Trading Into the New Year

By: Scott Redler

QUICK RECAP-

• Last December 17th, in an appearance on CNBC with Mark Haines and Erin Burnett, I said to buy gold for 2009. Since then, it's been a great vehice--at the time, gold was at $850 an ounce. On about seven other occasions, I put targets on the table at $1,200-$1,500 for gold.

• In March, at around 6,800 on the Dow, again with Mark Haines, I said it was time to get a plan to BUY the market--within a day or so of the market did in fact bottom.

• Then in May--with Bob Pisani this time--I said the market could reach 10,300-10,500. 2,000 Dow points later, we reached that mark this week (check out that video here).

That Brings us to Today--What to Expect into Year End

• This market will be VERY CHOPPY into year end--I would not be in max positions at this time. The time for max positions is OVER.

• This latest leg higher in the market was lead by the Dow Jones--not a healthy sign of overall market strength. Additionally there was no volume on this latest high.

• NASDAQ, small caps and banks all lagged this up move (and pulled off much harder in late October's selloff)--that puts my traders on edge. This action is worth noting.

We will focus on momentum plays into year-end--find stocks that most funds must own for window dressing (like that AAPL setup we highlighted on Friday afternoon). These are all fast stocks that must be monitored closely--they are strictly momentum trades at this point, not investments.

• AAPL above $205 and clearing $209 opens up a possible move into the $225-240 area

• AMZN remains strong at all-time highs

• GOOG continues to create new 52-week highs

• BIDU sits just below historic highs

Buying dips has worked well for investment purposes--like we saw at the end of October. After the S&P pulls in 4-5%, dip buying has paid off 7 times this year. In contrast, buying new highs on the indices has generally precipitated a pullback--in this move, we cannot chase new highs.

OUR THESIS THIS YEAR HAS BEEN ENTRIES AND EXITS--timing the right sectors at the right times. We will continue using our tier system in order to stay with trades and limit risk--for example, buying gold from $900 to $1000 in max position size and lightening up at $1,060 and $1,100. We can lock in some of our gain and still own more for a move higher. If gold rests and/or pulls in, we will then reenter another tier at the right time. GOLD still looks great. It should get to $1,200-$1,600 (take a look at Elliot's post for a fundamental explanation behind the move in gold and its potential to push on higher).



Right now trading is very tricky--at least 93-9% of this year's move is OVER, so we are trading for the last 5-7% of movement. IF we get a move to $1,125-1,140 on the S&P it could be VERY tricky and stock specific--stock selection remains key at this point in time. The breadth of this market is clearly thinning out. You must be on your "A GAME" if you are going to try and profit from the next market move.

The banks are not acting well right now. This must be watched, as it could lead to a bigger problem moving forward. We are watching Goldman closely--it's showing some technical weakness and we need to see if that spreads or it gets contained. Goldman helped lead the market's move off of lows, so any sign of weakness may have larger implications for the broader markets.


We will be watching the $1,070-1,080 area on the S&P to see if it can hold on a retest. If we do not hold that area, then it's time to reall get skeptical for an end of the year move. Although stocks have put in a V shaped bottom, the economy is not making V shaped recovery--we are thinking it's going to take some more time. So again, stock selection is KEY--and market timing is a must, especially at these lofty levels.

• We need to deal with more housing problems--especially high-end housing.

• The FHA could end up needing a bailout.

• Talk of a TRADER TAX remains an issue in Congress

• 11-12% unemployment may be in our future

The present administration continues to lead us down the same path as the former administration--this is troublesome. WHERE IS THE CHANGE WE CAN BELIEVE IN! President Obama needs to get off the campaign trail and realize he's the PRESIDENT--make some hard choices. We do it everyday as Americans.