Monday, June 16, 2008

Most Indices at Critical Junctures, Nice Day for Oil Stocks

Here are the major indices, most of which have bounced now for three days, are no longer oversold, and are very close to key resistance levels. I think the next couple of days will be key for this market - if they break above these levels, then perhaps this bounce will move quite a bit more than I expected originally. This is also a logical place for this bounce to fail. I have no way of knowing for sure which will happen, especially on a volatile options expiration week, but I still lean bearish and expect more selling soon. Volume has gotten progessively lower each of the past three days. I hear many bloggers calling for rallies here. I am probably completely wrong, but I just don't see it happening here.

The Major Indices

Why am I still bearish? Here are a few reasons. In doing my scans and looking at my Market Monitor numbers, I found some interesting things. Here are the number of positive, 4% or higher breakouts the past three days: 210, 276, and 148. Here are the number of negative 4% or higher breakdowns the previous four days: 421, 257, 256, 642. As you can see, the selling pressure of the down move was much heavier than the buying pressure of this bounce the past three sessions. I also noticed something in the BOP scans I run each night. "Balance of Power" is a proprietary indicator from Telechart that I have mentioned before several times. It measure the underlying accumulation or lack thereof in a stock. Today was the first time in a while that I can remember that I had under 100 stocks fitting the criteria of the scan. The number is usually around 120 or so. I only had 90 tonight - I don't know if that means anything, but it is a bit worrisome that the number of healthy stocks with near max BOP levels have decreased as the market has rallied the past three days. Just wanted to point those observations out.

If we get a powerful follow-through on very strong volume, then I will cover any shorts I have and look for more longs. Until then, I have to be stubborn and remain more bearish except for the leading areas of the market - the commodities.

Oil stocks broke out nicely this morning, and many held up very well considering the way oil sold off in the afternoon after being up so big early on in trading. I entered these three today, but there were several others that had big moves (GMXR, XCO, HK) and I am encouraged that they didn't sell off in the afternoon. We'll see what happens with these - I would not be entering into them right now. Today was probably the opportunity to do so, but hopefully the momentum continues.

OMNI, CFW, NGAS, USO

There are stocks moving in this market, and most are earnings-related. I'm putting these two charts up to remind myself of this more than anything and to reinforce the power and simplicity of an earnings-related trading strategy. I posted both of these charts here and here when they brokeout. The charts also show the usefulness of the 9 day moving average when playing strong momentum stocks. Neither of these stocks have closed below this short-term moving average. Unfortunately, I did not follow my own advice with FSYS, or I would still own this stock. Patience in letting big gains develop is a difficult skills to learn. I still need to develop it better.

ENER, FSYS

Here are two other stocks that had nice moves today as well. Not buyable here though.

MED, ERES

Here are the four best, non-commodity related long possibilities I see tonight. Still not that many setting up in great patterns, and if we do continue to rally, I would not be optimistic of huge gains in individual stocks outside the commodity area because of this.

AUXL, ACOR, PCTI, WIND
All Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

Here are the two shorts I took today. The success of these will likely depend on the overall market and where it goes from here. Volume on their bounces have been less than impressive.

PCLN, FSLR

I read a lot of people calling for a major bounce in financials, and that may still happen. However, I was very tempted to take some SKF today as it is close to two areas of support, and I see many financial stocks rallying for the past three days on lower volume or up to trendlines that could be resistance levels that will be hard to overcome.

SKF, MS, LEH

These are the four best short-term short possibilities I see for this week based on their weak-volume bounces. If the market falls, I think these will all head back down and break their recent lows.

CMO, BNI, TEX, IR
All Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

That's all I've got for tonight. Tomorrow should be an important day but it is hard to trust any moves during options week. Best of luck Tuesday.


No comments: