It is becoming increasing harder to predict daily or even weekly moves in the market with all this volatility. So much happens each day that you need to be around a computer for the full trading day. If you’re in the same boat as me and just don’t have the luxury to watch the markets 24/7, then I would suggest limiting your trading. Forget diversification, and narrow your watchlist to under 6 stocks.

“Diversification is only required when investors do not understand what they are doing.”-Warren Buffet 

If you’re not sure what’s going to happen next, just take a breather and sit out for a bit, holding cash is a position too. Anyways, let’s take a look at last week’s action:

I was anticipating a sideways market this week. By Friday, the markets were flat but price movement was far from being horizontal…the markets fluctuated up and down daily. The bulls were unable to follow through and break the 1325 level in the S&P; therefore, I took this opportunity to go short. Due to this volatility I took profits Friday morning. Looking back on it, I wish I was still holding it today, but holding anything over the weekend is dangerous.

As my title states, I’m neutral going into tomorrow. “The Federal Reserve is primed to aggressively cut a key interest rate even lower on Tuesday, racing to contain spreading financial fires that threaten an economic meltdown.”-Yahoo!  But will they? Inflation will get pretty bad, and the dollar will continue to fall if they do. But honestly, it doesn’t matter where this market is heading in the short-run. In these market conditions, I am not going to expose myself to any risk. I would much rather take small profits than get stuck on the wrong side of the fence. But if you’re itching to play, take a look at this chart:

We didn’t sell off like I wanted it to today, instead we got a hammer. This is a bullish indicator as it indicates that the bulls were able to fight off the bears. So taking tomorrow’s variable out, we should be heading higher towards 1300. Due to all the resistance above 1300 I don’t forsee the index going any higher, we still need to test some lows before retesting those highs.

As mentioned in my Mar 12 post, many financial blogs are starting to call bottoms. I don’t see a near bottom but Momentum-Trader has got a good point:”With all this doom and gloom in the markets right now, it may seem foolish to buy stocks. But it’s actually a good time to start looking for good performers, because rallies can happen when things seem the worst…’Financial blowups - such as Bear Stearns’ - historically are seen near market bottoms. Bears outnumbered bulls in last week’s newsletter survey, another sign of capitulation.’ - March 17th edition of Investors Business Daily.”

So again, we may not have a direction yet, but keep a small watchlist handy. Here is mine:

Short plays: QID, SDS

Long plays: GG, ABX, SU, APP, V

Update: Visa IPO is on Wednesday, Mar 19…V is a potential day trade.

With all this in mind, good luck in your trading and stay safe in the markets!

Oh by the way, American Apparel finally reported their earnings after the market closed today. Those who have been reading since beginning would know that I am long on this stock. Sadly, this has turned out to be my worst play…all my recent profits have just been going towards covering my loses in APP. But after having a quick peek at the report, things seem alright for this company, and things might just turn around. Here are some quick quotes from the report:

-Fourth quarter 2007 net sales of $111.2 million up 48% over the fourth quarter of 2006; 2007 full-year net sales of $387.0 million, up 36% over 2006

-Net income for the fourth quarter of 2007 of $3.0 million versus a loss of $1.5 million in the fourth quarter of 2006; net income for 2007 of $15.5 million, compared to a net loss of $1.6 million in 2006

-Adjusted EBITDA for the fourth quarter of $13.3 million, up 56% over the fourth quarter of 2006; Adjusted EBITDA for 2007 of $58.6 million, up 83% over 2006

-Fourth quarter retail same-store sales up 40%, and for the full year up 29%

For the full report, go here: American Apparel 4th Quarter Report

Oh and if you’re still reading then good on you, haha, thanks for all the support I’ve been getting since the launch of my new layout and domain. Oh and just a heads up, this post is longer than usual because I know I won’t be posting as regularly this month, I just have too much going on with school and work. I will be announcing the winner of my contest on Wednesday though, so do come back to check that out, also a new contest will be listed that same day. Happy trading!

Richard
richard@hedgeagainstspeculation.com