Saturday, July 12, 2008

Trying to Be Prepared for All Possibilities Right Now

I changed my technical look on the major indices and now, instead of focusing on the March lows, which are already broken for the Dow and S&P, I just see them being now in very steep downward channels. Until they break out of these channels, or at least over their 9 day moving averages, I will continue to stay away from buying any stocks. Right now, though, I think that breakout could happen soon. I still would like to see a washout, but I don't know if we will get it or not. I thought Friday could have been that day, and maybe it was with the action in FNM and FRE. Like I said yesterday, there is just too much uncertainty right now to be buying stocks and hoping to catch a bottom. You can get in a lot of trouble that way. I will wait for some technical confirmation, that's all. I put the levels I am watching on the charts below.

Dow and S&P 500Nasdaq and Russell 2000

I always like to be prepared for any situation the market throws at traders, so I do have a list of stocks I am watching to go long if we turn up here. I will not jump into any of these yet - I do not want to get whipsawed - but if the confirmation comes from the market, I will feel comfortable going with some of these charts. There are not as many as I would like to see, but I am finding some setting up with nice patterns and max or near-max levels of BOP, which is exactly what I look for in a long. I will also be on the lookout for earnings breakouts (like ENER and FSYS from last quarter) and won't hesitate to play them if the market turns up here.

ARST, CRMT, APWR, IDSA
ABAT, OME, AVAV, VRUS
FLIR, RBCAA, FCN, IXYS
MFLX, OFI, AUXL, ENER

There are some other stocks in my watchlist but I didn't put the charts up because they need a little more rest. They include EXAC, QTWW, ENG, MASI, CAP, IPHS, ACOR, BMI, TNK, CYBX, PARL, AZC, and MASI. A ton of medical stocks on these lists.

I am still willing to short stocks because the trend hasn't changed yet, but I don't think it wise to do it heavily. As every trader in American has probably stated at least once over the last two weeks, we are very oversold and sentiment is pretty bad. The VIX spiked a bit Friday and I would love to see it get into the 30's. We're not there yet though. I am also going to look to take profits a little quicker on any shorts I have, after seeing so many reversals and wild swings in the shorts I took last week. I didn't get hurt by any of them, but I had marginal gains that disappeared due to the choppy trading.

The shorts below are still heavily concentrated in the commodity area, and I am hesitant to short this area right now because the dip buyers came in strong each time they fell and looked poised to break down further last week. I am not finding many other shorts outside these areas, and perhaps this is a good sign for bulls.

BUCY, X, SCHN, ZEUS
BIDU, FSLR, VMW, XIDE
SQM, FMC, DSX, MEE
All Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

I am probably stupid for thinking this, but I still am looking for trouble in the oil stocks. Crude continues higher, but I don't think that means the oil stocks have to as well. They continue to be choppy, volatile, and their charts are very ugly. These are some I am watching as they bounce up to overhead resistance: EOG, BAS, NGAS, CNQ, XEC, APA. I am not saying I will short them, but I am keeping my eye out for failed bounces. I can see the market rallying and these stocks falling. I am probably completely wrong here though - we'll see.

The bottom line is that we are in a market right now in which absolutely anything can happen. News headlines from across the world are affecting trading greatly right now, and both bears and bulls seem to have itchy trigger fingers. Although not all sentiment indicators are showing it, I think there is a good amount of fear out there. In times of great uncertainty, trying to predict what will happen is not a great strategy in my opinion. I won't be looking to get aggressive (short or long) yet, but rather just wait a bit to see what happens. With a large bank (IndyMac) failing Friday, it will be interesting to see how the market opens Monday. I am still looking for a washout in which I can cover my shorts and maybe take some shots on the long side., but who knows if it will happen? Like the title of this post states, all you can do is try to be prepared for any possibilities. If you are, then you should be OK. Best of luck next week.

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