Early Lows Are Key

 | Aug 19, 2011 | 10:52 AM EDT
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We had enough negativity at the open to invite the dip buyers in for a quick bounce and they have done a decent job so far. Breadth is in positive territory and we are gaining a little additional momentum now.

Market players are understandably nervous after the action yesterday, so they are slow to inch in, but the longer we can hold in positive territory the more confidence they will gain.

Keep in mind that the most important thing is that we don't challenge the early lows. That is where the stops will be set and we'll have plenty of give-ups if we hit that level. The folks who are buying this morning will tend to be short termers with a strong tendency to flip, so they can quash a bounce pretty fast if they become nervous.

I have a few little long trades going and I have a shopping list of things I like longer term, but I'm still in no big rush to put cash to work.

One long I've been accumulating recently is VirnetX Holding (VHC). VHC holds valuable patents covering real-time communication on the Internet and I see this is a lower risk way of playing the rumored takeover of InterDigital (IDCC). If IDCC does eventually receive a bid, as expected, VHC should see a strong sympathy move as it is one of the few patent plays that will be left.  I look for investors to snap up VHC quickly on any rumors about IDCC, but it doesn't hold the risk of a take-under like IDCC does.

VHC is definitely not a chart I would normally buy, but in this market environment I'm more inclined to take special-situation trades.  If you can knock a few of those out while waiting for position trades to set up better, it helps quite a bit.

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