Monday, May 22, 2006

Oversold, so what?

We have always heard that overbought can get even more overbought and oversold can get more oversold. The current market is a good example, for the latter, unfortunately. Commodity, emerging market and tech stocks continue their vertical plunge today. The rally off the bottom at 2pm brought a ray of hope to bulls everywhere, but they need to step up to the plate rather than depending on the fatigue of sellers.

I was one of the sellers today. I got rid of GVA (Granite Construction) early in the day at $41.93, for an 8.2% profit. As BHP (BHP Billiton) and FXI (FTSE/Xinhua China 25 Index ETF) sliced through their 50 dma’s, I reluctantly got out as well. BHP was sold at $39.93 for a miniscule 0.2% profit. FXI was sold at $72.52 for a 2.8% profit. I have written before and still believe that the Chinese economy will not suffer as much as many believe as their internal demand grows. In fact, the Shanghai index ($SSEC) was off only 0.11% last night when other Asian markets are down 2-4%. However, there is no arguing with the markets, and I loathe letting profits turning into losses.

Herb Greenburg at Marketwatch wrote about the Housing Disconnect between lenders and home builers that I mentioned in Shorting Countrywide (CFC). CFC dropped 2.5% today, so here is to the market maker who scooped up my limit short order at the low of Friday: I may get the last laugh.

Despite the bounce off the bottom in the latter half of the day, I place two orders (one for my Roth IRA and one for my wife’s taxable account) for approximately $14K for UCPIX (ProFunds 2x Russell 2000 inverse fund). Although a short term bottom may have been put in commodities, I continue to detect complacency in the general market and readiness for traders to short any bounces. I’ve placed my bets, let the chips fall where they may.

Once again, the above are personal ramblings, the usual disclaimers apply. Be safe!