Wednesday Was A Classic Example Of Why You Don’t Short Indexes In Intermediate And Long-Term Uptrends; Stocks Rally On Slightly Higher Volume

June 28, 2007

Stocks showed why it is never smart to short a market until after it has clearly topped. This market is in a choppy trading environment right now and still has an upside bias to it. Therefore, unless you are long, you should only be on the sidelines. Shorting is not the right game yet.

But, I still see a lot of market traders shorting the rise today and see some smart commentators doing the same thing. This is the perfect wall-of-worry that stocks need to keep climbing. The day’s effort was even more impressive considering stocks rallied all the way from negative to positive territory, closing at session highs.

Volume was even higher on today’s gains and breadth was well over 2-to-1 positive on both indexes, clearly showing a very bullish bias. However, new lows did lead new highs, once again, making me really question the staying power or steadiness of a possible rally here.

What was very good to see was that the SOX did find support right at the 50 dma, rallying 2.2%. This so far prevents the reversal from the recent breakout and keeps this index in an uptrend. If this market has more gains to come, it sure would be nice to see some semiconductor and tech stocks get more involved. That with the higher VIX should give us a little bit more action in our longs. A higher VIX means more gains for our stocks that we get right.

The funny part about the current market, in my opinion, seems to be the refusal of traders to just stop being biased and move to the sidelines. Most are either very bullish or very bearish. With the market going nowhere the past four weeks, to me, it seems foolish to be either. The smart play is to be agnostic and just keep going long stocks breaking out of beautiful bases. If they continue to rally, great; you have a winner. If they do not rally and reverse, sell them out and cut your loss, like always. In the end, with my strategy, as long as you cut your losses on your laggards, you will come out on top even with a 33% win ratio. Remember, batting .300 in baseball is considered great. Being wrong 7 out of 10 times in baseball will make you a semi-star and put you in the top 10% of hitters. Same with stocks, if you cut your losses and let your winners run.

We have the FOMC to deal with tomorrow and that should keep the market quiet early on and then volatile as can be around the time of the announcement. So enjoy all of that noise during the day. I will continue to focus on my longs after-hours, keep track of my stocks that are doing well, and cutting my laggards, while everyone else tries to play the prediction and meaningless game of ‘what will Ben do next?’

Aloha and I will see you in the chat room!!

SIDENOTE: There are two massive fires on Maui’s westside, right now. So if something happens to the power and I am not online you know why. I doubt this will effect anything but you never know.

Wednesday Was A Classic Example Of Why You Don’t Short Indexes In Intermediate And Long-Term Uptrends; Stocks Rally On Slightly Higher Volume

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