Thursday, December 07, 2006

Identify the leaders (because they lead us down)

Today was the first day in a long time when the Nasdaq and S&P ended the day at the lows. It made me think back to earlier in this rally when my mom called just after the Dow hit new all-time highs and expressed some worry about my investments. The market was strong and seemed to end strong on just about every day. I told her that she should only start to worry when the market stopped acting this way and began to close sharply down.

The top is near! We picked up another distribution day today (3 on the nasdaq) and if we pick up another two in the next couple of weeks we will finally have that correction that I've been waiting for. I'm the novice bear, after all.

My game plan. First identify the leaders of this rally. Short the hell out of them when they break their 50 dma. Look for short-covering rallies and add to the short position.

Current Leader

US Global Investors (GROW) is one that is extended so far past its 50 dma that by the time it crosses the 50 dma it might be too late. GROW has a pretty big intraday reversal today and will stay on my radar screen. The big reversay might have been due to an piece on the dangers of buying a stock that is technically extended.

Bottom line is that I'm not going to jump in too early. I'm just going to be ready to jump in with both feet.

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