THE DOT - if this turns orange or red be alert

Thursday, June 26, 2008

capitulation in financials will mark the upcoming lows

Goldman is pushing financials lower, with sell recomendations after putting them as buys weeks ago. We needed a final capitulation and since we are in window dressing period everybody will get rid off them, if he holds still some and shorts will increase. We have to make a disctinction between BKX and XBD going forward, since I see technically and fundamentaly higher loss potential in the XBD medium term (6-12months). BKX target at 50 and XBD 110.
Short term the capitulation will produce slightly new lows in the BKX around 60 and XBD could even mark the 140 area during the sell off next days - leading to a short squeeze rally starting in mid July - but it will be a sucker rally afterall - a volatile and fiecre one.
The rydex has dropped to .66 which is red alert for shorts , the bulls are down to 33 and bears up to 39 in the Invvestor Intelligence survey and other instruments give also alaarm but its not a good time to start since the VIX which is crucial in this overall cocktail is far from signaling a low in the markets. The time frame calls for another 1-3 weeks as well plus some other indicators I will keep to myself - but its red alert and it will be volatile and happen when people are on holidays - thats the high price of this business - the time one has to invest.
Its only obscure to see this one day Sox driven rallies which falter the next day with a big gap to the downside - who is doing this crap?

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