Wall Street, We Have a Problem
Research for Online Investors

by John Dalt

5/25/10

“Houston, We have a Problem.” You can imagine Tom Hanks speaking those words about the market for the last four weeks. If you fancy yourself a trader (or a traitor to some congressmen) you should be watching this market for opportunities.

Rather than sit back and take a pummeling, why not take some money away from those who have taken some of yours?  Below is a chart you might find interesting.

This is the Dow for the last year with the 20-day exponential moving average (EMA) as a reference line. The EMA uses the average closing prices for the last twenty days, with more weight given to the most recent. Notice when the market gets oversold, and moves to far away, it snaps back! As we write this, it appears that is what is happening today.

Don’t worry; you may not have missed out on the big part of the move. This does not require a day trader mentality. The exponential moving average is at 10542, which gives you a about 500 handles to participate in.  We may not make it all the way back, and this trade should be closed by Friday so you are not exposed to the long weekend. Many traders, including shorts, will want to close out for the weekend so Friday could be very volatile.

One consideration on entering a trade here is all the sellers have been washed out.  The market plunged to 9774 this morning before turning and staging the rally.  You still have the traders to contend with, but there should be limited shares sold by investors to drive the market lower, as long as we stay above 9774.

This morning there was blood in the streets.  Tomorrow they could be paved with gold.

To the Mailbag:
With all due respect to P.J. O’Rourke, I would submit Ronald Reagan “walked the walk.”---paid up subscriber D.F.

John’s reply:  I agree, but can’t resist a quote from P.J. O’Rourke, one of our best political observers.

Quote to remember:
"Can’t anybody here play this game?"
                   —Casey Stengel, coach 1962 Mets

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

MarketToday Home Page

Back to Top