Wednesday, January 23, 2008

Another lower open: How will traders play it today

The market appears poised for another lower open. As outlined in the last paragraph of the “Quick Takes: World markets remain coupled to US economy” post from Monday - traders looked to play the long side of the market after the sharply lower open on Tuesday.

Today is a different story most traders will be looking to sell into any rallies due to the weakness demonstrated by yet another lower opening. The current market conditions with high volatility represent conditions where traders can make a considerable amount of money playing the short-term momentum-driven long and short sides. The expectation is that traders will sell into most rallies and short most peaks; as the overall market declines in a volatile stair-case manner. Markets do not decline in a straight line, there are often violent short-term rallies as the market seeks a bottom. One example of this is the behavior in 2002.

U.S. Stocks Head for Another Lower Open