Stock Market Commentary 10/21/08 - Not Bullish, But Maybe Constructive...

For starters, here's a very funny video, lyrics re-written by a member of our live stock market chatroom.

While Tuesday certainly wasn’t a bullish day for the stock market, I’m going to go out on a limb and call it a constructive day. Although there were pretty big losses at the end of the day, and a lot of the selling came in the last hour again, volume was even lighter than it was on yesterday’s up move, and the wild swings, although still there, seem to be calming down a bit. I take this as people starting to come to terms with the situation, and starting to make slightly more rational decisions regarding their investments, rather than the massive panic buying and panic selling that has been the 800 pound gorilla in the room for the last few weeks.

That’s not to say things are getting any better from an economic standpoint, or that this market won’t see any more panic buying or selling, as we are still at extreme levels from a number of perspectives, but the action this week does hint at some form of resolution being worked out for the market. That is something to be optimistic about, as is the fact that at the time of this writing, AAPL is up 10% in after hours trading, and YHOO is up better than 5%.

The VIX didn’t gain much back after yesterday’s nearly 25% haircut. That’s another reason to be optimistic about where this market seems to be going. A nice, orderly consolidation/ pull back would be in keeping with our thinking that the markets are trying to stabilize here.

The Dow fell 231.77, or 2.50 percent, to 9,033.66, on even less volume than Monday, when the volume was relatively light compared to recent sessions. While anything can still happen as the market digests all the economic news that has been thrown at it recently, we can see the swings getting more & more narrow in range, and the daily chart shows a bit of a triangle formation starting to set up.

The Standard & Poor's 500 fell 30.35, or 3.08 percent, to 955.05. On the daily chart you can see the same ascending triangle pattern forming, but below is the hourly chart, which shows what looks like pretty solid support right around 950.

The Nasdaq composite index shed 73.35, or 4.14 percent, to 1,696.68. the 15 minute chart shows a slight breach of an intraday double bottom, but the after hours trading in AAPL & YHOO would seem to indicate a higher open for the index, barring any real turnarounds.

Light, sweet crude fell $3.36 to settle at $70.89 barrel on the New York Mercantile Exchange. USO fell nearly 5% on the day, but is holding above recent lows. We could see a consolidation here, which would probably be a healthy thing.

Gold fooled us last night, metals looked very nice yesterday and took a hit today. However gold didn’t break the recent lows either, and if it does, the September lows aren’t far off either.

Our portfolio stocks remain light into what is still a very choppy market. We are going to keep things pretty light until this thing stabilizes a bit more, and will continue to trim losses and take profits wherever applicable. As such we are going to add one new short to the TBT list to compliment our one long, which we are raising the stop on to greatly reduce the downside exposure after a weak close today. We are very optimistic about the way this market is acting, and are hoping that we will see some of the best tradin conditions of the year in the next month or two, but patience will be required. There are some really nice setups in the watchlists above for intraday trading purposes tomorrow, of which there should be plenty. Have a great evening, see you tomorrow.

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Put another stock market roller coaster ride of a week in the books. What started as a potentially strong week for stocks, particularly the struggling financial sector on a decent Bank of America report, and government bailout news for mortgage giants Fannie and Freddie. A sharp pullback in the previously gravity free commodities certainly didn’t hurt anything either. But around mid-day Wednesday that all changed. We saw a peak and rollover of the financials and with it went the market.

Friday, and I will preface this with the fact that Fridays of late have been pretty horrific – I forget the exact number but it was something to the effect of since the bear market has started we have lost around 19% on the S & P index, with 14% of the losses taking place on Fridays. So that said, although Fridays bounce back was low volume and otherwise pretty lackluster, it could have been much worse given the condition of the market on Thursday.

From where we’re sitting here it appears the market, and financial stock bounce that began last week and carried into the early part of this week, is over. Although oil and gold did not have particularly strong days to close out the week, other commodities such as coal did, and on all the technicals do suggest that we’re nearing the end of this pullback, at least for the time being. (Keep in mind the coming election and the fact that often times oil will go down into election season, which may trump the technical signals here.)


That said, two of the four major indexes that we track held pretty major support levels, so the early part of the week could very well see some chop before a full resumption of the downtrend occurs. The Dow is still holding that trendline that I’ve been yapping about for about a week now, as well as the 20 day simple moving average, while the Nasdaq composite is still holding onto the 10 day exponential. All share a mixed signal of being short term overbought but long term oversold, adding to our theory that we could see a bit of tug of war before the trend is resumed.

Let’s take a look at a few of these commodities and market indexes to try and get an overview of where we’re at:

The Dow on a daily chart is holding the trendline and the 20 as mentioned. We failed to break out of the January lows that were violated in late June and now acting as resistance.

We have stochastics rolling down from a short term overbought condition caused by last weeks’ rally. Friday saw a slight gain, but it was on very low volume, even for a summer Friday.

Looking at the dow again, this time on a weekly chart, we can see more of the same and a little different. Notice the inverse effect of the stochastics, crossing up from an oversold condition caused by the big drop since late May, at the 50 week simple moving average. The 2008 lows that were just mentioned as resistance are also converging with the 200 week simple moving average, making that area that much more powerful in terms of resistance.

The S & P by comparison, does not look as good as the Dow. Although we had actually broken out from the prior 2008 lows for a couple of days, Thursday sent it shooting down through and below, and Friday it failed to get above any support levels, so we are now looking at lots of resistance overhead. MACD and stochastics are also both pointing the way down on this chart.


The Nasdaq looks a little better than the other market averages, but by no means bullish. Volume Friday was again very low, we are still overbought on the daily chart, but are holding most support here.


The gold index bounced off its 100 day simple moving average on Wednesday and after a few retests looks like we have some solid support at the 917 level. We do also appear to have some resistance in the 935-940 range.


Oil has now pulled back to the same 100 ay simple moving average where gold found support. Stochastics on all time frames show a now oversold condition that may attract some new speculators who were afraid to buy in when it was so extended. Again, keep n mind that it is coming into election season.



We had a very nice week in terms of our portfolio stocks, watchlist stocks, and chatroom calls. We are down to only a few open positions after taking profits in a couple of longs and one short, also stopping out of a short at an even trade. Not bad for such a choppy, mixed up market. The volatility, while many continue to whine about it, continues to give us more than our fair share of great intraday and short term swing trades. Airlines, financials, and commodity plays have been trading in such big ranges that those able and willing to get on for the ride can and have made some phenomenal trades.

As mentioned this is most definitely a stock pickers market, which suits our fancy just fine. We are adding two new short plays to trigger and one long for Monday in the end of day portfolios, and have a few dozen of our favorite trading setups listed in the quick pix watchlists above. Enjoy the ride, and happy trading!


"Once we believe in ourselves, we can risk curiosity, wonder, spontaneous delight, or any experience that reveals the human spirit."

E E Cummings (1894 - 1962)

How can you possibly blame the short sellers for the financial stocks losing!?!?!

Just because they blamed the short sellers for the drop in financials, doesn’t mean that the pain is over. Short sellers didn’t make the stocks go down, they simply profited from it.
And since I'm on the subject, I’m going to vent a little. For some self-masochistic reason I had cnbc on for the majority of the day in the office (usually find cnn or sportscenter more entertaining and informative) and was really disgusted at how they blamed the short sellers for the demise in the financials.

Now I have caught a bit of flack from people over the past few months for being too bearish, and while we have had a bearish outlook on this market for quite some time now, and have voiced that here as I feel it our responsibility to call things as we see them, and for one reason only. We feel it our responsibility to help the individual investors, because the "experts" mislead for their own gains at every turn. We have been bearish on the financials for months, and we, as well as a number of our subscribers have made some excellent trades shorting these bank and broker stocks.

So back to the point. Big business doesn’t care about us, the little guy – they care about profit margins and the bottom line. Have you ever missed a payment on a loan and had the late fee lifted because they felt bad for your financial situation? Or had to take a pay cut and had the bank lower the interest rate to help you out? Surely you haven’t – it doesn’t happen! Why hasn’t it happened? Because the almighty dollar is a lot more important than any individual person to these companies. When looked at in a big picture, that is exactly where this whole sub-prime mess and credit crisis came from – financial institutions trying to make money on the backs of individuals who they knew would have trouble making payments down the road.

So if banks and financial intuitions can profit from the potential demise of individuals, why should we, the individuals, be penalized and demonized for profiting from the potential demise of these financial institutions? They see opportunity, act on it, and get paid handsomely, so why shouldn’t we be afforded the same opportunity? I have heard it said that many people look at shorting stock as un-American, but isn’t NOT being allowed to short stock, to see an opportunity, and have the guts, brains, and resources to act on it, by definition, un-American? Life liberty and the pursuit of happiness right? Not to say that money can buy happiness but watching my money slowly drain away while these cnbc ANAL-ysts tell me to buy and hold would certainly make me pretty unhappy. We didn’t make the financials go down, the financials made themselves go down (and the rest of the market with it) by using shady business practices and making risky investments. I for one have no sympathy, and do not appreciate being a scapegoat for the irresponsible business practices of greedy, mismanaged and misinformed companies.