AlphaKing.com - Daily Trend and Trade Review: Feb. 1, 2010
The major stock indexes enjoyed a modest recovery bounce today - on low volume - after falling hard last week - on high volume. This spells big trouble for the bulls going forward.
Officially, the Dow Industrials rose 1.2% on NYSE volume of 4.8 billion shares, while the NASDAQ advanced 1.1% on 2.2 billion. The leadership profile remain weak, though remains positive for now, with 114 stocks making new highs versus 61 making new lows.
The short term momentum oscillators remain negative, non-confirming the bullish stance of the AlphaKing Trading Indicator. We have no new trades at this time.
I would be shocked if the AK Trading Indicator doesn't trigger a sell at the close tomorrow. 401K investors should be looking to move to the relative safety of a money market fund starting Wedneday, though more aggressive traders should be looking to use the current rebound rally attempt to enter some short positions (or inverse ETFs) ahead of the expected mini crash slated to land over the next handful of weeks (once the recovery rally attempt fails and reverses.)
There should be a wall of sellers waiting at those blue moving averages shown in the charts below, though there is no guarantee the stock market will be able to rally that far. We expect to be one of those expectant sellers looking to scalp the bounce. If tomorrow is a mega rally day then we may go all in 200% short, or if no such sweet set up rally then we'll probably be going in using a more cautious dollar cost averaging approach, starting off with a 50% exposure to the short side. This is all about following the results of our extensive research project conducted to answer the question of the absolute optimal exposure based on risk versus reward.
Right now risk of a continuation of the rally is high (potential pain to come for those shorting too soon,) though that risk decreases the higher the stock market rallies over the next few days. Exciting times for sure, though we hope that the cyclical bull versus secular bear argument we expect to discuss later in the week eventually lands in favor of the bulls, for the consequences of the alternative are pretty darn scary. Sit tight for now, and get ready to sell longs and trade short (or buy inverses ETFs), is our advice, and what we expect to be doing this week, starting the open Wednesday.
401K investors should have ½ of their portfolio invested in a stock index, or aggressive growth, mutual fund, with the other ½ remaining in a money market fund, though expect a new trade in tomorrow's update.
The Index portfolio is ½ invested in QQQQ with the other ½ remaining in cash.
Kevin Wilde, Chief Trading Strategist AlphaKing.com.