Tuesday, May 6, 2008

Charts Show Good Reasons to Be Bullish, At Least in the Short Term

My scans confirm one thing: this is one crazy market. I really don't know how we keep going up, but we do. As BearMountainBull points out, the transports led the gains today sector-wise, while oil set record highs. Does that make any sense at all? Fannie Mae reports a $2 billion loss, cuts its dividend, announces it's looking to raise $6 billion in new capital, and says the housing market is not going to improve this year. It finishes with a gain of 7%. Does that make sense at all? Events like these emphasize why it is important to pay more attention to the price and volume action of the market rather than the headlines.

Speaking of volume, it still doesn't look like the big boys are playing yet, as the Nasdaq's volume was barely over its 50 day moving average and the S&P 500 was once again under the 50 day moving average. It seems like retail traders and short covering are still able to keep pushing this market higher. If the institutions do start coming into this market, then maybe we really do have something very special on our hands here. As it is now, however, I still think they (retail investors and premature shorts) have to run out of steam soon. I have no idea how soon that will happen, and in the meantime, it makes sense to play the dominant trend as long as you can. When distribution finally shows up with higher volume selloffs, then I'll get out.

These are the stocks I entered today. I don't know if they will work or not, but I thought they were worth the risk. Right now, there are so many charts that look good, it makes it tough to decide which ones to go with. I will continue to use pretty tight stop losses on these and any stocks I purchase in case this party ends abruptly. I am probably going to look to take my profits a little bit quicker than I normally would.

Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

These are the main breakouts I saw today and talked about earlier. I do not like chasing breakouts so although I thought about taking a shot on a few of these, I passed and will wait for a possible pullback. My real problem is not entering immediately when I see an opportunity - I posted VIT last week on a pullback but didn't enter, and now I posted SUTR and GSI last night but didn't enter either. I guess if trading was easy, everyone would be doing it.

Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

All of these stocks below are acting almost perfectly after having big breakouts and could be entered around here, or have positioned themselves to be in buying position here. Pulling back and consolidating gains on lower volume is exactly what you want to see, and that's what these stocks are doing. I have a position in NUAN right now and am hoping for a breakout. There were a few blowups today (HA, CHD, PRGO) but as long as most stocks behave like this, you have to say things look good for the overall market.

Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

This last group is also acting well but needs a little more rest before becoming buyable. Several of these may be forming cup with handles.

Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

Even though I don't totally understand it, I am not going to complain at all about how this market is acting right now - I am just planning on riding the wave until it looks like the wave is over with heavy-volume selling coming into the market. Based on the individual charts action I see, we may have at least another week or two of positive momentum in this market. Remember however that we are overbought and things can change quickly in the stock market, so be alert - chasing here might not be the best game plan. There are plenty of charts to choose from that might offer up a lower risk entry. Best of luck tomorrow.

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