Sunday, September 14, 2008

Still Lots of Questions Out There, Look for a Volatile Week

After going through my scans this weekend and all my watchlists, my feeling are pretty much the same as they were on Friday. I just don't see myself doing much trading this week. Even if there were not all the questions I mentioned (Hurricane Ike, gas prices, Lehman, the Fed decision), there just aren't any really good setups out there that I see. There are a lot that could work in a few days, but only if certain other things happen news-wise. Again, that is what I call gambling and I don't like doing that. I also forgot that this week is options expiration, and there are always games played these weeks.

Technically, I put the index charts below but I have a feeling all of these news events will trump the technicals. The S&P is very close to what should be heavy resistance but the Nasdaq is kind of more up in the air, with no clear technical signals that I see.

S&P 500, Nasdaq

On the long side, I continue to see very few stocks with great fundamentals setting up great chart patterns. I like to use the BOP indicator in Telechart as a key signal in terms of looking for longs, and my BOP scans just aren't giving me any new charts. In fact, the number of stocks in my BOP scans have been at lows for the year for about the past three weeks - typically only 50-70. When the number of stocks in this scan start increasing and get over 100 again(which is where it was at back in April and May), perhaps I will start looking harder at longs. Until then, I have to pass for the most part. My long watchlist is below and you can see how small it is right now.

I am still focused totally on the short side but don't see many great setups here either. What I am seeing is a lot of commodity stocks (namely the coals and steels) that are bounce a bit on lower volume and will soon approach heavy overhead resistance. I put an example of the type of setup I am seeing below.


Here is the list I am watching: CLB, CLR, GNA, AGU, CMI, EGLE, MOS, CF, CMP, ESEA, GMXR, CRZO, ACI, MON, HK, PVA, CWEI, PCX, and ZEUS

So why do I have a problem with these? Well, if the Fed decides Thursday that they need to throw these stupid banks another bone and lowers rates, the dollar will get hit and commodities will likely rally. So although I do think these stocks will have a tough time getting through these levels, I would rather wait to see what the Fed does rather than getting caught in a surprise squeeze that gives me some quick losses.

Other than commodities, I do see some other stocks setting up bearish flag patterns from several different sectors. I am only putting up a few charts because of what I've mentioned earlier - I think this week could be among the most volatile we've had in a long while and establishing new positions may be difficult.

All Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

On Friday, I asked for some thoughts about this market and if it is stranger that bear markets of the past. During my weekend reading, I found an interesting post from Rob Hanna at Quantifiable Edges that seemed to at least give me some solace that I am not going crazy. It is the market, and we are seeing action that, as Rob stated in his post, is "nearly unprecedented."

Part of being a successful trader is knowing when to be in the market heavily, but also knowing when to be on the sideline doing absolutely nothing. I could be wrong, but I think this week is a week where being on the sidelines might be better unless you are a daytrader. The current situation seems more like gambling to me than trading. If you decide you have to trade, I would recommend taking profits quicker than you normally would, because you never know when a reversal will kick in, taking stocks higher or lower in dramatic fashion. With all of the news events this week (especially the Lehman news which I think could have a severe impact on the market Monday - just don't know if it will be positive or negative) I will likely have my screen turned off and take it easy. Good luck if you decide to make a go of it.

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