What a week for the bulls, eh? After some nice earnings from big tech companies, things were finally shaping up. We are somewhat bullish right now, remember the key word here is “somewhat” because going into Monday, we are sitting right at resistance. We got the gap up we wanted, but we were unable to pull through and break resistance at 1390. After gapping up we did absolutely nothing! This was expected though because Friday was options expiration day, and not many traders hold over the weekend. The trendline I drew below indicates that we should test the 200 day moving average at 1430 in the S&P. If we are able to break through 1400 on good news there will be lots of panic in the market. Bears will be short covering and the indices should surge. Testing the 200MA and beyond should be no problem.

But remember traders, any bad news will drop the S&P back to the 1345 mark. Again, we are right at resistance, anything can happen…if you missed the rally, don`t just blindly get in, wait for a breakout before putting your money into a company. We are still in a bear market, so the overall trend is down. Yes, companies like INTC, IBM, GOOG and CAT all reported fantastic earnings last week, but they are all international companies. The U.S. economy is still struggling…with all these earnings due out this week, people are ignoring the Fed cut. With the markets shaping up, will they cut interest rates or will they leave it at status quo? This outcome will definately move the markets! If we do head higher to 1430 we should be anticipating for a long leg down. I still stand by the fact that we haven`t bottomed yet so be careful out there. To prepare yourself for the long leg down, I would load up on QID and SDS. I`ve mentioned these short ETFs many times before. They`re at a resonable price right now and by buying these ETFs you`re making money whenever the market heads down. It wouldn`t surprise me if we had a miserable summer and fall this year. By the end of 2008 many traders will lose confidence in the stock markets. If that time comes, we (readers of Hedge Against Speculation) should make lots and lots of money. In a bull market, all traders look like genius` but in a bear market, only smart traders make money. A professional trader makes more money in a bear market than they do in a bull market.  

Remember, the goal of this blog is to help traders become responsible traders. Hence the title “Hedge Against Speculation”. Don`t take unnecessary risks in the market, use the information we provide you to hedge yourself against any risk in the markets. If you`re unsure as to where the markets are heading, don`t guess. Engaing in a course of reasoning based on inconclusive evidence are for amateurs, be a responsible trader and wait for opportunities. I don`t want to see any of my readers lose money in the markets

Richard
richard@hedgeagainstspeculation.com