Thursday, March 02, 2006

Capture The Bounce

Down and up and down action - in sum, we are nowhere index-side but we are certainly seeing action in specific sectors. Often, a mindless grind in the broad indices will bring out definitive action in beaten down or overbought parts of the market. Today it appears to be working and we're seeing the following:
  • Oil is bouncing smartly and near-strike long April exposure is paying off well. As an example, one of the things we were doing to take advantage of this was buying into 27.5 April call strike in PTEN on the way down. Today is the right time to liquidate this sort of position as the oversold condition is being worked off.
  • Housing is doing the same except that it is trailing Oil in its bounce. I feel that another day or two of upward retracement is in the cards so if you're long (we like RYL, KBH and LEN) give yourself a chance to gain some deltas.
  • Semiconductors sector is the final example of this. The difference is that it was never really oversold (unless we decide to judge the oversold condition but the likes of KLAC a week ago). Since the sector is rallying strongly my feel is that it is going to continue may even lead the tech market higher. (CSCO is through 20 and that means quite a bit)
Keep in mind that Oil and Housing are in an overall downtrend so while capturing the bounce is where the money is at the moment, it is just a moment nonetheless.

Stay on your toes!

Cheers,
/Dmitry

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