Saturday, April 12, 2008

Some Weekend Charts

I hate to keep writing the same words, but I will. After going through my scans, this remains a market that is tough to figure out and difficult to consistently make money from. Very short-term trades are all that seem to work because the "trend" and signals seem to change daily. IBD had some good thoughts on volume during Friday's trading that I thought were important and keeps me just a little bit bullish...

"Headlines blared over the market's big price drop. At first glance, that would seem to make sense. Losses of this magnitude typically point to a market under heavy selling pressure.

But that wasn't the case this time. NYSE trading actually fell 4% compared with Thursday's total. Nasdaq turnover eased 14%.

In fact, GE traded 321 million more shares Friday than it did Thursday. Strip out the volume impact of one stock and you see an almost sleepy day for investors in the face of negative headlines.

Still, losses sting. For individual growth stocks to succeed, they need the major market indexes to be in an overall uptrend.

Yes, it's nice to see the market show resilience and shake off losses. Sure, it's better to have big price losses in quiet volume than really heavy trade."

They go on to point out some facts that keep me just a little bearish and more hesitant...

"But we still need to see some real strength from the broad market. That means solid up days in higher volume and a clear trend upward.

Without support from the broad market, quality stocks will have trouble making meaningful moves.

They also emphasize not placing big bets, and taking small positions only until things become more clear. I agree that this is the best way to trade this market if you must trade, and have been emphasizing this for the past few weeks.

In The Big Picture, we've stressed the same approach for the past several weeks: Let the market come to you. Don't make any big bets until you see clearer signs of conviction.

If you're going to take a risk and buy a stock, make it a measured risk. Buy only half a position, then wait and see how the stock acts. Buy more shares if the stock and the broad market improve.

And be selective. Don't throw darts at just any stock that's in the news, or at a big name that pundits are calling a bargain.

Stick to stocks with the best fundamentals and institutional sponsorship, showing great price-and-volume strength.

By following a sound set of trading rules, you'll limit your exposure to market pitfalls, while maintaining your potential upside.

If the market does turn for the worse, it won't be painful. You'll naturally be very lightly invested, since you'll have avoided making rash buying decisions."

Basically, it's a stock picker's market, and even the best ones are probably struggling. I still have cash sitting in my account, and although I have taken a few smaller trades, I have tried not to make major commitments, and I try to be quick to get out of these commitments if they turn against me. I am market neutral right now and am willing to play either side if an opportunity presents itself. Until more signs pop up that are clearly bullish or clearly bearish, that is my gameplan. Perhaps with the earnings season starting in earnest, we will get more of those signs and can get a more defined trend going that will make trading easier. We can hope, can't we?

Some possible longs if we head higher (who knows if we will???)....

Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

And some possible longs if we head lower (who knows if we will???)....

Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

This is a market in which you need to be prepared to play both sides, but play them very carefully. Best of luck next week. Ragin' Cajun is taking over/under predictions on his blog for the Dow this week and if I had to guess, I would say lower. That probably means we'll be higher. No one knows for sure. This week's earnings reports will likely dictate the answer, and that's why things should be interesting. Best of luck in the upcoming week.

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1 comment:

Mika said...

"trend" and signals seem to change daily.

Well, I don´t think trend can change daily ;). I love chart patterns, btw. I think your CMI chart have pretty bearish setup, didn´t look at from my software more exactly where does it stands, but it looks alike bearish HS + bearish triangle.

All the best & good luck in the market.

Regards JustCharts blogger.