Monday, May 19, 2008

Shippers and Solars Breakdown, Oil Going Parabolic

First of all, a correction for my prior post. When I checked my IBD graph around 4:20, it showed the Nasdaq had higher volume than yesterday (it still shows that). The paper tonight, however, did not count today as a distribution day. On Telechart, volume was high but not as high as Friday. I will go with that for now. The indexes are still in their channels and until they break down below the trendline, it may not be a good idea to get too bearish. If we get more distribution in the next few days, then I would get more bearish.

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

As the title of this post states, some of the hottest groups got destroyed today, shown in the charts below. I mentioned yesterday that these groups were going parabolic, so today's reversals did not surprise me. They look very poor after today, but it may be a little early to say for certain that they are done. If they bounce tomorrow, buyers might come in and push them higher like they did in early October.

Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

Speaking of parabolic stocks, oil and metal stocks continue to do nothing but move higher. I would love to short the heck out of some of these stocks, but I don't know how smart that is - it is always a big risk shorting a strong stock and trying to time the exact top. They may run even further before being hit. Look at the following stocks - HUSA, HERO, CPE, PCX, SM, XEC, MEA, PDO, ROSE, NFG, PBR, GIFI, EAC, FPP, SNG, GGB, EGY, HES, PXP, MEE, GEOI, ENT, WLL, PXD, CNQ, FST, WTII, BEXP, HP, SCHN, CHK, SU, TLM. I can't say their daily moves are as big as what I saw in the shippers and solars late last week, so maybe they have more room to run, but their angles of ascent is certainly getting very steep, and I question how much longer they can move like this without having a meaningful pullback.

Not a ton of stocks that I am looking at for longs right now. After having a few really good days, I think I will just manage my current core positions. This is the first time in several days that I did not take a position at the end of the day or after-hours. I don't know why - I just have a hunch these momo plays are done working so easily. Buying CPSL or PEIX after-hours and flipping them in the morning seemed too obvious for me right now, so I passed. How many days in a row can this play work? I could be wrong - maybe they will keep working. But when money seems very easy to make - and it has been with some of these China stocks - that is usually a warning sign.

PSEM is a stocks I have owned for a week and I certainly liked the breakout today. Volume was very impressive. I will focus on the follow-through now - it still has a little resistance around $19.50 and I am interested to see if it can get through that. I would consider adding to my DGLY position if it holds this area like it should. There are several layers of support here and if it doesn't hold, I would be very discouraged. RICK is a stock I considered at the end of the day but I passed. It looks good here if you are so inclined with a tight stop below this area.

Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

I am starting to look for shorts in case we start moving lower here, and these are some setups I see and are worth watching. To be honest, I don't see a ton of short setups, but the agriculture stocks looked weak today and would be a prime target if the market breaks down. Remember, however, that there are still a ton of shorts out there, so playing this side of the market will likely be difficult.

Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

Not really sure what to expect tomorrow. Last time we had a reversal like today, the market came back the next day and put up large gains. Who knows, that may happen again. Given how overbought we are, however, it makes sense to tighten stops a bit here and refrain from taking any new positions unless they are really attractive. That's what I plan on doing. Good luck Tuesday.

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