Monday, July 21, 2008

Things Remain Difficult on Both Sides of the Market

Here are the major indices, which in the case of the Dow and S&P, are right near major resistance. If they can rest a few days, I think they might be able to muster the strength to break over these levels. Right now, a pullback seems likely, especially considering the quality of earnings reports after-hours. The key will be the volume and intensity of the pullback. If we pullback like today, then the bulls should be very happy. I would like to see the 9 day moving average hold on any pullback.

Dow and S&P 500
Nasdaq and Russell 2000

Still not finding a ton of new charts that pop out to me as great possible longs. BMI brokeout today as it released earnings, but it is a little late to buy now. The others listed here are setting up, but none that I would jump on. I would rather wait for some earnings-plays to pop up in the next few weeks. If we rest quietly for a few more days like today, then perhaps more bases will set up, and hot stocks like the transports may pullback into buyable areas.

BMI, DAL
PLCE, CIR

The one area I am looking at as a possible play is the oils, but not yet. They need one or two more days like today, where they rally on weaker volume. Based on the charts I see (and these are only two - I will post more tomorrow if they setup) these stocks may be nice shorts on Wednesday or Thursday. The bounce in crude was not very impressive today considering how beaten down it was last week. We'll see where this goes, but I am watching it closely. I am also watching DUG and even SMN, which have both pulled back to trendlines here.

PVA, XCO

Here are a few others that I am watching for possible shorts. I am not getting in any of these too early because I think it will depend on the market selling off hard for any shorts to work right now. The patterns look good here, but there is so much uncertainty, especially with earnings season, that the patterns don't always work out, as I have found out this week.

CBI, GRC
SOL, ENER
CAEI, GU
All Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

That's about it. I still think we are kind of in limbo here and I don't want to make the same mistakes I made in February giving up a lot of gains trying to overtrade a choppy market. Right now, I think earnings and oil are the two biggest factors in seeing where we go from here. So far, earnings have not been that impressive, and tonight AAPL and AXP are both down big after disappointing, so tomorrow now looks like it will be a bad day. At the same time, with oil looking like it will likely head lower over the next few weeks, at least based on its charts, that could be a catalyst to push stocks higher regardless of earnings. With the lack of great individual stock plays showing up, and the crosscurrents of oil and earnings, I still just think it is best to be careful here. If you must trade, I would keep the timeframes quite short until we get a little more clarity. Best of luck Tuesday.

4 comments:

Anonymous said...

I'm itching to go long but I keep thinking we might put in one more low within the next week to ten days. Iran or that tropical storm pulling in might bump up oil, financials looking weak for the short term, or some earnings surprise, and we might just get a sell off with some spiking volume and bring the VIX up into the mid-30s.

Mac said...

I agree - I would love to be able to go long and get a nice month or two rally like we had in April and May. I just don't think it is quite time yet - not enough charts showing up. There will be opportunities, especially with earnings season, but you just have to wait for them to occur. The waiting is hard, I know.

I could see us testing the recent lows - that's what happened in January. That's why I think the next few weeks is going to be difficult and maintaining short time frames remains the best strategy if you must trade, at least from my perspective.

Anonymous said...

Probably the best trading blog site I've seen yet.

Anyway, a technical question focusing on
the 9d ema, w/o regard to other patterns:

do you play the 9d ema the same on both sides ? eg are your typical 9dema entries for both long and short pullbacks/ bounces ? Or are you stricter on short entries, mostly requiring a test & fail of 9ema resistance ?

Also, any general comments on using 9dema when looking for an exit ?

Mac said...

Thanks for the kind words.

I have found it works really well for momentum stocks on the long side in terms of pullbacks and knowing when a normal pullback might turn into something more significant. It is not perfect - nothing is in trading - but it works well. Prime example recently - look at SQNM or FSYS. SQNM still hasn't closed below it, and if you follow the rule of holding onto the position until it does, you can catch most of the move without getting scared out early. Same thing with FSYS - stop below 9 day would have gotten you out around $35.50.

For shorts, I use it as a possible entry area because the stop loss is so close - if it gets above it, I get out. This is for bear flag patterns. This isn't perfect either - these commodity stocks are giving me fits recently, always reversing up. In general, though it is pretty good. Same thing with the stop - if you catch a good short, you can use the 9 day as a guide of when to cover. For my trading style, I find it works well. I may get out of things a little early sometimes, but it also protects profits and keeps my losses low.

Hope this helps.