For those who follow my blog, you probably notice that my trades have been fast and furious lately, and involves a lot of bottom fishing. I must make a disclaimer. Bottom fishing (trying to catch a falling knife), is an extremely aggressive (risky) trading strategy and I don't recommend it for anyone who is just starting out or has limited experience in scalping. My timeframes are extremely short (sometimes buying and selling within minutes, or holding an oversold/overbought position for an overnight scalp). I close out my winners or take losses very quickly. If this is not something you are comfortable with, do not attempt.
With recent developments in the market, many traders are expecting what is called a capitulation day - a day of steep losses on high volume representing panic or "throwing in of the towel" by investors/long traders. If this day comes, and I think it could happen within the next 3 weeks, I expect the extent of the losses to be larger than the capitulation drop we experienced back in August 2007 - which at one point was around a 500 point loss during the day. I also expect the volume to be much higher. Therefore I cannot overemphasize how important it is to NOT leave ANY long side trade unattended for at least the near future. I will also stop buying "oversold" stocks at the close for overnight holdings. In fact, fading any strength will most likely be the best strategy.
One play I might act on this week:
1. AAPL reports earnings on Tuesday afternoon. IF AAPL pops after hours on the news and holds the gains till Wednesday morning, I will buy the February $150 put options at market open. I know a lot of institutions are pretty worried about holding AAPL stock and I'm almost certain they will pull a pump and dump strategy so they can get out. I would not be surprised to see AAPL hold the gains for most of the day on Wednesday either, as analysts will probably be out defending the company. My personal opinion of AAPL? I really don't look at AAPL as a pure "tech" play. If you really think about it, AAPL is more of a retailer. They have a huge brick and mortar presence (hundreds of stores?), and their products are not exactly the most technologically advanced either, not to mention how expensive they are. If this economy goes into a recession, retail is going to get hit hard. But we don't need even an actual recession for this to happen, because even the fear of a recession will decimate shares of AAPL. Even with AAPL $40 off it's high of 200+, I can tell that investors are still in love with the stock, which is only more fuel for more downside.
Solar Analysis
Okay, we've all been witnessing some heavy selling of the solar names. Europe has been leading the world in adopting solar (I believe). I cannot confirm this but also, I think the European solar companies also "lead" the US companies - in terms of price movement. Here's a tidbit from Financial Times:
"German solar panel maker Q-Cells, which soared 186 per cent in 2007, dropped 18 per cent to EU66.44. On Tuesday Société Générale downgraded the stock to "sell" and reduced its target price to EU66 from EU98.
SocGen also cut its rating on rival SolarWorld to "sell" and lowered its price target to EU29 from EU45. SolarWorld fell 17.7 per cent to EU28.95. Norwegian solar panel maker Renewable Energy lost 21.8 per cent to NKr159 on Friday, taking its weekly losses to 27.2 per cent." I think anyone who is trading solar needs to keep those names on their watchlist, since they trade in Europe before the US market opens every day (QCE.DE, SWV.DE). Solar multiples are fairly rich even after this selloff and I think there is more downside to come. I am a long term bull on solar but patience will allow for a more balanced view as well as better entries, I believe. I am still holding SPWR but only for a quick swing.
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