Take advantage of short term weakness in the market

I am taking advantaqe of the short term weakness in the markets today. Traditionally, Late January through February presents challenging trading environment. Not to be outdone, this year also remains true to form. What is happening to the market now? I believe high momentum stocks are simply correcting from their highs, which in my opinion is a constructive event. Without corrections, there cannot be further gains to be had. I reiterate the fact that we are not topping and that intermediate term correction is unlikely at this point. It may happen in the future, but we are not yet due for that type of correction.

This is options expiration week which will make trading even more difficult. Nasdaq remains in sideways consolidation pattern with key support level being 2400. If 2400 is breached, We may see as low as 2300. Nasdaq composite is now riding the 50 day moving average but sell pressure is rampant for the past 2 weeks. Dow Industrials are still in an uptrend and is above the 50 day moving average. S&P 500 is also getting close to the 50 day moving average and the uptrend is still intact. If we breach the key support of 1400, that may signal the beginning of the intermediate correction and may retrace to the 1360 level.

Techs are extremely difficult to trade but some bright spots in the industry groups exists. There are opportunities in the apparel groups (CRI looks to be emerging from the down trend and may have started its leg up). Believe it or not, CAT is also showing promise with 2 week short stroke pattern forming. It has also emerged from the down trend that started last May.

EMC is the only tech that I am interested in at the moment. It is also performing well inspite of the recent market volatility and weakness. It looks poised for another break to the upside. Today, the stock held ground at 14.62 despite tough market conditions and ended at the top end of the trading range for the day. This stock appears to be accumulated by the institutions right now. I see a upside price of $17 from current levels.

I added to EMC today and continued to trim my Cisco options, at a loss today. I think Cisco will consolidate their gains for a while here at these levels. I also added to CAT May $65 options today. I also added to Carters June $25 options today. I still have some money on the sidelines to continue to add on dips. This week will provide more opportunities to add to my positions in EMC, CSCO, CRI, and CAT. I am officially long those stocks.

Wednesday will be a crucial day as Ben Bernake addresses congress. In his statement, I believe we need a "dovish" language for this market to regain its upward leg. In fact, the recent subprime mortgage lender noise is a warning shot that needs to be heeded by the FED. That is, they should consider cutting interest rate by 25 basis points sooner than later. Wouldn't it be great if the FED gave this market a much needed break by cutting rates in March? Maybe...it could happen.

Until then, happy trading.