Friday, February 29, 2008

State of the Market - 2/29/08

Not a good day today in the markets, as more poor economic news along with some disappointing earnings from AIG and DELL caused a weak open, and just like yesterday, dip buyers were nowhere to be found, as the indexes sold off quickly, moved sideways through the lunch hour, but then sold off more in the afternoon and into the close. All indexes closed near their lows of the day, and all did so on the heaviest volume of the week. There was some dispute as to whether yesterday was a distribution day, but there was no doubt today. With all indexes being down at least 2.5%, this certainly was not a good day for any bulls out there. My market monitor scan turned back to being bearish today after only four days on the bullish side. Back in early December, this ratio turned positive for only one day, before turning back. A major downmove started five days later. We are still above the lows of February and this market (or should I say the government and CNBC commentators) has had a way of making things difficult for bears, but after today, most signs point to lower prices next week.

Technically, all the indexes are now below their short-term moving averages (9 and 20 day) but again have not broken the February lows. As crazy and unpredictable as this market has been, I guess it is possible they will hold these lows next week, but I would say that if the bulls can't put a stand in there, then this last month will be confirmed as simply a bear market rally and the second major move lower will be underway. In addition to the indexes, I saw several sectors break down as well - namely the financials and retail sector. If the commodity sector, which has been the only sector which has been able to sustain its breakouts, succumbs to some selling pressure (and it is definitely overbought), then the markets could really tumble. I don't think the work the oils and steels and agriculture stocks are doing to hold this market up can be underestimated.
S&P 500
Nasdaq
Retail Holders
Financials


I did start some small positions in some shorts today - I am kicking myself for covering a few early this week without really needing to, but the action was positive at that point. I was tempted to enter some of these oils and metals that are showing up like SII and NOV but I am really going to try and focus on weaker sectors. I lost too much trying to short the strong sectors in February and I don't want to make those same mistakes again. I am also working on my entries into these positions - this month, I lost discipline by taking whole positions right away, and when I was whipsawed and had to cover, my losses were bigger than they should have been because of this. If we continue lower next week, then I will look to add to these shorts or perhaps establish more.
CMI
MW
NSR
WFR
Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

I will be back over the weekend with some more charts to watch. While it certainly looks like we are headed for lower prices, remain careful. This market has been propped up before with rate cuts and rumors so with support nearby, I wouldn't be surprised to see another effort to keep us from breaking down further. I am finding out this is one of many reasons shorting is difficult. Good luck.

Thursday, February 28, 2008

Slight Correction

After looking at the final volume on the S&P 500 and the Dow, today was a distribution day because volume was higher. It was still well below the 50 day moving average. However, if we get one or two more distribution days soon, I would definitely change my slightly bullish outlook. I also noticed that according to my Market Monitor scans, we almost crossed back over to a bearish signal - 812 to 811. That tells me there is a lot of uncertainty on both sides of the market right now and that although the early part of this week was bullish, we could still go either way here. I would trade accordingly - take only small positions if you must trade or better yet, wait until we get a little more clarity. Being that we are at the end of the month probably doesn't help things either. Good luck.


UPDATE: According to IBD, today was not a distribution day, but on my charts I still have volume being a bit higher on the S&P and Dow, so I am not sure where they are getting this from. It was not up much at all so maybe they are taking that into consideration. Either way, I still am hesitant to do much of anything right now long or short until we get more clarity. For what it's worth, my short watchlist is growing while my long watchlist is shrinking. Good luck.

State of the Market - 2/28/08

More grim economic news in the form of increasing unemployment claims, new lows for the dollar, and higher oil prices caused the indexes to start the day weak. They tried to bounce after this initial weakness, as has been the trend recently, but this time the bounce failed and the markets stayed weak throughout the midday hours. Another bounce attempt occured around 2:30, but this one also did not last, and the market sold back down into the close. However, the only indexes with losses over 1% were the mid and small caps, and volume appears to be lower today, so there will not be a distribution day either. I can't call the selling heavy or severe, and because of that, I am not taking much of out of today other than we are pulling back after the big moves of earlier in the week.

It is certainly not surprising to see markets pullback here as they have quickly ran into several layers of strong resistance. The 50 day moving averages are going to be very difficult to get over, and the highs from the beginning of February will also be tough, since they will signal a higher-high being put in. We have to watch carefully for how this pullback plays out. If volume continues lower, then I welcome it. If volume becomes higher today or into next week, then we could be in trouble in terms of the rally lasting much longer. News continues to be awful so there certainly is a wall of worry to climb up. I can’t remember the last time we actually had a positive economic news clip. Bernanke continued to emphasize today that growth is slowing and inflation is growing, yet said that our current state is nothing like the 70’s, when we had stagflation. I believe the definition of stagflation is “slow growth with high inflation”, so I don’t quite know what he is talking about. A big part of me still feels that there is much worse news ahead, and a lot of it is simply being covered up to help prevent this market from going lower. But my opinions really don’t matter at all, so until I see the market clearly fail here, I have to stay disciplined and follow the market action, which leans me more bullish than bearish.

I was stopped out of YTEC today for about a 4% loss. The reversal a few days ago was a sign of weakness and I could have sold out right there, but I’ve seen reversal days amount to nothing, so I wanted to make sure. I haven’t taken any trades since CREE and really don’t see anything that looks exciting to me yet on the long side. I actually see more short-side trades, which probably makes sense since we have rallied up to resistance here. It is still a tough market unless you are invested in commodity stocks so we need to be careful on both sides of the market. Just because today was weak does not mean you jump on a bunch of shorts. I’ve said the past two days that it was not the best time to jump on a bunch of longs either since we were a bit extended. The best plan of action tomorrow and into next week is probably to wait until we get over these resistance levels before initiating any more longs – if we can bust out over them, I have a feeling many more traders will join the party, lifting us higher. There is still a ton of doubt about the sustainability of this little rally, so a lot of people still need to convinced before jumping on. I guess you could also start some small positions in favorite stocks as they pull back to their 9 or 20 day moving averages, with very tight stops right below those levels if we pull back more, and then add to these positions if/when we do break out on the indexes. That is the riskier way to play the rest of this week, but it may be more profitable as well. I probably won't be doing much of anything until I see more setups. Good luck tomorrow.

Wednesday, February 27, 2008

Charts to Watch

A few possible trades for tomorrow. The shorts are dependent upon reactions to earnings - if the reactions are positive, I will simply take them off my watchlist, but with FWLT having a terrible reaction to earnings last week, MDR and FLR are worth watching.

JASO - Swing Long
FWLT
MDR - Possible Swing Short
FWLT - Possible Swing Shorts
Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

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State of the Market - 2/26/08

New day, same story with the stock market today. As has been the recent trend, a weak open along with more dire economic news was quickly bought up and the market rose throughout the morning. After lunchtime, the indexes tried to sell off and did for about an hour, but once again showed resilience and bounced back into the close. The Dow and Nasdaq closed with small gains, while the S&P and Russell 2000 finished with small losses. Volume was lower. Overall, however, this was another productive day in my opinion. After three pretty big up days, as well as a rather poor economic picture being painted by Bernanke in front of Congress, the afternoon sell-off had every reason to expand into something major. But it didn’t, and I think that’s key. There seems to be a genuine change in sentiment, and buyers have stepped up here to buy weakness. That doesn’t mean we can’t still selloff, or that we will continue higher from here. But based on the recent action, it looks like the trend is still up and like it will continue to be up for the near future.

I hear (read) a lot of people that sound totally perplexed as to why the market is rallying here in the face of such dire economic news. On the front page of Yahoo Finance, the following headlines are front and center: “Oil at record high of $102 a barrel”, "Dollar falls to new low against the Euro”, “New home sales drop for 3rd straight month”. Ben Bernanke talks to Congress and basically says our economy is slowing, the housing market is still deteriorating, and while all of this is happening, inflation continues to rise. It really doesn’t make any sense from a rational perspective why this market is going up. Believe me – I am personally having lots of trouble understanding it, as well. A big part of me still expects this to all fall apart at some point in the next few months. It is, however, very important to remember that it doesn’t really matter if it makes sense or not. The only thing that matters is that the market is going up. You can either get on for the ride, however long it might last, or you can sit and try to decide why this is happening. By the time you have everything figured out, the rally will be over and you will have missed the entire thing. Worrying about or trying to figure out the “why” can cost you a lot of money in the market. The reason behind this will come out in due time. The only opinion that really matters in the stock market is the one owned by Mr. Market himself. That’s the one you need to pay attention to and follow, not your own.

From a technical perspective, the Dow is right arount its 50 day moving average and still has to contend with strong resistance around 12770. The small caps are also right near their 50 day moving average and are closing in on the same type of resistance (the old high) that the Dow is facing. The S&P 500 is still below the 50 day moving average and has some resistance around 1400 to deal with, but today’s action was still positive. My only concern technically is that the Nasdaq is still lagging behind these other indexes, and if this is going to be anything more than a short-term rally, I think the Nasdaq has to participate. That is where the new leaders that can make big moves are going to come from. Perhaps the small caps looking OK outweighs this concern, because most of the Nasdaq’s big names(AAPL, GOOG, RIMM, GRMN, BIDU, MSFT) are not names I really worry about – all are former leaders and broken leaders. It still wouldn’t surprise me to see the indexes pull back here for a few days before trying to bust through the aforementioned resistance levels. I think it would actually be preferable to do that – it would give some better entry points on some of the recent breakouts. Days like today, which I would consider consolidation, would be very good.

I am still in the three positions I started yesterday but I don’t like the way CREE acted today. I know the market opened weakly, but if this stock is going to make a big move, then it should have followed-through on its breakout yesterday. It didn’t, which raises a bit of concern for me, but it held short-term support so I will give it more time. Not a ton of new stocks that I am looking at here but if we continue to consolidate here, more will appear. There are a lot of stocks that just need to rest a bit, and if they do, they will make nice longs, particularly in the commodity sector. These have just gone too far too fast for me to be entering around here. Big Ben has his second day of testimony tomorrow, so be careful. You never know how the market will react to what he says, but as of now, things continue to look good. Let’s hope it continues. Good luck.

Stocks to add to watchlist: VSNT, ITU, BRKR, GFA, SQM, TKC

Stocks that could be buyable: CMED(pulled back to breakout point), PCLN(little flag pattern)

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Tuesday, February 26, 2008

Charts to Watch

After going through my scans, here are some charts to keep an eye on:

Long: NTES, TKC, PHM, PCLN, MDC, LEN

Suprising to me that I found three housing charts that are looking good on a short-term basis. The housing sector is top gainer over the last week according to my Telechart scans. I don't know that I will be going long any of these - my conscience may not allow it and they are not IBD-type stocks - but they do look bullish. Not a lot of new charts here because most of what I was watching are now a bit extended or need to rest in order to be candidates (i.e. the oils and metals) TKC could use rest as well but might just continue higher based on today's volume. NTES has not given any of its gap back the past two days and if it gets over $21, would likely run higher.

Short: DRYS, FWLT, CAS, SJR, TBSI, CMI, FLR, SLAB, NOV, SLB, NSR

I am not planning on taking any of these shorts due to way the market looks right now, but I always want to be prepared just in case the unexpected happens and we totally breakdown here. The past three days has put these stocks back into position to be shortable with resistance nearby. DRYS and FWLT had big volume drops today and if we do get weakness over the next day or so, I would guess they are headed lower. FWLT in particular looks done - I was stopped out of this short at $75 but the weak-volume rally caught up to it today.



State of the Market - 2/26/08

The day started out ominously as a high CPI inflation number and a lower than expected reading for Consumer Confidence caused a weak open. However, this weakness did not follow-through, and buyers stepped in to push the market higher through the rest of the morning. Things stayed positive for most of the rest of the day until around 2:50, when the markets started to sell off. I am sure many traders were expecting this, as late-day reversals have become the trend recently, but the weakness was fought off and the market managed to keep most of its gains for the day. Although the last hour looks rather ominous on a 5 minute chart, particularly on the Nasdaq, the fact that the indexes didn’t sell off into the close when they had every opportunity to do so if definitely bullish. Volume was also higher, another bullish sign.

I really don’t know how buyers are stepping up like this when the economic data we hear continues to be so awful, but as IBD pointed out last night, the market is a forward-looking mechanism, and we need to remember that.

“That said, the market tends to look ahead. Stocks have often rallied in times when the economy looked weak, including in the early 1990s.”

I have heard that things often look worst at the bottom, and although I still have my doubts we won’t see lower prices at some point in the near future, that saying looks awfully correct right now. The market is telling us that it wants to go higher here, and there is no reason to argue – it’s pointless anyway because it will do what it wants regardless what I or anyone else thinks. I said yesterday that although things are starting to look better, the real key will be if we get any follow-through on the indexes. It would have been very easy after the open for things to fall back into the trading ranges of the past two weeks given we had two strong days before this, but they didn’t. They did follow-through pretty well overall. So for now, being long looks like the right play. I don’t know how long things will go higher, or even if things will continue much higher, but to paraphrase Jesse Livermore, “there is only one side on Wall Street, and that is the correct side”. Right now, it seems that the correct side to be on is the bullish side. Hopefully, it continues. You can make a lot more money being long at the right time than you can being short at the right time.

Technically, the indexes still have a ton of overhead resistance to deal with, so expecting the market to just go straight up from here is naïve. I would expect a pullback soon, especially when looking at the charts of the S&P and Nasdaq. The key will be how much volume the pullback comes on. But it may take several attempts to get over the 1400 level on the S&P, so the coast isn't totally clear just yet.

S&P 500

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

I saw many more breakouts this morning from nice charts – CREE finally broke out, more stocks like CEL are setting up in possible bases. To prove this, I went through IBD’s stocks on the move around 2:00 and this is what I found:

DWSN – Too v-ish for me, not a good base.

ALOG – No real base here.

AXYS – Nice chart, reminds me of OI which has continued upward after a brief pullback

BKE – Cup with handle breakout on big volume, handle a little choppy but nice chart.

HOS – Breaking out of double bottom; I wouldn’t buy here – weak close - but nice chart.

PKX – Laggard stock, don’t buy.

IBM – Too big-cap for me, but this could be considered a double bottom breakout.

MTL – Major leader keeps chugging higher.

VIVO – Forming little cup, moneystream has already broken out.

AZO – Nothing worth looking at.

ATLS – Forming right side of cup base, needs to rest and form handle.

FCSX – Forming cup pattern, good fundamentals, watch to form handle.

TKC – Could be start of right side of cup pattern.

NEU – Way too extended, but a strong stock.

CTRP – Forming a cup pattern; I don’t like it though from Telechart indicators.

PWRD – Mentioned yesterday, didn’t like the close.

CEL – Looks like it could form a really nice cup pattern.

CPLA – Next

FMC – Breaking out, but has some divergences in chart.

When I did this last week, I saw hardly anything. Today, I see a lot more nice charts setting up or breaking out. A few like YTEC and PWRD did not exactly finish strong, which worries me a bit, but others like CREE and BKE look good. Things definitely are looking brighter for the time being. I still wouldn’t just run out and go on full margin buying anything you see, especially since we are up now three straight days in a row. In fact, waiting for some pullbacks may be a safer play right here. But overall things are looking good for a continuation of this rally, and that is fine with me. It is just important to still be careful - don’t lose discipline and go chasing things here. Good luck.

Monday, February 25, 2008

Charts to Watch

Here are some of the top charts I found after doing my scans. I am not leaping into any of these right away, but may start some small positions and add if they follow through. The first two aren't ready yet but could be with some rest. Good luck tomorrow!

GGB
JST
AXYS
ASIA
CREEYTEC
PWRD
Charts from Telechart2007, Courtesy of Worden Brothers, Inc.


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State of the Market - 2/25/08

Another pretty typical day in the market today as stocks went up strongly in the morning only to be sold off by midday as has been the pattern the past few weeks. Then news of bond insurers MBIA and Ambac having their credit ratings reaffirmed by Standard and Poors sent the market back up in a hurry. The indexes closed strong and it looks like at least the Dow and S&P 500 may have broken out of their recent ranges. Thank goodness everything is perfect again in the financial world – that is a big relief. I am sure all of the problems we have heard about for the past few months are nothing more than water under the bridge now. Whatever. We go from one day having rumors of eight major banks stepping in with a huge bailout of these insurers due to all of their problems, to the next day having these insurers being seen as perfectly fine by a major credit agency. This just all sounds way too fishy for me and my cynical side tells me that this is simply an attempt to raise these financials stocks up one last time so that the big boys can hand them off to the unknowing retail investors before the really bad news hits. There seems to be a lot of shady stuff going on right now. Just my opinion.

Daytraders must be absolutely loving this market. I have only be trading for 3 or 4 years, but I can never remember a time that there were so many wild swings intraday. The Dow and S&P 500 finally closed above their 20 day moving average, which is very good to see. However, the Nasdaq is still below its 20 day moving average, and the small caps are still below recent resistance and haven’t broken out yet, so things are exactly perfect. But today’s action is definitely good for the bulls and makes me more willing to take positions in some longs. Bad news is not exactly being sold off hard so even if we get a high CPI number tomorrow, I don’t know what the market’s reaction will be. I am not jumping in with both feet, but if an opportunity arises that looks good, I will likely begin trying some of these.

One blog I follow is Stockbee. I have mentioned some of his techniques before on this blog and I have learned a tremendous amount from the blog over the past two years. Because of this, I really respect his comments about the market and from what I have seen, he is usually very accurate with his market calls. So when he states this morning that he feels “the worst is most probably behind us” and “most probably we are putting in a bottom”, I pay attention. I don’t necessarily agree from a longer-term perspective, but I am at least going to keep my mind open to that possibility right now. I still see a lot of problems out there, but my shorts haven’t been working out very well at all recently, so that should tell me something. Gradually, more nice charts are starting to show up, although not an overwhelming amount. The news is awfully bad out there, and they always say that news is worst at the bottom. Today’s action was good, and if I see more constructive action, I will continue to feel more comfortable going long. If indeed the worst is behind us, then selling short will not likely be very profitable. I don’t know how far we go – I really don’t believe this is the start of a new bull market – but it is possible for us to rally higher. There is a lot of money on the sidelines so momentum could build if we get more strength right here.

These are the times that trading is hard because I have been bearish and continue to be bearish for the longer-term, but I also want to make money, so I can't let my ego get in the way here if we do rally higher. Being stubborn is stupid as a trader and can lead to major losses. The market monitor, according to my scans, went bullish today, so that is another signal I look for in terms of going long. The IBD follow-through day is still technically in tact. As of now, I plan on slowly entering into some positions that look good and seeing if the market does confirm today's action. If it does, that is great. Making money on the long side is much easier than making it on the short side, so I won't complain. I don't like to be bearish, but most of the things I saw pointed me that way so far this year. I am now seeing more signals pointing bullish so I have to acknowledge them without my personal feeling getting in the way. My ego is really the only thing that makes that difficult - admitting I may have been wrong is hard, but necessary if I am going to be successful as a trader.

Main things to focus on the next day or so will be follow-through and if the Nasdaq catches up with the S&P 500. If we are going to have a meaningful rally, we should get nice gains the next few days. If we don't, then I will be back to being bearish. Just remember we're not out of the woods yet. I will be back later with a few charts that I am watching - some new ones are popping up.

Sunday, February 24, 2008

Friday's Manipulation

Just wanted to link to this comment via the BearMountainBull website via BillCara about the manipulation that took place in the last half hour of Friday's session. I could not agree more with his assessment of the way things are headed if changes aren't made soon. This stood out to me:

"Nobody wants to live in a controlled society – certainly not traders of the capital markets – but frankly these markets are not transparent and the acts of deceit and manipulation that routinely go on necessitate some greater monitoring than happens today.

What’s at stake is the credibility of the government, the agencies of government that are involved in the capital markets, the central banks, banking institutions, and so on.

What happened Friday in the last hour of trading was a raid on the shorts, pure and simple. It might have been orchestrated. For certain there were parties acting in concert if even by common motivation."


Events like Friday are frustrating, but it seems like that is the direction our country is headed - more government involvement in all parts of our society - the stock market, the economy, our personal lives - the list goes on. I don't know how we change things, especially when the choices available this fall for our nation's leader range from two life-long Washington insiders or a newcomer that has the most liberal voting record in the Senate and will look to increase governmental control over our economy even more than it already has. Just my opinion.

Saturday, February 23, 2008

A Few Charts to Watch

Just a few charts to look at and keep an eye for next week, assuming we at some point get out of this awful trading range at some point in the near future. There were a lot more shorts setting up until the end of yesterday. That changed things and I don't see many at all now. Not too many longs are popping up unless you want to chase the commodity sector here. My watchlist hasn't had too many additions too it - for the most part, I am following the same stocks from last week. Good luck next week.

CREEYTEC
XIDE
PHM



UA
CMI
Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

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Friday, February 22, 2008

State of the Market - 2/22/08

After two weeks of going absolutely nowhere, the markets actually looked like they would choose a direction and go with it, as after a brief move higher at the open, stocks sold off the rest of the day and went below the bottom trendline of the triangle pattern that has formed over the past few days. I expected that the first real test of this triangle pattern would be what would happen after one of the trendlines was broken. I kind of expected a break below and a quick reversal back above, just because the triangle pattern was so obvious. After getting support around the 1336 area for the past week, the S&P 500 finally broke below it this morning. When I saw the 1336 turn immediately into strong overhead resistance, with several attempts to get back past this level rejected throughout the rest of the trading day, I started to believe that maybe, just maybe, this was the start of a new move lower, continuing this bear market and at least giving us a trend that we could trade from. Boy, was I stupid.

I forgot that there is a rule I guess most people are unaware of that the market can't possibly have two consecutive days of declines that takes it below strong support levels on a Friday, allowing fear to possibly build over the weekend break and potentially leading to more losses next week. No, that can't happen, or should I say, it isn't allowed to happen. Luckily for all of us, the PPT (Plunge Protection Team) came to the rescue right around 3:30, when a CNBC "commentator" announced that a possible bailout of bond insurer Ambac could be announced early next week. The markets then took off, with the S&P gaining about two percent in the last half hour and pulling the indexes back above the support levels they broke earlier in the session. Instead of the start of another tradeable trend, we have more confusion and chop. Thank you CNBC. I know I appreciate it.

I know the stock market is not fair, just as life is not fair. Some people joke about the PPT and some really seem to believe in it. After a day like today, I tend to believe in it as well. It is just too much of a coincidence that this news comes out with indexes near their lows of the day, facing big losses right before the weekend, as well as immediately after the bond market closed. How about Big Ben's big 75 point rate cut right a few weeks ago before the open of a stock market that looked like it was ready for a mini-crash? Just well-timed decision making, I guess. This type of manipulation has happened throughout the history of the stock market and it will continue to happen going forward. What can you do about it? Nothing really but accept it as one of the many reasons trading is so difficult and challenging. It sucks, but it is part of the game. And as small-time traders, which I assume most of the people who might read this blog would be, there really is nothing you can do to change it.

The part that really sucks is we are back to exactly where we were before today, and before yesterday, and before that, and so on. We once again have no trend to trade thanks to the late-day bounce. The indexes were well on their way to closing at their lows and below support, which would have made things much clearer. Now, I am back to not having a clue as to what will happen next. I saw a lot of possible shorts after last night's scans, but today's reversal has ruined many of those shorts. The lack of good, fundamentally-sound stocks setting up in nice bases continues to prevent us from getting excited about any movement higher from here. IBD summarizes the state of the market very well in two sentences:

"While the Nasdaq, the S&P 500 and the Dow have managed to avoid undercutting their Jan. 22-23 lows, the IBD 100 made a fresh low in February.

A leading index that's leading downward and bruised leading stocks do not inspire confidence."


I think, or at least hope, that we will get out of this trading range at some point. If you are not trading at all right now and just sitting on your hands, more power to you. You are doing the right thing. I have a few shorts on that were looking very good around 3:29 p.m., but now look like they will need to be covered soon for losses. I may be back later this weekend with some charts if my scans give me any clues as to what to expect next week. Good luck.

Thursday, February 21, 2008

State of the Market - 2/21/08

No commentary needed today. There is no point. Here are the last six trading days on the S&P 500:

2/13 – Up 18.35 points

2/14 – Down 18.35 points

2/15 – Gap down, closed at highs for the day

2/19 – Gap up, closed at lows for the day

2/20 – Gap down, closed at highs for the day

2/21(today) – Gap up, closed at lows for the day.


Schizophrenic. Bi-polar. Psychotic. I am not a licensed psychiatrist so I do not know which of these descriptions would best fit this market, but probably all of them would work. How about this – it sucks! Volume was lower today as well. I am out and have no more interest in watching this type of chop. I am just embarrassed it took me so long to realize this – my fear of missing some big move is a weakness I now recognize. Good luck if you want to keep trading here. I have to assume this will end at some point, hopefully in the near future. I will watch for a sign that things are moving one way or the other for good, but until then, and until we get some sort of volume, be careful or just take a break.

Wednesday, February 20, 2008

State of the Market - 2/20/08

The stock market continued its bi-polar tendencies today, as higher inflation readings(hard to believe, huh?) caused a big move lower in the beginning of the day. The indexes remained lower and in a trading range throughout the morning until around 12:30, when the markets dramatically shot straight up in about 15 minutes to go positive on the day for no apparent reason – no news events were tied to the move. Hey, why not, right? The markets stayed higher in the afternoon, but not without some quick swings up and down. The markets closed with some good gains and volume did increase over yesterday. Small caps were up more than the big caps. As bearish as yesterday was, today was just as bullish. However, we still haven't had a clear breakout from this triangle we're in and today actually touched both sides. Perhaps closing bullishly leads us to an upside breakout. I just don't know. How long can we go before we breakout one way or the other? Hopefully we won't have to wait too much longer to find out.

Dow

S&P 500
Nasdaq
Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

I read an article summarizing the Fed minutes today out of curiousity for what might have caused the reversal and afternoon strength. These are some of the things that stood out:

"With no signs of stabilization in the housing sector and with financial conditions not yet stabilized, the committee agreed that downside risks to growth would remain even after this action," minutes of the Fed's Jan. 29-30 closed door meeting showed.

Oil prices on Tuesday jumped to a new record -- topping $100 a barrel. Consumer prices, meanwhile, rose by a bigger-than-expected 0.4 percent in January, according to new government figures released Wednesday.

And, with energy prices marching upward, the Fed also raised its projection for inflation. The Fed now expects inflation to be between 2.1 percent and 2.4 percent this year. That's higher than its old forecast for inflation, which was estimated to come in at around 1.8 percent to 2.1 percent.

With economic growth slowing, the Fed projected that the national jobless rate will rise to between 5.2 percent to 5.3 percent this year. That is higher than the central bank's old forecast for the rate to climb to as high as 4.9 percent. Last year, the unemployment rate averaged 4.6 percent."

I don't really know what to think about all of this. So we have $100 oil prices, rising inflation, slowing economic growth, a housing market that continues to decline, and likely rising unemployment. I',m not an economist, but there was nothing I can find there that seems positive. However, the market goes up big. Maybe this is all baked in to prices already and that is the reason people are buying here. The market is a forward-looking mechanism that looks outward six or so months - I realize that. There are many people much, much, much smarter than me in the stock market and maybe they know what is really going to happen over the next few months. As for me, however, I really have no clue why we have days like today. I honestly wonder if the market is rigged sometimes and days like this help reinforce those thoughts. Today doesn't make sense to me. That being said, I have to accept it, and realize that a market that reacts to all sorts of bad news in a positive way is actually very good.

Basically, I hate this market more and more each day. Unless you are a day-trader, I don’t know how anyone can say it doesn’t just suck, regardless if you are a bull or a bear. There is absolutely no follow-through on anything, which makes trading successfully virtually impossible right now, at least for me. It feels like the “Bizarro World” from Seinfeld where everything is the exact opposite of what you are used to seeing. Whenever you see something that seems to make sense, it turns out that the exact opposite thing happens. Things make absolutely no sense right now. Today was a positive reversal after yesterday’s bearish reversal, but still no clear breakout. And it is probably getting to the point where if we do finally break above or below this triangle pattern, so many people will be watching it and trading that way, that we reverse anyway and go opposite just to mess up as many people as possible.

Sometimes I need to vent a bit(see above), but I am not blaming anyone or anything – it is only my own fault that I have been trading poorly. After thinking I was doing really well as a trader due to my strong start of the year, I have realized I still have such a long way to go. I am still up for the year but have lost many of the profits I had in the first two weeks of January. The market is very good at reminding you of your faults, and it has done that for me. I stated back in January that the period up to and after the Fed decision is likely going to chop traders up and sitting out might not be a bad idea. Well, I failed to listen to my own advice. I have also not been patient. I’ve traded with a bit of revenge, never a good idea. I have let some losses get bigger than they should have been. I have overtraded. All of the mistakes that I know I have to work have popped up over the past three or so weeks. Now I need to figure out how to get out of this little funk and get some confidence back.

Something new that I have been thinking about as well and may be a lesson being learned is that I still need to become much more of a reactionary trader rather than an anticipatory trader, especially in a market like this. I think I am so focused on catching the absolute top of a stock or the absolute beginning of a big move lower that I am making poor decisions. Because I am overall bearish right now, I am reacting to every little I see a stock do, afraid I am missing the start of a big down move. Perhaps my inexperience in bear markets is showing up as I am expecting another huge drop like we had at the beginning of the year, when making lots of money on the short side was not difficult at all. I keep seeing a move like that happening, and it may never happen. If it does, I am sure there will be time to hop aboard.

Good luck tomorrow. The only breakouts I saw today, besides AXYS, were once again the commodity related stocks, which are very extended and due for a big pullback. These stocks have been holding the market up a bit for the past few days, and if they fall, then the market could fall back too. So I really have no clue as to what to expect. I would not be surprised at a breakout attempt of the triangle that ends up failing and reversing. Daily reversals seem to be the only trend we have right now, and since we had a bullish reversal today, we should have a bearish reversal tomorrow, right?. It might be a good time to sit and do nothing for a while. Be careful out there.

Tuesday, February 19, 2008

State of the Market - 2/19/08

A big start to the day for the market ended with a whimper, as a huge gap up was gradually sold throughout the day, climaxing with a major move lower right after 2:00 that took all indexes from big gains to small losses for the session. This action is quite bearish, especially when another late attempt at a bounce quickly failed and stocks closed near their lows. So, did we get some clarity today? Well, considering volume was once again lower as has been the trend, it is hard to take too much from the action. Technically, the S&P 500 and Dow did seem to hit resistance at its downtrend line and the 20 day moving average again, which I mentioned over the weekend. Most indications would point to lower prices here, but with the lack of volume today, we could be up big tomorrow or down big tomorrow. The confusion continues.

S&P 500



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


If it wasn't for the commodity sector, we probably would have been down much more today. There were virtually no stocks breaking out or having big up days other than oils, metals, and agriculture stocks. Even in the morning when things looked good, there were no fresh breakouts. When we start getting new industry and sector groups showing strength, and new stocks from these groups begin popping up as new leaders, it will be much easier for me to be bullish. That still hasn’t happened yet. In the meantime, you can probably ride this group higher if you wish, but I just don’t feel comfortable enough with some of the charts to jump in with both feet. There are some that look nice like AKS, MTL, and MCF, but most are yellow or even red on Telechart and have volume patterns that aren’t perfectly sound. The groups have rallied big amounts in a small period of time. It doesn't seem smart to enter any of these right here.

A few lessons learned today for me. I continue to be surprised at the moves in the agriculture stocks simply because many of them are showing major negative divergences and their charts are very sloppy. However, when you anticipate in the stock market, you sometimes get in trouble, and I am guilty of doing that with these stocks. I will not be buying any of these due to the divergences, but I will not be shorting them again. I made a big mistake of shorting a group that still had momentum behind it even though it did look toppy. When (if?) these stocks do finally break, they will fall quickly. I was anticipating that big drop, saw dollar signs in front of it, and I let that blind me to other big factors that should have kept me away. Hopefully this will be a lesson learned. The point O'Neil makes about waiting for a stock to make several rallies to or above its 50 day moving average before shorting is making more sense now.

I was stopped out of two stocks today (RIO and SCHN, both commodity stocks) as well as my SMN inverse ETF (another commodity stock). Although both of these charts looked very shortable and I likely would have taken them again with the same setups, I did overload myself a bit in one area, which isn’t smart either. Another lesson learned. I need to learn to spread my shorts out more and wait for other opportunities to arise, rather than putting my eggs all in one basket and then having the bottom of that basket fall out like they did for me the past week with RIO, ARD, and SCHN.

No new shorts or longs that really excite me after today - most of the shorts I was looking were in the commodity sector, and I have given up fighting this momentum from this sector. Perhaps we'll break out of this range in the next few days and if we do, things will get easier. We can hope, right? More economic data coming out, including inflation data, tomorrow. I will be very interested to see how the government can manipulate the numbers this month in the face of the action in these inflationary sectors. I'm sure they will find a way. Good luck tomorrow.

Monday, February 18, 2008

A Few Charts to Watch

Here are a few charts I will be watching this week. I still don't have a clue as to where we will head this week, although European markets were up big today and futures are up big as of Monday night. There is a lot of economic data coming out, including some inflation readings, so that will likely drive some of the trading. Keep your options open, and keep your stops tight because we could go either way right now. Good luck out there!


CREE
GU

YTEC

SGR

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


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Friday, February 15, 2008

State of the Market - 2/15/08

Another confusing day today in the markets, as they showed no follow-through on yesterday’s down day, which showed no follow-through on Wednesday’s follow-through day, which showed no follow-through on Tuesday’s reversal. Fun times, aren't they? It seems like the market is really doing its best to confuse everyone as much as possible, or at least it is confusing me. Am I the only one? Today, we were down at the open and continued lower through most of the morning, and many of the short setups I have been seeing looked like they were finally breaking down. I entered two more today based on the action from yesterday, and added to one as well. Then, around 1:00, things changed course and we melted up again to end the day close to mixed, causing many of those same shorts that showed up early in the day to close well off their lows and look like they held support levels. Volume was heavier early in the day but seemed to level off as the day progressed.

Basically, this market continues to basically suck because it is really difficult to get a read on the direction we are heading. On good days, there are some nice charts that show up but then they just don’t follow through. On bad days, shorts look very good but then they just don’t follow through either. Plus volume has been non-existent on both up and down moves, which makes it more difficult to take meaning from any of these moves. This chart of the Russell 2000 pretty much summarizes what I am talking about – a move above the trendline followed immediately by a move below the trendline and then a close today back above it. Just crazy.


Russell 2000
Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

Most indexes are setting up triangle-type patterns so maybe we will mercifully see a conclusion to this drama starting next week. I’ve said the same thing, however, for the past two or three days, so who knows? The 20 day moving average is acting as pretty strong resistance for the S&P 500 and the Nasdaq, so if we do get over that level on higher volume, that would be good. They’ve made two attempts at getting over this resistance this past week so maybe the third time will be a charm.


S&P 500
Nasdaq
Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

Individual stocks don’t give me a great clue either. I saw stocks like EMKR, SDTH, and VCGH show some weakness today after looking like they were setting up very nicely, but I also saw a stock like TITN, which was also setting up nicely, follow-through and put in a big gain. I saw shorts like SGR, SCHN, RIO, and ARD (several of which I own) show major weakness the past day and a half and then look totally different after today’s close. It is utterly ridiculous. I want to post one chart that just sums up everything that is frustrating me about this market . FUQI was a stock I was watching on the long side and was tempted to buy Thursday morning, showing great strength in a weak market, but did not because I wanted to see how it closed. It ended up closing extremely weak and put in a bearish reversal. Today, it sold off again in the morning only to bounce again into the close. Bullish tail Wednesday, bearish tail Thursday, and bullish tail Friday. That sounds like a recipe for success, right?


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

After I do all of my scans, I will probably be back this weekend with some possible charts, but I do think I will find a lot of contradictions in those charts, so there might not be many plays for Tuesday. Remain open for anything right now and let's just hope some sort of resolution comes early next week. Trading is difficult when there is no trend to trade. Good luck.

Thursday, February 14, 2008

State of the Market - 2/14/08

Not much love on Wall Street this Valentine's Day, and not a good way to follow up a follow-through day either, as the markets started flat but quickly began to sell off and stayed lower throughout the rest of the day. It is not that big a deal in my opinion that we went down today – the big issue is with the volume. If today’s loss was on lower volume than yesterday, I would have no problem. You have to remember that we were pretty much straight up for the last five days, so a pullback is to be expected. However, big up days on low volume followed by a down day on higher volume is the exact opposite of what you want to see if you are bullish. A rally attempt that is already questionable to start with does not need a distribution day immediately after it starts. I am reminded of a passage from William O’Neil’s book in which he discusses follow-through days, and says basically, it just takes one or two distribution days after a follow-through day for it to fail, and now we already have one.

I am willing to give this rally attempt a few more days to prove itself. Even if the market does pull back more, I will remain open to going long as long as volume is lower. It would actually be better for long entries to pullback a bit. But if we get any more heavy-volume selling like today, I will be looking to put shorts back on, some of which I almost took today. I am still open to either side of the market right now, but the next few days should tilt me more to one side than the other. If this turns out to indeed be a failed, faulty follow-through day, then it is also an optimum point for entering shorts. I am looking at several - SGR and SCHN are at the top of my list - and may start positions tomorrow depending on how we open. The downtrend line is still intact on the Dow and S&P, and the Naz spent a total of one day above its downtrend line before falling back under today. Be careful out there and pay close attention the next day or so. I believe it will tell us a lot. Good luck.

Wednesday, February 13, 2008

It is a Follow-Through Day

That according to IBD:

"Volume rose by less than 1% on the Nasdaq compared with Tuesday's level. NYSE volume eased 7%.

The Nasdaq's action met IBD's standards for a follow-through rally confirmation. A few rallies have started with only slightly higher volume on a follow-through. The August follow-through showed marginally higher trade. It triggered a lucrative rally, one that delivered big gains for many leading stocks."

They also emphasized that just because today was a follow-through day does not mean you should run out and just buy whatever you want tomorrow. They called the rally "fledgling" and pointed out there are still not a lot of top-rated stocks breaking out of bases. I have emphasized this the past few days.

So where do we go and what do we do from here? I am going to pay attention to the action the next few days and I think that will tell us a lot. If we get more breakouts along with no heavy-volume selling on the indexes, then I will feel much better about this potential rally. Some rallies do take longer to develop than others. Typically, however, if a few distribution days pop up right after a follow-through day, it will likely fail and the market is probably offering up some good shorting opportunities instead of good longs. I always remember this passage from O'Neil's book on shorting:

“You should be alert to follow-through days that occur without fundamentally sound stocks staging strong breakouts from sound base formations. Often a questionable follow-through can be indentified by a dearth of such breakouts which results in a noticeable lack of leadership. A sound follow-through day is generally accompanied by strong breakouts among a number of fundamentally sound stocks, so when this doesn’t happen, be alert to the possibility that the follow-through may likely fail.”

Bottom-line is we have to respect the action today that produced the follow-through, but it doesn't guarantee anything to us. We have had a few breakouts recently but not that many, and there weren't any fresh breakouts mentioned today in IBD (FSLR doesn't count). I really think the next two or three days will tell us what we need to know about this market's direction, at least I hope it will. It is much easier to make money going long in the market than going short, so I would love to see a legitimate rally, but I have my watchlists ready and am open for shorting or going long right now. Whichever one will work is the one I want. Good luck.

What I See After Doing My Scans

After going through my Telechart scans and checking a few websites, I noticed three things that have me thinking twice of my current bearish outlook. They are as follows:

#1) Investors Intelligence Survey - I checked this after the close today and for the first time in a long time, the bears(35.6%) are almost outnumbering the bulls(36.7%). This is very close to crossing over and if this happens, it will be very bullish for the overall market. Even with the numbers being this close, I take it as bullish. When we were going down in January, the bulls were actually increasing, but now that we are rallying, the bulls are decreasing. There is no argument that this is bullish.

#2) Market Monitor Numbers - I use similar scans to the ones used by Pradeep Bonde at Stockbee and according to my numbers after the close today, we are getting very close to changing from a bearish ratio to a bullish ratio on the number of stocks up 25% in the last 65 days. This happened in December or January also I believe, but lasted for only day before turning negative again, so it is not a guarantee. It is, however, very helpful in determining the overall trend and if it does turn and stay positive, then I believe that is important and cannot be ignored.

#3) Quality of Charts in My Scans - For the first day in a long while, I actually added a significant number of charts into my main watchlist as possible buys, probably a total of 20 or so. Most of these charts are showing green BOP and are setting up nicely for entry if they breakout in the next few days. The main reason I have been bearish for the past few weeks is due to the severe lack of good charts setting up. Based on today, perhaps things are starting to change.

Overall, I am more bullish now than I was around 4:00 PM today. I don't expect to go out and immediately cover my shorts tomorrow and enter a bunch of longs, but I am going to keep my eyes on the long side of the market much more than I have recently and not strictly play shorts. I still will watch some shorts - basically I am going to look at both sides of the market and keep my mind open. I am still concerned by the lack of volume today, but I looked at the volume in July 2007 and it was non-existent as well after the big drop then. The market still went higher. I am really interested to see what IBD says tonight - if they pronounce this a follow-through day, then I will lean even more to the bullish side. I don't know if they will.

Here are some longs I am now watching for entry:

CREE, YTEC, VCGH, EMKR, INFA, DVN, FUQI, SVNT, TXCO, SDTH, TITN

Now that I have began to turn more bullish, you can likely go out and short as much as you want - I'm sure we'll be down big now that my viewpoint has changed. Good luck.

State of the Market - 2/12/08

More of the same today in the market, as indexes rose strongly after a positive retail report was released pre-market. After a brief pullback in the morning, they continued to rise throughout the day, and closed near their highs, even with a late-day pullback. The Nasdaq was the clear leader today, with a gain well over 2%. So, is there anything wrong on a day like this? Yep, sorry to be negative, but there was very little volume, especially considering how big the indexes were up. Volume on the Nasdaq was just a bit higher than yesterday, but not more than the 50 day moving average, and volume on both the S&P 500 and the Dow was actually lower than yesterday's totals. That fact takes some of the shine off things for me. The gain of 2% is what you want to see in a follow-through day, but you also want to see huge volume that lets you know the big boys are participating. We definitely didn’t see that today, so I will be interested to see if IBD does say this was a follow-through. My feelings are they won’t.

Technically, both the S&P 500 and Dow touched the top of what looks to be a declining channel during the session. The Nasdaq and Russell broke above what appear to be trendlines today, but with volume being lower on this break, I don’t think it is meaningful – it is probably bearish, actually. If volume starts to show up on days like this, I will change my outlooks on things.

S&P 500


Nasdaq

Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

As I said yesterday, I like to look at IBD’s “Stocks on the Move” list midday to see what type of breakouts are occurring as a way of seeing what is really going on when the market has a big up day. As of 2:00, these are today’s top breakouts on higher volume(more than 100% of its daily volume):

FSLR – This stock had fallen more than 50% from its high and looks like it might be forming the right side of a cup base. Fundamentals are great; however, any cup that is that deep is very much prone to failure. A 20-30% dip is OK, not 50%, which is what all of these solar stocks are showing. Not something I would want long-term – just my opinion.

GXDX – Yuck

ECOL – Very choppy, forming a V-shaped pattern here, nothing exciting.

CMP – Way too extended, but one to put on a watchlist to see if it rests on quiet volume.

YGE – Pretty much the same description as FSLR – has dropped over 50% and is just now starting to form the right side of a possible cup base. Too deep of a drop.

MCRS – Forming a cup pattern, OK, but still V-ish.

SCSC – Similar to MCRS in that it is forming a cup pattern but it is very choppy.

AIRM – Until it gets above its 50 day moving average, this is worthless.

WW – This is trying to follow up yesterday’s nice gain with another today. Is right around resistance, so may rest a bit. If there were more charts like this, I would probably be more bullish.

That is it for IBD stocks. I see a few others in my Telechart scans like CREE, INFA, YTEC, SDTH, FUQI, MEA, and AKS, but none of these broke out today. Some are setting up nicely, and some of these are better than others. I am watching these, but overall, I am still just not finding a great number of super charts. Some of the oils are setting up, but then I see others that have broken charts and are rallying on very weak volume. Until I see more nice charts, I will remain bearish, as hard as that is right now, and believe me it is hard.

I officially hate this market. I am definitely frustrated – I was stopped out of SMN and ARD today after entering the position just yesterday. The rest of my shorts went up on below-average volume, but I was not stopped out. It seems like just more of the same everyday - a low volume melt-up with broken stocks making the moves and no new leadership emerging. The short setups I keep seeing setup get stopped out the next day because they keep going higher on lower and lower volume. I am not placing blame – my recent losing streak is my fault only. I must do a better job of recognizing opportunities and also showing patience to only take the best. I need to show more patience in terms of waiting for the stocks to get in low-risk shorting zones, mainly just above the 50 day moving average rather than as it approaches the 50 day. I am finding out how difficult shorting is, because sometimes the anticipation part gets you in trouble. I must remember that I am going through my first bear market, and that I am going to make mistakes. I must learn from those mistakes and not make them again. Probably the worst thing that could have happened to me is having success in January right away – that may have gotten me a bit overconfident. This market has certainly done away with that overconfidence. Oh well. Nothing to do other than get ready to wait for the next opportunity to present itself and analyze it properly to see if it is a good trade. I looked at this quote from William O’Neil’s book on shorting to give me some encouragement after today’s action:

“It is important to remember that successful short selling require relentless determination and persistence. There will be many times when you will be stopped out of your short positions, and when you are you must cut your losses quickly and decisively. But, undaunted, you must continue to monitor the same stocks that you were stopped out of and which continue to fit our short selling templates, because eventually the proper short selling point will present itself, and you must be alert to catch it as it unfolds. This means you may get stopped out of a short sale several times on the same stock before you finally hit the ‘sweet spot’ and catch a stock just before it cascades to the downside and gives you a quick 20-30% profit.”

I know I will learn from this past week or two and use it to help me in the future. I am confident I will be there to recognize those “sweet spots” and pick up a few of those big gains on shorts again this year.

Overall, I am still on the lookout for shorts and am looking for a market breakdown sometime soon. I just don’t know how long we can continue up on weaker volume. If we do get a big-volume up day with the indexes up 2% or more, then I will change my outlook and become more bullish than bearish. In the meantime, here are some stocks I am watching for entry:

SU, FCX, GRA, ATI, FUL, OZRK, SGR, WFR, SCHN, HIBB, DNR

Good luck tomorrow.