Tuesday, October 09, 2007
Where is the Dip?
Like many traders, I'm having a hard time finding entry points. CPLA is a good example of most stocks on my focus list. The stock that is extended and just won't quit going up.
There are three logical ways to play this market:
1) Jump in now, which is probably the most nerve racking option since the bottom could drop at any time. When it does drop, it will likely be deep since there is alot of room to fall before reaching meaningful support levels.
2) Wait for a pullback to support. This one's the most prudent strategy, but also the most frustrating as stocks continue to climb.
3) Get short. Those that like to use the "reversion to the mean" strategy are licking their chops right, shorting the momentum stocks. Another short strategy is to short weak stocks.
I am using a combination of the three strategies. I am waiting for pullbacks in momentum stocks like FWLT, AAPL and FLR, which are too extended to buy at these levels. Meanwhile, I'm getting short weak stocks in weak sectors (like DHI from the housing sector). I am willing to get long some high fliers that have recently broke out on high volume, like RIMM.