Tuesday, June 17, 2008

State of the Market - 6/17/08

Things looked good for bulls today before the open of the market, as Goldman Sachs put out a nice earnings report, core PPI was in-line with expectations, and oil was lower to start the trading day. This optimism led to a moderately higher open, from which traders quickly decided to start selling. The selling lasted for the first hour of trading. The market tried to bounce from there, but that bounce didn’t last for more than about an hour, and stocks fell to new lows going into the lunch hour. It took the Nasdaq a bit longer to break its intraday lows than the S&P and Dow, but it also did a little after 12:30. After hitting new lows at that point, the market tried bouncing weakly a little through the afternoon, but really couldn’t get going. Around 3:15, more sellers came in, sending the market to new lows for the day. They held in a range for the last half hour, but stocks still finished near those lows and with moderate losses across the board, although the losses in the small and medium caps were not as large as the Nasdaq and S&P. Volume may be a little heavier than yesterday but was still not very heavy.

Technically, I said yesterday that the Dow, S&P, and Russell 2000 were all right up against resistance levels, and those levels held strong today, pushing stocks lower. I would say that today’s highs need to be overcome on stronger volume for this “rally” (I prefer the term bounce) to continue. As a bear, the selling was nice to see today, but I can’t say it was intense and for this market to really roll over, it has to become more intense than this, with volume increasing as the selling occurs. With options expiration, I have no clue if the selling will build on itself or not – I am hopeful it will, but this market likes to throw us curve balls. I find it interesting that the VIX was down earlier in the session and closed up only a small amount – that shows there wasn’t much fear out there today.

Shorting FSLR proved to be a poor decision, at least in terms of the timing, as I was stopped out quickly this morning at $281.94 for a 2.3% loss. My mistake was not waiting for it to rally above the 50 day moving average – I should have known it wasn’t quite done, although volume remains pathetic and I still think this could be a good short. Congress voted against tax breaks for solar and wind companies so that could be a catalyst for selling in this group that was already looking rather weak except for CSIQ. It took every bit of discipline I could find to not short this stock again in the afternoon but I did indeed pass. IF it breaks lower through its 50 day moving average, I will look at shorting it again.

I also went against most of the advice I have been reading recently and did enter SKF(the inverse financials ETF) at $119.37. The opening gap down took it right to its 20 day moving average, and with a trendline right there as well, I though it was worth the risk. I may also be wrong here – maybe the financials really are putting in a bottom here. The action in this today, however, tells me that perhaps they have not. I’ll likely move my stop up to breakeven and see what happens from here, but the position looks good as of now. I also shorted CMO at $12.68 on what looks like, based on volume, a dead-cat bounce up to the 50 and 200 day moving averages. If it gets over these moving averages, I would cover, but I think the risk/reward ratio here is pretty good. I debated shorting BNI here, and it will probably work out, but I passed.

The oil stocks I purchased yesterday and the others I posted this weekend continued to make nice moves today, even with crude being down for the day. This is where the momentum is right now in this market, and there is no reason to go long in any other sector than these commodity areas. I don’t know how long the momentum will last – JRCC looks quite parabolic to me – but I have said that before about other stocks in this sector and have been proven wrong each time, so I don’t plan on fighting the momentum right now.

The story remains the same from my perspective - the market started breaking down two Fridays ago (June 6), has put in a weak volume, oversold bounce, and with some resistance ahead, this would be a logical place for it to start heading lower again. Based on the action of individual stocks, I see no reason to change that thinking. Today was what I would call an average showing by the bears - I was hoping for more. They need to do better than this at some point this week if things are really going to decline. Otherwise, we'll likely just get more chop. I will get bullish if we somehow have a heavy-volume follow-through day this week, but I am not expecting one as of now. The best options remain cash, shorting these bounces, or running with these commodity stocks, most of which are too extended now. If my scans show me anything different, I'll be back later to talk about it. Best of luck.

By the way, I have no clue why Blogger is being stupid with these fonts all of a sudden. I usually type in Word and then cut and paste it into blogger. I've never had a problem, but now all my fonts are weird. I updated to Firefox 3.0 today - perhaps that has something to do with it. Maybe I need to just type strictly in Blogger. Any computer guys out there with any ideas?

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