Sunday, May 4, 2008

Some Short-Term Stocks for an Overbought Market

These are the two stocks I entered pre-market on Friday. I plan on moving my stops up to breakeven and see if they can follow-through on their nice moves Friday.

EXM, CDS
Charts from Telechart 2007, Courtesy of Worden Brothers, Inc.


As I said in my last post, I am a cautious bull here and am still willing to take longs on a short-term basis. I think there is a chance distribution doesn't show up in this market for another week or two even though we are quite overbought. Too many people are shorting this market and until they finally give up and start buying on the long side, I can't see us heading lower yet. I do think a move lower is coming sometime soon, however, so any long trades will be made with tight stop losses and I will take profits quicker. Here are a few charts I am looking at right now.

THC, HMA
NUAN, DRYS
TECUA, CHNR
Charts from Telechart 2007, Courtesy of Worden Brothers, Inc.

There are several others that I would like to see rest a few more days before taking a chance with them, even on a short-term basis. These include DECK, CYBS, GDI, GA, CPO, MPWR, ARBA, and PWRD.

I read a lot of traders write about the top in commodity stocks and that may be very true - I have written about that possibility myself, and after the last two weeks, that possibility certainly still exists. However, some of the oil stocks I see are holding up well - BEXP, NGS, DRQ, MCF, FST, XCO - all of these have held support or pulled back on lighter volume. I am watching these in case commodities have put up another one of the "false tops" they have put in several times already this year. Regardless of what every says, these charts look pretty good so I have to pay attention to them.

I am not looking to short yet, but if distribution does come into the market earlier than I expect, I do want to be ready. These are some names that are bumping up against some overhead resistance and could stall around here.

VMW, LEH, FWLT, APOL
Charts from Telechart 2007, Courtesy of Worden Brothers, Inc.

This should be an interesting week for the market as the aftermath of the Fed decision and jobs report should be out of the way completely, and the market is overbought in several measurements. We could pullback right here or continue higher for a few days or a week before pulling back. Bottom line is I think we have to pullback at some point soon. The main thing I will watch for is the volume - we haven't had much on the ride up, and if it starts showing up on the pullback, I think things could worse in a hurry. We shall see - I am looking forward to finding out what Mr. Market has in store for us, and I am trying to be prepared as best I can for whatever it might be. Best of luck trading this week.

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