Bear Market Rallies

I took a look at 4 of the major bear market rallies from 2000-2003 to get an idea of their magnitude. Their returns from trough to peak were 22%, 27%, 26%, and 25% respectively.

This bear market hasn't had too many rallies. There was one notable one from 11/20/08 - 01/05/09 which returned 24%. This current rally (started last Friday) is already up 13%.
A 25% rally would get us to SPY 83.

Obviously we could rally 14% or 41% but it's good to have an idea of what is 'normal' - not that anything of the past 18 months has been normal. I would expect some profit taking before the weekend and I will start to establish short positions in stocks with heavy overhead resistance (there's no shortage of them) when SPY gets to 79 - 83
SPY


If/When SRS gets down to 48 I will start buying. And I won't stop until it becomes profitable.

SRS & FAS --> two low risk entries

Two contrarian (given the drunken degree of bullishness this week) low-risk entries below:

SRS - depending on the pre-market action, I will be buying the open with a tight stop under 66




FAS - watch 4.52

SPX

SPX - next stop 850, but be aware of a likely oversold bounce.


I will remain short this market via the XLF with an extremely tight stop. I chose to override my system which suggested I cover at the open. But since XLF was trading down pre-market there wasn't a sense of urgency to do so. Current trailing stop: 11.09.

See below for additional setups from 01/09 that still hold - XOM, CVX, SRS, SKF, GLD, etc.

Watchlist

XOM - Up against its lower trendline. You could go long with a stop beneath it; however, I would look to go short if/when the trendline fails.



CVX - same.



GLD - still bearish in the intermediate term.



AAPL - will ultimately resolve itself south of 85. Remember, there's rarely such thing as a quadruple bottom.



SRS - Get long (not necessarily a short term trade)



SKF - Get long (not necessarily a short term trade)



SPX - Actually looks okay on the 60 day chart but keep in mind the big picture. Plus, all of the so-called significant levels (920, 900, ...) keep failing so I wouldn't bank on any support levels on the downside. Overhead resistance continues to be dominant.

SKF

As a follow up to yesterday, SKF may be a good candidate for the following strategies:
Sell naked puts, south of 100
Buy shares of SKF outright
Enter a call credit spread 120/130ish with plenty of time

Also, since SKF is a little pricey, consider SRS.  Not necessarily a short-term play (although it could be) but I'd bet a testicle that SRS goes much higher in a reasonable period of time.

weekend watchlist

SPY - descending triangle


ICE - lower highs / lower lows


SRS - bounce?


OIH - channel


XLE - watch these support levels

What I'm more interested in...

On a day when the market climbs 11%, I'm a lot more interested in the following:

1) Stocks that couldn't go higher on an 11% up day - (i.e. Goldman Sachs rose < 1%, while XLF rose almost 16%)

2) Stocks that moved more than 11%, after accounting for their respective beta - (i.e. MON has a beta of 1.17 but climbed 17% today)

Other overreactions may include SRS, SKF, and FXP (even though these are ultra shorts, they are down between 25%-35%)

I would like to see several follow through days to bring all stocks back to levels that make sense to get short at again.

For example, it would be very cooperative for AMZN to get back to the low/mid 60s for a great short setup...