Wednesday, June 4, 2008

State of the Market - 6/4/08

I was gone for most of the morning again so I am a little lost in terms of what went on today, but will give it my best shot. The market opened slightly lower today but quickly bounced higher. They consolidated around yesterday afternoon’s highs, and then broke to new highs and moved nicely until around 11:30. There was a slight pullback into the lunch hour, but then the market tried to break to new highs once again. They could not do so, and pulled back to start the afternoon off. The lunch time highs proved to be the highs for the day, as the indices stairstepped their way lower, forming several bear flags on the intraday charts and around 2:40, the selling greatly accelerated. But lest we forget that this market enjoys being very difficult, the selling stopped at 3:00, and the market bounced into the close. The Dow ended down, the Nasdaq ended up, and the S&P 500 closed flat. Volume was higher today as the summer trading season doesn’t seem to matter much right now.

Technically, nothing much changed from yesterday or Monday. The Nasdaq seems to be stuck between its 200 and 20 day moving average, as it bounced off both of these today for the third consecutive day. The Russell 2000 looks exactly the same. The S&P is still below its 50 day moving average after moving above it intraday the past two sessions. I still see a possible head and shoulders pattern on both the Nasdaq and S&P 500, but until they break below the neckline, then those patterns don’t mean anything. Support levels should be 12,260 area on the Dow, the 1370 area on the S&P, and the 2465 area on the Nasdaq.

As for my trading, I moved up my stop on some of my QID position to the breakeven point in the morning since I wasn’t going to be at my desk and was stopped out later in the session at $37.45. I broke even, as you would expect, but am down a little on the overall position. I also started a position in STEC as it broke out, but being away from my computer, I wasn’t able to get in until $13.78. I don’t like buying there, but this is a pattern that looks very strong so I will take the chance. The only thing I don’t like is that the BOP has not stayed green, although if volume comes back in now, I think it will turn green once again. I like the fundamentals – estimated growth of 76% this year and 97% growth next year. I actually added more at the end of the day as volume was absolutely huge, and the BOP did start to turn green again. I was also stopped out of PCX with a 2.1% loss – put a trailing stop on this morning, figuring if it is going to crap out here, it should do so quickly and suddenly. It certainly didn’t do that today and looks poised to move even higher after today.

I was tempted to try a few more shorts at the end of the day today, but I think I have made too many questionable trades the past two weeks and passed. This market kind of sucks right now for both bulls and bears. Today was a prime example – this morning looked very strong, and I was thinking that perhaps we might get a follow-through day on the Nasdaq. That obviously didn’t happen. Then the afternoon brought another sell-off, and I thought that the market is finally going to break down in earnest after fighting it the past two days. That obviously didn’t happen either. Let’s just hope this doesn’t last too much longer – I don’t care which way we go, just so we go one direction. It still looks like a stock picker’s market, and that’s about the only way I can describe it. As such, staying patient is important and showing discipline to only take really good trading opportunities is critical. I need more of that discipline myself. I am hoping STEC turns out to be one of those opportunities.

I would still lean a little bearish but that is really just a guess right now. I see a few stocks that look like nice possible longs, but I also see a few stocks that look like very good possible shorts. The story remains the same – if we follow-through, I would get bullish. If we break below the support levels mentioned earlier, I would get much more bearish. Hopefully, one of those two things will happen in the next two days. I’ll try to post some charts later. Best of luck.


Anonymous said...

Shorting some of the solars, mainly JASO, worked pretty well the past couple of weeks. They keep having fast break downs. Some of them dipped below their support levels already and might keep falling but I'm currently staying on the cautions side and cover as soon as there's signs of a turn. It also looks like there's some institutional buying going on with some of these stocks so I guess they're expecting a turn. Just my two cents.

Mac said...

Yes, some of them have definitely pulled back a lot. FSLR broke a trendline on May 21, but I didn't take with the 50 day moving average so close by. It has worked well though for those that took it.

Covering as soon as there is a sign of a turn seems to be what you have to do to protect gains in this market. Most stocks have been so choppy that taking short-term profits has been the only viable strategy. let's hope that ends and we can get a trend going.