Monday, June 16, 2008

State of the Market - 6/16/08

A lot of volatility today on Wall Street, as a number of news items, including a downgrade of GE, an earnings report from LEH, and a new record for crude oil prices caused traders to start selling at the open. A low was put in around 10:00, and from there stocks rose higher for the next hour. It looked like there was a possible bullish reversal being put in, as the Dow and S&P almost got positive after being down a good amount near the open. Stocks pulled back, however, from there into and through the lunch hour. If you look at the intraday charts of the Nasdaq and the USO, they mirror each other almost perfectly from an inverse perspective. As soon as crude started falling in earnest a little after 1:00, the markets shot straight up to new highs for the session. They held those new highs pretty well into the final hour, but could not break to new ones, and sold off moderately in the last half hour of trading. I guess most traders were like me and watched the U.S. Open playoff all afternoon today, because volume was absolutely pathetic.

Technically, every major index, including the small caps but excluding the Nasdaq, is running right into more resistance levels on their charts – I will show these later tonight. The Nasdaq does have some more room to run if it wants to. With as pathetic a volume total that we had today, I have to still lean to the side of this being an oversold bounce that will soon lead to more selling. I have no way of knowing for sure, but I have to lean that way. I am also seeing absolutely pathetic volume on many of the bounces in individual stocks – makes sense with the overall market volume. Technically, high volume selloffs followed by lower volume rallies cannot get the bulls very excited.

Commodity traders – look out! The top in oil may be now upon us. The reason I say that has nothing to do with the reversal in crude this afternoon. I say it somewhat in jest (at least I hope so). It is simply because I entered into three oil positions this morning – two in my regular account(OMNI @ $6.58, NGAS @ $9.09) and one in the IRAs (CFW @ $8.47). If that doesn’t signal a top, I don’t know what will. Like I said this weekend, many of the oil stocks have formed very nice looking patterns here and based on that, I think they head higher. OMNI was breaking out of a triangle pattern today – I tried to enter pre-market but couldn’t, and then for some reason waited a bit to enter – cost me a little on the entry price. NGAS looked like it was breaking out of a flag pattern and had very high early volume. CFW was also breaking out of a flag pattern on higher volume. The pullback in oil prevented these from running like I hoped, and I will use some short-term moving averages as stop loss levels. I hope they follow-through on these attempted breakouts quickly, however.

I was also stopped out of PCLN in the morning as it got above its 50 day moving average for a 4.6% loss. I am ticked off at this stock – doesn’t make sense for this to rally as oil spikes to new highs, but that’s what it did, and I can’t do anything about it. Looked like a good short and just didn’t work out – I got in a little too late likely. As it turns out, it closed lower than where I covered (typical for me) and I reshorted it at the end of the day since it closed below the 50 day - perhaps a revenge trade but it does look shortable again to me. I was also stopped out of UA with a 3.75% loss – not enough volume on this down move and I should not have added to it. That also closed a bit below my stop loss level. I really need to have the guts to wait until the close on some of these stocks so I don’t get stopped out intraday so much.

I took a small position in FSLR as a short late in the session as well ($276.46) as it is right at its 50 day moving average and the volume has fallen off each day of this bounce except for the one day where it reversed and nearly closed lower. Today’s volume was pathetic. My stop loss is pretty clear and the risk is low.

I don’t know how much we can take from today other than oil still plays a huge role on the psychology of this market, and that there have not been that many interested buyers the past three days based on volume. I have noticed that on the blogs I read, many of the writers are now getting bullish and expecting a nice rally here. Maybe they will be right. I prefer to wait for a follow-through day to take place starting tomorrow before I would change my bearish tune. So far, price and volume wise, this looks like a textbook oversold bounce to me. That’s just my opinion. If the reversal in oil proves to be something meaningful over the next few days, then I can see this “rally” continuing. Until that actually happens, I have to think that cash, shorting these weak volume bounces, and commodity longs are still your best bet. This week is likely going to be very difficult and volatile due to options expiration, so whatever your outlook, be careful. I am going to watch this last playoff hole, do my scans, and I will be back later with some charts. Best of luck.


Anonymous said...

I agree. I don't see any strong signs yet that this might be the beginning of a nice rally. If that doesn't change then this might actually be a good opportunity for some nice short entries.

Mac said...

If volume was stronger the past three days, then I would be more willing to become bullish. It hasn't, and because of that, I have to remain bearish. If we follow-through on heavy volume (not the barely over the day before crap we had a few weeks ago) I will change my tune and become more bullish.