Numbers Don’t Lie
The numbers don’t lie, but sometime the
market ignores them. It appears this is no longer the case, though, as the major
indices and stocks have taken a beating this week on the heels of some sobering
economic and earnings reports. How much lower? Good question. I do believe the
market will head lower in the following weeks, but right now it is a bit
oversold. I would not be surprised to see a rally today head of Labor Day. While
I did not trade yesterday, it did appear that there were some excellent setups
well into the morning session. Most of my guys did very well selling into the
countertrend rallies in the morning. Luckily I am positioned heavily short (non-scalp
trades) in my other accounts, so I was still able to participate in the carnage.
I had mentioned a few stocks as good short candidates last week and on Monday.
If you took these trades, let’s take a look where we are right now and evaluate
our options.
Lowes
(
LOW |
Quote |
Chart |
News |
PowerRating): Thanks to the brilliant research team at
Merrill Lynch which made Lowe’s their Focus 1 stock on Tuesday before the
opening, allowing me to short the opening a full dollar higher than Monday’s
close, (it never traded higher that day or since). Just another way Merrill
Lynch adds value for their customers. Now I will be the first to admit that
making market calls is incredibly difficult, but to upgrade a stock whose
competitors are experiencing slower sales growth (Home Depot) in a weakening
economy just seems a bit reckless to me. Lowe’s closed at 36.50 yesterday, .35
cents below its 50-day moving average.
Robert Half International
(
RHI |
Quote |
Chart |
News |
PowerRating): Shorting this one on the
open on Tuesday has left you with a marginal profit thus far. It closed
yesterday at 25.05. My game plan here is to base my exit strategy on any major
support levels, which I do not see right here, or until I get an oscillator
confirmation. Additionally, any major upside move in the markets would override
the aforementioned reasons.
Best Buy
(
BBY |
Quote |
Chart |
News |
PowerRating): Yesterday, Best Buy finally broke down from
its 50-day moving average, which had been resistance for the last several
sessions. However, the 200-day moving average, 55.81, is within a couple of
points of last night’s close. This would be a logical area to consider covering
half or all the position, depending on what the averages are doing, as well as
how well it trades around there.
Clayton Homes
(
CMH |
Quote |
Chart |
News |
PowerRating): This is the one stock that has not
capitulated due to market weakness this week. In fact, it is also the only one
where it is higher than the entry price on the short side. Despite the
performance, I remain confident the position will pan out. The 50-day average is
above at 15.27, and I will have a buy stop order .25 cents above this level just
in case the stock makes a run.
Yes, the market has been extremely weak over the last few sessions, but I
find this encouraging for two reasons:
- It may break the market out of this current trading range, offering some
good volatility going into the Fall. - Reality is setting in with regard to the economic situation. The quicker
the market adjusts to this, the better off it will be in the long run.
I expect the open will offer some good setups, after that, I am doubtful of
any meaningful activity as traders get an early start on Labor Day. I know I
will be gone after the first two hours and starting my weekend in earnest. Have
a great weekend, and rest up for some good trading next week. As always, feel
free to send me your comments or questions.