I think that if you spent your time on sector selection and then looked for the best names in those sectors you might feel differently. Brandon
In the 10th round Alan and friends came in with another âmeasured moveâ raising rates ¼ of a point to 3.5% overnight and to 4.5% on the discount rate, and gave no indication that they will be stopping any time soon. In fact most âinformedâ people now think rates are going up to between 4% and 5% on the overnight rate. You can read the Fedâs statement here: http://www.federalreserve.gov/boarddocs/press/monetary/2005/20050809/ Volume was heavier on both exchanges as stocks rallied in spite of the Fedâs folly. The NASDAQ Composite was up 9.8 points to 2,174.91 while the S&P500 gained 8.25 points, closing at 1231.38. Volume on the NASDAQ was 1.51 billion shares, while on the NYSE it was 1.95billion. This was, as I noted slightly higher on both exchanges. Advancers narrowly led decliners on both exchanges, 19 to 14 on the NYSE and 16 to 14 on the NASDAQ. This weak A/D line is one thing I will be watching, as it was not very good for a rebound day. From the 3rd until yesterday the market had a nice pullback. Most areas of the market had a nice orderly pullback on low volume, though as I have mentioned some interest rate sensitive groups and retail stocks experienced sharp selling. Overall these kind of pullbacks are healthy for the market. Think of the market as a marathon runner, sometimes rest is needed. If you just ran the Boston Marathon yesterday you might not win another one today. The markets are very much like that and pullbacks allow things to regroup. It also allows us to isolate the true leaders in the market. How? Simply by relative strength, when the market pulls back you want to be searching for those names that donât pullback as much as the overall market. Examples of stocks which have shown this kind of relative strength are, for example, VLO, AAPL, BRCM, KR, TRA, LIFC, MNT. These are the kind of names that you want to be watching carefully on breakouts as they tend to outperform by a wide margin when the market starts to rally again. In addition to the names listed above I also still like gold shares. On the short side there is nothing to do YET, but I do suspect in a few days we could be very busy with utility stocks, homebuilders, S&Ls, and retail. However, the reaction up is critical. There are a lot of momentum traders in the market who shoot first and ask questions later and if you follow them often you end up without a chair when the music stops. What I want to watch in these stocks is how they act on a rally. If they rally on low volume and put in lower highs and then it will be time to be shorting them. In the mean time focus on stronger names for longs. Brandon
Earlier this week I talked about specific sectors that I thought were in trouble. Top among them retailers, homebuilders, utilities and savings and loans, I was hopeful though that the broader market, which was declining in fairly orderly manner on low volume would be âfineâ. I do not think this is the case anymore. Why? Wednesday started off very well, by 11am the major indexes were all up sharply but by the end of the day they had reversed and ended lower. Not only did they end lower, they did so on heavy volume. This is a sign of distribution. What to do? Well what I will be doing is putting in very close trailing stops on my long trades. When the overall market is weak it can be hard to find a winner as selling effects most areas. The only exceptions to this would be commodity related stocks which often will move in opposition to the overall market. This means I would continue to focus on gold shares and possibly oil stocks, though I feel that oils need a pullback before I would be a real eager buyer. Look for shorting opportunities in the areaâs listed above. Other than that I do not feel there is a lot to do in this market.
Well I said yesterday that an intraday downside reversal nearly always leads to lower prices going into the next cycle. However, the major indexes seemed to repair themselves and in some cases added gains. This rally occurred in spite of bad retail numbers, higher interest rates, slowing earnings growth and higher oil prices. A strong market will rally in spite of bad news. I do think that fewer stocks are showing appealing buy setups, and I still think we are going to have a great opportunity to short retailers, homebuilders, savings and loans, and utilities, but for now the market is a bit tricky and it appears as though it wants to go up. Pullbacks always give you your best opportunity to isolate strength. Some names that have stood out include MSFT, AAPL, CKP, KR, ITWO and QCOM.