Wednesday, July 16, 2008

Today was Nice, But Follow-Through Will be the Key

Here are the major indices. The Dow and S&P are lagging the Nasdaq and Russell 2000 here, which cleared some resistance today. The only problem with today's action was the lack of volume - I would expect more if this was the start of a big move, at least more than the day before with the Nasdaq and Russell up over 3%. I think bulls need to see some quick follow-through tomorrow in order for this bounce to be different than any of the other one-day squeezes we have seen for the past month or so. In a news-driven environment, that may be hard to do. JPM's earnings report tomorrow will likely have a big influence on tomorrow's trading.

DOW, S&P 500
Nasdaq, Russell 2000

These are the two stocks I gave in on at the end of the session and entered. The positions are not big, and to be honest, I don't have high expectations for them. Perhaps I will be pleasantly surprised. The RBCAA chart does look very good. It will all depend on the follow-through for the overall market. As always, I plan on keeping my stops tight - I will not wait around to see what happens if these reverse and head lower tomorrow.

RBCAA, EZPW

With oil falling the past two days, the transports have had a big resurgance. ODFL rose on earnings today, so that is one catalyst that added with lower oil, could really push this stock higher, depending on the overall market. I would not be buying here, but if this rests for a few days to form a flag-type pattern, then I may become interested.

JBHT, ODFL

This is a chart I posted over the weekend I believe when it broke out above $9.50. I am posting this now because this is the nicest chart I see right now in the market, and I am upset I am not long. Sometimes I let the overall market affect my decision making too much. If this stock happens to rest a bit and consolidates these gains, I will be looking to enter.

ARST

Here are a few stocks to watch for tomorrow. If you decide to play any stocks on the long side, I would partial my way into positions, adding to them as you go if the stock moves higher. We are in no way in the clear after today, and you still need to be very careful with any purchases because we could just as easily be down another 200 points tomorrow.

FLIR, CIR, VRUS, AVAN

Two retail stocks that look decent and have high short interests. If the market does run, then these might get pushed higher from short covering.

PLCE, TRLG

Commodities were hit today as the financials rallied. I am glad I took at least half of my gold position off the table yesterday, and was able to sell early enough today to keep most of my profit. I don't think the U.S. dollar is in for a miraculous recovery here, not with the Fed and Treasury backstopping anything that looks like it might fail, so I will look to get back in gold after a pullback. Oil looks very toppy here and could breakdown further. It may bounce tomorrow after being down for two straight days, but based on the oil charts, crude does look weak. If perhaps oil is topping here, that would be a good thing for the market.

DGP, USO

I am still kicking myself for not being short the financials this year, but I don't think they are done going down. You'll probably here a lot on TV that everything is fine now, but all I see when I look at the charts are stocks bouncing off the bottom of downtrend channels. I may look to short some of these if they continue to rally up to the top of these channels.

C, LEH

I am not looking to reshort stocks just yet - I want to see what the next two days bring for the market - but I always want to be prepared for anything. Here are some shorts that could work if we fail this latest bounce tomorrow or Friday. The volume I saw on many bounces was not great today. The only other stocks I am watching as shorts are still the commodities, although I wouldn't chase the oils here to the downside. Wait for them to set up better.

HIBB, PSEM
RIMM, BIDU
All Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

We'll see what tomorrow brings, but let's remember that this market continues to fool most of the people out there. Everyone (including me) thought the market couldn't continue to go down as fast as it did the past few weeks without at least a little rally, but it did. Now everyone seems to think a rally of a week or two is a given here. Maybe it is, but I wonder. Frankly, nothing that would happen tomorrow would surprise me. If we get an IBD follow-through day starting on Friday, then I will lean bullish, but for now, I will just try to be prepared for anything. I have a few shorts and a few longs now, but I am not heavily invested in any one position and will try my best to just react to what the market throws at us. With the news-driven atmosphere we are in and options expiration Friday, the next two days could be quite crazy, so be careful, but we should be used to that by now, right? Best of luck Thursday.

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