Saturday, June 28, 2008

I Feel Weird for Writing This, But After My Scans, I Think I am Short-Term Bullish

Let me start by saying that something was going on at the end of the session Friday - I think I read somewhere it was index rebalancing or something like that. I found many stocks that had absolutely huge volume and I don't know why. That could be one reason many of the charts I see look good now. So I am a bit hesitant here to be bullish, but I have to go with what the charts tell me.

The major indices continue to look like crap but the Nasdaq finished off its lows and the Nasdaq 100 actually finished higher as you can see below. The Worden Report thought this was a very important event:

"The fact that the Nasdaq-100 pulled off such an unexpected trick suggests strongly that we are about to experience a change of character. It doesn't mean we have hit a bear market bottom, but it probably means we're going to have some kind of a rally (before we go lower). This adventurousness should spread from the little brother to the big brother (the Nasdaq Composite) and possibly into the Dow and SP-500."

Along with the fact the Dow and S&P have both hit oversold levels via my Telechart scans, and the S&P 500 is right at the lows of March, I think there is a good chance we have a rally next week. I still don't think it is going to be a great rally. I still don't think we are at the true bottom of this bear market, not with a VIX that can't get above 24. But based on the charts I saw in my scans, I think we'll get an overdue bounce that will relieve some of the oversold conditions we have seen. CNBC and the nightly news casts are all NOW reporting that we are in a bear market and how bad things are - that could be a contrary indicator short-term as well, according to the Worden Report.

"Another thread could help provide some short-term change of attitude. It was widely publicized today that the Dow has now retreated 20% from October and is now officially in a bear market. There are a lot of ways people could rationalize that into some justification for a short-term bounce. "

I originally thought a bounce would take us up to the 9 day moving averages on the indices and that is still a possibility. Those levels are about 400 points above here for the Dow(11,765), 65 points above for the Nasdaq(2380), and 35 points above for the S&P 500(1313). That could be a one-day rally, or a week long rally - I don't know. We could get even a little higher than those levels but I would be surprised if we did.

Major Indices

I don't plan on shorting much this week until we get a bounce. Once we hit the levels I just mentioned, I will be looking to get heavily short again. Right now, I don't see too many that are setup nicely. A few shippers are running into overhead resistance and could be shortable soon. Overall, it is quite risky to be shorting here unless we just crash, but I still don't think there is enough fear to get a crash here. I would be surprised if that happens.

GNK, DRYS, CDS, JST

If you are looking for some oversold stocks to play for a short bounce in the indices, here are some that are very stretched to the downside. As I learned Friday, I am not great at playing bounces so I don't know if I will be playing any of these.

TEX, OI, IGT, DDM

Time to sound like a broken record - commodities continue to be strong. Some of oils and coal stocks tried to sell off last week, but have bounce back nicely. Here are some of the best I see.

CMP, ICO, NCOC, SQM

We'll see if oil can hold onto its breakout on Thursday - many oil stocks continue to act well. If oil blasts higher, you may want to forget what I said about the bounce in the overall market.

ABP, FPP, ENG, WLL
EAC, MCF, HERO, UDRL
VQ, TESO, OMNI, SWN

As I stated in the title of this post, I am short-term bullish not only due to the oversold conditions, but also to what I found in my scans. All of a sudden, I had a lot of nice looking charts popping up. I am hesitant a bit in case this is just a situation where the index rebalancing has affected some of these stocks. This first group is some nice-looking stocks that are either low-priced or low-float.

VLNC, BCON, QTWW, NTI
All Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

Here are some China stocks that are standing out to me. If I decide to take another shot at playing a possible bounce next week, I will keep these stocks high on my watchlist.

ABAT, CAEI, HOGS, SDTH

There are some solar stocks that could be played for a bounce as well. DSTI is a new stock that looks poised to breakout here.

CSIQ, SOL, DSTI, ENER

I have posted a few of these medical stocks before over the past few weeks - the sector overall has been strong recently. ABMD is another one to look at.

IDRA, MASI, VVUS, CYBX
SQNM, ACOR, OME, BVX

Here are a few other stocks (mostly non-commodity) that have nice-looking charts that could be played if we bounce this week. FLS is another one to look at.

CAP, DMLP, GSI, ARST
IPHS, CPN, MFLX, FLS
All Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

We'll see what all this means next week. Oversold markets can stay oversold and become even more oversold, but most evidence points to us being close to a relief bounce. I don't think it will be much more than that, but it might be playable on the long side if you are agile and take profits quickly. Sitting out until the bounce actually happens and then loading up on shorts probably isn't a bad game plan either. It is a short week so that should make things interesting. Enjoy the weekend, and best of luck trading next week.

1 comment:

Frank said...

Thanks for the heads-up. I was also puzzled by the huge volumes seen on my watch list.

I did some search and it looks like something to do with russll re-balancing:
http://www.nasdaq.net/PublicPages/Russell_Rebalance.aspx