Tuesday, September 9, 2008

A Surprising Number of Decent Looking Shorts Still Out There

Good evening traders. Here are the major indices and things look quite bad for them, particularly the Nasdaq. Today was just about the worst response to yesterday's action that any bulls that are out there could think of. I checked out my Market Map scans tonight and found some bearish numbers. The selling of today was much stronger than the buying of yesterday. The number of 4%+ breakouts yesterday was at 555. The number of 4%+ breakdowns today was 1084. So you can assume that today's selling was about twice as strong as Monday's buying. That is not good.

When looking at the indices, I noticed that the stochastics are not nearly as oversold here as they were back during the July selloff. I also am considering the news flow right now. Fannie and Freddie were hanging over the market for so long, and now that problem has been taken care, so to speak. I am having trouble visualizing the news item that is going to cause another short-covering spike in stocks right now. I mean, we already have much lower oil prices, and that hasn't been much of a catalyst. I don't know how many more investment banks the government can come in and rescue, especially after doing so with Fannie and Freddie. So what exactly is going to keep this market from heading much lower now? I think the PPT may be very close to being out of bullets, or they may be out completely already. Either way, I don't know how much longer the government is going to be able to prop this thing up.

I get the feeling that this selloff may be very severe and sharp, much like the January one, where the market basically fell off a cliff. That would be in contrast to the July selloff, which was much more controlled and deliberate. Back in January, I got out of shorts too quickly because I assumed the market had to bounce. It never did - it just kept falling farther and harder than I expected. I hope to learn from that lesson right now. All in all, things don't look good at all right now. Of course, with my previous paragraph, I probably jinxed myself, so be alert.

S&P 500, Nasdaq

Here are the two shorts I took today. I am anticipating a bit with both because neither really broke down as I hoped today, but I am looking for more selling tomorrow. If that happens, I think both of these have some room to fall.

IPHS, CREE

I was surprised about the number of short setups I saw tonight that actually still look decent. I figured most would be well out of proper shorting area, and while a lot are (mainly commodities and some tech - don't even think about shorting these areas right now), there are some that I think have the potential for a lot more downside.

After swearing off the financials last night, I am back to looking at them. Basically, if you read my post last Thursday, you know why. I thought the Fannie news might keep these up for good, but after today, I have my doubts. I might stay away from SKF and try shorting a few individual stocks instead, although if SKF clears the $116 area, I may reconsider that as well. Here are some charts I am watching, and I see some interesting opportunities.

CINF, FCSX, EVR, MORN
FCFS, SUSQ, WB, COF

The casinos also look interesting to me here. I can see them breaking down through these support areas and falling at least a few points.

MGM, BYD, PENN, LVS

Here are a few other random short possibilities from different sectors.

FFIV, AMED, CFSG, DV
All Charts from Telechart 2007, Courtesy of Worden Brothers, Inc.

I mentioned earlier that I would stay away from tech and commodities. In looking at these oil, coal, and agriculture stocks, I would not be surprised at all if they bounce soon. They are all VERY stretched to the downside. I am still in my MON short but may look to take some profits if I can get one more big move lower. I am a bit frustrated with this short because POT, MOS, CF - all are falling huge amounts and MON isn't moving as much.

Right now, we have a very sick market and one that needs to be played carefully. Don't outsmart yourself here trying to catch a dip, thinking a bounce has to come. Bounces can occur at any time, but they don't have to - stocks can also go much lower than you think they can, especially since we are at the start of this move relatively speaking. Shorting looks like it will continue to work, but don't be lax in covering if your short moves against you upon entering. If we do get a quick short-covering rally, they are usually very powerful and can give you losses very quickly. Also, don't be afraid to take some partial profits as you get them - I may do so over the next few days if we continue to sell off hard. Good luck Wednesday.

2 comments:

Anonymous said...

Great commentary today. Do you think we will not see bottom until the VIX hits 30? Also, how much further downside to precious and base metals have? Seems like an endless bottom...

Mac said...

Thanks for the kind words. In terms of a bottom, I think we are a long ways off and I am looking for a VIX near 40 or even 50 in order for a really good bottom to be put in. We could be setting up something like that - this bear market has yet to have a true washout thanks to all of the government intervention, but things could be setting up for one. Earning season is coming up, oil has already fallen a ton, and seasonality is not in the bulls favor. I also don't know how much more the gov't can do to try and save the day.

In terms of metals, I have learned that stocks can go much lower than you ever think they can, but they are certainly stretched. A bounce would suprise me, but I will look to still short these bounces.