Tuesday, July 1, 2008

Market Put in Bullish Reversal, Could Bounce For A Few Days

Here are the major indices. Bullish reversals were put in and on heavier volume, although I can't say this was capitulation in any fashion and I think that's what is going to produce a bounce or rally that is tradeable for a longer period of time - kind of like the one we had from March to June. That's just my opinion - I could be totally wrong and this could be the start of a major rally. I just don't think it is. Besides the low VIX, I see no charts setting up at all, just none. In March, I started to see some nice charts popping up, and that was a signal that perhaps things were going to get better. All I see now is beaten-down chart after beaten-down chart, and of course the commodities. Without those new nice charts showing up in the scans, there is no reason to get bullish here. I put areas on these charts where I expect a bounce will run into some trouble, but it is possible with short covering that the indices get over the levels I marked. With lots of overhead resistance, I don't think they will get much higher, however. Those areas are where I will be looking to add shorts and inverse ETF exposure in my IRA.

Dow and S&P
Nasdaq, Russell 2000

If you want to play this bounce, you may be able to as long as you have modest price targets and take the profits as you get them. I would be looking for possible 5-7% moves in individual stocks as the best case scenario. Again, I could be wrong and maybe we will have a more significant rally. I don't expect that, and if I play any bounces, I will tighten my stops as I go if I get any gains and probably take profits at those 5-7% levels. I don't think this is a situation where you're going to make a killing, and you might just be better off sitting out a few days and waiting to get short again. I attempted to get in a few of these stocks after-hours but with no luck. I will not pay up for them - we'll see if I get in any tomorrow.

ABAT, SINA, TEX, UYG

Here are some of the shorts I will be watching over the next few days for possible entries for shorts. I want to focus on the volume mainly - as long as the volume is lower, I will feel comfortable taking a shot at these as they get close to resistance. For instance, SOHU bounced today but the volume wasn't there. That's what you want to see in a short - a weak volume rally up to resistance.

SOHU, RIMM, SVR, VMW
HPY, GNK, NCTY, CAI
FCSX, ANGO, NIHD, CBI
All Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

Best of luck Wednesday. We have the oil inventory numbers coming out at 10:35, and that will likely have a big effect on trading, as oil does everyday. Just because today looked bullish doesn't mean we have to rally. The action on the Nasdaq 100 last Friday looked bullish too, and we proceeded to sell off most of the next two days, including today, so you never know. Right now, I am guessing I won't do anything tomorrow since I didn't get into any swing longs today - just wait on this bounce and be ready to pounce when it plays itself out. I am hoping we can get the oversold condition worked off and some of the charts I posted above rally just enough to put them in great position for low risk shorts. We'll see if that happens. See you tomorrow.

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