Stock Trading Ideas & Stock Market Comentary For 9/22/08

Watchlists

Long - SUTR, SIMO, BIOD, KKD, INSP, OZN, KRY, SYMX, TNE, LMC, GSI, MEE, KBR, NCMI, VRSN, PSEM, STEM, SDXC, INFN, ENOC, GTLS, SMOD, WATG, MF, SPSN. LOGI, RRGB, SHM, BIIB

Short - ARGN, WDFC, HRLY, MATW, LNCE, HEI, RAH, CHH, TTC, ODP, ANDE, SWC, RGR, TGT, WMT, PCG, CEDC, G
Market Outlook

So I have to admit in scanning around looking for trades and trying to make sense of what will certainly be a historic week in the stock market, I am very torn between what I’ve been taught over the years about technical analysis, and historical new events, rules, and actions that may be skewing the data.

On the one hand, the last two days of this week had all the makings of a major reversal for the market. We saw panic selling, huge losses, a VIX spike above 40, followed by a strong reversal that had volume, and had follow through into the next day. On the other hand, my bullshit radar is flashing a bit more than usual, partially because of Friday being quadruple witching options expiration day, but mostly because of the historic announcements that sparked the rally in the first place.

Now on one hand, in researching this Resolution Trust Corporation, it sounds like at least a more reasonable option than a government takeover that translates into trillions of dollars for taxpayers. It still doesn’t account for all the bad outstanding home loans out there, or solve many of the other underlying problems that still haunt this market, but it might be a step in the right direction. I posted an explanation of the RTC in the market outlook on Thursday, for anyone who wants there is a good explanation of it on wikipedia.

What gets me is the ban on short selling imposed by the SEC, and the overall desperation that this whole thing stinks of. It just seems to me to be way too similar to your average hail mary play in football - with their back to the wall the losing team just chucks something up there, as far out as you can get, then looks to the heavens and hopes for a miracle. In some rare cases when the smoke clears the losing team comes up with that miracle, but in most cases they don’t. In any case the fans of the team throwing the hail mary always cheer the loudest right when the ball gets chucked up in the air, and my fear is that the strength we saw from mid-Thursday until Fridays close was nothing more than the cheer for the chuck, that we may have put ourselves in a position to pull a miracle out somehow. I would love to think that we could, but have to entertain the possibility that we can’t, and try and figure out what will happen and how to profit if not. That is the dilemma I am struggling with at the moment.

It would stand to reason that this ban on the short sales in the financial sectors is going to make an already volatile and shaky sector even more so. If funds and traders can’t hedge their long positions with shorts they are going to be forced to unload the shares more frequently and quite possibly causing sharp sell offs, and on the other hand you will not see the huge short covering rallies when these battered financial stocks muster up a rally, or announce some news that sends it flying, because there are no longer the ready made buyers that short covering creates. And while this is just my opinion, I think as a result of this we’re going to see a lot less volume in the financial stocks as lots of would be investors will take their money elsewhere, especially funds and big money.

So let’s take a look at a few of the averages and a commodities and try to make some sense of the past week, keeping in mind that at some point that hail mary pass will come down, and as this plays out we may have to adjust our game as the rules of this one change.

The Dow gained just under 779 points in the last two days of the week, yet still closed slightly red for the week. The weekly chart shows the record volume on the week, quite a switch from a few weeks prior when there was record LOW volume. On the weekly chart we can see the 10 ema has as been a tough level to break for the dow, and is currently just below that. To the downside it looks like 11,115 is a pretty valid area for support, as it has dipped below a few times we have yet to have a weekly close below.

The NASDAQ composite on the weekly also shows the huge volume spike in the week, and unlike the Dow the Nasdaq closed with a slight gain. On the weekly chart we also have that 10 ema as a ceiling above, and on the daily we can see a retreat from the 50 day sma. We also have some double bottom support just below Fridays close, and while the daily chart doesn’t look as strong as it does on a few other averages, the weekly looks better than the Dow or S & P.

The Russell 2000 looks the strongest of the indexes, posting a very impressive 2 day gain to end the week. We are however looking at triple top resistance right around the years highs. This should be interesting to watch, a break up above would make for a nice bullish breakout on this 2 day chart.

The VIX finally spiked above 40, along with the panic selling that characterized Wednesday afternoon into Thursday morning. While it pulled back quite a bit in the last day and a half of the week this has the makings of a very bullish setup on the daily chart, all we’re missing is the breakout.

Oil hit new multi month lows earlier in the week before rallying back to close back over $100 a barrel again. I’m amazed that I just paid $3.65 a gallon for gas yesterday, I never thought I’d see it that low again for awhile there. There are a number of oil & gas stocks looking very bullish here, and the precious metals and other commodities don’t look half bad either.

Gold also had a very bullish week with a huge day on Wednesday where it gained over 10%. There were a number of very nice looking individual gold stocks as well, with quite a few making our watch lists for Monday to the long side.

Our portfolio stocks put up some great numbers this week, with 30%+ gains in SLM short, 20%+ gains in ARTC long, and ININ long, ADCT short, and CLMS short all providing us some great gains. On the week we only took two losses, HANS short and QSII short, both were kept small, 5% and 8% respectively. I can’t wait to see what can be done once this market gets this whole ordeal behind it, which I sense one way or another it will. In the meantime we’re keeping things relatively hedged in terms of long to short, and are going to stay away from the financials for the most part, at least until we see what the early part of next week brings. For the quick & nimble there are still lots of opportunities abound to get nice movements in day trades, and there are a number of nice setups that could have the momentum to make some big mopves on Monday listed in the long, and a few stocks that didn’t look very strong in the rally that could drop hard if the market takes a turn for the worse. In any case, it’ll be interesting to watch this all play out. Thanks for watching the show with us, see ya Monday.

Have a great evening, happy trading!



Quote of the Day

"I never guess. It is a capital mistake to theorize before one has data. Insensibly one begins to twist facts to suit theories, instead of theories to suit facts."

Sir Arthur Conan Doyle (1859 - 1930)