To OTC Journal Members:
 

Two Bear Market Trades For Right Now

Can you make money on the long side in a Bear Market? Sure, but you have to change your approach. In a Bull Market, you can buy momentum stocks for a trade. Another words, if a stock is going up, you can buy it, as it will often keep going up- sometimes for many months.

Bear markets are different. If you want to make money on trades, you have to change your approach. You have to buy pullbacks, and sell or hold rallies. 

There's a pattern I see repeated over and over again in a Bear Market. Stocks with good shareholder bases and strong followings trade down to levels where they test everyone's resolve. Typically, you will see these stocks make a new low, blow all the impatient, non believers out of their positions, and then turn right around and head back up.
 

EFSF is #1 in the OTC Journal for comments and questions. I get more emails and BLOG comments on this stock than any other single idea. I believe there is a lot of interest in EFSF because there is more upside, more disappointment, and more impatience with this company than any other.

If you haven't followed the story, I'll give the the 30 second view from above. EFSF has developed a number of health related, natural, consumer products. Skin care, blood glucose control, cholesterol fighter, mold remover, nutrition bars to boost the immune systems, and a bio agro product- all EFSF products with proven clinical results. The problem? Despite assurances from the company that major retail chains and advertising would bring big demand in 2007- it didn't happen - much to the disappointment of shareholders.

To their credit, they have admitted their failings, and are taking a new direction in 2008. Highly successful direct response advertising agency Respond2 will start marketing campaigns for 3 of their products in March.

So- if you own EFSF, or are thinking of owning it, you are betting Resond2's efforts will bring a new day of top and bottom line growth to EFSF and that success will translate into an improving stock price.

For those of you who have been following my commentary on the company, you know I have been working on some important content for shareholders. I'll let the cat out of the bag- I plan to and hope to interview Respond2 CEO Timothy O'Leary, and bring it to you both in audio and written form. I feel Respond2's efforts are the single most important upcoming event for EFSF shareholders.

I don't know exactly when I'll have the interview, but I do know EFSF has once again dropped low enough to be very attractive technically. I believe the $.18 level represents a great opportunity to either gobble some up for a trade or to accumulate for the long term.

I see this pattern over and over again. A stock that has been grinding to a new low makes it, spooks and the infidels out, and then turns around and heads straight back up.

The double bottom pattern you see pictured is a favorite of technicians looking for trades on the long side. It's a high probability trade, and you can use a fairly tight stop of $.16 or any level of your choosing. The stock should turn around from here, but if it does head lower- watch out below. There's no telling where the bottom will be and all bets will be off.

Jump in at $1.8 to $.19 - appropriate for traders and long term investors. Use $.165 as your SSL, or whatever number is comfortable for you.
 

It's called a "Double Repo", and many day traders call it the "Bread and Butter" because it's pretty reliable for paying the bills.

I'm not going into great detail in today's edition about the Dinapoli 3x3 moving average, or the double repo trades you can identify using the formula. I will say this is a pattern you see repeated every now and then, but when it does set up, it usually translates into profits within a day or two.

You are looking at a chart of the QQQQ's- that's the ETF for the NASDAQ Comp- my favorite vehicle for trading the market. 

Nine trading days ago the Q's broke down below the 3x3. Four trading days ago QQQQ broke up above the 3x3.  That's called a "double repo" short for double repenetration. The Q's have now fallen right back to the 3x3 line, and should now bounce again.

The market sold off at the end of last week. I believe traders simply wanted to be out of positions going into a long weekend, hence the weak market.

Barring any unforeseen International incidents over the weekend, and absent any more mind numbing revelations about the credit markets, the QQQQs will probably bounce next week.

On Friday, just before the close, I traded into 50 March 43 QQQQ calls at $1.92 each- total investment a little under $10k. If the NASDAQ bounces as I hope it will next week, I won't be sticking around for very long. If I get up $1k to $2k, you can expect I will have sold the calls and happily locked in my profits. 

If the market opens quietly on Tuesday, you will have the opportunity to mirror the trade. If it gaps open for whatever reason, I would stay clear. If it opens down big, I would stay clear as well.

Conversely, if the QQQQs want to fall $.50 below the 3x3, I will lock in my loss immediately and move on. I expect these options will mirror the move in the Qs about $.50 per point. Another words, if QQQQ moves up $1, the options will probably move up about $.50.

It's gambling, but I believe the odds are in my favor. We'll see next week. 

One of these days I'll write an options 101 article for those of you who don't understand how to trade in that arena. On a separate issue- if you want software robust enough to have these kinds of technical indicators, you have to pay for it. I use eSignal, but there are other providers as well. 

That's a whole other issue for another time. Ready and anxious to try to notch some short term gains? There's 2 ideas for a trade right now.
 

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