Tuesday, May 27, 2008

Energy Stocks at Short-Term Support - Will They Hold or Will Things Get Much Worse?

Here are a look at the indices. The Kirk Report today pointed out a possible similarity between today's charts and what they looked like in October. I do agree with his assessment after looking at the charts below. If history does play itself out again, we have a few more days of bounce action to deal with before the market breaks down further. We'll see if that happens.

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

I am very interested to see where oil stocks go tomorrow. The charts below show that the two main oil indexes are right at what should be strong, short-term support, sitting on both the 20 day moving average and trendlines. This would be a very likely place for these stocks to bounce if they are going to do so. I don't know if I expect them to or not. Right now, I am planning on holding my DUG and CNQ short positions to see if this move has more downside. If these levels are broken in the next few days, then this "pullback" will very likely turn into something much worse.

XLE and OIH - Oil Indexes
Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

I really found no shorts that are worth considering here, so I am not posting any. We need to bounce a few more days before the ones I pointed out this weekend will be in lower-risk positions for shorting. Here are some longs to watch. I would pay attention to how these stocks because right now, they are among the best I see. I don't plan on buying any of these, although with a tight stop loss, they could be playable as short-term swing trades if you think this bounce goes a little higher. Rather, I will simply watch for breakdowns in these stocks as a secondary sign that the market may be ready to head lower. Best of luck Wednesday.

Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

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