Monday, June 29, 2009

State of the Market - 6/29/09

Some more quarter-ending window dressing today on Wall Street, as the bulls fought back hard against an opening decline and pushed stocks up a good ways for the first hour of trading. From there, it was basically just a consolidation day, as stocks did nothing but go sideways throughout the rest of the session. They closed with nice-sized gains on lower volume. Now, with rebalancing Friday, volume was extra heavy, but even if you compare volume today with Tuesday, Wednesday, and Thursday of last week, it was light.

Technically, that 930 number on the S&P that I've been harping on continues to be important, as the S&P bounced its head against that level several times today but could not get through it.
A break of that level to the upside would likely bring in some buyers , but we'll have to see if they can push it through tomorrow as June comes to a close. It continues to fight the long-term downtrend line in this area as well from May 2008, so it will likely be difficult. A rollover in this area would form a nice right shoulder on the S&P. The Nasdaq had its fourth straight day of gains today but lagged the other indices on a relative basis. It looks like it is wedging up here a bit. Between 1810 and 1820 should be support for the Nasdaq if it decides to pull back here. I will be watching closely for a reversal.

One interesting development from today's action is that even though the market bounced, I saw virtually no destroyed patterns from my short watchlist - I showed these setups in the video last night. By destroyed patterns, I mean a pattern that looked good but had a move that totally changed the setup. An example would be MWIV - it was forming a nice head and shoulders pattern until June 19, when it took off to the upside and voided the H&S. If I see ones like this, I would be much less bearish here, but I haven't yet.

Chart from Telechart, Courtesy of Worden Brothers, Inc.

The short setups I am watching are mainly from the commodity sector, but they continue to put in bearish flag patterns and form right shoulders on head and shoulder patterns. Now, I realize that all these patterns could be turned upside down in a matter of days. If you remember about two weeks ago, I was bullish because of the number of flag patterns setting up in strong stocks. That didn't work out as those patterns started to break down, and if the same thing happens to occur here (the right shoulders explode to the upside) then I will have to change my tune once again. I am not anticipating it however.

As of now, the sheer number of setups I see developing has me looking to get short in the next few days, perhaps as early as tomorrow. I didn't put all of the ones I found in my scans on the video last night due to the sheer number, but here are some others that are looking like they may reverse soon at the top of possible right shoulders - TRLG, CTRN, DRIV, AMZN, TS, ECA, CLR, EAC, CNQ, PXP, MS, COG, HON, OXY, HP, LHO, DBRN, PEET, HMIN, BOLT, ATLS, GPS, NOV, APD, and even SNDA, which had a heavy volume sell off today.

On the long side, I see stocks like DDRX and KIRK continue to put in what look like potential blow-off tops. If anyone out there was able to ride these two all the way up, congrats. Seriously, though, stay away from these now, please. They are going to end nasty. KONG and FUQI had nice moves today but volume was so heavy I am left to wonder if it had something to do with the rebalancing from last week. The only stocks I see setting up that I would be interested in right now are STEC, CAEI, MLNK, and MNKD. If more start showing up, then I will also change my tune but I continue to see a lot of weird moves.

Overall, my scenario from last week (a bounce for quarter-end window dressing that could form a right shoulder on the S&P) has played out very well and I continue to lean to the bearish side here. I haven't yet made any moves, but am going to start tomorrow if things continue in the current manner. My only worry is that it almost seems too obvious - there are so many of the same type of setups out there right now. Could it really work out the exact way I hoped? Based on my luck so far this year, I have doubts in the back of my mind, but it looks like it may as of now. We shall see tomorrow - one more day for the funds to paint the quarter. I am interested to see if they can do it. Take care and good luck tomorrow.


ex_wirehouse said...

Does seem eerily obvious, I really believe the market moves to confound the largest number of players, false breakout on the major averages, then the drop?

dakapbj said...

I agree with ex_wirehouse...too many looking for the simple patterns. Either the patterns will be so simple, they do work or examples such as MWIV will work, but only when the least are expecting it.