Monday, March 31, 2008

Just a Few Charts Tonight

I continue to see very little that stands out on either side of the aisle in this market right now, so I continue to recommend not getting too aggressive as a bull or a bear at this point. I am looking for the market to close over the 1337 area on the S&P 500 and the 2300 area on the Nasdaq. These are the 50 day moving averages for these indexes and if they can close back over this, hopefully on some heavier volume, then I will become more bullish and look to put money to work a little more on the long side. Until they do, I have to remain slightly bearish to neutral, and as such, I just have my three small shorts and cash. This market has been rather calm and boring for the past week so perhaps a big move one way or the other is just around the corner. I wish I knew what direction that move will. Tomorrow is April Fools Day - hopefully the market doesn't have anything to crazy in store for us. Good luck.

Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

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State of the Market - 3/31/08

After three straight down days, the bulls finally put up a little bit of a stand today, as the markets rose steadily throughout the day and finished with medium-sized gains. There was some selling around 2:00, but the market closed fairly strong. Some credit for the gains were given to the new plan presented by the Treasury to overhaul oversight on Wall Street. I don’t want to start ranting on this, but the idea of giving more power to the same group (the Fed) that caused so many of the problems we are having right now is beyond stupid. However, it does seem to fit right in with the overall level of intelligence shown in decision-making over the past few months. Anyway, the only problem with today’s action is that once again, volume was low and without a strong, high-volume up day, I am still hesitant to do a lot on the long side of the market. I don’t know what the end of the month and quarter had to do with today’s action – it might have played a part. I am interested to see if things speed up starting tomorrow with the start of a new quarter.

I didn’t see a whole lot of major movement in individual stocks today other than the agriculture stocks, which were getting destroyed once again midday and continue to look like death. There have been major technical problems in these stocks for months (big volume down days, low volume up days, choppy trading with many reversals, etc.) but they have yet to crack completely. Maybe they will here, but they finished off their lows. After losing money earlier this year trying to short these, I don’t think I have the guts to try again.

As we end the first three months of the year, one thing I wanted to do for my own personal growth as a trader was to examine my trading so far this year and what I need to do to be better. Obviously this has been a very difficult environment to trade in, even for bears, since the middle of January. I have been bearish throughout the year, but that bearishness has not always paid off as well as I had hoped. I am still up overall for the year, but not nearly as much as I was after January 22. Some lessons hopefully learned so far include:

  • Overtrading is a recipe for disaster – I have definitely been guilty of this so far this year. I had nice positions that I closed early because I couldn’t sit still, and I took bad positions because I couldn’t sit still. I go back to what I saw in a Dan Zanger interview when he said the market presents about three or four money-making opportunities per year that allow you to make tremendous returns, and the rest of the time is just choppy trading that cause most traders to lose a significant amount of money. January 1 to January 22 was one of those nice opportunities to make money if you were short, and I don’t think we’ve had one since. Perhaps this just takes time to learn and as I progress, I will be able to recognize these profitable times and also show the discipline to sit on my hands if there is no real edge to be found.
  • Emotional trading is a recipe for disaster – Looking at my gains and losses for the year, I have noticed that many of my losses came from trades that were taken during the middle of the day or from trades in which I changed my original plan after the trade was taken. I am really focusing on making trades only at the end of the day and also not watching the intraday action too heavily, especially in a volatile environment like February. I also need to do a better of job of setting stops and sticking to them, rather than adjusting them after the trade has been made, which usually just led to bigger losses.
  • Avoid trading right before or right after decisions by the Fed – for some reason, I thought it would be smart to make a lot of trades around January 30-31. I closed a total of nine trades those days, and only two were winners. Several were stocks I was stopped out of the same day. These days of course correspond with the first Fed decision about interest rates, which led to an extremely volatile trade that I would have been much better off staying completely away from. I plan on doing this from now – I will not be making any new trades during the few days after Fed decisions, at least not in the current environment.

Basically, I feel I am putting in the necessary work to be a successful trader, and I feel my chart-reading abilities are fairly strong, although I can still improve in both areas. I still need to tighten my overall system and trust some of the indicators I use more. For me, it is still some of the psychological difficulties that I am having, and I know those are issues for many traders. You can’t become a master trader until you’ve mastered trading psychology, trading discipline, and your own personal emotions. These are the hardest skills to develop and master, but I will keep working on them and hopefully improve as we enter this second quarter.

I am putting some flooring down in my house, but I will try to be back tonight with a few charts if I find anything interesting in my scans. Things have been pretty slow and boring the past five or so days, so I am interested to see what the new quarter brings – I still think we could go either way here. I am still leaning a little more bearish but am willing to be a bull with some convincing market action. Good luck.

Sunday, March 30, 2008

A Few Weekend Charts

Not a lot out there based on my scans this weekend, so I will likely be sitting on my hands for the next few days, and I don't think that is a bad idea. Most of the shorts I saw earlier in the week are now a little extended to the downside to be considered low-risk. Of the longs I mentioned toward the start of last week, some have pulled back nicely, and some had some more volatile pullbacks. The nice pullbacks are listed below if you are so inclined to take some longs here.

My guess is that we continue lower this week. If the bulls are going to do anything to keep this rally alive, I think it has to be right at the beginning of the week, and tomorrow is the last day of the month and quarter, so maybe they have it in them. If they don't, I think there is a very good chance the selling accelerates some starting Tuesday. That's why I think sitting on your hands is smart right now. If buyers come in on Monday, then I wouldn't be opposed to poking at some of the pullbacks listed below, but I just need some confirmation before doing that. Most of my indicators are still pointing bearish, and because of that, I am only playing the short side, and only three stocks at that. Good luck, and be careful!




Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

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Friday, March 28, 2008

State of the Market - 3/28/08

I really don’t have much to comment on today’s market, other than to say it was one of the most boring days I can remember in a long time. The markets meandered their way lower throughout the session and finished right near their lows, which is not good. Volume was very low - I had my quote screen up in the afternoon and it honestly looked like it was broken and not working. It is hard to take too much out of trading this slow, but bulls don't seem too interested in putting up a stand here. The selling hasn't been very intense the past three days, but there has been selling nonetheless, and the charts of the indexes now look quite poor. As I said yesterday, the bulls needed to put up a stand today and they didn't - there just doesn't seem to be much interest in buying stocks right now. I don't know what IBD will say about this current rally, but bulls are on their last legs here and need to do something early next week to keep this going. They have done a very poor job so far and because of that, I have to continue to lean bearish.

I started positions in two other shorts today, although with the indexes down three straight days, I am not being very agressive here. It may be a little late here to get heavily short. Once again, it looks like the reversal on the Market Monitor on Wednesday was the signal to go short, or at least start positions. This will be the third time in a row that a reversal in this signal has signified the peak of a bear market bounce, unless the bulls get their act together quickly next week. I need to trust it more. That being said, I saw a lot of shorts setting up mid-week, but few have broken down in a way that I like and with the volume I like to see. If you look at CPLA, the huge volume on the breakdown today was what you want to see as a signal to get into shorts. I did not enter this today, because I felt it was a little too late, but that big-volume downmove usually leads to much more downside action. Most shorts I saw setting up have just drifted lower on lower volume, much like the indexes, which makes entry more difficult.

Cash and patience remain very good options right here because the market just isn't presenting too many nice opportunities. I am still hopeful the bulls will come back and keep this rally alive, but based on the action since the follow-through, I just don't see that happening right now. We shall see next week. I will try to post some charts this weekend. Good luck.

Thursday, March 27, 2008

Lots of Shorts, A Few Longs

Here are a few longs I am going to still keep an eye on. I think the bulls must make a stand tomorrow or things could get much worse with this "pullback". As IBD states tonight, a distribution day today (the fourth day of the rally attempt) is right on the edge of trouble:

"When professional selling occurs within three days of a follow-through, that's usually a death knell for a new rally. In this case, the distribution occurred four days later.

That's just out of the biggest danger zone, but still a negative sign. In a healthy rally, the broad market indexes will eventually add more gains in heavier volume after a follow-through.

Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

These homebuilders are pulling back nicely but I am still torn as whether to trust the charts or look at the facts with these stocks. It doesn't really matter if the market doesn't cooperate soon.

Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

Here are the shorts I am watching if we break down further here. I tried to put them in order of preference from top to bottom. I don't know if I would load up here yet, but we're getting close to that point it seems. Feel free to ask questions about the charts if you have any.

AG, TNH, FSTR, UACharts from Telechart2007, Courtesy of Worden Brothers, Inc.

State of the Market - 3/27/08

Some volatility came back into the market today as the indexes started higher, went sharply lower around 10:00, rallied back into the lunch hour, sold back off in the afternoon. A rally attempt started around 2:00, and I really expected this rally to hold and carry us to gains for the day, but it didn’t. The bounce failed and the selling accelerated into the close, giving the indexes moderate losses for the second straight day. Although I can’t call the selling intense, the indexes are now all below their 50 day moving average and I just didn’t like the late action today. Volume was also higher today so this is the first taste of distribution since the follow-through day on Thursday. If you look at the charts below, things do not technically look great anymore. I find it interesting as well that the VIX is exactly where it was after Monday’s close, even though we are some 35 points lower on the S&P 500 and 45 points lower on the Nasdaq. That tells me there is a fair amount of complacency right now in this market.

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

Based on today’s trading, I have to shift my bias to the short side of the market. I was expecting some sort of move today (to be honest, I though it would be up) and we got that. I’ve said a pullback is healthy here, but this is quickly becoming more than just a little pullback, and buying interest should come in very, very soon(like tomorrow) or we could find ourselves move lower quickly. There is no doubt the Market Monitor is now back in bearish territory, and it is not an indicator that usually flops around – once it reverses, it almost always is a significant event. I noticed today that some nice looking stocks (OFG, BLK, WSCI, OME) had some pretty volatile days that have turned their charts ugly in a hurry. The only bright spot I can really find for the bulls after today is that the transport breakouts I mentioned yesterday have not completely crashed – JBHT doesn’t look great but LSTR found some support today. I am not totally giving up on the long side of the market but it needs to prove itself to me very quickly. If this was the best traders could do going into the end of the month and the quarter, traditionally strong periods of time, that tells me something.

A lot of the shorts I mentioned last night started to break down today and may be playable here. I would like to see volume increase on the selling but perhaps that will come in time. I started one short position today and may look at adding more tomorrow if we continue heading lower. I won’t say this rally attempt is completely dead but it is on life-support, and you should trade accordingly. I’ll be back later with some charts. Good luck.

Wednesday, March 26, 2008

Charts to Watch

After going through my scans, I found no new interesting longs. BKE still has max BOP and looks good although it pulled back a bit today. There is a pretty clear trendline there for support, and if it breaks above $48.50 and the market cooperates, I think it could be a nice long. I am still watching the recently hot stocks like OME, BRKR, and WSCI for orderly pullbacks to possibly enter into these stocks - I don't know if we will get them. If you look at a stock like TITN, which I showed yesterday and looked decent, it reminds you that things certainly aren't perfect out there and caution is needed.

I am getting my short watchlist ready just in case we head lower from here. I don't have time to analyze all of these but if you follow my blog you should probably be able to tell why I am watching them. If you have questions, feel free to ask.

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

Tomorrow the year-end GDP figures and initial jobless claims are due before the open, and I am guessing that will drive the trading significantly. I think we are reaching a point where this rally kicks into a higher gear and we move higher to challenge overhead resistance, or it fails and we head much lower. I can't see us just sitting here for the next few days. The lack of volatility the past few days has been a nice change of pace, but I don't know how long it will last. We shall find out. Keep your mind open to both sides of the market right now and be ready to act when the market shows its hand a little more. Good luck tomorrow.

State of the Market - 3/26/08

Another poor open today in the markets, with some more bad economic news in the form of a higher than expected drop in durable goods orders that led to futures being lower, and dip buyers did not show up right away like they did yesterday. News of new home sales hitting 13-year lows brought out more sellers after the open, and the markets stayed lower throughout the rest of the morning and into the afternoon, with fairly calm trading. There was a brief attempt at a bounce around 3:00, but it failed and the indexes closed with medium-sized losses. Although a pullback here is still not surprising to me, the market did not act as bullish as it did yesterday, when a bad open was quickly bought and the markets finished mixed. Today there were no dip buyers to be found. The one good thing for bears is that today’s pullback came on lower volume, so there has still been no distribution since the follow-through day, and I can't call the selling heavy - all losses were less than 1%. Technically, the Nasdaq still closed above its 50 day moving average, and the S&P 500 closed right on that average. If you look at the downtrend line that was broken on Monday - it appears to have turned to support, at least for the short-term. That is bullish.

The Market Monitor scans I use turned back to being bearish today, but only by a few numbers and not in a convincing manner, so I am not sure what to think. When Telechart puts the final numbers out later tonight, I will know exactly what the ratio is. As I mentioned yesterday, the last time it turned bullish and quickly reversed back to bearish (February 29, 2008) was a good shorting opportunity. Looking even further back, it also failed on December 11, 2007, after turning bullish for just one day. This was an even better shorting opportunity. Both of those situations had the indexes rallying up to or just beyond their 50 day moving averages, and quickly falling back below. We have the same setup right here. The only difference is that when both of those signals reversed, it was accompanied by higher volume and the selling was pretty intense, which gave a strong signal that things were not well. I wouldn’t call the selling today intense, so I am hesitant to say that the same thing that happened twice before will happen again. The chart below will show you what I am discussing here.

S&P 500

Chart from Telechart2007, Courtesy of Worden Brothers, Inc.

For what it’s worth, although my long watchlist increased, my short watchlist also increased last night, as this rally has caused many lagging stocks to bounce up into some areas of resistance, which is what you look for in a good short. The question is whether these bounces will continue higher, or will they peter out right around here as the market falls lower. I have no problem going short again with some of the former big-time leaders of this past bull market, like DECK, FWLT, and AAPL as long as it’s the right play, just like I have no problem going long with some of the new stocks that have popped up if it’s the right play. Again, I have to let the market tell me what to do, and after today’s action, it seems to be telling me to not abandon the long side, but make sure you are ready on the short side just in case.

In terms of charts, the transports/trucking group that I mentioned was breaking out a few days ago has now pulled back and the individual charts in many cases are right at their breakout points. In the charts I see, these pullbacks have come on lower volume. I plan on watching this group as a possible tell for the market, and if they cannot hold their breakouts, then things could get worse before better.

Chart from Telechart2007, Courtesy of Worden Brothers, Inc.

Basically, I am back to where I am not really leaning one way or another right now. The follow-through day is still intact, and we have yet to have official distribution from it. However, the reversal of the Market Monitor signal has led to down moves twice already. If I had to pick a side, I would still lean bullish due to the low volume on this pullback. The selling has not been intense, and pulling back like this allows more bases to setup in nice patterns. If we continue lower and volume starts to come in higher, then I will change my thoughts, but not until then. Tomorrow should tell us a lot. The current situation is probably best described as one to still tread lightly in, without large commitments on either side until things become clearer. That is what I plan on doing. If you have the guts, you may be able to buy these pullbacks with tight stops below. If I do, they will be small positions to start off. I'll try to be back later with some charts. Good luck.

Tuesday, March 25, 2008

Charts to Watch

Here are some charts I am watching. The first group are the stocks I wished I had entered but didn't of course. They are the strongest stocks I see right now with lots of accumulation, and my gameplan is to enter on any pullback, maybe to the 9 day moving average.


The second group are stocks that could be buys right now if they breakout. They are not all perfect in terms of accumulation but their fundies are solid.


The third group are just some stocks I am watching to see what they do. None of these are really ready right now, but with some more work they could set up to be very nice buys.


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

I am hoping we get a few more days like today of low-volume, calm action. If we can, the major moves of last week will be digested and stocks would have a good chance of running higher. With both a follow-through day and a bullish turn on the Market Monitor, the right play here is to focus on longs only. Things may change quickly as we approach overhead resistance, and I don't know how long this rally will last, but instead of anticipating, I am going to react to what the market is saying. If we get a quick turn, some distribution, and a reversal of the Market Monitor like we did in late February, then I will react accordingly as well. The last time I went long, I was in those longs a total of three days before being stopped out with very small losses. We'll see if that happens again. I would advise to remain patient, enter into longs with small positions to start that can be added to over time, and have clear exit points in case thing get bad again. Good luck tomorrow.

Market Monitor is Bullish

After today's trading, my main Market Monitor scan has turned bullish again. It last did this during the last week of February and remained bullish for only four days before turning back to a bearish ratio. As it turned out, that turned out to be a good shorting opportunity. As long as this ratio remains bullish, I will look for longs. If it reverses quickly like last month, then I think that will be a clear signal that this was just another short-covering rally. There were many similarities between now and then - it was the end of the month, indexes rallied up to their 50 day moving averages, stocks that looked good started to pop up slowly. I do think things look a little better today than they did then - we have tested the lows, the indexes are above their 50 day moving averages(although barely), and there are more charts that are decent, although still not a lot. Since this turned today, I have a little more confidence in taking longs here, and will use this to tell me if this rally has a chance to be longer than I thought. If we reverse back in the next few days like last time, I will let you know.

You can learn more about the Market Monitor here at Pradeep Bonde's website. My scans are similar to his but he is certainly the expert of this indicator. If you haven't done so already, make sure to check his site out - it's full of great tips and original trading strategies.

State of the Market - 3/25/08

The markets started flat this morning and briefly went higher before turning down through the morning hours. A report that said housing prices have dropped 10.7% year over year, which is a record, and a lower-than-expected Consumer Confidence report brought some sellers out, which is not unexpected after the huge run we’ve had the past five days. After hitting a low point around 10:30, the market rose back to the breakeven point, and remained near there for the rest of the afternoon. Although the indexes could not finish at their highs, the indexes finished mixed with the Dow down marginally and the Nasdaq and S&P 500 up marginally. Considering the last week of trading, I think today’s action was very impressive. The opportunity was there early on for the selling to accelerate but it didn’t. It seems like the former downtrend lines now have become support, at least in the short-term. It’s a nice change of pace just to get a day with the intraday spread less than 400 or so points. A few more days like today would be excellent for this market. Perhaps it will let some stocks rest and continue to form healthy bases from which they can blast out of in the upcoming weeks. Perhaps this follow-through day will end up working. The last one we had that failed back in February had a distribution day immediately after the FTD, which usually is a sign that the FTD is doomed to fail. So far, we have no distribution after two days of a rally and more stocks are setting up as possible longs. Things continue to look good for the bulls.

I was stopped out of my SKF purchase from yesterday with a very small loss of less than a percent. I moved my stop up to break even after it moved higher in the morning, but it couldn’t get any momentum going. I covered my other two shorts from yesterday from very small gains(like 2%) after they rallied off their lows for the day. I will probably be wrong on these and they will crash tomorrow, but for me, there doesn’t seem to be much point in holding onto shorts here that aren’t working immediately – it is just being stubborn. I expected a bigger pullback today and we may still get one, but the trend is up so fighting it here probably isn’t the smartest thing to do. I may reconsider after this month is over and if the VIX gets to the 23 area, but as of now, however, I am focusing solely on longs. There were a few that broke out today and some leaders are starting to emerge, and I will post some of those charts later tonight.

One of the things I am struggling with right now is finding the correct balance between having convictions in your opinions and not being stubborn in your opinions when trading. I think I am too stubborn with my opinions, letting my ego get in the way of what could be good trades just because what I see in the market doesn’t necessarily agree with what I expect to happen. For instance, I think our economy is in for much worse times ahead due to the fact that the bubble of fictitious credit that we have built our economy on cannot go on like this forever. I also think what the Fed is doing is only postponing this inevitability and their actions will make things much worse when they do fall apart. For me, these are important beliefs in the longer-term time frame, but right now, in terms of possibly making money in the market today, they are not helping me. They in fact are holding me back. I do need to work on finding the right balance here and I am sure it is not a skill learned easily. You don't want to flip back and forth between being a bull and a bear at every little market movement, but keeping an open mind and being ready and willing to change on a dime if evidence pops up that shows you a change has come is very important. I have written about having an open mind to both sides of the market, but I don't think I have done a good job of actually doing that - I have let my personal opinions hold me back from making moves that were right in front of me. I guess if trading was easy, more people would be doing it and doing it well. Maybe I am thinking about this now just because I am frustrated I didn’t enter either WSCI or OME a few days ago when I posted their charts and now am kicking myself. Argghh!

I'll be back later with some charts to watch. I said yesterday that sometimes it just takes a while for charts to pop up after a FTD. More are starting to pop up so that is definitely a good sign for bulls. We do still have a lot of overhead resistance to deal with, but today's action was very constructive. Bad news continues to be pretty much ignored, and even though it may seem shortsighted, it is nonetheless bullish. Good luck.

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Monday, March 24, 2008

A Few Charts to Watch

I really don't have a lot of charts to show because after doing my scans, I didn't see much on either side of the market to get excited about. I think I discussed how I use Telechart's balance of power (BOP) indicator to help identify longs that are likely to make big moves, and how most of the patterns I see these days are just average patterns with average (yellow) BOP levels. I continued to see that tonight in my scans. I put a few charts below that I am watching but I don't plan on doing any buying right now. I am hopeful that some of these charts will start to turn green and show more accumulation - sometimes rallies just start off slow and the new, fresh leaders start to develop after a few weeks. Maybe that is what we'll see with this rally - I am hopeful of some popping up soon. It's the new leaders where big money is made, not older, beaten down stocks rallying off their lows, which I continue to see. If you really want to get in on the action and can't sit still, then index ETFs might be your best bet. Cash, however, is still a good bet as well. Good luck tomorrow, and remain careful!

Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

State of the Market - 3/24/08

Another strong day in the markets today, as a "redo" on the much talked about Bear Stearns-J.P. Morgan deal raised the spirits of traders, as the market quickly rallied after starting off in a slow manner. The buying continued into the lunch hour, and although it leveled off in the afternoon and stocks closed a bit off their highs for the day, the indexes still finished with impressive gains. The Nasdaq led today with over a 3% gain, which is encouraging since this index has been lagging the Dow and S&P 500 for a while now. If you are a Canslim-type trader like me, the Nasdaq is where you are going to find most of your big winners, and today's action was what I was looking for from this index. Volume was lower today, which was expected after Friday's huge options expiration trading volume. So another good day if you are a bull and a bad day if you are a bear.

Technically, the indexes have now closed over some important resistance in the form of 50 day moving averages and the downtrend lines. Certainly things look more bullish right now based on today's action. Some resistance ahead is around 1400 for the S&P 500 and 2415 on the Nasdaq, but those areas are still a week or so away if we continue on our current track. The only thing that worries me is that the S&P has moved about 7.5% higher from last Monday's lows, and that is quite a big move in less than a week, so we may be due for a pullback. There seems to be a lot of sudden bullishness in what I see on TV and read on some blogs, and I find that interesting. The one thing that you can expect from this market is the unexpected, so it pays to be careful.

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

I took some small shorts today in a few financials due to seeing the XLF putting in a reversal day right at the 50 day moving average. This might be just a small pause in a move much higher, but based on how it closed, and how much the financials have run here in the past week (almost 20% from last Monday's lows) I thought there is good risk/reward at this point. I will keep my stop-loss levels tight however, because the trend certainly does look more bullish right here. If the VIX gets down to the 23 level, then I would be willing to try more shorts in other areas(namely the agriculture stocks like MON if they continue higher over the next few days.) I don't think the time is right at this point, however, to start shorting heavily again.

Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

As for longs, I noticed the trucking stocks broke above some long and major resistance today and may be putting in a major trend change right here. They have been moving higher for a little over a month, but today's breakouts put them at new highs, which is impressive and something worth noting. The best two I see are LSTR and JBHT, which I have posted below. The only thing I didn't like is they finished off their highs, but maybe I shouldn't be so picky.

Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

Homebuilders also looked strong today, but the XHB finished way off of its highs and seemed to hit resistance at the 200 day moving average. I am tempted to try some of these here, but they are not CANSLIM type stocks and there are probably better places to put your money, especially since they have already rallied quite a bit this past week.

Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

There were more stocks breaking out today, and I will try to post some of those later after doing my scans. OME and WSCI, both of which I posted yesterday, had some nice moves today. At the same time, MA, which I have seen many people talk about, put in what looks like a false breakout, so that is not good to see. Following-through on Friday's follow-through was certainly nice to see today, but MA proves that this is still not an easy market and it is important to remember that. If you have to make moves, make sure you keep them small and take profits quickly. Cash is still not a bad choice here. I hope to be back later with some charts. Good luck.

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Sunday, March 23, 2008

Some Thoughts for The Upcoming Week

Well, my son is taking a nap, my Pitt Panthers lost a tough one last night to Michigan State after shooting 2 for 17 from behind the arc (so I have lost a lot of interest in the NCAA tourney) and it's another few hours before Easter dinner, so I figured I would put a few thoughts down about this upcoming week, along with a few charts. IBD did indeed put the market in rally mode on Friday based on the Dow's follow-through. I explained my reservations with this in my last post, but for now, I am willing to go with it. It is always easier to make money on the long side than the short side. The only problem is that after going through my scans, I still don't see too much on the long side that is worth putting a lot of money into. The top four charts I am watching are below. I haven't yet decided if I will enter any of these - if I do, I will certainly keep my positions small and my stops tight.

Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

Even with a follow-through, I don't get the feeling we are entering a period were money will be any easier to make than it has been the past two months. I was looking at the 1937 Dow chart again after IBD compared this market to that year, and I did see some similarities. The bad part about this is it looks like 1937 was a year without a strong trend and with a lot of chop. Those characteristics are not good for making money, and I think that is what we may have here for the next couple of months. I hope I am wrong.

1937 Dow vs. 2008 Nasdaq
Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

On the short side, I am only looking at three stocks - LEH, NCC, and DECK - all three of which I posted charts of last week. The risk/reward is almost nice for LEH and NCC, but I am interested to see how LEH in particular, but the financials in general, react to the S&P downgrades of LEH and GS over the weekend. If you look at the XLF chart below, you can see that it is right at major resistance, as are most of the indexes. This week should tell us a lot. I am no longer as bearish as I was a few weeks ago, so I am not planning on making a big bet against the financials right here, but it would be a good risk/reward point for something like the SKF if you are so inclined. I think it might be better to go after individual names like LEH and NCC that still look technically terrible and could still fall even if the financials continue to rally.

Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

If I had to guess, I would predict we head higher over the next week. I think the month-ending and quarter-ending window dressing will be strong with the lack of major economic news until April. Even if we rally however, I just can't make myself believe that everything is just fine and this is the true bottom of the 2008 bear market. I think Jim Jubak summed up my feelings best in this paragraph I read of the weekend:

"Frankly, I remain skeptical that a Wall Street so near to panic on one day can be completely healed the next. I doubt that the problems in the financial system that were so serious that the Fed had to arrange a forced sale for one of the biggest U.S. broker-dealers can be fixed in a day. And I find it hard to believe that an economy so sick that it requires three interest rate cuts totaling 2 full percentage points in two and a half months can be so easily fixed."

If you have the patience and discipline to stay on the sidelines in this market, you are probably still better off. If I make any trades this week, they will be very small positions until the market is less volatile and the trend becomes clearer, and if I do get profits, I will take them much quicker than normal. Remember that if this is the true bottom, there will be plenty of time to make lots of money as fundamentally sound stocks set up and break out of new bases. If this is just another bear market rally, you will be kicking yourself for jumping in with both feet and losing money just because you felt like you had to catch the exact bottom. I just think right now, there is not enough to tell us that this is the "true" bottom, so it is smart to trade accordingly. Good luck this week and happy Easter!

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Thursday, March 20, 2008

State of the Market - 3/20/08

Well, the market were up 4% on Tuesday and down 2% yesterday, so what else would you expect but a big up day today, and that's what we got, as the indexes were all up over 2% across the board. Volume was also higher, which is pretty typical of an options expiration day. Similar to Wednesday, financial stocks were higher across the board, thanks to upgrades to Fannie Mae and Freddie Mac, and an announcement that the Fed would accept less liquid assets as collateral for loans. Similar to yesterday, oil and commodities were weak on a stronger dollar, although stocks in these sectors closed well off their lows for the most part. So for all of the action this week, we have still not broken to new lows. We are still under our 50 day moving averages on all indexes. We have yet to have a follow-through day on any indexes. As I have been saying for about the last week, this market continues to be difficult for both bulls and bears to trade due to the volatility from day to day, and cash remains a good option until things become more clear.

As we enter a new week next week, I still have very little clue as to where we will go. There are some good arguments on both the bullish and bearish sides of the market.

From the bullish perspective, here are some things I see:
  • The spread on the Investors Intelligence Survey this week got even wider, with only 30.9% bulls and 44.7% bears.
  • Most news broadcasts I've watched this week have led with stories about the economy, stock market, and how bad things are. They do say things are worst at the bottom.
  • I do think it is bullish that with all of the bad news out there, including the collapse of a huge investment firm (BSC) we still did not break to new lows for the year.
  • Two big up days this week is nice to see, although big one or two day rallies are common during bear markets.
  • Commodities look like they are pulling back here, and if they do, that will help a lot of the sectors that have been beaten down and are struggling, like transports and retailers.
  • If the commodity sectors continue to break down, money will likely come out of the oil, metal, and agriculture stocks, and this money has to find a home somewhere.
From the bearish perspective, here are some thing I still see:
  • I continue to see very few "new" stocks popping up in my scans with great charts, strong volume patterns, and great fundamentals.
  • Much of the gains made this week were driven by beaten-down sectors like the financials and real estate sectors making nice gains, not new stocks breaking out.
  • Although the VIX did spike to begin the week, it did not get to extreme levels and could not get above the high set at the January bottom.
  • We still have much overhead resistance to deal with.
  • Bear market rallies are notoriously quick, powerful, and often are very short-lived. Most of the biggest one-day percentage gains were found in past bear markets. They tease people just enough to pull them in before ripping their hearts out. There is a possibility that Tuesday was one of these day.
  • I found it interesting that after just one nice week on the indexes, I see this headline on the CNBC website - "Is the Finanical Crisis Over? Some Believe It May Be". So that's it - people are now thinking we're through this mess??
Basically, this is my mindset right now. I am open to either side of the market right now, but still lean more bearish. I believe the arguments above tilt more to the bearish side in my opinion. This rally has already put some stocks into nice shorting position and if it continues, more will likely enter nice shorting zones. I won't be loading up on shorts yet, and with both the month and quarter ending next week, I wouldn't be surprised to see some window-dressing that keeps this rally going, perhaps even past some of the resistance I mentioned on charts this week. That doesn't mean I plan on loading up on longs. My attitude right now is that unless we get a very strong follow-through day per IBD rules sometime in the next three days on the Nasdaq and S&P 500, I have to refrain from jumping into any longs. Technically some rallies follow-through on the third day, and today is the third day of the new rally attempt for the S&P 500 and Nasdaq, but I don't think IBD will count today for those indexes because yesterday was such a bad day. Third-day follow-through days only happen when there are three very powerful days in a row. IBD will likely put the "market in confirmed rally" tag on this weekend since today will probably count for the Dow as a follow-through. As I mentioned Tuesday, I don't always agree with this and would like to see the Nasdaq and S&P get that follow-through day on their own. If they do, and more charts pop up, then I will change my tune and become more bullish. William O'Neil states that a powerful follow-through day should be accompanied by new, fresh stocks breaking out of nice bases, and based on my early scans, I did not see that today. Sometimes rallies develop slowly, and maybe this one will as well. I am just going to make Mr. Market prove itself to me more before jumping in.

Right now, I am going to go through my scans, and then try not to think about the stock market too much this Easter weekend. I would like to watch some basketball(go Pitt!), spend some time with my family, and think about the true meaning of the Easter holiday and the gift we've all been given through Jesus Christ. God bless this weekend!

Wednesday, March 19, 2008

More Jim Rogers - Must Watch

I found this video link on the Mess That Greenspan Made blog - I agree with everything this guy says. Thanks for Bear Mountain Bull for the heads-up. Tremendous stuff!

Possible Shorts

Looking through my scans, I noticed a few things:

1) Commodity stocks look they are finally breaking down. Oils, metals, agriculture all had major breakdowns today and on higher volume. I have mentioned that I was uncomfortable buying these stocks the past few weeks and today confirmed my view. I don't know if they will continue much lower because the Fed doesn't exactly have what I would call a "strong dollar policy", but the stocks can go down before the actual commodities. The hot money is in these sectors because it was the only working, so if it stops working, the rush to the exits will be fast. Unfortunately, if you want to short here, you may be chasing a bit. You can also try DUG and SMN, both inverse ETF's. I have not had much luck with these two so far, so I am hesistant. I remember last week many of these stocks looking very similar to today, but nothing came of it. We shall see.

2) China stocks look absolutely terrible. Look at FMCN, NTES, MR, CMED - all look horrible. I am looking at both CMED and EDU as possible shorts over the next few days. EDU might be worth an entry right around here - just be careful because these stocks are very volatile.

3) There continues to be no leadership in this market. The stocks I mentioned as possible longs last night all look crappy today. If commodity stocks continue to fall, there is nothing I see left to hold this market up. That means we head lower.

Here are some shorts I am watching over the next few days. Without a rally today, these aren't necessarily in the best position to short, so be careful. Hopefully we will get a little more of this "rally" and get these up to lower-risk areas. Depending on how things go tomorrow, I may try starting a few positions at the end of the day. I would love to be able to get SKF in the $108 area. Others worth watching include VOCS, POT, MOS, TNH, GME, VOCS, and RIMM. Good luck tomorrow.

Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

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State of the Market - 3/19/08

Not a good day for bulls in the market today as a solid open caused by higher-than-expected earnings from broker Merrill Lynch led to more optimism and an early rally. This rally, however, could not last much past lunchtime, as stocks sold off hard in the afternoon, with all indexes closing at the day's lows. Volume was also higher today. Certainly not the type of day hard-core bulls wanted to see after such a big up day on Tuesday. A pullback was expected after we gained 4% in one session, but I didn't expect one as severe as today, since the selling also came on higher volume, the action doesn't look very good.

Technically, both the Dow and S&P 500 came close to touching their downtrend lines, and the Dow looks like it was rejected by the 50 day moving average. I said yesterday that there is a lot of overhead resistance, so I am not surprised they didn't bust through this are on the first attempt. 1350 on the S&P and 12,500 on the Dow are going to be the key numbers to watch for over the next week or so. I wouldn't be surprised to see them challenge this area again, and it is on these subsequent challenges that I will be looking to possible add some shorts.

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

Although I am bearish, I don't think today's action means we are heading immediately lower from here. My hunch says that there is still a few days of rally left in this market. It usually takes several days to determine the true trend after Fed days, and with options expiration tomorrow, I am not putting too much importance in today and tomorrow's trading. I certainly wouldn't be happy if I was a bull after today, but it's not the end of the world either. Keep your eyes on things tomorrow and into next week, and then we can determine what the market is likely to do. I really don't like the action today from my bearish perspective either - I was hoping we would keep heading higher to set up some really nice short entries. Maybe we will still will - I hope so. I have a lot of potential targets and I will try to put some up later tonight. Good luck.

Tuesday, March 18, 2008

Charts to Watch

After doing my scans, I unfortunately did not see a lot of great stocks putting in huge moves today. Most of what I saw moving was indeed severely beaten-down stocks like I expected. Right now, here are some stocks I am watching for possible long setups if this rally continues:

BRKR - Broke above resistance today but I don't want to buy right here with the market as it is - I wish it would have rested more.

BKE - Has held up well after breaking out a few weeks ago and I would consider this with a little more rest or less questions in the overall market.

OME - Chart could be nice if it rests a few more days. Max BOP for a few weeks now.

ITU - Not perfect, but if for some reasons financials are indeed bottoming like everyone says, this bank might work - forming a cup with handle pattern.

Others I am watching include DROOY, JRCC, ATLS, and GEOI. These are all still in the commodity area and these are still due to pullback at any time.

I didn't plan on doing anything in this market until probably Monday and my scans didn't really change that. There is still nothing super exciting that I see, and I hate to sound like a broken record, but if this was going to be the start of something very big, there would be a lot of nice charts setting up. I still expect us to continue to bounce, but just be careful with these bounces if you decide to play them. I would take profits quickly if you get them and if you must start positions, I would make them small to start out. Good luck tomorrow!

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State of the Market - 3/18/08

Big day for the markets, as anticipation of a big Fed cut and better-than-expected earnings from brokers Lehman and Goldman Sachs led to a big open, and the markets didn’t hesitate to add to those gains as the morning went forward. The only problem in the early action is volume was lower, probably because of trader being hesitant before the Fed cut. When the news of the actual cut hit around 2:15, the market fluctuated as expected – that’s why it’s smart to stay out of the market on days like this. You can guess how the market will react, but that’s all it would be – guessing – which is basically the same as another “g” word, gambling. I made a mistake having positions during the last Fed day and tried to trade them, only to be chewed up and spit out. The true trend will hopefully show itself over the next few days, perhaps by Monday. It will be interesting to see how the market will handle the “disappointment” of only a 75 point basis cut, but based on today, they didn’t seem to mind too much. Markets finished very strong with huge gains of over four percent on all indexes except the Dow, and even the Dow was up 3.5%. A very impressive day for the bulls indeed. Now the question is what today’s action really means and where we go from here.

Technically, there is still a lot of resistance for this market to get through, so assuming we do rally for a few more days, which I think is very possible, it is time to look at possible areas for rallies to run out of steam. On both the Dow and S&P 500, the downtrend line is right near the 50 day moving average, so that would be the first logical area for this rally to run to. This would around 12,500 on the Dow, 1350 on the S&P 500, and 2325 on the Nasdaq. If we would get past this area on strong volume, that would certainly be bullish, but I question the endurance of this rally due to factors I discussed yesterday – no washout, no good charts, etc. I found it interesting as well that today’s huge move came on lower volume than yesterday. I also don’t like a market that is led by the Dow. I think this area would be a lower-risk point to put some shorts on. I also notice the VIX has a pretty strong trendline here, and if it gets back to the 23 area, it might be a good time to put shorts on. This trendline has worked well in terms of short entries so far. I will be focusing on the financials, retailers, and maybe the SKF inverse fund, but only if they continue to rally up to some resistance levels.

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

Another thing that keeps me bearish right now is that the only index that was still in a valid rally attempt after yesterday is the Dow. This is what IBD said about the recent rally attempt:

“The Nasdaq, S&P 500 and NYSE composite undercut their previous lows, ending attempted rallies and resetting their rally day counts to zero.

Of the major indexes, only the Dow remains above its recent low. Tuesday will be Day 6 of its attempted rally.”

I thought that after today’s action, IBD would move to “market in confirmed rally” based on the Dow’s follow-through today. The only problem with that is you can’t have a follow-through day on lower volume. This is the only major problem I have with the IBD follow-through system – it tends to be somewhat vague at times like this. If three of the four major indexes already undercut their lows, doesn’t that tell us something about the overall state of the market? If we did get a follow-through day today on the Dow – let’s say volume was higher - their rules will state that is good enough to put the entire market in a confirmed uptrend – as long as one index follows-through, then they all do. I disagree somewhat and have always been confused by this – the Dow is only 30 stocks and the only real reason it was up yesterday and did not undercut its lows as well was JPM had a huge day off the Bear Stearns takeover and lifted that index. It almost seems at times they are bending the intention of the rules of a follow-through day to produce one. This happened back in December I believe when they used the IBD 85-85 index to get a follow-through day – it took them an extra day to acknowledge this, and they have never used this index before for a follow-through day. I would much rather wait for a follow-through on all indexes to get long here. I get the sense that if we were really ready to move much higher, and this was the real start of a major rally, then the rally on all indexes would still be alive and they all would have followed-through. So from my perspective, a follow-through day would do nothing but add to the confusion because not all of the indexes did so, just the Dow. The Dow is definitely the leading index right now, but is the Dow full of young, growing companies that are primed to make huge moves? Listen, I love IBD and realize they know what they’re doing, but I don’t always agree with their assessments on follow-through days. We shall see – I hope they are right and I am wrong, and that this rally turns into something special. I am going to try and keep my mind open. After I do my scans tonight, I think I will have a better idea of what today’s action really means – were there nice charts breaking out(I doubt it), or was today’s action mostly caused by beaten-down stocks rallying up, mainly from short covering(this is my hunch). But I find the lower volume today to be both surprising and ominous for bulls.

Bottom line is there is nothing wrong with waiting here and letting the market prove itself before jumping in on the long side. Today was certainly impressive, but I need to see nice charts breaking out before I change my bearish view – simple as that. If we get that over the next few days, then I have no problem turning sides. I would just rather wait for confirmation and be safer with my money right now than guess a bottom and then quickly be whipsawed and faked out, which would also cause me to miss some short entries. With options expiration, the next few days likely will remain volatile. It remains a difficult market, and one that is best played on the sidelines, at least for now and at least from my perspective. Good luck.