Today reminded me of an axiom I learned long ago; Bull markets open weakly and close strong, bear markets open strong and close weak. While I'm not saying we are in a bear market per se, todays action shows weakness. All of the major averages backed off their 9day ema's today. While it's possible they will go up to their 20 day averages, it's just as feasible that they turn around here. The further we bounce, the more dangerous it is to play the long side.

Here is a chart of the Q's backing off the 9ema.

NASDAQ 100 Trust Shares (ETF) (Public, NASDAQ:QQQQ)



Here is another stock that came up on my short screen.
Walter Industries, Inc. (Public, NYSE:WLT)
WLT had a pretty nasty drop and it looks like a dead cat bounce is wrapping up. The Upper bollinger band is crashing in on the stock, and today was no a productive day for bulls. If the market continues to drop, this might be a nice short play.

I didn't run too many screens since I am not trading tomorrow. I found it interesting that goog popped up on the short screen as a stock possibly failing at the 20sma. Keep an eye on it.


Good Luck,


Joey

There was absolutely no follow through today as the indices closed very weakly. If you take a look at the charts of the major indices, they haven't even made it to the bodies of the big down day candles. There is overwhelming selling pressure right now, which means we may not get a meaningful bounce until the recent lows are retested. So, is it safe to short right now? The indices are still pretty oversold, and there is a chance that this bounce is just getting started. However, I think it might be safe to start probing on the short side for stocks that are not oversold. It doesn't make sense to chase anything that is too far broken down, but if the risk reward ratio is decent, I will start taking some shorts. I've been tinkering with a scan I created with Trade-Ideas that offers up short setups. I'm basically looking for weak stocks breaking down at the 20 or 50 day sma. It gave me these three today.

Websense Inc. (Public, NASDAQ:WBSN)
WBSN looks like it could go either way here depending on the markets mood, but the path of least resistance is down here. It rallied to fill a down gap and backed off at converging resistance. It is back to test converging resistance and the only thing making me iffy on it, is the fact that it is holding above the 20 and 200sma. However, the weekly chart shows that it may be in wave 3 of a much larger correction and if it loses the 20sma here, then it should fall fairly quickly.


Marvell Technology Group Ltd. (Public, NASDAQ:MRVL)
I normally don't post charts of current positions, but MRVL looks like it is still in a good spot for shorting here. This is one where I am paying attention to location much like I described in the Investopedia article noted in the last post. There are two shooting star type candles and a hang man right at the declining 50sma. Add an unfilled gap down and it looks like MRVL is in trouble. If I am wrong, then the stop is not too far away.


j2 Global Communications, Inc. (Public, NASDAQ:JCOM)
JCOM has been trying to rally above it's declining 20sma and hasn't been able to overcome the selling pressure. It is up to test it again and has plenty of room before it would become oversold.
Keep in mind that we may still get a strong bounce, especially if the economic numbers coming up fuel the fire. Prepare for everything and then take what the market presents you.

Good Luck,


Joey

If anyone is interested, I wrote an article for Investopedia that was published this morning. It's an article that focuses on Candlestick patterns and their location. I would love some feedback.


Thanks,


Joey

The indices started to bounce today and it will be interesting to see if this bounce can carry the indices to their declining 20day or 50day sma's. While some money can be made to the long side I am thinking that when the downtrend resumes it will be quite swift. Small caps may be hit hardest in a downtrend, so I am looking to the Russell ETF's for shorting opportunities. Specifically, I will be looking at leveraged UltraShort Russell 2000 ProShares (Public, AMEX:TWM).


Here is a chart of the Russell tracking ETF which shows where I suspect this bounce may be rejected.

iShares Russell 2000 Index (ETF) (Public, NYSE:IWM)



One thing I've been thinking about is how most bloggers are waiting for a bounce to short and staying away from the long side. There are times to be a contrarian and times to follow the obvious path, but I think it's interesting that so many are expecting this bounce. We'll see what transpires, but I am still expecting much more weakness.


Good Luck,





Joey

The Dow seems to be bearing in on the 12,000 mark which is a nice round number that could offer up some near term support. I've been noticing the talking heads on CNBC and Bloomberg saying that this is a good buying opportunity and that this is a little bump in the road. This makes me even more cautious of any bounce due higher. It is still up in the air as to whether this is a correction or a change in primary trend, but either scenario should result in much lower prices ahead. Things have moved very quickly and it is getting difficult to find any decent shorting candidates in my opinion, so hopefully there is a bounce soon. There may be some interesting long opportunities if the markets gap lower in the next day or two and exhaust the sellers. At this point, the safest thing to do is wait it out.

I added a few new blogs to the blog roll tonight. For those that haven't checked out TyroTrader or Tradewhileworking, please do so. Tyro has been posting some great stuff recently, and Tradewhileworking really caught my eye as a guest blogger on Fly this weekend.

I also want to introduce a new blogger to the trading blog community. Tuff is a good friend of mine and has been a guest blogger for me in the past. He just started his own blog titled Regulation FD. He will be focusing on discovering inefficiencies in the markets which can be exploited by becoming the "smart" money. We will be trying to collaborate on some posts between the two blogs in the future, but our core missions are quite different. His first analysis on the blog shows the kind of research and thought that goes behind his stock selection process. And trust me, this is just the tip of the iceberg with this guy. He asked me to post a technical overview of his first company profiled, which happens to be Hurco Companies.

Hurco Companies, Inc. (Public, NASDAQ:HURC)

A daily chart for HURC follows below. While HURC has been on a tear recently, and has weathered the correction fairly well, I can't get all that excited about it here because of the state of the market. It could hold here at the rising 20sma, but my gut is telling me it will have an ABC correction with only the down A wave complete here. I would guess that the rising 50sma and lower bollinger band will be tested, which may offer a great entry depending on the market condition at that point. A couple of things that stand out to me here is the nice increase in volume recently, and the fact that the indicators are in synch.


Here is a weekly chart showing a much cleaner perspective. HURC is clearly above resistance and not too far from its highs. This is actually a pretty clean chart without to many surprises. I really like how HURC has been outperforming its peers as shown by the Price Performance line for HURC vs the Russell.



On a lighter note, I've noticed a few bloggers (Jaime, Mike, Estocastica, Trader-X, Howard) out there posting their top 20 movies, so I thought I would throw mine out there. In no particular order.

1. Braveheart
2. The Usual Suspects
3. Dances with Wolves
4. Godfather
5. Saving Private Ryan
6. City of God
7. Snatch
8. The Sixth Sense
9. Matrix Trilogy
10. The Gladiator
11. Donnie Brasco
12. Heat
13. Shrek 1 and 2
    
14. Meet Joe Black
15. Interview with the Vampire
16. Traffic
    
17. Reservoir Dogs
18. The Royal Tenenbaums
19. Blow
20. Gangs of New York

Babel and The Departed are two recent movies that may make the list after I rewatch them at home.

I had a few Pitt/TraderX movies on the bubble that didn't make the cut including Fight Club, Legends of the Falls, and Seven. You can practically exchange any of these with Joe Black, but I thought Hopkins was awesome in that. So there you have it.


Comments are welcome and if any readers want to post in the comments section I would love to see your lists.


Good Luck,



Joey

The bears resumed the attack on friday as most of the indices closed near the lows of the week. Regardless of the reason, whether it be fears of recession, global slowdown, or carry trades unwinding, the bottom line is price is falling across the board. Watch the charts and ignore the chatter. While the indices can expect a bounce soon, it may still be a few days away. Looking back at the start of the May decline, the indices dropped about 12 days without any sort of bounce. We are only 5 days into this leg down if you count Monday. Here is a chart showing the May drop on the Q's.


While we could bounce sooner then that, I don't expect anything more then a small retrace. There were too many people hurt with this drop, and it will take time to heal those wounds.

I'm looking to short this market, but it is difficult to find weak stocks that haven't run away yet. I don't like picking tops in strong stocks, so I am looking for stocks that tried to bounce back but are falling under their own weight. UTEK, NVLS, and IT come to mind. I'm also looking at stocks like UA, CHS, PSS, and AEOS in the retail sector for weakness. Sorry for the lack of charts again, but my free time is all tie up with a couple projects I am working on.
Good Luck,


DT