4/09/2009

Buying some FAZ

As you can see here, I am bearish on the overall stock market. Today, financials rallied almost 15%, culminating in a buying panic near the end of the day. Subsequently, 2x- and 3x- financial inverse ETF's got killed. I think, however, that the waterfall action we saw today is indicative of a bottom, so I bought some FAZ under $11. I think FAZ could easily double or triple in the next few weeks as the market starts to decline.

The 5m chart above is very telling. After dropping steadily for a month, the downtrend has culminated in an intense waterfall decline, brusing stockholders with a 91% decline. However, there are several signs that this stock is ready to bounce hard. First, notice that the waterfall occured significatly after it had broken support around $20. Notice that the decline ended with huge down bars, dropping 3-5% every 5m! This is the exact kind of action that I like to fade, because it indicates total disgust, capitulation, and dispair. We should start rebounding very strongly very soon, as panic selling like this indicates that we're running out of sellers ;).

8 comments:

Anonymous said...

Or FAZ could just go to ZERO! Well, I bought some FAZ today and that's what I'm preparing it go to so I can sleep well at night! :)

Narayana said...

No, after this kinda action (one sided sentiment), you get a bounce, guaranteed.

Aurelien said...

lets hope its guarenteed

TraderTamas said...

I highly doubt it. Look at FAZ Monday two weeks ago. Same exact thing. And where are we now???

SPX isn't against any resistance or support right now.

Narayana said...
This comment has been removed by the author.
Narayana said...
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Narayana said...

TraderTamas, good point, but it still marked the low before a 25% rally. Also, if you look at the underlying (XLF), you'll notice that price climaxed into a previous high (2 weeks ago), whereas today we gapped up way above previous resistance and then climaxed. In my experience, climax moves reverse best when they occur after significantly breaking through a support/resistance level. That way, there is little holding back a sharp snapback move.

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