The market is behaving constructively

As I said a week ago, my gut feeling was that the market may have touched its bottom for this 2 months long correction, although I still could not rule out the possibility of any panic selloff towards 2530. I’m still holding the view on this and actually what I’m seeing now suggests to me the chance to see higher stock prices in the months ahead is much higher than a new low. The price actions of the market in the passing week, although still very volatile as expected, were quite constructive, leaning towards the bullish side. Two main technical signs to support my view:

• The market is showing a series of higher highs and higher lows, even during the panic selloffs, e.g. in reaction to the potential war with Syria. More importantly, if you look carefully at the chart for S&P, it is showing a tiny reverse H&S formation, an often bullish technical setup.
• You may recall I talked a few times about the junk bonds (HYG) that they should be trending down from its highs late of last year. It did, leading the selloffs of the stock market in the past two months. Now HYG is quietly moving up with a bullish outlook at least for the weeks ahead. Junk bonds often lead the stock market.

Having said that, just be aware this is not a clear-cut out of the woods situation and the market will continue to be very volatile with panic selling from time to time. Headline news can easily tip the market over in this very uncertain world. I’m just cautiously bullish now.

Just a quick words about a few stocks I talked about recently:

• I hope you shorted Bed Bath (BBBY) after I talked it down recently (see here). This is a bad business that I really think it may not be able to survive long without drastic changes of its models. As expected, it got haircut by a 20% crash following its earnings report due to very disappointed forward guidance. If any stupid guys are willing to catch the falling knife to buy the lows, let them do that and we can short again when it pops up as a dead cat bounce. It is simply a deadman walking as far as I can see!
• On the contrary, I’m long Micron (MU) now after my recent short as I talked here. MU also got a haircut following its recent earnings as I expected but it is totally different from BBBY. It is a great growth stock for long term but just with short term too much froth built in. As I said, I expected it to decline to $50 for its correction. Sure it just did that! It actually briefly dropped below $50 a week ago during the market selloff, which was a bit oversold to me. That’s why I took the opportunity to long MU around $50. So far so good. If the overall market is indeed moving up, I think MU will be headed much higher from here.
• I was bearish about TSLA due to the concern for its gigantic debt load. But I did think an oversold rebound was possible towards $290. Indeed we got the rebound but it appears to me to be a dead cat bounce. The bounce has been pretty strong actually and is now trading around $300. I think this is a pretty strong resistance area and a good spot to short.
• How about Facebook (FB)? I didn’t talk much about it but I’m sure all of you know what’s going on with it. The recent crash due to the privacy scandal has brought it down by almost 25%, from $195 to $150. I think the FB saga is just a political fart, smelling terribly but will be disappearing and forgot about very soon. Ironically Zuckerberg, a strong support to HC/Dem, was actually helping Trump/GOP during the election. He is now caught up in the middle, being accused by both sides (里外不是人), a deserved punishment for him. But from the investment perspective, I like FB for its long term prospects and I think this is a good opportunity to buy lows. Although the technical damage is quite severe and it still needs some time to recover, I do believe $150 is a strong support for it which will likely hold. I got in for trading purposes when it crashed to $150ish and I think a good chance it will be trading in a wide range between $150-170 in the weeks ahead.