Market Notes (10/26/09)

• Posted by Joe Fahmy
• on October 26th, 2009

I still recommend keeping a cautious stance until the market shows more signs of health. The NASDAQ was down on lighter volume Monday, but the NYSE Composite and S&P 500 sold off on heavier volume. Overall, the Big Caps continue to amaze and hold up well, however they could come under some pressure on Tuesday because $BIDU gave poor guidance after the close.

If you can, try and hold on to your winners but cut losses on your weakest performing stocks to protect your portfolio. I do not suggest making new purchases on the long side because any strength the past 4 or 5 days has been met with selling pressure. Remember: a good defense is key right now. You can always get back in if the market improves again, which might be soon. That is why it is important to observe the day-to-day price action of leading stocks and the volume readings of the major indexes because the market is very dynamic and can change quickly. Again, I am not getting bearish, simply recommending caution since the market is flashing warning signs.

In the meantime, I suggest paying attention to stocks holding up the best during this market correction. In other words, if this pullback is brief, the stocks showing the best relative strength are usually the first to move higher when the selling pressure subsides. Here is my watch list so far:

Big Caps: $AAPL $AMZN $GOOG $PCLN $ISRG $GS $MS

Internet Security: $RAX $ARST $FIRE $BCSI

Miscellaneous ideas: $CREE $FFIV $NFLX $GMCR $TRLG $HMIN

Some of these stocks have made incredible upside moves over the past week or two. One scenario would be that the NASDAQ corrects down to its 50-day moving average (approx. 2083) and some of these names pullback orderly and on light volume to logical support levels (such as their 20-day averages). If this happens, I might look to re-enter some of these stocks. Either way, I have to emphasize that patience and discipline is VERY IMPORTANT right now. As a trader, your cash is your inventory so protect it! As Jesse Livermore says: "Cash is the ammunition in your gun."

If you decide to trade, my advice is to keep your positions small. My better advice is to wait patiently for healthier conditions...that might not be far away.

Follow me on Twitter @jfahmy

Tickers: AAPL, AMZN, ARST, BCSI, BIDU, CREE, FFIV, FIRE, GMCR, GOOG, GS, HMIN, ISRG, Jesse Livermore, MS, NFLX, PCLN, RAX, TRLG

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