Wednesday, July 23, 2008

Looking for a Bounce in Commodities and a Pullback in Financials

Good evening, traders. Here is the USO. I've been saying that earnings and oil will control this market for the near future, and even today I think we saw that's true. Although I think we can still move higher on the overall market, I also think we are due for a pullback sometime this week, for several reasons. Oil did bounce mid-session today and that was the main reason stocks pulled back so sharply in the morning. But when oil fell back down and broke their intraday lows, the market tried to rally but really couldn't get near their morning highs. That tells me the market might be getting a little tired here in the short-term. That is certainly acceptable - the market has had quite a two weeks. I'm not saying this bounce is over - I think actually a pullback will be healthy and can tell us a lot about what this rally is made of. I am looking for 1270 on the S&P and 2300 on the Nasdaq to hold on any pullback. As always, I will look at the volume on the pullback as well - hopefully it will be lower if we get one.

Another reason I am expecting a little pullback is because crude oil is approaching an area where it could get some support and bounce. Longer-term, I think oil is likely done, but it is very stretched here and is due for a relief bounce. When I look at the oil stocks, they are extremely stretched as well in most cases. I will probably be completely wrong here, but the feeling I have here is that oil (and most commodities) bounces one of the next few days, and if that happens, then the overall market will likely pullback, as has been the recent trend. I would be looking to short any bounce we get in the steels, oils, and coals (even though I haven't been that successful with them so far) but would not chase them now as shorts.

USO

I am only finding a few stocks that interest me on the long side tonight, which is another reason I am leaning toward a pullback. Going through my scans, I continue to see stocks pop up that look to be forming bases, so that is a good sign. They just aren't ready yet, or some of the stocks I see need some rest. A pullback would help to form more buyable patterns in my opinion.

CRY, CRDC
PURE, ARST

Here are the shorts I took today - the patterns looked good to me and if the market does pullback, I expect these to do so as well. The stop loss levels are pretty clear as well so I am not risking very much on these positions.

CBI, UA, MELI

Just like the oils have been stretched to the downside, the financials continue to get stretched to the upside, although in what I believe is in a much more severe manner. I will be watching oil for a clue as to when to possibly take a shot at the SKF. I have thought about getting into this several times this week, and I am glad I've passed, because I would have been stopped out each time. The financials could keep going higher, but they are getting very overbought, and a rest or pullback could happen at anytime. Timing is the hard part here. I believe Congress is close to passing this joke of a bailout bill with housing this week, and maybe that will be a "sell the news" event with these stocks. Just a thought.

XLF, IYG, UYG, SKF

Many of the stocks that have bounced the past two weeks (autos, travel, casinos, retail) put in some reversals today and I am seeing many charts in these groups that look like they may head lower in the short-term. A few of these I would consider for a short.

LVS, WYNN
GM, AEO
MAR, FCSX
All Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

If you are looking for any shorts to day-trade for a quick drop, look at CMG, WFR, or NVEC tomorrow morning. They all had very poor reports, and you may be able to catch a drop of several points at the open tomorrow.

The trend is up overall, and I don't want to fight it too much here, but I think a pullback is due. I have no idea when exactly - it may not be until Friday or early next week for all I know - and just because it is due, doesn't mean it has to happen. That's the hardest part, and that's why I say chasing stocks is a bad idea right now, short or long. Tonight's earnings were good from what I saw (BIDU, AMZN, and QCOM are all up after-hours) so we may start tomorrow higher. I will mainly be looking at oil to see what it does around that $98-99 area in the next few days as a clue of what to do from here. I have my one long position (ISRG) and will continue to look to add more if they show up, but maybe just not right now. I will be out of the shorts I took today quickly if they don't work. We'll see what happens - again I think a pullback would be very healthy here and perhaps will allow this move upward to become smoother and longer-lasting. Best of luck Thursday.

6 comments:

Anonymous said...

I know you were long PLCE for a short time, any thoughts on that with the stock showing some weakness today. Flag still looks tight, volume wasn't bad.

Thanks,
Tom

Mac said...

Yes, I was and around 10:30, I was pretty excited about it, thinking it could be a nice winner. It still may be, but I didn't like the way it acted at all today - market was up and to have it reverse like that is not good in my opinion. That's not how a breakout should occur.

If you are still in it, I would definitely get out if it closes below $37.76 area.

Good luck.

Anonymous said...

I shorted SOL and then wanted to short some more, but the second time there were no more shares available (it wasn't on the "Easy-to-Borrow" list anymore). I was just wondering if you, or anyone reading this, would know (and it's probably a dumb question but this never happened to me before), is this a sign that there is some heavy shorting going on in the stock? Is there another possible reason they ran out?

Mac said...

A lot of it depends on the float of the stock, but yeah, in general, if your broker can't find shares to borrow, that's because there aren't any - they are already borrowed and being shorted.

I tried to short LULU today but there weren't any shares to borrow.

Hope this helps.

Anonymous said...

Thanks!

Mac said...

A few stocks (based on their charts)I am watching carefully after-hours as possible earnings-plays since they report today: (estimates listed)

CLS = $0.17
CPHD = -0.06
NTCT = $0.11
PCTI = $0.11
PLXS = $0.39
VISN = $0.09