I have to admit that I was impressed with the early action - I covered one short early (DE, which also has earnings tomorrow, which made the decision easier) and tightened my stops on SKF, which caused me to be stopped out later in the day. That kind of sucks, but it happens sometimes. I have said for the past couple of days that I am open for both sides of the market here, and will act whenever the market shows us in a clearer way what it wants to do. In the morning, I began to think it was finally showing us. But lest we forget the market enjoys making things as difficult as possible, the afternoon seems to have sent a different message, probably a stronger one as well.
On big up days, I like to use IBD’s “Stocks on the Move” as a gauge of how powerful the buying pressure really is throughout the day. If I see a lot of strong breakouts from this list of fundamentally sound stocks, then I know it was a good day for the market not just in the gain or loss, but underneath the surface as well. These were the top stocks today as of 3:00:
NEU – Great run, overextended, but worth watching
WW – Forming pretty nice base, good move today
BABY – Choppy pattern, nothing special
QGEN – Sharp sell-off, v-type pattern, is finally getting some volume
CHDX – Overextended here, one to watch
POT – Looks like it will close weakly and below resistance. Volume falls off as it moves higher.
ARGN – Way too choppy
ZNH – Next
YGE – Next
CLB – No way
CRZO – Not bad, could keep forming this base and been a possible buy
BRLI – No way
CRVL – Beaten down way too much
KNSY – Choppy, not for me.
I hate to be negative and I am cognizant of the possibilities of my personal opinions coming into play here, but I can’t get really excited about any of these stocks, and if this is the best we have on a day where the market was up big, at least for the first half of the day, that tells me something about where we are headed. Looking at stocks like CREE, URBN, INFA, PTEC, and OTEX – stocks that have been doing very well recently – they were all marginally higher or even down today. Something doesn’t seem right to me. Before I put money to work on the long side, the market has to show me more. Until then, I am going to stay away from longs and keep my bias towards the short side, where I continue to see several stocks continue to rally on weaker and weaker volume, which sets them up nicely for possible short entries. I’m not saying we can’t go higher – believe me, I know with this market, anything is possible.
I took two more shorts toward the end of the day – RIO and ARD. Both are commodity plays and I saw a number of charts in these sectors that were approaching resistance on low volume (although some energy stocks are working here too so I am on alert). I will add to them if I see further weakness tomorrow, and both have clear and close stop loss points. I looked hard at GIGM but decided to wait, because I don't want to jump the gun too much. If you look at the agriculture stocks (AGU, CF, MON, MOS, etc), they all closed well off their highs today, so I also took a position in SMN today to play this group going lower. They have been forming faulty patterns over the past few weeks, but I have been off with my timing in trying to short the individual names, so don't trust what I say. I do think it is only a matter of time before they all break down, so I am trying the inverse ETF instead. We’ll see how it works. With my luck the past few weeks and the way this market is, I fully expect the market to gap up 400 points tomorrow and stop me out of all of these positions. Good luck out there!
Charts from Telechart2007, Courtesy of Worden Brothers, Inc.
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