Russell 2000 - Shorting setup

The Russell 2000, index for small cap stocks is providing us an ideal setup. IT presents us with two possible entries to go short this index.

• We go short if the price advances upward to resistance at $733.10 and it appears that resistance is holding… then we go short
• The other entry is if the prices continues to decline and it fails the trend line and 38% Fibanocci level. The Fibanocci intersects with the trend line and creates a very strong support level, should that level fail then we can expect to see this index to decline to $580.

We will short the Russell 2000 by utilizing the Proshares Ultra Short ETF. The symbol is SKK. Going long on the SKK actually pays 2x for declines on the Russell 2000.

 

 

 

 

 

 

 

 

 

 

Stock Market Summary - February 8th 2008

The word of the day was "weakness". It is overwhelmingly obvious that there is no conviction of any substantial money to step into this market and buy equities. The markets are broken, it is as simple as that.

We are in a bear market, and within a bear market there will be some up days and some more down days. But the trend is still heading lower and we are nearing a point where we will are likely to re-test the lows from a few weeks ago. There will be some pushing and shoving when the markets approach those lows again, however the overwhelming economic data and market declines tell us that the bears will win the battle and eventually we will be going much lower. Will it happen next week, next month, or in two months we can’t pin point. The efforts to keep the market propped up by the Government are worthy of an academy award for their ability to put on a good show. Every time someone from the Government says "The fundamentals of the economy are strong" they are lying to you.

The media is playing right along with the tag line of how the market is just in a "normal correction" and all will be well. Unfortunately, as a whole our society only wants the headlines and lets someone else worry about the details. The nightly news says the markets had a decline today but the Secretary of the Treasury says the fundamentals of the economy are strong, any they think ‘Ok… all is well’.

Bear markets are created when the majority of investors realize that things are not so good. The battle that takes place with the wild swings everyday in the markets are the battles between those who believe everything will be ok and those who want to take their money out and protect it. As evidence continues to mount showing that the economy is in trouble the battle begins to turn to that of surrender. And then we have an extended period of declining equity prices, that is how a bear market is born.

Lisa and I are technical analysts of the markets. Technical analysis is at its core the study of human behavior. The flow of money in a particular stock is all about the people with that money. The swings we see on the charts all represent the battles between those who think prices will go up and those who think it will go down. Technical analysis is a science, but it is a science of identifying patterns of human emotions as represented by the flow of their money. And just as in many forms of human behavior, we can identify certain characteristics that give us clues to the outcome. You hear in the media and other places the word "volatility" all the time, and how volatility has been extremely high recently. Volatility is a fancy word for describing the battle of fear and greed in the markets. Volatility will continue to increase until one side surrenders. And our analysis tells us that the bears will win this battle.

Technical analysis is an absolutely fascinating study. One of the goals of RebelTraders is to teach our members the aspects of technical analysis and how to interpret the charts. There is nothing magical about technical analysis, it is only with a thorough understanding of the principles and methods does one become a technical analyst. Some web sites who proclaim to be technical analysts will try and sell you on a premise they have developed some "proprietary indicator", or have a "black box system" to make you consistent money in the markets. The best traders in the world do NOT use ‘black box’ software , or ‘go / no go’ blinking lights… they use pure un altered technical analysis techniques that have worked ever since first brought to the mainstream by Charles Dow in his creation of the "Dow Theory". RebelTraders is all about teaching you to be good investors and traders by learning and understanding the science of technical analysis. But we don’t stop there, we also provide a completely objective view of the markets and the economy.

I have lived through other bear markets and the same goes for Lisa. We have lived through major corporate scandals (Enron, Worldcom, etc.), and gone through the Savings & Loan Scandal of the 80’s. But the situations unfolding now almost daily within the economy and within the corporate financial sector have us very concerned. The implications are dire if the credit situation in this country continues to deteriorate. Remember, this is a country that lives and operates on credit.

I want to congratulate Lisa for her article about the SEC and the school board in Pennsylvania that lost money due to a bad investment which was picked by Financial Sense to be their featured article on Thursday. Lisa’s article "SEC: Missing in Action" received good praise and it makes me proud that RebelTraders is being recognized in the financial community more and more.

 

 

 

 

 

 

 

 

 

(screen shot with Lisa’s article as the feature of the day)

If you did not already read her article you can read it by clicking HERE.

President Bush is expected to sign the economic stimulus bill this coming week. One economist I overheard talking said that the money should have an immediate impact on the economy. Nonsense, it will have little impact at all. I project that when all is said and done and years have passed by the studies will reveal that the money being handed out to the American people will have been mostly used to pay bills and little to stimulate the economy. It will cause a blip in the credit debt data but little of anything else.

I have numerous charts that I am working on tonight and over the weekend I will post charts of some sector analysis and where we believe those sectors are headed.