Pop then drop?

I should really listen to myself more often. Back on Jan 23rd (1.5 weeks ago) I said: "This rally is going to go far higher than anyone expects and many will be suckered into thinking the bears are dead and the bull is back. I expect the major indexes to retrace at least back up to their 50 day moving averages, probably more." As you can see in the S&P 500 chart below, we are still about 2.5% below the 50 day moving averages that I had been targeting yet I got suckered into getting short on Wednesday by the hammer reversal.

While the pullback completed on the dow jones, it technically has not on the S&P 500 or the Nasdaq. Furthermore, the 50 day moving averages (where I like to enter positions) are a bit higher up. The Nasdaq 100 is actually 7.4% below it's 50 dma, which it no doubt due to the recent disappointing earnings from bellwethers like AAPL, INTC and GOOG. So potentially, the Nasdaq 100 (QQQQ) could see a decent rally here, much more so than the other indexes. Looking at the chart below I can see two possible scenarios. If the QQQQ breaks resistance at $46 then there is nothing to stop it from popping up to the confluence of the 50 dma, 200 dma and breakdown point at $49. So if QQQQ breaks $46 I'm out of my QQQQ and AAPL puts in a hurry but I will be sure to jump back in up at $49. On the other hand, if the cross of death turns out to be a good sell signal and $46 holds back the QQQQ, then the next leg lower could begin in earnest. Either way we are going lower in my view, its just a matter of whether there will be one last big squeeze here or not.


For aggressive traders who want to play the pop, I like SIGM and WFR best. For the next big slide , FSLR and AAPL are my favorites in tech. For longer term investors, I think this will be a great week to sell/short stocks no matter what happens.

Disclosure: I am very short (QQQQ, AAPL, BAC, FNM, MDC...) but also I own some JASO calls.

Some news bytes:

Profit declined 22 percent yoy for S&P 500 components
Credit card companies telling "risky" customers to take a hike
Most Yahoo employees: "there is no way in hell that I am going to work for Microsoft."
Homebuilders face growing threat of bankruptcy
In America, the land of bubbles, the next pop will be biggest