Tuesday, March 10, 2009

Where to play the rally?

In the previous post I said we had a tricky period ahead of us. There were two things I wanted to see before switching to the long side. First I wanted to see some sign that institutional money was willing to come back into the market. That means some heavy positive money flows on the SPYDER's. Then I needed to see a swing low as the buying into weakness is often a little early.

Well we got the positive money flow last night and the swing low this morning. The odds are now in favor of another bear market rally.

How long will it last? No one knows. I'll be watching the selling into strength data for some clues that big money is sneaking out the back door.

In the meantime where should we play this rally. Well if one is willing to accept a lot of risk they could buy the double or triple ETF's. Those that don't have a death wish might want to take a look at the energy market.

If oil can break through the $50 level then I think there's a decent chance we could see a 38% retracement of the bear market. That would take oil back up to the $75-$80 level. The big winners on a move like that will most likely be the oil service stocks. OIH for those not wanting to open themselves to company specific risk.