Thursday, May 15, 2008

State of the Market - 5/15/08

A flat open for Wall Street today as traders were not necessarily anxious to continue selling stocks like they did for the last hour yesterday. In fact, they were more interested in buying them, as stocks rose slightly throughout the morning, pulled back around 11:00, but then again rose higher at the start of the lunch hour. After hitting their highs for the day around 12:40, stocks drifted sideways for a bit. A little after 2:00, the Nasdaq tried to break to new highs as it flirted with its 200 day moving average once again, failed, but then went right back up to new highs for the day. Unlike yesterday, the market came on even stronger in the final hour, and finished with medium-sized gains for the day. Volume was still not super heavy or even above average, but it was higher than yesterday. Considering yesterday, today was a pretty impressive showing from the bulls.

Technically, the Dow and S&P are still bumping up against resistance, even after today’s gains, and still have to deal with the 200 day moving average. The Nasdaq is now officially above its 200 day moving average, but hasn’t exactly exploded past it and is quickly approaching the top of its channel around 2550. The Russell 2000 was not able to close higher than yesterday’s highs and also still has the 200 day moving average to deal with. I am still seeing some very high numbers on the Market Monitor that signal a pullback, perhaps a sharp one, is becoming very likely, so that is something to be aware. Of course, I said on Tuesday that I expected a sharp pullback on Wednesday or Thursday, and we obviously didn't get that, so who knows? The one other thing that I see that worries me a bit is the number of small, speculative stocks that are running huge amounts (see below). Some of this is earnings-related, but in the past, often this has signaled a short-term turning point in the market. So there are some technical reasons to be cautious here, but you also don't want to miss a big run by getting out too early.

I was not able to be at my computer this morning so I was a little worried my stops would be hit too early on RCH and CAAS and I would miss a continuation of yesterday’s momentum. At the same time, I know I can’t just let these sit on their own because they can fall just as quickly as they can rise, so I did use some trailing stops and hoped for the best. Luckily, the only stop that was hit was CAAS, which gave me a gain of around 4%. Not great and I was hoping for more, but what can you do? I wasn’t by my computer yesterday afternoon either and had to set a stop and hope for the best. It didn’t really move much – the momentum was no longer there. I would expect it probably heads lower from here. RCH was awesome today and I was very relieved to see that my stop was not hit when I did get back to my computer around noon. I said yesterday that I thought it could keep running or at least would pop up at the open, and that’s why I reentered in the after-hours. Obviously, I am quite happy I did that. I was stopped out at $10.15 when it broke below intraday support, but that still left me with a 20.7% gain from last night. It still sucks that I was in at $6.15 on Monday and got stopped out the next day – that would have been quite a gain – about 65% in three days. Oh well, I am not perfect and will never be – no trader is and I need to remember that sometimes.

I was stopped out of my QID hedge for a 3.5% loss as the Nasdaq did break to new highs today. So much for yesterday’s last hour reversal. This does not bother me – I just wanted to protect myself a bit in case we head lower. I am still in my AAPL short but we’ll see where that goes. Unfortunately, my other positions didn’t do very well even with the up market, but I am OK with that. FSYS needs a rest and it did that today on lower volume, which is what you want to see. DGLY put in a bearish reversal in the morning but did finish off its lows and volume wasn’t as high as the previous day. OFI continues to consolidate its gains and as long as it holds its 9 day moving average, I will be fine holding it.

Still lots of stocks moving higher in this market, and many are due to earnings. Possible earnings-related trades I saw today include:

· PNTR ($0.16 vs -$0.06, 63% sales increase)

· NSYS ($0.23 vs. $0.11 – 118% increase, 12% sales increase)

· TYM ($0.08 vs. $0.01, 74% sales increase)

· SINA ($0.27 vs. $0.16 – 87% increase, 39% sales increase)

· ANW (148% sales increase, but only 12.5% EPS increase)

I tried to enter NSYS at the end of the day but for some reason, Scottrade would not allow me to online. Stupid.

A few of the other possible trades I mentioned yesterday did really well today – hopefully you got in one or two of them. I didn’t since I was away from the computer. PDO exploded in the afternoon – up 68%. Guess why – earnings. They reported EPS numbers up 1000% ($0.22 vs. $0.02) and sales up 92%. This is one of those trades that is hard to enter because by the time you realize it is up so much, it is too late to safely enter. This could run more due to its very small float, but is already up a huge amount so it is very, very risky up here and as much as I would like to take a chance on it, I have to pass. I remember posting this chart when it first broke out on April 19, but I was waiting on it to rest before entering. Sucks now. NCOC was up another 20% after yesterday’s breakout and looks very good. Since there was no obvious catalyst for the move, I really didn’t think about entering into it. That also sucks.

Certainly there is a lot of action right now in individual stocks and money to be made out there. This market may totally fall apart all of a sudden and cause a lot of late buyers a lot of pain, but as of now there is nothing obvious that says that is imminent. Until there is, I would remain bullish, although chasing stocks is certainly not advised and being careful and disciplined is always a good thing. Volume still hasn't grown tremendously, but as long as people keep shorting this market, then perhaps the market can continue higher. I'll be back later with some index charts and the big movers of the day. Best of luck.

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