Thursday, June 12, 2008

Major Indices Rejected at Former Support Levels, Things Don't Look Good

Here are the major indices. You can see that all were rejected by prior support levels, and even though they finished off their lows, things don't look good technically here.

The Major Indices
Here are the two shorts I took today. I am anticipating more downside in both of these, but I won't be afraid to cover them for small losses if they do not continue lower tomorrow. I can let a few of the shorts I have gains in bounce a little and not be worried, but with the market getting oversold, there is no need to watch a short reverse on you and give you a big loss. If you're adding shorts right now, I would be quick to cover as to not get caught in a squeeze.

UA, MTL

Speaking of shorts, I am just not finding many that look good right now. Many are too extended to be safe shorts, so I will pass. Here are two new possibilities in the ag sector, but only if these two would break below their 50 day moving averages. NEU looked like it is starting to do that now. The only other shorts I see right now are EPIQ, which I previously posted and looks poised to break below its 50 day, and four from the oil sector that I posted last night - CRZO, PETD, APA, and ATLS. These only apply if oil falls here or if the overall market gets so bad that it pulls everything, including oil, down with it.

NEU, LNN
All Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

Speaking of the oils, they still keep chugging along. I saw weakness in a few isolated names today (WLL, MMR, EAC) but overall many still look good. A few of the recent high-fliers are starting to rest a bit, and although they need more rest, could be good momentum plays on the long side if you are so inclined. The names I would keep an eye on are CLR, PBR, PVA, GIFI, GMXR, GDP, BEXP, NGAS, BXP, ENT, PXP, CFW, CPE, and finally USO, which has formed a little flag here and could continue higher. That is not good news for the overall market. If USO would happen to gap below the $106 area, perhaps crude would be done for a while, as the pattern might turn into an island top along with a possible head and shoulders pattern. Right now, though, there are no signs of that happening.

I don't know why I am mentioning this, but there was one earnings-related breakout today (OCCF) that I will keep on my watchlist. Chart looks very good. With this market, however, I don't think I have the guts to play a breakout on the long side.

I know there are many stocks right now that are very stretched to the downside and look like great possibilities for bounces - the shippers stand out in my mind as an example. I read other blogs where traders are talking about buying these dips. I would be very, very, very careful playing this game. They call those stocks "falling knives" for a reason - they can cut up your portfolio when you play with them. If we had more extreme levels of selling in the overall market, I might think differently. I also won't deny that there is a possibility of those stocks bouncing here. I just don't know for sure that they will, so I will be staying completely away. I would only play for an oversold bounce when we really get oversold - I 'm talking at extreme levels. Like when the VIX gets up near 30 or 40 again(it's at 23.5). Like when the intraday put/call ratio is around 1.4 or 1.5(it ended at .95 today). Like when the T2108 is clearly under 20 (it's at 27 right now). Like when the number of stocks making a 50% move in a month is only 1 or 2(it's 11 right now). That's when I might play an oversold bounce - not here though.

Th
ings just don't look very good right now for bulls. Today's action was very poor. On the Russell 3000, there were only 22 upside breakouts today compared to 134 downside breakouts (taken from The Worden Report). As they pointed out to go along with that stat, breakouts usually don't mean the end of something, but rather the start of something. That is not good news for the stock market. Now is not the time to be a hero. If you have short positions, you are probably happy right now. Manage them, but I don't know if I would add more. If you are in cash, you are also probably happy as well. Stay in cash for the forseeable future. We'll see what tomorrow brings, and I'm sure the CPI will influence the early trading. I am interested to see how the government shows no inflation this month as gas climbs above $4 a gallon. I'm sure they'll find a way. Will traders believe them? That's the question. Best of luck Friday.


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