Greenspan Strikes Back!

The stocks traded down today after Alan Greenspan hinted at a possible recession towards the end of 2007. Additionally, the market is exhibiting signs that the 7 month old rally is running out of steam. There is rampant jitters in the market regarding rising oil prices, rising gold prices, and Iran Nuclear Crisis. The former Fed chairman's comments did not help with the overall sentiment in the market which appears to be in the early phases of the correction. I know that a lot of pundits are calling for a correction but we have to be careful here. Remember, it is not what WE THINK that matters in this market but what the MARKET THINKS that matters. I would attribute most of the down trend in the market due to Greenspan's comments.

So what do we do? We can certainly head for the hills and indiscriminantly start shorting stocks now. But that would be the sure fire way to lose all of your capital and sanity! The current market condition is still healthy without evidence of any distribution days. The major indices are still in an uptrend and technically, I cannot see anything wrong so far. There are signs though that makes me wonder. Hmmm...

Although I am bullish on Google, I believe that it has started another leg down. I would suspect that we will be testing the $450 level soon. This leads to my exact point. That is, prior leaders are beginning to or have rolled over! New leadership is emerging in the oil fields, precious and semi-precious metals, and obscure farm equipment sectors. There is still strength in the small cap stocks that follow IBD's CAN SLIM methods and these are showing excellent strength.

In this phase of the market, I would have to look at the risks, and they are increasing. First off, this latest uptrend is growing old and possibly running out of steam. No correction has yet taken place, so the risk for a steep sell off is growin. Geopolitical concerns are taking center stage- read Iran. Greenspan just spoke of impending recession- gosh! Doesn't this guy ever shut up? Oil prices are creeping up.

I am going for quick trades and will take small profits when I have them. I wouldn't enter any meaningful long sided trades unless you have more than 2 year time horizon to wait out the possible steep sell offs. I am looking at short candidates and they are increasing:
1. Google (GOOG)
2. BAIDU (BIDU)
3. COMCAST (CMCSA)
4. RESEARCH IN MOTION (RIMM)

I have entered into long sided trades in LHC Group, a home health care company, Mindray Medical (MR), and a small short position on BIDU (April $95 10 contract puts).

Be very careful!