Given how strong yesterday's rally was, with the Nasdaq up about 2% and closing on its highs of the day, today's premarket weakness is probably a good thing for the bulls. The weak open should set us up for an intraday rally such that the bulls will feel good about even getting back to even ... and then they can rally 'em further into the green. That's what I'd expect this morning, but unlike yesterday, I doubt very much that this market will be able to extend any rally into a meaningful magnitude.
I'm essentially expecting us to top out again in the very near term, but I'm less than convinced that the shorts will find the easy money as they did for the first week of this new market phase. In thinking about this market action and how to trade it out further, if the upside is limited and the downside the path of least resistance, but probably not as ugly as it has been, the trade to make is to short some calls.
Shorting some slightly in-the-money index calls would be a way of betting against the volatility spike that's taken the VIX from about 10 to 16 in just a couple weeks' time. The problem with shorting anything, though, is that your upside is limited to whatever you got when you shorted the instrument and your downside is infinite. The Nasdaq ain't running to infinity any time soon, but the losses could get ugly in a hurry if the market extends yesterday's gains.
That's the thought process I went through this morning as I looked at making a few market trades in the near term. In the end, as I continue to think that there's echo techo bubble potential, I just don't like the odds of betting against this market, even for a short period of time, enough to pull that short-call trigger. On the other hand, I do expect I'll be buying some individual names on weakness before the week's over. Tell you all if and when.
Let's get in there.
P.S. Will you be there when Cramer makes his next move?
Strong brands and companies with vast market exposure can help bolster your portfolio. Jim was able to lock in a 64% gain by buying Ingersoll-Rand at $13 and selling at $22.50. Action Alerts PLUS members were the first to see these moves. Were you among them? Get Free Access Today!
Cody Willard Blog Bulls Get a Breather 3/6/2007 4:41 PM EST The echo-techo bubble remains something to ponder.
Cody Willard Blog Shorting Time May Be Soon 3/6/2007 3:19 PM EST This bounce may still have a little oomph left, though.
Cody Willard Blog The Slow Death of Broadcasting 3/6/2007 1:13 PM EST New distribution outlets will put it out of its misery.
Cody Willard is the manager of CL Willard Capital Management, LLC. He is a regular guest on Fox News, CNBC and other networks, and he writes a monthly column for the Financial Times. He is also an adjunct professor at Seton Hall University and the author of TheCodyReport.net, a monthly stock market newsletter. Willard appreciates your feedback -- click here to send him an email.
RSS FEEDS
PODCASTS
