Trading Alert

NOTE:  This Trading alert was originally posted at Ritholtz Research & Analytics on 07.10.06 – 3:23:58 pm EDT; An email went out to subscribers alerting them shortly there after.

This is posted here not as investing advice, but
rather as an example of a trading call for potential subscribers. We
expect to post future advisories in a similar manner — after the call,
but in the correct chronological location on the blog.

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I wanted to follow up the prior trading alerts, and clarify a few items.

First: if you have been diligent with your stop losses, you may very well have been stopped out of all your positions. That’s how its supposed to work!  The market took you out as it weakened.

If not, you may wish to sell some (half) of your remaining longs here, and tighten the stops on the rest.

Second, today’s action is technically weak; Anytime you give back most of the day’s rally gains, its not good. That, combined with the meltdown in the Nasdaq relative to the Dow suggest that this bounce may be nearing its end. If we close at or near the lows, that merely adds to the technical negatives.

Third, a possible downside catalyst could very well be earnings. I suspect this may be the first quarter of earnings season in a long long while where the misses surprise somewhat to the upside. As such, I want to be more defensive. No two investors have the same goals, but you must ask yourself how much upside there is relative to how far this bounce has taken us. Even if there is more to go — which may involve not much of a move higher — the question is always "at how much risk?"

Since the June 13 trading call ("Markets Sketching Out a Tradable Low"), we had a very nice move off of the lows. Now, I would like to see more profit protection, and a bit of defensiveness. Its too soon to get short — but not to soon to get protect capital. More on this later in the week.

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