Saturday, May 10, 2008

Lots of Cup with Handles and Flag Patterns Setting Up

Here are the charts of the indices. The bulls defended the trend lines on Friday and until we close lower than these on higher volume, there aren't too many reasons to get extra bearish. Right now, the past week has allowed us to work off some of the overbought condition the market had and relatively speaking, the pullback has been orderly, with only Wednesday as a distribution day. If volume ever came into this market on the buy side, I would get very, very bullish. Unfortunately, it hasn't. I find the low volume of the past month and a half quite interesting considering summer hasn't even started yet.

S&P 500, Russell 2000
Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

As the title of this post suggest, I see a lot of flag and cup with handle patterns forming in my scans. I like to see stocks that have had big moves consolidate their gains in a healthy manner, and that is what these patterns are showing. Volume has been very quiet in most of these pullbacks. I wish these stocks had more green BOP - they are certainly not perfect. But based on the fact that my short watchlist is pretty much non-existent, whereas I am finding many possibilities on the long side, I have to still lean bullish, and just remain cautious on that side of the market.

I have put some fundamental information on these charts as a way to remind myself to focus just as much as time on that aspect of stocks as I do investigating the patterns. I have been frustrated the past few weeks because I don't think I've been trading as well as I can. I have taken positions just to have them quickly get stopped out, or not make much progress. I have sold too early in several positions. Meanwhile, I have posted charts like GSI, VIT, JRCC, GENC, CSIQ, SUTR, and APWR on this blog before they made big moves but have not entered into most of these. The ones I have had positions in (CSIQ and GENC) have been stopped out early due to poor entries, and I haven't made any money in them. Hopefully, I can fine-tune my stock selection by focusing on these fundamentals a bit more.

Here are some of the flag patterns I am watching. I like DGLY a lot just because it is a new stock. The second group here really needs more rest so I would wait a few days on them.

DGLY, JRJC, AUTH, ISYS
EXM, GA, VIT, IPGP
Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

Here are some of the cup with handles I am watching. These stocks aren't perfect however - some are choppy, some have very deep cups (more than 30% off their highs), and very few are bright green with high BOP levels. If volume came into the market here, I think these stocks would turn greener and would probably put in some nice runs.

CNQR, DECK
BMRN, WBD, DV, BIDU
CYBS, PSEM, NUAN, JASO
Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

Two stocks that have pulled back nicely to their 50 day moving averages, and could be bought with stops below that level.

TECUA, XIDE
Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

Here are two stocks I am watching but not interested in right now. They need a little more rest but can really move in a hurry.

FEED, SOL
Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

I didn't put up any shorts because I really don't see any setting up that excite me. If LEH doesn't break lower soon, I will probably go ahead and cover. If we head lower on higher volume, I will probably just play the inverse ETF's. I don't know if we will head lower, however. This remains a very difficult market overall. There are sectors and stocks that are working, and sectors and stocks that aren't working. If you're a good stock picker, you may be able to make some money in this market - it just won't be easy. We'll see what next week brings - hopefully we get some volume on one side or the other to make our job a bit easier. Best of luck in the upcoming week.

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