Monday, September 11, 2006

My personal bear market

Ok, DRIV had a big day today and I feel lousy that I sold so quickly, but I simply can't get past the feeling that I need to be on the short side. I got into the market during a top and whether this is the beginning of the second down leg of a supercycle bear market or another bull market surprise remains to be seen (see The Big Picture linkfest), but I just can't feel comfortable being on the long side.

Now I admit that going long on stocks has gone against my overall market thesis and has probably resulted in a self fulfilling bad trade. Without the conviction, I have been easily shaken out of my positions, breaking Rule #8.

Conversely, every trade I've made on the short side has resulted in success. It seems that there are so many charts that are perfectly set up for a short there really is no need to consider long trades right now. I know that I've been harping on the steel industry, but I have been watching this sector for some time now and, according to Bill O'Niel's method, the right amount of time has passed for successful short selling (5 to 7 months after the peak). O'Niel also suggests waiting until the price rallies above the 50 day moving average three times before initiating a short.

I shorted US Steel on Friday at 60.45 after it dropped past the 50 dma and caught a huge drop by the entire sector today.

I will also be keeping my eye on some of the IBD 100 energy stocks. These charts are setting up nicely for some short positions. Check out Holly Corp (HOC), Diamond Offshore Drilling (DO) or Cameco Corp (CCJ).

Finally I want to thank Mr Barry Ritholtz again for helping me clear my head. His recent post about all the idiots who send him hate mail was a real help (read "Where are the Trolls?"). If only I had the bankroll that his trader friend had.

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