Looking At The Month Ahead…
With the end of the month already upon us, here’s the market as I see it…
Positives — None to speak of.
Neutral —
Sentiment — Most sentiment indicators do not appear to be at extremes.
I do not see much of an edge here one way or the other.
My stagnant watch list — While the number of stocks that are forming
good bases has shrunk significantly over the last month or so, I am still seeing
a decent number of stocks that could be bought should a rally begin. If you
are a long-only investor, continue to do your research. (It should take less
time these days as fewer stocks should be making it through scans.)
Negatives —
New Highs vs. New Lows — New lows are starting to overcome new highs.
It appears breadth is beginning to favor the downside. This is a negative for
the market. From a trading standpoint, it means that better shorting opportunities
should begin to avail themselves if the market continues to slide.
Foreign Markets — The foreign markets have retreated along with the US
this month. Leadership abroad is basically non-existent. No help here for the
U.S. market.
Accumulation/distribution — Volume patterns have been poor lately as
the market has undergone a fair amount of distribution. This must reverse for
the market to be able to stage a decent rally. The first thing to look for would
be an O’Neil follow through day occurring 4 to 10 days after a potential
bottom. Volume on bounces is important since it indicates conviction.
UUWNHI (Unnofficial, Unscientific, Working/Not Working Hanna Indicator) —
There have been few breakouts recently and almost no successful ones. Energy
has provided some of the best stocks over the last month and even that group
has produced some awful reversals. A couple of examples would be the recent
breakouts in EPEX and PETD. For the shorts, most breakdowns I have seen have
been followed up by a slow drift to the downside rather than any strong selling.
In this type of environment it is best to only take the best setups that also
offer tight stops.
Summary
If the S&P 500 and Dow follow the Nasdaq’a lead and break below their
trading ranges then a deeper correction will likely ensue. While the long side
is many times easier to profit from, this could lead to some solid shorting
opportunities for traders. It will be interesting to see how the market plays
out over the next few weeks. Most indications now are that further downside
action is likely, but I’m not yet convinced that any new great bear market
is upon us.
Good Trading,
Rob
robhanna@comcast.net