Nice Election Day Rally Looks Nice On The Outside But Remember The Big Trend Is Still Down; Keep Time Frames Short

November 4, 2008

Obviously, it is election night and a lot of people are going to be very tired tomorrow morning. However, the market never sleeps and I have continuously said that this recent rally was a very oversold bounce in a market down 45% at one point in the year. Despite that steep loss, a lot of people think that we have reached a bottom.

The only problem with that is the lack of volume on the rally. The last rally we just saw came with lower and lower volume. Today’s volume was well below average, keeping the recent trend alive. With the futures now pointing down, it appears that the market has run right into resistance around the 50 day moving average.

Not only is the market running into the 50 DMA but a lot of broken stocks have returned right to their downtrend 50 and 200 day moving averages. With that happening, it doesn’t make it very smart to get heavily long here to try to catch the market and its momentum.

If you don’t see that evident, it can be seen in stocks like AVAV, ENSG, and AFAM today which all saw harsh pullbacks considering they just broke out. This is not the sort of action that you see in strong bullish uptrends. Therefore, I have to continue to preach to everyone that you must exercise caution, unless you are operating on a very short time frame.

If you are short-term trading and making money. Way to go!!! But remember this is a traders market and not an investors market. This market isn’t out of the woods just yet. We shall see what tomorrow brings but as long as we keep in this low volume funk and downtrend all I can do is tell you to be very careful.

I do have a new position to take tonight so at least something has setup for me to trade. Aloha!

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