Saturday, October 1, 2011

Stock Market Outlook for Week Ahead - "Not Seeing Anything to Be Optimistic About" - 10/1/11

As we roll into October, (a historically tough month for Wall Street in many cases) the market comes off what was a very bearish week.   We saw extremely bearish intraday action the past four days, and after another heavy afternoon selloff Friday, all indices are poised to test (and maybe break through) their August lows soon.  Looking at both individual and index charts, there is just nothing I see that makes me even a little bullish.   The only reason to be bullish right now is that there is absolutely no reason to be bullish, if that makes sense.
 S&P 500
Charts from TC2000, Courtesy of Worden Brothers, Inc.

This past Wednesday I shared five simple short ideas that I thought would work well even though most of the charts I saw were already past ideal shorting points.   Those stocks (shown below) all put in nice gains on the short side the past two sessions.   This past Sunday, I also shared 12 stocks (SOHU, SINA, SFLY, BHP, BIDU, MCP, RAX, CF, LVS, IPI, BEXP, FMCN) that I would be focusing on mid-to-late week for potential short entries and almost all of those tanked hard this week as well.  To be fair, some of those name never quite bounced enough to setup nice short entries, but many did and the bottom line is that if you didn't make any money off of this site this week, I really don't know what to tell you.

After finally going through all of my scans today (bullish and bearish), there are very few setups out there that interest me at this juncture, even on the short side.   Longs have been destroyed and it's going to take a long, long time for nice, calm, smooth bases to form from which stocks can really jump higher.   Most short setups I was watching have now been down two or three days in a row, so it makes it much harder to enter them with lower risk.  I am kicking myself for not being more aggressive Wednesday when I was staring at GMCR and passed, but in a market as choppy as this one, it is hard to be super agressive with anything.  If you didn't short earlier in the week, you may be stuck watching things from the sidelines (which is not bad in this market) or sticking to ETFs on an intraday basis. 

As for me, I am trying my best to hold and be patient with the shorts I entered Wednesday.  My account is actually at highs for the year following Friday's close and normally I would look to take those gains and run, but not now - not at this point.  It may be a mistake, but I think there is more downside to come. We are not really that oversold here and unless the market has a really awful one-day move lower of 3-5% in which to cover into, I think I will ride the shorts lower, tightening my stops as we go.   If the market bounces a little Monday, I think we'll roll right back over and the best setup may be a mini-washout early next week from which a relief bounce comes.   If you're not short yet, that's what you want to be hoping for - a sharp bounce (maybe lasts only a day).  

Overall, like the title says, I just don't see anything to be optimistic about right now.   The darlings of the 2009-2011 Fed-induced bull market (NFLX, GMCR, LULU, BIDU, etc.) broke down hard the past week or two, and intraday action has been awful.   If I had to guess about this week, I bet we do test and slightly break the August lows early in the week, bounce sharply for a day or so, and then roll right back over for more selling.  That's strictly a guess.  Personally, I don't think a bottom is right around the corner.   Remain careful.   Good luck next week and enjoy your Sunday.

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