Monday, June 22, 2009

A Ton of Stocks Are Setting Up as Shorts, But Waiting is Probably A Good Idea

Just a few points after going through my scans. I'll try to get a video up later in the week but right now, there isn't much point for several reasons.

#1) There was major technical damage done to many individual stocks today and I don't know if it's damage that can be recovered from anytime soon. I do indeed think we have topped here. When you look at the nearly vertical drop in many commodity stocks and even tech stocks like RIMM, along with the heavy volume, it is quite clear stocks are being distributed here.

#2) My outlook on shorting right now didn't change after my scans were complete and is the main reason why there isn't any reason to do a video tonight. I saw a ton of stocks with those nearly vertical drops but those same drops are now right at some major support levels from May. A bounce is not guaranteed but based on the drops we've seen, particularly in the commodity stocks, I am expecting one. I just think shorting here after six or seven days of selling in some stocks is very, very risky. I am expecting some whipsaws for anyone that is trying to short here as they may very well be late to the party in the short-term.

#3) Look at XOM for example - the biggest of big caps. XOM has been down six of the past seven days and is as oversold in the short-term as it has been since the March lows. Do you really want to short there? Wouldn't a weak bounce back up into the $71-$72 area be much more pleasing from a risk/reward perspective? Shorting weak rallies usually works much better than shorting breakdowns, especially if stocks are already oversold going into the breakdown.

XOM
Chart by Telechart, Courtesy of Worden Brothers, Inc.

#3) At the same time, I see TONS of charts that look exactly like the one above. If we get lucky here and do bounce a bit, I think you are looking at a major short-selling opportunity based on the number of charts I see in my scans. If we get a weak bounce and then roll over, I don't think it will matter what stock you pick - there will be so many to choose from that your chance of success will be very high. Big cap, small cap, it won't matter. You just have to be patient as I've been preaching for the past week or so for the right time to short.

#4) My only concern is that things are never easy in the market, and a bounce to form a right shoulder may be too obvious to happen. We'll have to see I guess. Someone commented earlier about the end of the quarter markup versus fund managers getting out while they can for their statements. It was a good point and a tough call. If they do mark it up over the next week or so, I think you will see some major selling come in when July starts as fund managers do take their gains for the year and walk away. But it is possible the selling continues in a major way this week without a bounce. If it does and I miss it, it will be fitting for my year in trading so far. We'll have to see - I have to play the percentages here.

That's about it - take care and good luck Tuesday.

2 comments:

Anonymous said...

Mac,

I think a bounce here will be a great short here. Look at NSM, RIMM, ADBE, BBY earnings and the selloff. I think market expectation is too high. Also, pay attention to CA. There is uncertainty around CA and the municipal market and that could trigger a leg down for the credit market and hence financials.

Mac said...

There are breakdowns all over the place so yes, a bounce would be great for shorting. I just hope we get one.