Thursday, June 25, 2009

State of the Market - 6/25/09

A good day for the bulls today on Wall Street, as stocks started slightly higher but took off quickly, gaining a good amount in the first half hour of trading. They consolidated for a bit, moved higher to new highs, and then consolidated into lunchtime. Stocks tried to break to new highs again around 1:00, but couldn't and pulled back into the consolidation which lasted for the rest of the day. They finished with large gains across the board and the gains came on slightly higher compared to yesterday, although it was still below average.

Technically, the scenario I envisioned last week of the market rallying into the quarter end seems to be playing out here, but going along with that, there is nothing so far to make me think that the bulls are back in control yet. The S&P and Nasdaq are both back above their short-term moving averages, but if you look at the volume of the past three days, it has been lower than the selling volume we saw Monday. The S&P still has not been able to challenge the 930 level from which it broke down while the Nasdaq is still 10 points below its Friday close (1837). These are the levels I will be watching, although I do believe that the market may get slightly above these levels before a potential reversal happens. If the S&P starts getting back up toward 950 and the Nasdaq starts challenging its former highs, then I will change my outlook and expectations, but for now, I am still leaning bearish and think we could be forming a right shoulder here on the S&P in particular.

In terms of individual stocks, I didn't really see many attractive stocks on my watchlist moving to the upside today with the exception of high fliers like DDRX, DTG, and KIRK. I would not be buying any of these for more than day trades anyway up here, so oh well. There isn't a ton of attractive setups on the long side right now. On the other hand, I am seeing a lot of possible right shoulders form on individual stocks - particularly in the commodity sector. Here is just a quick list of stocks to check out - you should be able to see the full patterns starting to develop now - HMIN, PCZ, CLB, CLR, OXY, CNX, SU, SGR, NOV, PDCO, OIH, XLE, BTU, ATI, ANF, FCX, IPI, IPCS, and TNDM. Now it is possible these just keep moving higher and void the possible H&S patterns, but for now, I am still expecting these bounces to starting weakening soon, and that's where I will look to start some shorts.

I will do my best to get a video out tonight going over some of these patterns to show you what I'm seeing. I can't promise anything however. Since we still have three trading days left in June, I am still hesitant to get short too early, so I remain in cash. Early next week is when I expect to possibly put some trades on, assuming this market doesn't explode up tomorrow. If it happens, I will respect it and adjust, but for now, I would be surprised if we move a significant amount higher than where we are now. So you know, I won't be around tomorrow - we're taking our oldest (and youngest but he won't know what's going on) to his first amusement park tomorrow and will be out for most of the day. Good luck to those of you who will be trading.

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