[Below is my live-longs list for the Wednesday, January 9th session - relevant should we see a swing-reversal in the market]
Okay, momentum is broken and the potential for an early plunge in Wednesday's session is somewhere between good and likely. I may or may not short for protection, depending, and where I fire would depend on the specific (sick) action early in the day. By the time I am free to share any of it here, it may all ready be over; I expect to be busy.
Tonight I am mending nets and sharpening high-powered rubber band coat hanger harpoons, preparing for battle. I've lined a rubber tire swing with plastic perma-baggies - filled with cheese whiz rods, a brick of boiled coffee deposits and and three cans of glazed bacon hash for good measure. I'm gearing up for the possibility of a plunge-reversal day - my favorite day to trade.
Sentiment is perfect for a pivot-day, so I've planed ahead. The crucial thing, however, is being able to differentiate between a plunge-reversal and a plunge-not-so-reversal...since the latter will remove your head and mail it back to you...book rate.
To be long and wrong when the floor is removed and not coming back is essentially trader suicide. Don't go there. Reasonable traders will wait for the reversal before risking their trading health; good, sound advice (pimply chicken-asses!). Unreasonable madmen like myself want to get their teeth into things before any reasonable upward bells are rung (especially when they are already stuck!). Back in the day...yeah yeah, never mind.
Some things I look for from the market for a potential reversal, from this type of deeply damaged tape:
1> Signs of strong leadership: The majority of stocks out there are obviously and clearly negative, but believe me (or don't) when I say that this many aggressive growth stocks will not look this good on the charts when we are going to crash. This criteria is present - my list of the most-live names I will be utilizing for Wednesday long-side attacks (dependent on criteria to follow) are below.
2> Capitulation: We have a good measure of emotion at the moment, but we need CNBC vocal chords to shrill and typical investors convinced prices are only going lower (isn't there a recession coming?). I don't want to hear hopeful mutterings - I want fear and doubt AND I want this panicky sentiment coincident with divergent signs of strength; meaning firming internal action (I don't have time to give out all the potential positive divergences to look for, but a common one is a lower intraday-low in the Dow causing a higher amount of panic in the press/public, coincident with a higher intraday-low in the NDX.
3a> Time-of-Day is a tremendous tool for detecting reversal set-ups. If the lower-lows are occurring between 11am and 2:30 pm est, I am keen for signs of a pending reversal and I am looking to the relative-leadership of the day to insure they are holding above earlier intraday lows. Such as a higher intraday-low in the NDX coincident with a lower-low in the Dow. In this situation I begin scaling in with buying, although I am conscious of time-of-day benchmarks for fresh, lower-lows in order to protect from a final-hour bloodletting.
3b> Time-of-Day means do not start the buying in the first 90 minutes in this type environment - it is just too likely that the market will reverse and at least re-test down (if it is higher) and it is too likely that it will at least re-visit the early lows, or worse, later in the session (if the market is already quite lower). In other words you are only gambling in this environment by stepping in for the possibility of a reversal in the opening 90 minutes of trading - with such a bleak tape.
3c> Time-of-Day means violation of lows in the final 60-90 minutes of trading is a near guarantee that it is only going to get worse before the close and so anything new I put on, thinking that we will reverse, is blown-out before it can cause severe damage. However, when a market makes a low somewhere in the mid-point of trading (~2:30 pm seems to be a common low-point before institutional buying warms-up and progressively begins to mark higher-highs from that point forward in the day. Conspiracy theorists like to suggest the Fed's Plunge Protection Team is at work. Personally, I think there is simply a lot of pent-up buying demand at plunge-prices and larger institutions prefer A.) to know the market is not crashing before committing anything aggressively and B.) the last 90 minutes of trading is when larger institutions do their serious trading volume. Once the upside gets going, there is a kind of steam-rolling action to higher ground - which is almost, not always, followed by a strong session the next day or two following). And that said, when the market really is crashing, that last hour is when the maximum pressure hits the tape, so I do not want to be anything but short this bad a tape when the market is making new lows into the final hour of trading. I will go from net-long to net-short and occasionally more than once - these are the kinds of days where volatility is creating a month's worth of opportunity. Unless you hit it perfectly, churning will happen.
4> Don't trust an up-open when the tape is this bleak: Overnight futures are reasonably higher at this writing (NDX +10.50). I will be shorting an up-open for a hedge (likely beginning early in the pre-market and scaling further accordingly), and I will get net-short and possibly aggressively short later in the day, if the market has not started a clear upward assault by the last hour. V-bottoms on the chart, whereby the market closes sharply down and at lows one day and then opens-up and rallies without looking back the following day are very rare (we did just this in July 2006, however - that baby cost me, as I fired at it for the next couple of weeks). Once a tape is this ugly, tradable lows from this type of tape are better believed when they plunge and reverse. Rushing-up, without the capitulation-reversal-plunge prior, is seldom going to hold unless there is a major catalyst (such as the Fed cutting 50 and 50 bp in interim, emergency fashion; not at all out of the question here).
My Live Long List for Wednesday (for tradable reversal only):
JASO (Higher volume and bucked the tape Tuesday following the profit-taking slice Monday)
FSLR (only if it should tag its 50-day at ~219 and pivot higher)
SOLF (need clear and obvious reversal in short-term mkt direction and solf flashing strength)
MEDICAL and/or GENETICS or BIOTECH:
MATK (new breakout)
IRIS (thin, breakout this week)
HOLX (presents after the close at the JP Morgan conference)
ICLR (thinly traded)
KNDL (thinly traded)
TWTI (micro cap and thin - Aggie-related biotech)
FERTILIZER & AG:
SPN (too extended)
TISI (eps came Tuesday night)
EDU (eps due 1/15)
CEDC (76% debt)
BUCY (>89 and only if mkt in clear reversal mode)
CCH (trades pathetically light and now too extended)
ENS (too extended)