Commodities Running Into Overhead Resistance, Could Pullback Here

Good evening traders. Here are the major indices. I kind of see two different stories on the Nasdaq and S&P 500. The Nasdaq has pulled back rather significantly over the past week but volume has been below average. I could see this bouncing soon, perhaps back up to test the 200 day moving average, much like it did back in June before crashing for real. Meanwhile, the S&P has bounced the past two days - perhaps due to commodities also bouncing. If you check out the top from June, you can see it took a week or so of sideways action before the market really broke after breaking below the rising wedge. We could have a similar situation here. I guess I am slightly bullish short-term on the Nasdaq and neutral on everything else. I think the big, for-real breakdown is coming, but it might not be here quite yet.

S&P 500 and Nasdaq

The XLF still did not break below lateral support today, and in the face of the higher oil we've seen the past two days, I think that is impressive. I am not saying I am buying financials here - I just think it may also work its way sideways or perhaps slightly up a bit further before breaking down in earnest.

XLF

I still am not looking to get heavily long here, but I wouldn't be surprised if a bounce happens, so there are stocks I am watching for possible small entries. THOR, EL, ICAD, HIL, TACT, SAPE, ONNN, GFIG, TKLC, BRKR, ODFL, IXYS, OFG, and NPSP are some of the stocks I am keeping an eye on tomorrow.

The story the past two days has been the bounce in commodities and if you played any of these starting on Tuesday you are probably quite happy right now. I am not invested in any oil or energy stocks, but if I was, I would consider taking some profits soon. Here is the USO - it has bounced impressively but the pattern in this overall market for the past month has been one of bounces not lasting long, and drops not lasting long either. With USO near some overhead resistance around $93, I wouldn't be surprised to see a pullback soon.

USO

As such, I may look at attempting a few shorts in the commodity sectors. I saw a lot of individual setups tonight of stocks running into resistance, either in the form of former levels of support or moving averages. If they get to these areas, putting a short might be a good risk/reward play assuming you have the discipline to get out if they do end up blasting through these resistance levels. You can check out the charts I have below as examples of what I am talking about. Again, my main reason for thinking this way is that this market can't keep trends going for more than a few days, so if that holds, I expect the commodities to pullback soon. Buying DUG or SMN might be a way to play this possible pullback as well.

PXP, SWN, ECA, EGY

CXO, PXD, MCF, REXX

ACI, BTU, ICO, PCX

JRCC, ANR, MEE, WLT

MOS, AGU, MON, POT

GLD, AEM, KGC, GG

All Charts from Telechart 2007, Courtesy of Worden Brothers, Inc.

A few stocks in other sectors that I am watching as possible shorts are PENN, CMX, CREE, HST, SOHU, CINF, CSUN, and MFLX.

I am likely going to be away from my computer tomorrow morning as well for meetings, so I don't know if I will be able to make any moves anyway. If I do, I will still keep them smaller than usual due to the lack of volume I discussed in my earlier post. I do see some stocks setting up in patterns that may work, so my interest in the current market is a little higher than it was the past two days when I saw virtually no setups. Be careful regardless - it's still a tough market. Good luck Friday.

Tags: THOR, EL, ICAD, HIL, TACT, SAPE, ONNN, GFIG, TKLC, BRKR, ODFL, IXYS, OFG, NPSP, PXP, SWN, ECA, EGY, CXO, PXD, MCF, REXX, ACI, BTU, ICO, PCX, JRCC, ANR, MEE, WLT, MOS, AFU, MON, POT, AEM, KGC, GG, GLD, PENN, CMX, CREE, HST, SOHU, CINF, CSUN, MFLX