My Trading > My Trading Journal > February 5, 2012

My Trading Journal

February 5, 2012

4:27 pm (PST)

With the unemployment hitting a possible tipping point, it's possible that the market may be ready to enter an intermediate-term uptrend. I need to be careful about selling call credit spreads on stocks that are short-term overbought because they may continue to run up more. This happened to me in 2003. After the market made it's major bottom, it rose to where it was short-term overbought. I shorted a few stocks (YHOO and NET if I remember correctly) but they continued to rise. During my post-mortem analysis of my losses, I realized (when I looked at the weekly charts) that the stocks were not overbought on a longer-term basis. This is similar to what's happening now in some ways. The market is now making new multi-year highs which would seem, on the surface, to mean that stocks are overbought. But the market has spent a considerable amount of time (virutally all of 2011) consolidating near these highs. So this trend may continue for while.

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