Saturday, August 2, 2008

Always On the Lookout for Shorts or Longs, But Still Not the Time to Make Big Bets

Good Saturday, traders. Here are the major indices. We are still in a range, but I am seeing some possible flags forming on the S&P and Nasdaq. These patterns move up support levels for the market and if they can't hold these uptrend lines, then I think we could be in for more downside testing. The big numbers however are 2250 on the Nasdaq and 1230 on the S&P. If those don't hold, I have to assume we test the recent lows.

S&P 500, Nasdaq

In looking at my Market Monitor scans, I am seeing a lot of similarities with February. The main ratio keeps waffling between bullish and bearish, which proves that this market is trendless right now. The part that has me expecting more of a pullback is the momentum number, which compares the number of stocks up or down 50% in a month. You can see that it is getting pretty high, which means a lot of stocks are getting overextended. Typically, this means a pullback is due. Perhaps it will just be a pullback like the past two days on lower volume. I don't know - right now, I just see a lot of similarities between the past few weeks and late January/February. We did head lower eventually back then and set new lows in March, which did finally lead to a nice bounce. With the market only hitting 30 on the VIX back on July 15 and no true panic selling from what I saw, I tend to think we may need to do the same thing now before establishing a meaningful bottom. We shall see. Regardless, things remain difficult.

Market Monitor

One of the ways I can tell if a market is "healthy" or not is by going through my scans of individual stocks. I have been paying particular attention to earnings plays recently to see how they have been accepted by the market. The fact that I have seen very few work out well is not a good sign in my opinion. I talked about VISN on Friday and how I don't like that chart anymore, which really was acting perfectly. The chart below shows two recent plays that I am watching to see how they perform next week. I am not buying these here - just watching. If they get some heavy selling, that will be another sign of trouble to me for the overall market.

GXDX, ICAD

Here are a few fundamentally sound stocks that could be starting to form bases. I am not buying here, but watching them as candidates down the road if the bulls ever get going.

STEC, MPWR

Here are a few of the nice charts I see right now. Still not a ton out there. If I see charts like QLGC start to break down soon, I will know this market is due for worse times.

BVC, SQNM, QLGC, IMAX

Airlines are still setting up, although these are not typically the type of patterns I like since they are so beaten down. I will keep an eye on them however.

UAUA, CAL, NWA, DAL
All Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

On the short side, I am watching a bunch of stocks that were very beaten-down and now have rallied up to or slightly above their 50 day moving average on lower volume. If we do breakdown on the overall market, this list is where my main focus will be. They include RCL, FBP, FMBI, OSBC, WBS, GAIA, LFC, FEED, and OZRK, among others.

Shippers look weak here to me. Not all have broken down yet, but they can make nice shorts because they move fast, so I will be watching them.

FRO, DRYS, EGLE, TBSI

A few others that I am watching on the short side. These bear flag patterns are among my favorites to play. I want to see the market breakdown further though before shorting.

FCSX, VIVO, RATE, IBKR
All Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

My game plan hasn't changed. I am 100% in cash right now and although I may still take a few trades here and there, they will be small and I am not going to make any big moves until I see signs that the market is through with the choppiness of the past few weeks. That may happen Monday, or it may not happen to September. I have mentioned before that this summer has been pretty busy compared to past summers, and it is possible that in this final month, trading slows down a bit as traders take vacations. I will keep an eye on things, but there is no sign as of now that things are about to get easier in terms of making money, so there is no need to force things here. Patience is a great virtue in a trader, and that's what we need to have right now. Keep as much of your capital in tact so you can jump on some profitable setups when they come a week, a month, or a year from now. That's my game plan. Enjoy the rest of the weekend, and I will try to do a video tomorrow.

6 comments:

Anonymous said...

Great work Ryan! I am myself reading to be a position trader and like the CANSLIM strategy. Hopefully I will be able to bring more stocks to your attention in the coming few days....

Mac said...

Thanks - feel free to ask question about CANSLIM if you need it.

Anonymous said...

Thanks Mac! I am trying to get more TA involved in the CANSLIM strategy. I think I have pretty much narrowed it and am going to start testing it tomorrow (hopefully). More on it later today....

BTW, could you please look at WEL if you get the chance. I got in at 2.07. It had a breakout couple of days ago and has earnings due Tuesday. I have a stop loss at 2.48 and I think it is ready to go up some more. Thoughts?? Thanks!!

P.S.:I better get a username so I stop showing as anonymous!

Mac said...

I checked out WEL - to be honest, it is a little too low priced for my tastes but the chart looks decent - nice breakout on decent volume. Your stop is pretty logical - after that breakout, it is normal for it to pullback a little bit (which it did on Friday) but if it breaks below Friday's low, I probably would just take my gain and move on, especially in this market. I would say it is not "acting right" if it fell below Friday's lows.

As for earnings, I never like to hold into earnings unless I have a good sized gain in the position already. Just too much risk for my tastes.

When you say you are going to "test it" remember that a huge part of the CANSLIM strategy is waiting until the time is right to get into the market. Although we've had a FTD, IBD has still emphasized that being careful is still important and taking only half positions here is smart. Just my two cents. Good luck.

Anonymous said...

Thanks Mac!! If you dont mind, I will email you in the near future. Good Luck!

Mac said...

No problem. Email away.