Monday, March 24, 2008

State of the Market - 3/24/08

Another strong day in the markets today, as a "redo" on the much talked about Bear Stearns-J.P. Morgan deal raised the spirits of traders, as the market quickly rallied after starting off in a slow manner. The buying continued into the lunch hour, and although it leveled off in the afternoon and stocks closed a bit off their highs for the day, the indexes still finished with impressive gains. The Nasdaq led today with over a 3% gain, which is encouraging since this index has been lagging the Dow and S&P 500 for a while now. If you are a Canslim-type trader like me, the Nasdaq is where you are going to find most of your big winners, and today's action was what I was looking for from this index. Volume was lower today, which was expected after Friday's huge options expiration trading volume. So another good day if you are a bull and a bad day if you are a bear.

Technically, the indexes have now closed over some important resistance in the form of 50 day moving averages and the downtrend lines. Certainly things look more bullish right now based on today's action. Some resistance ahead is around 1400 for the S&P 500 and 2415 on the Nasdaq, but those areas are still a week or so away if we continue on our current track. The only thing that worries me is that the S&P has moved about 7.5% higher from last Monday's lows, and that is quite a big move in less than a week, so we may be due for a pullback. There seems to be a lot of sudden bullishness in what I see on TV and read on some blogs, and I find that interesting. The one thing that you can expect from this market is the unexpected, so it pays to be careful.

S&P 500
Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

I took some small shorts today in a few financials due to seeing the XLF putting in a reversal day right at the 50 day moving average. This might be just a small pause in a move much higher, but based on how it closed, and how much the financials have run here in the past week (almost 20% from last Monday's lows) I thought there is good risk/reward at this point. I will keep my stop-loss levels tight however, because the trend certainly does look more bullish right here. If the VIX gets down to the 23 level, then I would be willing to try more shorts in other areas(namely the agriculture stocks like MON if they continue higher over the next few days.) I don't think the time is right at this point, however, to start shorting heavily again.

Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

As for longs, I noticed the trucking stocks broke above some long and major resistance today and may be putting in a major trend change right here. They have been moving higher for a little over a month, but today's breakouts put them at new highs, which is impressive and something worth noting. The best two I see are LSTR and JBHT, which I have posted below. The only thing I didn't like is they finished off their highs, but maybe I shouldn't be so picky.

Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

Homebuilders also looked strong today, but the XHB finished way off of its highs and seemed to hit resistance at the 200 day moving average. I am tempted to try some of these here, but they are not CANSLIM type stocks and there are probably better places to put your money, especially since they have already rallied quite a bit this past week.

Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

There were more stocks breaking out today, and I will try to post some of those later after doing my scans. OME and WSCI, both of which I posted yesterday, had some nice moves today. At the same time, MA, which I have seen many people talk about, put in what looks like a false breakout, so that is not good to see. Following-through on Friday's follow-through was certainly nice to see today, but MA proves that this is still not an easy market and it is important to remember that. If you have to make moves, make sure you keep them small and take profits quickly. Cash is still not a bad choice here. I hope to be back later with some charts. Good luck.

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