Home on the (trading) Range 2/10/06
The market did an excellent job of adding to the confusion for both bulls and bears alike. After the NASDAQ breached the recent lows today, traders were convinced that the market was intent on going down. Stepping in front of this moving train felt simply insane. Excuses were being thrown around for the dismal action, such as the inverted yield curve which portends a looming recession. Simply put, most folks are afraid that the Fed is intent on raising rates more aggressively than was factored into the market in mid-January. Recessions are usually caused by an over zealous Fed, and both the bond and stock markets are starting to “freak out” over the potential repeat performance from our monetary policy makers in Washington.
In our most recent post, we predicted that the market has now entered a transitional period from bull to bear mode. During these transitions abrupt volatility and whipsaw action is to be expected. Each side starts to believe that they have the advantage as the market moves in their favor. As the bets are pressed, traders often find themselves overreaching, falling prey to the waiting hands of their opponents. In other words, this morning’s action demonstrated that aggressive shorting is not the right approach at this time due to the significant amount of dip buyers that still exist. Say what you want about the bulls, but “Denial Ain’t Just a River in Egypt”. Conversely, the dip buyers will find themselves in a similar situation should they load the boat too aggressively on the long side. There are an equal amount of hungry bears on the prowl that smell blood which makes them eager to lay out shorts at higher prices. This game will continue for a longer period of time than most would expect chopping up anyone who tries to play the trend too aggressively. Even range traders – that attempt to “buy low and sell high” will find it difficult to function without getting stopped out due to the heightened levels of emotions at this juncture.
Although the market recovered nicely from this morning’s carnage, it was largely due to short covering. However, all rallies begin with short covering before natural buyers step in. Yes… we are still expecting another upside attempt for the NASDAQ in the near term. All it will take at this point in time is the slightest hint from Ben Bernanke, that the Fed is aware of the inverted yield curve and its potential recessionary implications. Ben will be publicly speaking next week, and the market has the potential to launch an upward spike on the perception of a dovish Fed that will catch many traders off guard due to extremely poor positioning. Therefore, Kcap has used this morning’s weakness to add further long side exposure in some large cap technology names. We continue to hold positions in the gold and oil complex as well, expecting at least an attractive snap back rally. Overall NASDAQ 2292 - 2300 is still more probable than many people would think.
If You Hold a Taser to Our Head:
The struggle for the supremacy of the market’s direction will be waged longer than seems reasonable. The range that defines the struggle is tradable but contains significant danger. When the market breaks out of the range, it will do so without mercy. Unfortunately, Kcap believes the resolution will be to the downside.
We are aware that after yesterday and today’s ugly downside action, that many traders are convinced that playing for the upside is now futile. We are willing to stick our necks out by maintaining our belief that not only will there be upside, but it will be a shocking spike up. In fact, the NASDAQ may even exceed our own upside targets. We are also aware that many gurus are finally warning of pending downside doom. Keep in mind that these same individuals were snorting raging bulls at NASDAQ 2330. Their emotions are getting the better of them – creating massive public confusion.
Although we are pleased to see that some of these gurus are finally recognizing our intermediate term bearish point of view, we remind traders that most guru forecasts do not take into account the opportunities that exist in the near term. Trading the range can be quite profitable as long as you are aware that when the market breaks through the upper or lower limits, many profits can be given back. Therefore, it is better to buy low and sell high as opposed to chasing the trend. Or as Cowboys have learned on the range, “Always drink upstream from the herd”. Hmm... the analogy does not really work, but this post is written late at night and you get the point!
Have a nice weekend. ___________________________________________________
The analysis, opinions and/or forecasts expressed on the Kcap Trading Blog (âKTBâ) are for informational purposes only and should not be relied upon in making investment decisions. By using this site you agree that Kleiner Capital Management, LLC (âKCAPâ) and its principals are not liable for any action you take or any decision you make in reliance on any content. Please be aware that there is no commitment by KCAP to update the KTB. Furthermore, there may be inconsistent timing and follow up (if any) of posts.
None of the information on KTB is considered individualized investment advice and should not be construed as a recommendation or solicitation to purchase any securities. Reliance on information provided on KTB in no way establishes an advisor-client relationship. Investors are encouraged to seek the advice of a qualified investment professional prior to investing funds.
Clients of KCAP, as well as the firmâs principals and other employees, may be invested in securities discussed at KTB. However, any mention of said securities is not intended to influence market conditions for the security to the benefit of KCAP clients and/or principals and employees. KCAP is not affiliated with any advertisers on this site and does not endorse any of their content. For additional information and disclosures, please visit www.kleinercapital.com.
The information on KTB has been furnished from sources we consider to be reliable, but no guarantee is made with respect to accuracy.
___________________________
In our most recent post, we predicted that the market has now entered a transitional period from bull to bear mode. During these transitions abrupt volatility and whipsaw action is to be expected. Each side starts to believe that they have the advantage as the market moves in their favor. As the bets are pressed, traders often find themselves overreaching, falling prey to the waiting hands of their opponents. In other words, this morning’s action demonstrated that aggressive shorting is not the right approach at this time due to the significant amount of dip buyers that still exist. Say what you want about the bulls, but “Denial Ain’t Just a River in Egypt”. Conversely, the dip buyers will find themselves in a similar situation should they load the boat too aggressively on the long side. There are an equal amount of hungry bears on the prowl that smell blood which makes them eager to lay out shorts at higher prices. This game will continue for a longer period of time than most would expect chopping up anyone who tries to play the trend too aggressively. Even range traders – that attempt to “buy low and sell high” will find it difficult to function without getting stopped out due to the heightened levels of emotions at this juncture.
Although the market recovered nicely from this morning’s carnage, it was largely due to short covering. However, all rallies begin with short covering before natural buyers step in. Yes… we are still expecting another upside attempt for the NASDAQ in the near term. All it will take at this point in time is the slightest hint from Ben Bernanke, that the Fed is aware of the inverted yield curve and its potential recessionary implications. Ben will be publicly speaking next week, and the market has the potential to launch an upward spike on the perception of a dovish Fed that will catch many traders off guard due to extremely poor positioning. Therefore, Kcap has used this morning’s weakness to add further long side exposure in some large cap technology names. We continue to hold positions in the gold and oil complex as well, expecting at least an attractive snap back rally. Overall NASDAQ 2292 - 2300 is still more probable than many people would think.
If You Hold a Taser to Our Head:
The struggle for the supremacy of the market’s direction will be waged longer than seems reasonable. The range that defines the struggle is tradable but contains significant danger. When the market breaks out of the range, it will do so without mercy. Unfortunately, Kcap believes the resolution will be to the downside.
We are aware that after yesterday and today’s ugly downside action, that many traders are convinced that playing for the upside is now futile. We are willing to stick our necks out by maintaining our belief that not only will there be upside, but it will be a shocking spike up. In fact, the NASDAQ may even exceed our own upside targets. We are also aware that many gurus are finally warning of pending downside doom. Keep in mind that these same individuals were snorting raging bulls at NASDAQ 2330. Their emotions are getting the better of them – creating massive public confusion.
Although we are pleased to see that some of these gurus are finally recognizing our intermediate term bearish point of view, we remind traders that most guru forecasts do not take into account the opportunities that exist in the near term. Trading the range can be quite profitable as long as you are aware that when the market breaks through the upper or lower limits, many profits can be given back. Therefore, it is better to buy low and sell high as opposed to chasing the trend. Or as Cowboys have learned on the range, “Always drink upstream from the herd”. Hmm... the analogy does not really work, but this post is written late at night and you get the point!
Have a nice weekend. ___________________________________________________
The analysis, opinions and/or forecasts expressed on the Kcap Trading Blog (âKTBâ) are for informational purposes only and should not be relied upon in making investment decisions. By using this site you agree that Kleiner Capital Management, LLC (âKCAPâ) and its principals are not liable for any action you take or any decision you make in reliance on any content. Please be aware that there is no commitment by KCAP to update the KTB. Furthermore, there may be inconsistent timing and follow up (if any) of posts.
None of the information on KTB is considered individualized investment advice and should not be construed as a recommendation or solicitation to purchase any securities. Reliance on information provided on KTB in no way establishes an advisor-client relationship. Investors are encouraged to seek the advice of a qualified investment professional prior to investing funds.
Clients of KCAP, as well as the firmâs principals and other employees, may be invested in securities discussed at KTB. However, any mention of said securities is not intended to influence market conditions for the security to the benefit of KCAP clients and/or principals and employees. KCAP is not affiliated with any advertisers on this site and does not endorse any of their content. For additional information and disclosures, please visit www.kleinercapital.com.
The information on KTB has been furnished from sources we consider to be reliable, but no guarantee is made with respect to accuracy.
___________________________
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posted by Kleiner Capital Management, LLC. | 9:45 PM
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