Thursday, May 22, 2008

Lots of Breakdowns Today, No New Longs in Scans

For the second straight day, I found a total of zero stocks in my long scans to add to my watchlist. The IBD 100 index was down 1.3% today even though the market was up. These facts, along with the breakdowns I am showing below, all tells me that things are actually much worse below the surface of this market. I still think we could rally higher tomorrow in a low-volume manner, much like today. But based on what I see in individual stocks, I think that will just work off the short-term oversold condition and the market is likely headed lower. That's not fun to say - I wish this rally could have lasted longer - but it is what it is. I can't argue with what I see on the charts and there is virtually nothing I see that is positive right now.

Here are the breakdowns I am talking about. Many of these stocks were very strong at the start of this week and have become very ugly very quickly. This has me doubting the market will rally back to new highs anytime soon.

Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

I would still prefer the market to rise for another day or so on lower volume before entering shorts, and to be honest, I still don't see a whole lot of great setups. That is one reason I worry that instead of heading straight down, we may just chop our way lower much like we chopped our way higher through April and early May. There were money-making opportunities during that time, but it certainly wasn't easy. I think we may be headed for the same situation.

These are a few setups to watch. ISRG broke down today and may head lower from here. VMW is a stock that continues to be unable to get over heavy resistance, but it has been down five straight days now, so I won't be shorting it here. I am watching MOS and CF closely for a possible break of the 50 day moving average. There have been so many negative divergences in these charts that I wonder how much longer they can hold up.

Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

With a three day weekend ahead of us, I expect a relatively boring day tomorrow as well, much like today. We'll see if Wall Street wants to surprise us or not. It might not be a bad idea to make it a four-day weekend and stay out of any fray. Best of luck trading.

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