Wednesday, June 25, 2008

State of the Market - 6/25/08

Lower oil prices and oversold conditions led to a nice open for the market today, as stocks gapped up slightly and then ran higher from there for about the first hour and half of trading. Oil prices took a big hit today as oil inventories came in higher than expected, and this appeared to be a major catalyst for the bounce, as has been the case for the last few weeks. Stocks pulled back a bit going into the lunch hour and trade got quiet as they consolidated their morning gains a bit, probably in anticpation of the Fed decision. Around 1:10, the market popped a bit and rose into the actual Fed decision, which was a bit bizarre because oil moved higher at the same time. When the actual decision came, it was the typical crazy action - down, up, down, and then finally up around 3:00, when the market broke to new highs. That didn't last long, as the market reversed quickly and fell hard during the last hour, putting stocks near their lows to end the session. Volume appears to be a little higher.

Technically, all the major indices put in rallies today that took them off the lows of their channels, at least through the first half hour of the session. The Nasdaq looks like it is now in a downtrend channel as well, just like the S&P and Dow. However, today's close was extremely bearish. I've talked about the importance of the 9 day moving average before for use as a short-term support or resistance area, and both the S&P and Nasdaq zoomed right up to that moving average in the afternoon before reversing. The 9 day for the S&P is at 1335, and for the Nasdaq it is 2420. Check out the highs for the day - right at those levels. The Dow couldn't get up that far. I would expect the highs today to act as resistance once again. It's possible that short covering could take them slight over these levels to the top of their channels, because you never know what will happen after the Fed decision, but that's about as far as I see them going. For now, I am sticking to my belief that this is simply part of an oversold bounce. I see no reason to change that opinion, especially considering the late action(although again, that could be a fakeout). If we break the recent lows, it won't matter how oversold we are - things will get much worse.

The only thing I can see that may bring optimism to the bulls is a few sentiment numbers. The Investors Intelligence numbers for this week show 33.7% bulls and 39.3% bears, which is a number (for the bears) than last week. The VIX also continues to act very strange as it has now fallen below its recent trendline and the recent breakout looks like it could be a failure. At the same time, what type of market bottom occurs with the VIX getting only as high as 24??? I always try to look at both sides of the market and never get too locked into one outlook. The main problem I have is that even if this is a longer-term bottom(and I see no reason to think it is), what on Earth is there to buy? There are virtually no charts out there that look nice. Technically, cash and shorting these bounces still look good.

I covered my SVR short today @ $16.87 for a 9.3% gain. It was hit with a downgrade this morning, and I figured it would probably bounce after hitting the 200 day moving average around $17. In my experiences, most downgrades are only temporary setbacks for stocks - not true catalysts for a big move lower. The $17 area was my target area anyway. Still, it stinks to see it go lower once again, although it did bounce back like I expected later in the morning. I could have used a trailing stop once it got to $17 and probably picked up a bigger gain while still protecting the gains I had.

I was stopped out of my SYNA short one day after taking it for a 4.6% loss. Looking back, it wasn't smart to take a trade with the market quite oversold. I was going with a hunch, and the hunch was wrong. I didn't think it would be able to get over its 200 day moving average, but it did. I will keep an eye on this to see about shorting at another time. My other shorts (CRDN, HSC, CMO, and SPWR) were volatile today but I am still in all of them. I considered adding to them today but will wait to see what tomorrow brings for the market.

I thought hard this morning about shorting some of the oil stocks I mentioned (APA, EOG, ATLS, DVN) and showed last night, but with the inventory numbers coming out at 10:35 along with the Fed decision later, I felt the need to wait and see what the news would bring. I didn't feel like being whipsawed right away, although the stocks were breaking down early on in the session. I am glad I waited. I was thinking what I would look to do is play the SMN and DUG inverse ETF's if they get above their 50 day moving averages. I thought that would signal a possible trend change in this area. Based on the reversal in most of these stocks today, however, I don't know if that trend change is going to occur any time soon. The USO held short-term support, and it obvious the Fed isn't going to do anything about it, so I would not be surprised for oil to continue higher.

I know I am not a Harvard-educated economist, but does anyone beside me continue to think this Fed are just a bunch of idiots? They had another perfect opportunity to pop this oil "bubble" (if it is one) today with oil selling off. A rate hike today would likely have sent speculators running and knocked oil prices down significantly. That, however, would take balls. It would take guts. Sure, there probably would have been short-term pain in the market and in the financials, but longer-term, these higher energy prices are what is going to destroy our economy. I can't believe they can't see that. Haven't enough bones been thrown to these banks that have no one to blame for the problems they are facing but themselves? How about standing up for the consumer just once, for the middle class just once? I knew that wasn't going to happen. I don't know how anyone can have faith and confidence in these "experts" right now. Inflation is going to "moderate later this year and next year"???? Idiots. How much better would we be if we just got rid of this fradulent institution? How I wish that could happen. I believe our country would be much better off for it. As it is, I don't know how the market can take today's decision as bullish, but we'll see what they do with it.

That's about it - another bad day for the bulls overall based on the late day action. The only thing I will say is that Fed days are notorious for their volatility, and it always seems to take a few days before the market lets us know what it really thinks. There remains no reason to be a hero here, trying to buy dips. Meanwhile, I am seeing a lot of stocks set up again as short possibilities and with just a little bit more of a bounce, I will jump on them. I'll try and put some of these up tonight. Best of luck.

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