Monday, June 30, 2008

How Oversold Can a Bear Market Get? If We Don't Bounce Soon, We May Find Out

Here are the major indices. They aren't much changed from Friday other than the bullish reversals put in by the Nasdaq and Russell 2000 are no longer bullish. We're still extremely oversold, but I am starting to think that if we don't start to rally tomorrow, or at the latest Wednesday, that this market may just start rolling over once again, even with the oversold conditions. I have never traded a bear market before this one, so I really don't knowfrom experience how oversold a market can get. It seems to me like we are pretty stretched here. But I do know that the VIX is nowhere near extremes, and we still haven't seen any real capitulation-type action, so perhaps the market can get even more stretched than it is already.

I am guessing that right now, no one wants to be holding stocks come Thursday if the EU has the guts our Fed lacks and does raise rates, so perhaps that will lead to more selling. I am still not discounting a bounce, not in the least - I just think it needs to come soon, because there seem to be a lot of people expecting it. If it doesn't come soon, perhaps people start getting really scared and the selling accelerates. Oil has to fall in my opinion in order for a bounce to occur right now. Based on the reversal today, perhaps that can happen. As long as the USO holds $113, I wouldn't get too optimistic if I was an oil bear.

Major Indices

Here are the two shorts I took at the end of the session today. I am a bit worried because we are still so oversold, but these charts have rallied recently so I don't know if the conditions will affect them as much. At least I hope they won't. I will keep my stops pretty tight.

DRYS, CPLA

Speaking of oil, I saw several stocks having what could be considered exhaustion gaps or parabolic climactic action. I've seen this before, though, and it hasn't really meant anything, so who knows for sure? Again, the market's only chance here is for oil to drop significantly. If the EU raises rates, the dollar will fall even more, which is not the best recipe for falling oil prices.
I don't know that I would short these, but I will be watching them, mainly GDP.

HK, GDP, XCO, GMXR

Here are some of the shorts I am watching, either now or on a little bounce. I think I am just going to play the chart rather than focus on the overall market - both of the shorts I took today had already bounced and that's why I took them. It is certainly very, very risky to short here, so I would make sure you have an exit plan in case we do finally get a big, short-covering rally, and I would keep my stops tight. Before today, I was thinking the chances of a rally versus more selling was probably 80/20. But after today's poor action, I would put the chances closer to 60/40 or 50/50 that we just keep heading lower here, regardless of the oscillators and indicators and stochastics and others. I really don't enjoy getting stopped out of positions quickly out of entering them, but I also don't want to be sitting on the sidelines if we drop another 50 or 100 points on the Nasdaq, either. Right now, I think you have to weigh those two points of view against each other and decide for yourself what to do over the rest of this week.

MR, NCTY, SOHU, JST
SID, AKS, CRM, LDK
GNK, ESEA, TOL, MDC
All Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

That's about it for tonight. We'll see what tomorrow brings us, but a break below 2290 on the Nasdaq or 1272 on the S&P 500 could lead to more selling, taking us down another 25-30 points on these two indices. Those levels are very close to today's close. That oversold bounce better happen soon, or I might just find out first hand how oversold and stretched a bear market can get. Be careful, because we are at a difficult point here. Best of luck Tuesday.

State of the Market - 6/30/08

Despite more higher oil prices, stocks rose slightly to open the week today. They couldn't hold those gains very long, however, as more selling quickly came into the market and both the S&P and Dow challenged their lows from Friday. Buyers did come in a little after 10:00 to finally lift the market a little higher into the lunch hour. This bounce was directly tied to a fall in oil prices around the same time. Crude prices hit a low around 11:30, while stocks hit their highs around the same time. As crude came back slightly through the afternoon, the market kind of chopped their way around through the lunch hour and into the afternoon. Stocks started selling off again around 1:00, but the bleeding stopped around 1:50, and stocks tried to rise back into the final hour. It looked like stocks were going to be able to hold onto modest gains, at least on the S&P 500 and Dow, but that all changed in the last 15 minutes, when stocks sold off hard. The Dow and S&P 500 did finish with gains, but they were virtually nothing. The Nasdaq had a very rough day after putting in the strongest reversal Friday. All in all, a very unimpressive day when you consider the oversold conditions and the reversal in oil prices.

Technically, today doesn't do too much for the oversold conditions we've had for the past few days and the bounce that I've been expecting did not exactly start in what I would call a strong manner. Perhaps it will be a slow, two or three day event rather than a very powerful, quick rally that are often seen in bear markets, but that close was nasty and very bearish. To be honest, I am beginning to wonder if analyzing this market from a technical perspective is pointless right now - basically it all comes down to oil. Regardless of how oversold the market is, I can't see it rallying or even bouncing if oil continues higher. If oil breaks down, then this market could take off on a major relief rally, but then again, it didn't seem to help much today. Right now, I am still looking for a short-term relief rally, and my target for a bounce is still around the 9 day moving average (Dow - around 11,690; S&P - around 1300-1305; Nasdaq - around 2365). Based on today's showing, however, I am also open to the market just continuing lower regardless of being oversold, so who knows if we will even anywhere near those levels.

I really didn't do anything today until the end of the session other than get stopped out of my HSC position for a 5.5% gain. I still have my DGP gold position. I watched more of the shorts I got out of last week head lower - CRDN was down big today after I took a small gain in it Friday. FCSX, SVR, SKF and CSR are four other stocks that stand out in terms of settling for modest gains rather than letting gains develop into bigger ones just this month. I mentioned last week that I believe I let the overall market affect my outlook on certain stocks probably more than I should, and as I watch some of my former shorts head lower, I think it is true. Hindsight is always 20/20, and it is easy to second guess your decisions when trading. I think my anticipation for a bounce and the oversold conditions of the market caused me to cover the shorts when there was really nothing wrong with the charts themselves. Past experiences have shown that a short-covering bounce was very likely the past few days, and I went with that. Obviously, in this instance, my past experiences were wrong.

It also sucked to watch APWR and ENER bounce today - I definitely mistimed the bounce and that is what I guess for be impatient. There is very little doubt in my mind that patience is the biggest quality I still need to develop to become a master trader. It is by far my biggest weakness. I am still trying to catch every little swing in a stock rather than ride longer-term trends, and it is pretty obvious that we are in a long-term trend lower. The problem is I think that only comes with time and experience and probably many painful lessons.

Because of the way the market closed, I decided that I need to have at least some short exposure regardless of the oversold conditions, so I took positions in CPLA @ $59.84 and DRYS @ $80.13. I don't think I am chasing either of these - CPLA has bounced up to some overhead resistance after breaking down last week, and DRYS broke below its 200 day moving average and has formed a bear flag here near overhead resistance. Ideally, I would have liked these to bounce more, but right now, I am considering the possibility that we won't get that luxury. Perhaps this is another example of a lack of patience - we shall see.

I passed on taking any longs today just due to the uncertainty of things right now, and the stocks I was focusing on (HOGS, CAEI, SDTH, DSTI) didn't do very well anyway, so I am glad I waited. My plan is still to load up on more shorts when/if the indices bounce a little. You may be able to scalp a few trades on the long side here, but I just don't feel like doing that right now. I am just hoping I get the chance to heavily short again, because right now, there doesn't seem to be anyone interested in buying stocks right now. Can't say I blame them. I don't want to chase, but that may turn out to be the only option right now. I'll be back later with a few of the other stocks I am hoping for some small rallies in to get short. Best of luck.

Saturday, June 28, 2008

I Feel Weird for Writing This, But After My Scans, I Think I am Short-Term Bullish

Let me start by saying that something was going on at the end of the session Friday - I think I read somewhere it was index rebalancing or something like that. I found many stocks that had absolutely huge volume and I don't know why. That could be one reason many of the charts I see look good now. So I am a bit hesitant here to be bullish, but I have to go with what the charts tell me.

The major indices continue to look like crap but the Nasdaq finished off its lows and the Nasdaq 100 actually finished higher as you can see below. The Worden Report thought this was a very important event:

"The fact that the Nasdaq-100 pulled off such an unexpected trick suggests strongly that we are about to experience a change of character. It doesn't mean we have hit a bear market bottom, but it probably means we're going to have some kind of a rally (before we go lower). This adventurousness should spread from the little brother to the big brother (the Nasdaq Composite) and possibly into the Dow and SP-500."

Along with the fact the Dow and S&P have both hit oversold levels via my Telechart scans, and the S&P 500 is right at the lows of March, I think there is a good chance we have a rally next week. I still don't think it is going to be a great rally. I still don't think we are at the true bottom of this bear market, not with a VIX that can't get above 24. But based on the charts I saw in my scans, I think we'll get an overdue bounce that will relieve some of the oversold conditions we have seen. CNBC and the nightly news casts are all NOW reporting that we are in a bear market and how bad things are - that could be a contrary indicator short-term as well, according to the Worden Report.

"Another thread could help provide some short-term change of attitude. It was widely publicized today that the Dow has now retreated 20% from October and is now officially in a bear market. There are a lot of ways people could rationalize that into some justification for a short-term bounce. "

I originally thought a bounce would take us up to the 9 day moving averages on the indices and that is still a possibility. Those levels are about 400 points above here for the Dow(11,765), 65 points above for the Nasdaq(2380), and 35 points above for the S&P 500(1313). That could be a one-day rally, or a week long rally - I don't know. We could get even a little higher than those levels but I would be surprised if we did.

Major Indices

I don't plan on shorting much this week until we get a bounce. Once we hit the levels I just mentioned, I will be looking to get heavily short again. Right now, I don't see too many that are setup nicely. A few shippers are running into overhead resistance and could be shortable soon. Overall, it is quite risky to be shorting here unless we just crash, but I still don't think there is enough fear to get a crash here. I would be surprised if that happens.

GNK, DRYS, CDS, JST

If you are looking for some oversold stocks to play for a short bounce in the indices, here are some that are very stretched to the downside. As I learned Friday, I am not great at playing bounces so I don't know if I will be playing any of these.

TEX, OI, IGT, DDM

Time to sound like a broken record - commodities continue to be strong. Some of oils and coal stocks tried to sell off last week, but have bounce back nicely. Here are some of the best I see.

CMP, ICO, NCOC, SQM

We'll see if oil can hold onto its breakout on Thursday - many oil stocks continue to act well. If oil blasts higher, you may want to forget what I said about the bounce in the overall market.

ABP, FPP, ENG, WLL
EAC, MCF, HERO, UDRL
VQ, TESO, OMNI, SWN

As I stated in the title of this post, I am short-term bullish not only due to the oversold conditions, but also to what I found in my scans. All of a sudden, I had a lot of nice looking charts popping up. I am hesitant a bit in case this is just a situation where the index rebalancing has affected some of these stocks. This first group is some nice-looking stocks that are either low-priced or low-float.

VLNC, BCON, QTWW, NTI
All Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

Here are some China stocks that are standing out to me. If I decide to take another shot at playing a possible bounce next week, I will keep these stocks high on my watchlist.

ABAT, CAEI, HOGS, SDTH

There are some solar stocks that could be played for a bounce as well. DSTI is a new stock that looks poised to breakout here.

CSIQ, SOL, DSTI, ENER

I have posted a few of these medical stocks before over the past few weeks - the sector overall has been strong recently. ABMD is another one to look at.

IDRA, MASI, VVUS, CYBX
SQNM, ACOR, OME, BVX

Here are a few other stocks (mostly non-commodity) that have nice-looking charts that could be played if we bounce this week. FLS is another one to look at.

CAP, DMLP, GSI, ARST
IPHS, CPN, MFLX, FLS
All Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

We'll see what all this means next week. Oversold markets can stay oversold and become even more oversold, but most evidence points to us being close to a relief bounce. I don't think it will be much more than that, but it might be playable on the long side if you are agile and take profits quickly. Sitting out until the bounce actually happens and then loading up on shorts probably isn't a bad game plan either. It is a short week so that should make things interesting. Enjoy the weekend, and best of luck trading next week.

Friday, June 27, 2008

State of the Market - 6/27/08

After seeing the overseas markets take a beating and oil prices once again higher this morning, futures were down slightly today for the stock market before the open. The market opened basically flat, but quickly became volatile. Within the first ten minutes, stocks were down once again, but not a tremendous amount and when the threat of another massive selloff at the open subsided, they tried to bounce from there. They were able to go slightly positive, reaching a high at 10:00, but could not get any true momentum going, even with the oversold conditions, and fell back to new lows from there, stopping around 11:00. They bounced from there into and through the lunch hour, but the formations looked like bear flags to me. Around 12:30, things started to breakdown again as oil went to new highs, and the market once again rolled over, breaking to new lows around 1:00. The market did hit a bottom around 1:50 (just as oil hit a top and slid drastically) and finally bounced a bit into the final hour of trading. After consolidating for about a half hour, stocks broke down again at 3:30, then bounced, then broke down again. They ended with modest losses, as the Nasdaq and S&P 500 finished off their earlier lows.

Technically, there isn't a whole lot to say, other than the market continues to become more oversold - the S&P 500 came up in the same oversold scan that the Dow showed up in yesterday. As today showed, however, that doesn't automatically mean we will bounce. At some point, this market will likely have a very powerful, short-term bounce to relieve some of these pressures. With the S&P at important support levels, I would be surprised if it doesn't happen soon. There is one main problem, however - the VIX. It barely budged today. I just don't understand how it is not moving higher. The put/call ratio did creep higher throughout the day, but the VIX is doing nothing, and as long as it sits here like this, I continue to think any bounce will only be temporary.

There just doesn't seem to be much fear out there right now, even with the market tanking. I hear a lot of fear on TV, but not in the trading action. I don't know why - perhaps too many traders are on vacation. Volume was heavy today but not extremely heavy. I talked last night about the possibility of a "Black Monday" type setup next week with more selling today, but I don't think we sold off hard enough today for that. There's not enough fear right now for a crash in my opinion. Crashes happen when fear gets out of control and everyone just has to get out. I don't see that right now. Basically, I think we are at a difficult point right now to make money on either side of the market, at least for the next few days. A quick bounce is very likely, but as I proved to myself today, timing one can be very difficult to do correctly, and you could just be setting yourself for more losses. At the same time, profits in shorts can be wiped away in a hurry when a bounce finally does occur. That is not a great setup for traders.

As for my trading, I had somewhat of a rough day. When the market didn't exactly sell off at the open even with the higher oil prices, I figured it was time to tighten the stops on my shorts - I expected a rally. I was stopped out of CRDN at $36.74 for a 2.2% gain. This stock never really broke down as I had hoped and is a reason I want to get into different shorts if we get a bounce. Same deal with CMO - I was stopped out at $11.39 but I owe a $0.59 dividend so my overall gain was 5.2%. I grew frustrated with this stock and probably tightened the stop too much - it fell nicely as soon as I was stopped out, as is usually my luck. That one sucks. I also was stopped out of SYNA at $38.6625 for a 0.8% loss. No big deal there - it just didn't break down. With the market as oversold as it is, and being up over 50% for the year in my main account, I don't see a need to let gains slip away right here. Perhaps that is the wrong outlook on things. We shall see. It ended up that I didn't leave too much on the table with these three, and in the case of CRDN, I did protect some profits.

Later in the session, I was stopped out of SPWR at $72.26 for an 11.8% gain. There was some support on the chart around $71.80 so when it fell there in the morning, I put a trailing stop on and just said, "we'll see what happens." This trade worked out OK, and I will look at this as a possible short again if we bounce here. It also finished higher than where I covered.

My main problems today were on the long side, where I added two longs around lunchtime due to my bounce theorem from yesterday - ENER at $75.02 and APWR at $26.07. I was taking a risk with these because the market had not really bounced yet, but at the same time it didn't sell off heavily. These were both very strong stocks that had pulled back to short-term support levels, so I though it was worth the shot at swinging them for a trade. I was risking about a 3% loss on one and a 2% loss, so if they did not work out, I figured it would not kill me, just hurt my pride a little. I ended up getting stopped out of both - APWR at $25.14 for a 3.8% loss and ENER at $72.67 for a 3.3% loss. I let both go longer than I should have as well. Bottom line is I should have waited for a little more confirmation or the drastic selling I talked about last night. I jumped the gun - plain and simple - and I paid a bit for it. My main mistake was overanalyzing things, and when I do that, I usually end up making mistakes. I said earlier in the week that I was not very good at playing individual stocks for bounces, but I tried anyway.

As I stated earlier, I think we are at a very difficult position here in this market. I don't think today was a good day for shorts or longs. If you have shorts on, you are probably happy. Just be alert that an oversold bounce continues to be a very good possibility and those gains can disappear in a hurry. I would recommend tightening stops on shorts as a precaution. As for playing a bounce, I just don't know when it will occur, and guessing won't get you anywhere, as I proved today. I won't be attempting that anymore. Right now, I only have two positions: long DGP and short HSC. My gameplan is to wait for a bounce up to the 9 day moving averages on the major indices, and then short the heck back out of this market. I don't know if I will get that chance or not - I hope. We'll see. Enjoy the weekend and rest up - next week will likely be quite interesting.

Thursday, June 26, 2008

Very Oversold Right Now - A Short Relief Bounce is a Strong Possibility

Here is the T2108 and it is at very extreme levels. That doesn't mean it can't go lower, but the chance of a bounce soon is a very good possibility. We are quite stretched, particularly on the S&P 500 and Dow. That doesn't mean the bounce will be long if we get, but will more likely be just one to relieve some of these oversold conditions. I could see us bouncing 400 or 500 points on the Dow, perhaps in one or two days, before heading lower. Remember, bear market rallies are very sharp and powerful - we may be in store for one of those.

T2108

The VIX is the main reason I expect any bounce we get to be a short-term phenomenon however. A true market bottom is not put in with the VIX in the mid 20's. When we start getting up near 30-35, then maybe I will think differently. There just isn't enough fear or panic out there right now. The selling today was very systematic from what I see and did not seem panicky to me at least.

VIX

Here are the charts of the indices. I tried to explain why I expect a little bounce tomorrow that will take us back up to around the 9 day moving average. I don't know if we would get any higher than those levels, at least not on the S&P and Dow. Overall, however, I think in time we are headed much lower than we are right now.

Here's what the Worden Report had to say about things tonight:

"If this is the end of the bear, I would have expected the highest volume day since the May tops. I also would have expected a higher VIX--X. Something approximating the level reached at the March low, which was about 32. Today the VIX closed at about 24 ......This was a restrained capitulation--YES. But it is not the final shakeout. I would expect all four Majors to be under the March lows and possibly under some other lows yet to be formed."

DOW
S&P500
Nasdaq

Depending on how brave I feel tomorrow, I may try to play a bounce in individual stocks for one or two days, but only if I feel we are having a little panic selling tomorrow. What I am hoping for is another gap down and some strong selling in the first hour of trading, from which I can start covering some of my shorts. The charts below are the ones I would look at going long - I will probably just play the index ETF's and go from there if I do anything. I am looking for the S&P to get down to its March lows and may enter there looking for a bounce. Then again, I might just cover my shorts and sit tight as well. I don't really know.

TEX, WSCI, DDM, SSO
SWN, ICO, MOS, POT
IPHS, APWR, CYBX, ENER
Charts from Telechart2008, Courtesy of Worden Brothers, Inc.

Most evidence points to us getting a bounce at some point soon, but it doesn't have to happen, I guess. And tomorrow if we get more selling like we had today, with just a steady move lower and no severe dips, then I might just sit tight with my shorts too. I don't expect that though - if we would get another day like today, with no bounce, and get stretched even further to the downside, then I think you are looking at a very rare and dangerous situation going into next week, similar to what happened in October of 1987. I don't think that is going to happen.

We'll see what tomorrow brings - I am guessing it will be interesting if nothing else. I plan on tightening my stops on my shorts and will cover them if we get a big move lower. That's what I am expecting to happen. Whatever you do, please be careful. This is not the time to make big bets on anything. Best of luck Thursday. Time to watch the NBA draft.

State of the Market - 6/26/08

Wow, what a day in the market. I explained last night why I expected a negative tone for this morning and that was certainly true, as poor earnings reports and higher oil prices (thanks again, Fed) caused traders to sell. And sell they did. The indexes gapped down, and did virtually nothing but head lower in a systematic manner throughout the session. There were very few attempts at bounces, and those that did occur quickly reversed. The Dow broke to new lows for the year early in the session, and with both the Nasdaq and S&P nowhere near logical support, stocks just fell. The put/call ratio was high throughout the session but interestingly it actually fell throughout the day from its highest levels at the open, going from 1.27 down to 1.11, even as the selling got heavier. Stocks closed near their lows for the day and I was very surprised there wasn't some sort of bounce in the last hour. The PPT must be on vacation.

Technically, things are still a mess as you would expect. We are obviously oversold - the Dow hit my oversold scan in Telechart today, and the last time that happened was the January lows. However, unlike January, when all the indices were all coming up in the oversold scan, right now the Dow is the only one there. That tells me that more downside is a significant possibility - maybe not immediately, but in the near future. The next support levels I see are the 2260 area on the Nasdaq and the 1270 area on the S&P. Those are both still a little farther away. I am looking for the S&P to test that area possibly tomorrow.

This is my guess of what is going to happen (and this is strictly a guess) over the next few days. Look back to the beginning of this year. We had a period of intense selling which caused a temporary low on January 9 that coincided with some areas of support from the August and November 2007 lows. A few indices hit oversold at that point but not all. The VIX was not yet above 30. I don't remember for certain, but I assume a lot of people were calling for a bottom right there because of the support levels and the bullish reversal put in on January 9. That "bottom" produced a strong, two-day bounce which probably drew in many buyers thinking everything was OK. The market then proceeded to fall sharply for the next week with the selling culminating on January 23, at least temporarily. I could see the same thing happening right now.

With the VIX still in the 20's, I do not think the selling is through yet, not by a long shot. But we are very oversold, and a gap down tomorrow could be a perfect place for a reversal that leads to a bounce. I may cover my shorts tomorrow as such, and even hedge long with a few ETF's. I thought about covering some today, but just tightened the stops instead. But this would only be a temporary bounce in my opinion, and I would still look to short, quite heavily in fact, on a bounce. I think a bounce could take us back up toward the 9 day moving averages, where we would then fall back to new lows. That is where the indices stopped in January. That is the scenario I am looking for - I have no way of knowing if it will happen. The only other scenario I can see right now is more heavy selling tomorrow, setting the stage for a black Monday type setting next week,. I have a hard time believing the powers that be will allow that to happen. I just can't see this being the bottom right here and now, which probably means it is, so trade accordingly.

I made two moves today - entered DGP (the double ETF for gold) this morning at $22 based on the breakout in gold today. I also reshorted SYNA at $38.43 this morning as it looked like it was once again breaking down. I hope this is not just a revenge trade for me, but it looks like it has a long way to fall. Like I said earlier, I thought about covering some shorts tomorrow, but I will likely wait for Friday, hoping for another gap down, perhaps to where the S&P could test its March lows. Right now, some of my shorts are frustrating me (freakin' CMO was only down because it went ex-dividend and I owe the fifty cents it lost today anyway) and to be honest, I would like to get into some better ones on a possible bounce.

As I stated earlier, I think my gameplan is to look to cover some shorts tomorrow, hopefully on a gap down with the S&P testing its March lows. From there, I may just wait for the bounce, or if I feel like taking a chance, may take a swing position in DDM, QLD, or SSO(around $60) for one or two days, until the indices get back up to their short-term moving averages. There are not many signs I see that tells me we are near a bottom, not with the VIX at 24. We're getting closer, but we still have some ways to go. We are definitely stretched, however, and I would not short here. Dip-buying may work soon but only if you have enough discipline to get out if the stock goes against you. Now is still not the time to be a hero - ask those people that bought the dips from Tuesday how they are feeling right now. I will be back later with some index charts explaining what I think could happen. Best of luck.

Wednesday, June 25, 2008

Thanks to Big Ben, The Commodities Look Set to Run Again

Before I write anything, let me preface all of this with the obvious fact that has been stated a million times today by all sorts of bloggers that it is very hard to tell the true reaction of the market after a Fed decision until several days has transpired. I have a hard time understanding how any trader would take anything positive from what the Fed did today, but that doesn't mean they won't and we'll trade higher. I will, however, take a brief quote from IBD tonight that explains why I think today's decision does nothing to help this market.

"Until then, "They're caught between the rock of sluggish economic growth and the hard place of escalating inflation," said Argus Research chief economist Richard Yamarone. He sees the Fed raising rates, but not for another six months.

Meanwhile, the European Central Bank has signaled it'll raise rates next week. That could push the dollar even lower and lift the price of oil and other imports.

"It makes the Fed's job much harder," said Robert Dye, senior economist at PNC Financial."


I continue to believe this market has no chance whatsoever as long as oil holds steady or heads higher. If Europe raises rates, the dollar will continue to fall and oil will continue higher. That's what it looks like will happen as of now. Things can change, but I don't know how they will. Trade accordingly. Overall, though, I am trying not to have any strong expectations going into tomorrow so I won't be overly surprised with whatever happens.


Ok, all that being said, here are the major indices. You can see that the 9 day moving average was resistance for the afternoon bounce. Even if it gets above this, all three of the major indices are in channels now and I can't see them getting past the upper trendline of these channels. At the same time, even though we are oversold, I can see the indices going lower through these channels, especially if oil goes higher. Tonight, RIMM put out disappointing earnings, and I assume futures will be down tomorrow morning as a result. Things still don't look good.

Major Indices

Because of Big Ben, most commodity stocks roared back this afternoon after being down a lot earlier in the session. As of now, I can see most of these continuing higher. The USO fund still looks bullish and found support at its 20 day moving average today. The charts below represent the best oils I see right now. The only problems I see is that not all of the volume patterns are perfect. I am interested in getting into a few of these, but I may wait for the market to reveal its true feelings tomorrow or Friday, just in case.

USO, GW, SWN, MCF
CRK, BEXP, CLR, COG
ENG, APWR, PBR, KOG

Agriculture stocks were getting hit earlier in the session as well, but most bounced back very nicely. The charts below look bullish to me, although, again, the volume patterns aren't perfect.

DBA, MOS, POT, AGU

The coal stocks (PCX, ANR, ICO, NCOC) also bounced back from being down a lot - I did not post those charts because I am not as interested in going long those stocks. Other commodity stocks I am watching include HUSA, FPP, MMR, and ENER.

I am still watching some of the shorts I posted the past few days (CDS, TIF, IR, CHL, ADM) for breakdowns. I also think WFR, PCLN (I still hate this stock) and VMI are setting up as possible shorts. The ones I have below could use a bit more of a bounce, but if they do, I think they will be nice short possibilities. BWLD is my favorite. Overall, however, I just may add to my CRDN and HSC shorts and leave it at that. As always, it depends on what the market does.

NILE, NCTY, BWLD, CMG
Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

We'll see what tomorrow brings, but I am expecting a negative tone in the morning with the RIMM earnings. That doesn't mean the market can't try to bounce again - it may very well do so, as we are still oversold. The overall outlook remains the same however - things aren't good technically, the Fed seemingly did nothing to help things, and the long commodities, short everything else still looks like the best game plan for the forseeable future. Best of luck Thursday.

State of the Market - 6/25/08

Lower oil prices and oversold conditions led to a nice open for the market today, as stocks gapped up slightly and then ran higher from there for about the first hour and half of trading. Oil prices took a big hit today as oil inventories came in higher than expected, and this appeared to be a major catalyst for the bounce, as has been the case for the last few weeks. Stocks pulled back a bit going into the lunch hour and trade got quiet as they consolidated their morning gains a bit, probably in anticpation of the Fed decision. Around 1:10, the market popped a bit and rose into the actual Fed decision, which was a bit bizarre because oil moved higher at the same time. When the actual decision came, it was the typical crazy action - down, up, down, and then finally up around 3:00, when the market broke to new highs. That didn't last long, as the market reversed quickly and fell hard during the last hour, putting stocks near their lows to end the session. Volume appears to be a little higher.

Technically, all the major indices put in rallies today that took them off the lows of their channels, at least through the first half hour of the session. The Nasdaq looks like it is now in a downtrend channel as well, just like the S&P and Dow. However, today's close was extremely bearish. I've talked about the importance of the 9 day moving average before for use as a short-term support or resistance area, and both the S&P and Nasdaq zoomed right up to that moving average in the afternoon before reversing. The 9 day for the S&P is at 1335, and for the Nasdaq it is 2420. Check out the highs for the day - right at those levels. The Dow couldn't get up that far. I would expect the highs today to act as resistance once again. It's possible that short covering could take them slight over these levels to the top of their channels, because you never know what will happen after the Fed decision, but that's about as far as I see them going. For now, I am sticking to my belief that this is simply part of an oversold bounce. I see no reason to change that opinion, especially considering the late action(although again, that could be a fakeout). If we break the recent lows, it won't matter how oversold we are - things will get much worse.

The only thing I can see that may bring optimism to the bulls is a few sentiment numbers. The Investors Intelligence numbers for this week show 33.7% bulls and 39.3% bears, which is a number (for the bears) than last week. The VIX also continues to act very strange as it has now fallen below its recent trendline and the recent breakout looks like it could be a failure. At the same time, what type of market bottom occurs with the VIX getting only as high as 24??? I always try to look at both sides of the market and never get too locked into one outlook. The main problem I have is that even if this is a longer-term bottom(and I see no reason to think it is), what on Earth is there to buy? There are virtually no charts out there that look nice. Technically, cash and shorting these bounces still look good.

I covered my SVR short today @ $16.87 for a 9.3% gain. It was hit with a downgrade this morning, and I figured it would probably bounce after hitting the 200 day moving average around $17. In my experiences, most downgrades are only temporary setbacks for stocks - not true catalysts for a big move lower. The $17 area was my target area anyway. Still, it stinks to see it go lower once again, although it did bounce back like I expected later in the morning. I could have used a trailing stop once it got to $17 and probably picked up a bigger gain while still protecting the gains I had.

I was stopped out of my SYNA short one day after taking it for a 4.6% loss. Looking back, it wasn't smart to take a trade with the market quite oversold. I was going with a hunch, and the hunch was wrong. I didn't think it would be able to get over its 200 day moving average, but it did. I will keep an eye on this to see about shorting at another time. My other shorts (CRDN, HSC, CMO, and SPWR) were volatile today but I am still in all of them. I considered adding to them today but will wait to see what tomorrow brings for the market.

I thought hard this morning about shorting some of the oil stocks I mentioned (APA, EOG, ATLS, DVN) and showed last night, but with the inventory numbers coming out at 10:35 along with the Fed decision later, I felt the need to wait and see what the news would bring. I didn't feel like being whipsawed right away, although the stocks were breaking down early on in the session. I am glad I waited. I was thinking what I would look to do is play the SMN and DUG inverse ETF's if they get above their 50 day moving averages. I thought that would signal a possible trend change in this area. Based on the reversal in most of these stocks today, however, I don't know if that trend change is going to occur any time soon. The USO held short-term support, and it obvious the Fed isn't going to do anything about it, so I would not be surprised for oil to continue higher.

I know I am not a Harvard-educated economist, but does anyone beside me continue to think this Fed are just a bunch of idiots? They had another perfect opportunity to pop this oil "bubble" (if it is one) today with oil selling off. A rate hike today would likely have sent speculators running and knocked oil prices down significantly. That, however, would take balls. It would take guts. Sure, there probably would have been short-term pain in the market and in the financials, but longer-term, these higher energy prices are what is going to destroy our economy. I can't believe they can't see that. Haven't enough bones been thrown to these banks that have no one to blame for the problems they are facing but themselves? How about standing up for the consumer just once, for the middle class just once? I knew that wasn't going to happen. I don't know how anyone can have faith and confidence in these "experts" right now. Inflation is going to "moderate later this year and next year"???? Idiots. How much better would we be if we just got rid of this fradulent institution? How I wish that could happen. I believe our country would be much better off for it. As it is, I don't know how the market can take today's decision as bullish, but we'll see what they do with it.

That's about it - another bad day for the bulls overall based on the late day action. The only thing I will say is that Fed days are notorious for their volatility, and it always seems to take a few days before the market lets us know what it really thinks. There remains no reason to be a hero here, trying to buy dips. Meanwhile, I am seeing a lot of stocks set up again as short possibilities and with just a little bit more of a bounce, I will jump on them. I'll try and put some of these up tonight. Best of luck.

Tuesday, June 24, 2008

Major Indices are Oversold, So a Bounce is Possible

Here are the major indices. You can see that the Dow and S&P are hugging the bottom of their channels, and I think this could be a logical place for a bounce, at least for the Dow. I am not saying it is a given that we bounce, but it wouldn't surprise me. The Fed will probably play a role in the action the rest of the week, although I have not read one opinion that does not say the Fed will just sit tight for now. I don't know what Wall Street will take from this - perhaps the wording will affect trading. Does that change my longer-term outlook? Not really. If the VIX was a lot higher right here and we were very oversold, then I might think differently, but as of now, any bounce we get is probably just an opportunity to add more shorts. Don't be fooled if the rally is a powerful one too - bear markets are famous for huge, one or two day short-covering rallies. We may be in store for one of those soon.

Major Indices

The trusty T2108 indicator did close below 20 for the first time since March. When it hit this number in March, the Dow had a 400 point rally the next day. Could it happen right now? Sure, it's a possibility with the amount of shorts out there. I can't say it will - the VIX was much higher then and there was definitely more fear in the market. Since we are oversold, just be prepared for a brief rally and be careful with shorts. If nothing else, the market will just sit here for a few days to work off the oversold condition. You could grab some ultra ETF's (DDM, SSO, UYG) as hedges for a few days as protection - I may do that tomorrow. These would not be long term positions, however - just hedges.

T2108

I am not putting any longs on tonight because I do not feel comfortable buying stocks just expecting a one or two day bounce - I am not good at it. I would rather use the ultra ETF's for that function as a hedge.

The only area I would probably short right now is the oils I have below, and that is only if oil breaks here. Some of the stocks seem to be getting a bit tired to me. At the same time, USO is still setting up a bullish pattern, so if it breaks out, I'm sure these stocks will move higher. I am just trying to be prepared for either outcome right now.

EOG, ATLS, APA, DVN

I am putting these charts out here only as candidates for shorts - taking these now is risky and I don't know how much downside they will have right here. These are good stocks to keep watching however, because if we bounce for a few days, I think many of these could be nice short candidates. Keep them on a watchlist.

VOCS, SPNC, SOL, SVR
SYNA, GEOI, JST, CDS
ADM, CMG, IR, CHL
Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

I will probably tighten the stops on my shorts tomorrow, even though I only have small gains on most. I don't feel like having them turn to losses if we get a powerful, short-covering rally. If it wasn't Fed week, I might give them a little more room, but I really don't know how the market will react to things. No matter what, however, things are still very bad out there and cash is still the best option unless you are already short. If you want to be a hero here and buy these dips, more power to you. I will be managing my current positions and not doing much else. Best of luck Wednesday.

State of the Market - 6/24/08

Another rough open for stocks today, as lowered guidance from UPS and slightly higher oil caused traders to sell once again. Selling was strong during the first half hour, with the Dow and S&P 500 moving way below their lows from yesterday and below the downtrend channel they have been in for the last few months. The Dow hit a low of 11,729, which is just a bit below the March lows before bouncing at this point and leading stocks higher into the lunch hour. This was a logical place for a bounce to occur, and that bounce was a strong one. It took the Dow right up to area of the lows of yesterday that it bounced around most of the day - same deal on the S&P 500. Those two indices were briefly able to poke their head above the area during the lunch hour, and reached their highs for the day around 2:00, but couldn't move any higher from there and faded into the close. The market finished with modest losses, but the Nasdaq and Small Caps led to the downside and were much worse today. Volume was heavy.

Technically, both the Dow and S&P 500 continue to ride the bottom of their channels lower - they both finished still in the channels, but just barely. The Dow touched the March lows but I still think both of these look like they will head lower. A bounce is a possibility, but the max level I could see them rallying to would be around 12,000 on the Dow and the 1330 area on the S&P. The Nasdaq and small caps broke down in earnest early in the session, tried to rally back, but a weak close still put them at new recent lows. For the Nasdaq, I think today's highs are 2394 will be hard to overcome on any bounce. The small and medium caps look like they broke the neckline of their head and shoulders patterns, and now I would assume that area will act as resistance on any bounce.

During the morning selling, the T2108 indicator did get down below 20, but it closed right at that number. The put/call ratio spiked back above 1.0 in the morning as well and got as high as 1.13, but faded in the afternoon. The VIX actually fell today. So it looks like there continues to be a lot of complacency in this market right now. I am interested to see what the new Investors Intelligence numbers are tomorrow when they come out. We may bounce here (although today's close certainly doesn't guarantee that) but I still think, due to the technical pictures and sentiment numbers, any bounce will be a temporary fix. Market bottoms aren't produced with this much complacency. I still hold the belief that things are going to get ugly at some point in the near future. I may be completely wrong, but that's what I see.

I got out of my SSN trade from yesterday pre-market with a very, very, very small gain. I didn't like the way it wasn't moving this morning while the other momo stocks were. What sucks for me was that I had my finger on the buy button yesterday at 3:58 for ROYL, but for some reason I passed. Then it ran higher after-hours and I passed again. If you look at the chart today, you can see why I am disappointed. I also debated this morning about buying some MXC, but passed. For some reason, I don't always go with my gut in trading - sometimes that hurts me. I will learn I guess. I was stopped out of my CFW position early in the session for only about a 3.6% gain.

The only other position I took this morning was the TWM inverse ETF I talked about last night. I entered at $74.49. This was risky and I knew it, because the market is quite oversold. I thought the clear break of the head and shoulders pattern on the Russell 2000 was worth the risk. I raised my stop up on the strength of the intraday bounce, and was stopped out at $72.85, for about a 2.5% loss. Not a big loss, but I probably should have waited a little to see what the market was going to do, but I also didn't want to get in too late. Sometimes you'll have that happen - a position will go against you right away, and usually the best thing to do is just get out and wait for a better opportunity. At the same time, this is a case of me not following my original plan - I intended to use the 50 day moving average as a stop loss, and I didn't stick to that when the market reversed. I was stopped out at the low of the day. That always sucks.

I also took a short in SYNA at the end of the day @ $38.49. This is more of a hunch about tech in general, but the chart looks weak. It has broken down on higher volume, but has done nothing the past two days. To me, based on volume, this looks like just a pause in a much bigger move lower. If I am wrong, I will get out with a small loss.

I thought about putting an oil short on as well (APA, CRZO, EOG, and ATLS were the ones I was watching), almost as a hedge, but passed. I saw quite a few oil stocks (as well as other commodities) start breaking down today even though oil was flat. Traders can't possibly expect Big Ben to actually raise rates tomorrow, can they? I sure don't, but I am watching this sector and am willing to take some shorts if they look good. I will put up some of these charts up later.

Today was a volatile day, but I still don't think bulls can be overly happy. Yes, they did bounce off the morning lows, but also gave up most of that bounce in the afternoon. Tomorrow will likely be another volatile day with the Fed decision in the afternoon. This one doesn't seem to have the build up behind it as past decisions, so perhaps the market won't be as crazy in the few hours after the decision is released. You never know, though, so being patient is still a good idea. I passed on several shorts I could have taken today for this reason. Right now, I plan on managing the shorts I have, and go from there. I am still not looking to buy anything (I am even thinking twice about commodities) and am not in a hurry to short more at least until after the Fed decision, although I will pay more attention to the commodities now. If you are not already short, cash remains your best and safest option. Best of luck tomorrow.

Monday, June 23, 2008

Oils Still Going Strong; Small Cap Indexes Forming Bearish Head and Shoulder Patterns

I discussed the Dow and S&P earlier today - each must hold where they are at or quickly bounce; otherwise they will likely be testing or breaking their March lows very soon. I put the Nasdaq and some smaller cap indices on here to show how poor they look now technically as well. The Nasdaq has very little support under it, so it needs to bounce almost immediately as well if we are to avoid more heavy selling this week. The mid and small caps are setting up ominous head and shoulder patterns that are easy to see on the charts. If they break the neckline, they will likely fall quickly, just like the S&P has since breaking its neckline two weeks ago. Things are not good technically. If you look at the stochastics on these charts, they aren't even oversold yet. It looks like things will continue to be difficult for bulls this week. Just think if the Fed actually follows-through on their fight against inflation and raises rates this week. Somehow I don't think that will happen however.

Nasdaq and Small Cap Indices

The oil trade continues to work, and there is no point in trying to fight it right now. For all I know, the sector could top tomorrow, but with the way the USO looks to be setting up, I somehow doubt that. I hear a lot of talk from politicians about what needs to be done to end the speculation in this market, but that's all it seems to be - talk. That's all it ever seems to be from politicians. Until some sort of substantive action is taken (raising margin requirements, Congress allowing drilling in new areas, etc.) I don't see oil falling severly. This is another blow for the bulls - as long as oil heads higher, I don't see the market rallying here. If the USO gets over $113, watch out.

USO, MCF, GW, SPN

The low-float, speculative oil plays continue to fly higher. If anyone has had the stomach to hold PDO through its entire run, congratulations! The funny thing is is that although it has been super volatile, it has rarely violated its 9 day moving average, as is true with most strong stocks. I entered SSN after-hours hoping for another quick swing trade tomorrow - I may be a little late though. FPP and MXC are possibilities as both have yet to break out to new highs.

FPP, MXC, ROYL, KOG

The agriculture stocks (part of the commodity groups) continue to act well as well. The DBA etf looks to be setting up in a bullish cup with handle pattern. I am considering starting a position in one of these stocks for my IRA - my only problem is that they are not as green as I would like - yellow shows just average accumulation. There is no doubt however that this is where the money is right now in the market.

DBA, TRA, MOS, CF

Steel stocks had a good day as well - check out NGA, MEA, and GSI. I would look at AZC as a possibly buy on this pullback. Some medical stocks are holding up well in the market too and I put a few of the best below. I am still not comfortable in going long anything outside of commodities, at least not until we get more fear in this market with much more oversold readings.

PARL, AUXL, BPAX, CRDC

I really didn't find a ton of short candidates in my scans tonight - I blew it by not taking some housing shorts today. Hopefully you were able to enter one of the ones I posted last night - TOL had the best day from the short perspective. I am also watching CDS, WBD (on today's bounce up to the neckline) and HAYN, but not were good enough to put a chart up. One play I may make is entering the inverse ETFs TWM or MZZ based on the head and shoulder patterns on the indices.

SVR, JST, UFPT, TWM
Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

Things remain very poor and nothing I saw in my scans changed my current outlook on things. The Market Monitor scans are close to moving to a long-term bearish signal and it wouldn't surprise me to see that happen over the next few days. There were more 4% breakdowns that 4% breakouts once again today. With sentiment moderating, I think it is clear that the indices need to bounce and rally very quickly, or we will start seeing some very heavy selling soon, particularly in the tech area, which is not that oversold right now. We'll see what the bulls can come up with tomorrow - I wasn't very impressed with today's showing. Best of luck Tuesday.

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State of the Market - 6/23/08

After being beaten down badly last week, futures were up a bit pre-market today, and the stock market did open a bit higher to start the trading session Monday. That optimism quickly faded in the face of higher oil prices, and after 10 or so minutes, stocks began selling off again, although in a calm manner. The Nasdaq was the worst performing index early on, while the Dow and S&P traded in a fairly tight range through most of the morning. Around 11:15, the selling increased briefly, as Friday's lows (11,818) were tested on the Dow as well as the recent lows (2388) on the Nasdaq. Those lows did hold initially, although for most of the next two hours, those lows were continually tested, at least on the Dow. They held, however, and did bounce, but could never get past their earlier intraday highs. They drifted back toward the lows the rest of the afternoon, closing with very minimal gains for the Dow and S&P and medium-sized losses for the Nasdaq. Volume was lower than the heavy volume seen Friday due to options expiration.

Technically, things didn't change a ton from yesterday. The Dow and S&P didn't bounce much after being beaten down so badly last week, but they also didn't fall below their channel. I guess you can look at that however you want. I don't think the Dow can go much below 11,800 without some major selling coming into play - same thing with the S&P and the 1314 level. The "rally" attempt that was still alive in the Nasdaq should be dead after today as it broke below its recent lows intraday, and it closed below those lows as well. It must hold this low or things will likely get much worse for tech due to the lack of support below. To go with that, I see head and shoulder patterns now forming on the Russell 2000, Mid-caps, and the Nasdaq 100 indices, formations that look very similar to what formed on the S&P 500 last month. That does not bode well for the overall market.

There was somewhat of a divergence this weekend with the VIX (not spiking) and the put/call ratio (spiking to the highest numbers since March). I read a lot of bloggers discussing this fact and what it meant to the current levels of fear or complacency in this market. Looking at today's action, I have to think the VIX not moving is more important. After being as high as 1.25 Friday, the put/call ratio dropped dramatically today and ranged between 0.78 and 0.86 for most of the day. I don't think a drop in fear that big just because we didn't crash today is good news for the bulls. Was today that great of a day for everyone to think things are OK all of a sudden? The Nasdaq broke to new lows, and the S&P and Dow almost did, and there was very little fear out there. The VIX fell today. I have to take this data as a sign of too much complacency right now in this market. I also have to think that we are not really close to a tradeable bottom yet because of this. Perhaps I am misinterpreting this - feel free to share your thoughts. But if was a bull or holding long positions, I would be quite concerned that market players aren't fearful when the indices look so poor technically.

Once again, the price of oil inversely mirrored the action in the overall market today. That's the bottom line. Look at the chart of USO vs. the Nasdaq intraday. This market doesn't have a chance if oil moves higher, and will likely rally in a powerful way if oil tops soon. The USO is setting up bullishly, and a breakout above $113 could very well be the last straw before this market selloff gets much more severe.

I took one short this morning - SVR @ $18.67 as it looked like it reversed at overhead resistance. This bounce has been on weak volume and it has max red BOP levels, showing systematic selling. I put this chart on over the weekend and I think it will have a hard time getting over the $19.20 area, although I almost got stopped out right away of my position. I may be out of this very soon if it heads any higher. I thought about taking TOL and don't know why I chose this one instead - perhaps I felt I was a little late on TOL. Based on the close, I obviously picked the wrong one. I don't know how many more shorts I will be taking here because it is a risky time to do so - getting stopped out on an oversold bounce is a very good possibility.

I also covered my FCSX short this afternoon @ $30.90 for a 20% gain. I was as patient as I could be with this - I wanted to see if the market could break to new lows this morning, and when it couldn't do it through the lunch hour, I figured it was smart to take the gain. I also saw some support on the chart in the low $30's. This may still head lower, but I figured it was very extended today and the selling was probably a little overdone. This is the first short that has worked out very well in a while for me.

The only reason I am putting this chart of FSYS up today is to remind myself never to sell a strong stock, regardless of what the overall market is doing. I got in this on the gap-up, sold out at $30 because the overall market looked like it was rolling over. There was no reason to sell. I would be looking at almost a double right now. My only consolation is that when I watched the Harry Boxer webcast this weekend, he said one of his biggest weaknesses is allowing the overall market to influence his decisions on individual stocks too much. Hopefully I can learn a lesson from this if nothing else.

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

Overall, things look very bad for the bulls right now. We were able to hold those lows from Friday on the S&P and Dow, but that doesn't mean it won't happen tomorrow. We are oversold on some measures and a bounce is always a possibility, especially if oil falls. However, we are not yet at extreme levels in sentiment or on the T2108 indicator. Playing on the long side here, other than commodities, is like playing with fire - there is a good chance you'll get burned. Shorting or remaining in cash remain the only plays right now. I will be back later with some charts and other thoughts. Best of luck.