reverses after a long rally.

Later: How to find high probability shorts


tokyodiablo said...

trade-able pullback on ESLR?

James said...

Do you forecast a strong correction in the following days for Chinese stocks?

Pradeep Bonde said...

ESLR is very volatile in last few weeks. So I don't know. Look at stuff like VDSI or ABXA, they might be buyable once the intense sell off is over or one can add to existing positions in them.
The laser hair removal sector has some good buyable stuff currently.

Pradeep Bonde said...

I don't know.

James said...

sorry Pradeep Bonde. My question wasn't general enough.

what I wanted to know is if you have any data that could tell me if the current situation may be like May 2006.

Pradeep Bonde said...

No. The Chinese stocks were any way in blowout phase, so a quarter worth of corrections should not be a problem.
But the problem with most developing economies is they are too slow to recognise overheating and as a result are forced to act aggressively when the problems get out of hand. That is the case in India and China. They sometime get caught up in their own hype of next super economies.
The emerging markets have same story repeated again and again. China and India are raising rates aggressively now, when it is a bit too late. So they should have much deeper correction.