Tuesday, July 27, 2010

State of the Stock Market - 7/27/10

A slow and choppy day today on Wall Street, but that's not necessarily a bad thing.   In fact, in the context, it was a pretty good day for the bulls.   The day started with a gap up, putting the market even more overbought than it was yesterday.   This was a perfect opportunity for the bears to sell things off, and they did for almost two hours.  However, a bottom was put in around 11:15, and from there the bulls fought back and just chopped the market sideways into the close.   The market finished lower, but not with large losses and overall the action looks constructive.   Volume looks like it will be lower again.

Technically, the McClellan oscillator I talked about yesterday opened up at +346 this morning, which I believe is the highest it's ever been (one point higher than January 6, 2009).  A pullback is certainly long overdue so although the indices put in reversal bars today on the daily charts that might look ominous on the surface, I don't think those bars mean we've topped longer-term or anything like that.  I'm looking at anywhere between 1080-1095 on the S&P and between 2230-2260 on the Nasdaq as support levels with moving averages now below price rather than above.   If those levels are broken, then the outlook changes, but for now, I would say pullbacks are a buying opportunity, especially if the pullbacks are like we saw today.


If you follow me on Twitter, you know that I made one earnings trade last night, entering UCTT at $10.26 after hours.   This company beat by $0.05 ($0.25 vs. est $0.20), beat on sales, and raised guidance.   It has tremendous fundamentals and since the daily chart was not yet extended like so many, I thought it had a good chance to be a nice earnings play, even with the overall market extended.   It held up relatively well early on, forming a tight range between $10.30 and $10.60 when the market sold off.   However, due to the extended market, I tightened my stop to breakeven when I didn't see much early follow-through to the gap up, and I was shaken out at $10.24 (basically flat).   Not great for me, because it really was a shake-out - it reestablished its range quickly and ended up closing near its highs for the day.   You'll always have trades like this, but it is what it is.   Certainly this is one to keep on your radar as it now has a catalyst and if it flags for a few days here near the top of its cup base, it would be a very good buy.  

 All charts from Telechart, Courtesy of Worden Brothers, Inc.

For those interested in earnings trades, here is a tremendous website that lists companies that are reporting and automatically updates with information as those companies report.  Quite simple to follow. Until we rest, these trades are the only ones I will consider on the long side.   A few to watch tonight include USNA, ACAS, PNRA, HGR, VISN, SPWRA, SUPX, and VISN (no knowledge of what they'll report - only know they aren't that extended going into earnings.)

I also was stopped out of my CIGX position from yesterday - rose a little in the morning but couldn't follow-through and I sold at $2.13 for a 3.7% gain.  My stop was a bit higher however.   The only other move I made today was trying more SDS as a pullback hedge here - I guess I didn't learn from my mistakes yesterday.   Right now, QID and SDS are my only positions and they are not long-term ones - I am not a raging bear - rather just still looking for a pullback here.

Overall, the bulls really can't ask for more than they got today - the gap open was a perfect opportunity for stocks to sell off hard, and they sold off only slightly.  Tomorrow could be different, but even a 2-3% pullback from here would not be a bad thing.  I said on Twitter last night that a ton of stocks have now completed or are very close to completing right sides of bases.   A rest here would allow a ton of stocks to set up great patterns from which to breakout from and (hopefully) move much higher.   We'll see if it plays out that way or if Mr. Market has another one of his surprises in store for us all.  Good luck Wednesday.

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