Monday, June 23, 2008

Oils Still Going Strong; Small Cap Indexes Forming Bearish Head and Shoulder Patterns

I discussed the Dow and S&P earlier today - each must hold where they are at or quickly bounce; otherwise they will likely be testing or breaking their March lows very soon. I put the Nasdaq and some smaller cap indices on here to show how poor they look now technically as well. The Nasdaq has very little support under it, so it needs to bounce almost immediately as well if we are to avoid more heavy selling this week. The mid and small caps are setting up ominous head and shoulder patterns that are easy to see on the charts. If they break the neckline, they will likely fall quickly, just like the S&P has since breaking its neckline two weeks ago. Things are not good technically. If you look at the stochastics on these charts, they aren't even oversold yet. It looks like things will continue to be difficult for bulls this week. Just think if the Fed actually follows-through on their fight against inflation and raises rates this week. Somehow I don't think that will happen however.

Nasdaq and Small Cap Indices

The oil trade continues to work, and there is no point in trying to fight it right now. For all I know, the sector could top tomorrow, but with the way the USO looks to be setting up, I somehow doubt that. I hear a lot of talk from politicians about what needs to be done to end the speculation in this market, but that's all it seems to be - talk. That's all it ever seems to be from politicians. Until some sort of substantive action is taken (raising margin requirements, Congress allowing drilling in new areas, etc.) I don't see oil falling severly. This is another blow for the bulls - as long as oil heads higher, I don't see the market rallying here. If the USO gets over $113, watch out.

USO, MCF, GW, SPN

The low-float, speculative oil plays continue to fly higher. If anyone has had the stomach to hold PDO through its entire run, congratulations! The funny thing is is that although it has been super volatile, it has rarely violated its 9 day moving average, as is true with most strong stocks. I entered SSN after-hours hoping for another quick swing trade tomorrow - I may be a little late though. FPP and MXC are possibilities as both have yet to break out to new highs.

FPP, MXC, ROYL, KOG

The agriculture stocks (part of the commodity groups) continue to act well as well. The DBA etf looks to be setting up in a bullish cup with handle pattern. I am considering starting a position in one of these stocks for my IRA - my only problem is that they are not as green as I would like - yellow shows just average accumulation. There is no doubt however that this is where the money is right now in the market.

DBA, TRA, MOS, CF

Steel stocks had a good day as well - check out NGA, MEA, and GSI. I would look at AZC as a possibly buy on this pullback. Some medical stocks are holding up well in the market too and I put a few of the best below. I am still not comfortable in going long anything outside of commodities, at least not until we get more fear in this market with much more oversold readings.

PARL, AUXL, BPAX, CRDC

I really didn't find a ton of short candidates in my scans tonight - I blew it by not taking some housing shorts today. Hopefully you were able to enter one of the ones I posted last night - TOL had the best day from the short perspective. I am also watching CDS, WBD (on today's bounce up to the neckline) and HAYN, but not were good enough to put a chart up. One play I may make is entering the inverse ETFs TWM or MZZ based on the head and shoulder patterns on the indices.

SVR, JST, UFPT, TWM
Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

Things remain very poor and nothing I saw in my scans changed my current outlook on things. The Market Monitor scans are close to moving to a long-term bearish signal and it wouldn't surprise me to see that happen over the next few days. There were more 4% breakdowns that 4% breakouts once again today. With sentiment moderating, I think it is clear that the indices need to bounce and rally very quickly, or we will start seeing some very heavy selling soon, particularly in the tech area, which is not that oversold right now. We'll see what the bulls can come up with tomorrow - I wasn't very impressed with today's showing. Best of luck Tuesday.

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