Thursday, July 17, 2008

Not Many Quality Stocks Showing Up as Buy Candidates - Not a Good Sign

Here are the major indices. The Dow and S&P 500 still have some overhead resistance to deal with, but the Nasdaq and Russell 2000 have cleared some hurdles. Futures look to be lower tomorrow with the disappointing earnings reports we saw this evening (COF, MS, GOOG, MSFT) so we'll see how the market reacts and if some dip buyers come in. I think that will tell us rather quickly if the past two days were just some major short covering or real buying from the big institutions.

Dow and S&P 500
Nasdaq, Russell 2000

One major plus for the overall market is that crude oil looks like it has definitely put in a medium-term top here, at least. The channel it was trading in was a long-term one, and by breaking down through the channel and below the 50 day moving average in back to back days, this chart looks very bad. Right now, I kind of expect a bounce in crude, possibly up to the bottom of the channel. Of course, I expected a bounce this morning and got myself out of some very profitable positions way too soon, so you may not want to listen to me. If nothing else, I wouldn't be shorting oils here - wait for a bounce, and then I would load up.

USO

The only problem I have with being really bullish here is that I am not seeing that many new charts pop up in my scans, even after the past two days. This weekend I posted the best charts I saw in the market setting up in possible bases. After two days of big gains in the market, very few of these charts have done anything. That is not normal action - these healthy looking charts should be taking off, and more should be popping up.

There has been a lot of buying interest the past two days - both had over 550 4% or higher moves each of the days, which is a lot. Interestingly enough, however, only 13 new stocks popped up over the past two days in my BOP scans, which look for healthy stocks with heavy accumulation. The numbers I have gotten from this scan the past two weeks have been very low, and the past two days did little to increase the number. That makes me a little wary to get too bullish here. Harry Boxer is a trader whose commentary I follow, because he focuses on small-cap, fast moving stocks, the type I like to trade. He pointed out tonight that there were no stocks up on his "board" more than a point today, which considering the gains in the overall market, is very unusual. For me, it just doesn't add up, and I therefore am waiting for a follow-through day before believing in this rally.

Here are a few of the nice charts I see, but there aren't that many more out there.

VRUS, CIR, PURE, HA

One area I may be interested in getting long in is gold as it pullbacks. I will be watching it tomorrow - I have a feeling it will stay strong and move higher from this recent pullback.

DGP, RGLD, KGC, AEM

Here are the shorts I took today. As you may guess, I was happy to see some of the poor earnings reports after-hours as hopefully these shorts will work out OK for me. I thought the setups made them worth the risk. Again, neither of these stocks moved much today even though the market was up big. What's up with that?

RIMM, SOHU

Here are the commodity shorts I took. I am a little less optimistic about these, although around 2:00 they looked very good. The fact that they finished off their lows makes me think they may bounce again, probably just enough to stop me out. We'll see what happens.

FDG, CLF

I actually saw more shorts setting up tonight that I did longs. These patterns look pretty good from my perspective, but if we gap down tomorrow, it might be hard to get a good entry.

BIDU, DECK

Solars were weak today and look shortable again after bouncing for the past week. I would also look at FSLR and LDK as possibilities as well.

SOL, SPWR

Even some of the big bouncers from the past two days look shortable to me here. Unfortunately, LEH isn't allowed to be shorted anymore, thanks to the all-knowing powers that be.

LEH, MTH
All Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

With options expiration tomorrow along with the droves of earnings reports, tomorrow will be volatile. As of now, it looks like we will be in for a lower open, and it will be interesting to see if buyers step up. The Worden Report tonight explained that in a bottoming process, the first bounce is often retraced and the recent lows are often violated. Perhaps we could be setting up a scenario like that. The fact that we never had a panicky selloff, along with the quality of stocks in my scans the past two days, has me still leaning bearish here. I am just taking the attitude that the market needs to prove itself to me a bit more. I have nothing against a rally starting here - I am all for it. It's just that I don't see a ton of information that points to that occuring, at least not from my point of view. If that information does present itself, I'll change my focus and be ready to go the best I can. Best of luck Friday.

6 comments:

Anonymous said...

I think this rally in the past couple of days in the indices is mostly caused by short covering in the sectors that were beaten down hard, such as banks, brokers, etc, and I'm quite sure we haven't seen the bottom yet. I wish I realized that yesterday as I covered my shorts in other sectors.
Just wondering, I read most of your posts, but I don't see you mentioning divergences with MACD or any other indicators, which to me is a powerful and very useful signal.
Also, 52-Week-New-High-New-Low.
Any reasons for that?
I have one of O'Neil's books but I haven't really read it yet. Seeing the quality of your stock picks makes me want to read it. As far as books, I probably learned my most valuable lessons from reading Alexander Elder.

Mac said...

There are a lot of indicators that people find useful. For me, I think price and volume are definitely the most important to focus on, and that's what I try to do. I will use a few other indicators like the BOP and Moneystream from Telechart, but those are only secondary and I would never base a decision simply on those. Sometimes I think the more stuff you have to look at, the better chance there is of making a mistake. I don't want to overload myself with too much information.

If you haven't read O'Neil's books, you must start there. They are the basis for any of the great traders that you see out there like Dan Zanger. I have adapted my style a bit from the pure CANSLIM style - I am a little more short-term focused - but those books are tremendous, especially in a bull market. Hopefully we'll have one of those someday.

Thanks for the comment.

stucktrader said...

thehawaiitrader pointed me your way. i wish i had a chance to take my time to check out the turn around on oil. thehawaiitrader gave you props on that, and i saw it happen just as you said. but i didnt participate.

nice play on RIMM/SOHU. they were on my screen. but i got so distracted with figuring out GOOG, that i also missed out on setting up for MSFT.

thx for your insight. i am such an amateur on bear reversals. i have no problem buying puts after enduring the first half of the year. (my puts lost). now i am learning from pros like yourself. thx.

Gio said...

Thanks for the RIMM rec. I sold my puts on them too early, but I think its still okay to get some long term puts here.

It's funny that you spot Hawaiian Airlines (HA) as a good long... just to let you know, since I live in Hawaii, Hawaiian Airlines main competitor, Aloha Airlines, went bankrupt and sold off all their assets about 2 months ago. HA has monopoly over our inter-island flight business. HOWEVER, we do have a new Super-Ferry that offers an alternative source of transportation. It was met with much opposition, but now is accepted.

Also, HA opened up some new international flights, for example to the Philippines... Hawaii is FILLED with Filipinos, and they fly to Philippines often.

Just thought I'd let you know about HA the business environment.

Oh yeah, and short Bank of Hawaii (BOH).

-gio

Mac said...

Stucktrader - thanks for the kind words. I don't know that I'm a pro - I still make my share of mistakes and learning each and every day.

With the oil, I got out too early, so even though I saw it, I didn't profit from it as much as I hoped. I think I let a bad trade get to me - again, mistakes are always going to be made.

Gio - I really do need to see HA pullback a little on quiet volume before I would get interested, but I will watch it. It is one of the few airlines whose stock price was not at all time lows a few days ago. This would depend on oil bouncing and failing too.

Citigroup lifted the futures, so who knows what the market will do today. I am still hesitant to buy things here.

Gio said...

"mistakes are always going to be made."

... that's what makes a trader a great one, that he can admit that, and move on to the next trade. There's ALWAYS another great trade out there. If we missed one, or messed up on one, just make sure it doesn't ruin you so that you miss the next one!