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Based on the above fundamental context, here is my model for next few months.
1. The market will now recognize that a recession is coming and will price it in. Until the recognition is complete and the media starts to shout about rate cut, the decline continues (that's what happened in 2000).
2. The next rally will come, when rate cut is imminent - just like in late Dec. 2000. I am expecting mid April-early May to be the time.
3. The current decline (first stage) will completely wipe out the gain of bear killer rally and go twice as much. That is what happened in 2000 and 1990. That is where my may target of QQQQ=32 comes from.
I am currently short (MZZ), and will cover them, when internals make higher low, and media headlines have the following tone:
"Unless Fed cuts interest rates right now, it will be too late and economy will be in recession."
The shorts on individual stocks (NDE, DSL, MICC) will be managed on a shorter term basis.
Edited by greenie, 11 March 2007 - 12:56 PM.