ShadowTrader Focus Report_2008

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The Big Picture

Good Morning, Traders. Definitely the strongest day we've seen since the beginning of June yesterday. Will it follow through enough to be worthwhile buying anything is anybody's guess, however. Financials finally put in a strong day which bodes well for the S&P. Some sectors on the <i>Core Sector List</i> up more than 5-8% today from their respective opens. That's the nature of short covering. If its a bounce, then lets look at some strong names that have not been as beaten up as their brethren in the recent market trouncing and hence should rally strongly if the market is about to catch some relief....

<img border=5 width=559 height=600 src="http://www.shadowtrader.net/focus_report_charts2008/080708AGU2.gif">

Agricultural chemical stocks are not ready to throw in the towel just yet. The chart of <b>AGU</b> above shows strong volume support yesterday on a wide ranged hammer reversal. Note how the closing action reclaimed the 50ma and the prior breakout level. A move above yesterday's high would trigger a long entry.

<img border=5 width=559 height=600 src="http://www.shadowtrader.net/focus_report_charts2008/080708CRK.gif">

Leading oil stock <b>CRK</b> also put in a bullish reversal candle yesterday and closed above the lows of the range. Look for a move above yesterday's high to take out the 20ma and trigger a long entry.

<img border=5 width=559 height=600 src="http://www.shadowtrader.net/focus_report_charts2008/080708VRTX.gif">

Over the past month <b>VRTX</b> has traded in a tight range. Note the solid support provided by the 20ma during the consolidation. A breakout to new highs on good volume would trigger a buy entry.

<img border=5 width=559 height=600 src="http://www.shadowtrader.net/focus_report_charts2008/080708FLIR.gif">

<b>FLIR</b> has been in a steady uptrend since bottoming out in March and we see no signs of the trend slowing down. It's important to note the huge volume spikes on 6/20 and 6/27 (circled in blue above) indicating heavy accumulation. Look for a move above yesterday's high to trigger a buy entry and new highs to follow shortly thereafter.

<img border=5 width=559 height=600 src="http://www.shadowtrader.net/focus_report_charts2008/080708ACOR.gif">

<b>ACOR</b> is a small cap biotech stock with explosive potential. The tight basing action over the past month should serve as a launching pad to new highs. Buy the breakout to new highs on good volume.

On Tuesday morning our short entry in <b>X</b> triggered and the price action fell apart as anticipated. It appears as if our short call on steel will work out as <b>X</b> didn't attract any buyers during the late day rally. The two intraday charts below highlight the relative weakness in <b>X</b>, as it failed to close above its intraday swing highs while the S&P ripped 20+ points into the close.

<img border=5 width=559 height=600 src="http://www.shadowtrader.net/focus_report_charts2008/080708SPX.gif">

<img border=5 width=559 height=600 src="http://www.shadowtrader.net/focus_report_charts2008/080709X.gif">
 
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The Big Picture

Good Morning, Traders. The theme out there is basically <a href="http://www.shadowtrader.net/glossary.html">S.O.H.</a> for new entries as nothing seems to be working too much on either side for us right now. Obviously a bunch of people got long or covered on the Tuesday afternoon move but they all reversed themselves on Wednesday afternoon. Biotechs were the only bright spot lately but broad market selling held them back as well. $GOX was primed to move higher and gold itself actually did but the mining stocks reversed all early gains and closed lower. That's a signal to us to feel lucky we sidestepped that one and pass on that sector for now. We still like the metal itself, tracked by the etf <b>GLD</b>.

<img border=5 width=550 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080710GOX.gif">

Our long <b>MASI</b> was a bright spot in the malaise, although the relative weakness in <b>X </b>on Tuesday was also comforting us for about a hot minute until the stock opened up $5.00 the next day and promptly ran $14 higher by noon. We used a 5 minute high to take a stop of about $5.00 per share on small size. Had we not done that, we would have gotten creamed along with the rest of the shorts as the stock ran way over our original stop. For now we'll hold <b>MASI</b> which is showing a decent gain and more importantly has not fallen apart on the larger timeframes while the market has been resetting itself back to zero it seems. (That last sentence was a huge exaggeration, we just wanted to see if you were still reading).

<img border=5 width=550 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080710MASI.gif">

<img border=5 width=550 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080710X.gif">

Alcoa (<b>AA</b>) reported last night and the stock promptly gapped up about $1.50 and spent the whole session in a tailspin. From our estimates (which are nothing more than a guess), we don't see these Q2 numbers coming in solid at all. Remember that the market is a discounting mechanism which always acts in advance of the news that its going to get. If the market indeed "knows" then its certainly telling us that earnings will be soft because you certainly don't see people out there getting into anything long en masse and holding it. Stocks seem to be pariahs for now. Dow 11,000 is probably the next stop. $SPX parked itself at lows of the range for the last three days making some very large <a href="http://www.shadowtrader.net/glossary.html">candles lining up same size bodies</a>. The third candle is red so we imagine the next move follows through a bit lower. So much for the bounce which was very short lived indeed.
 
This week's video

$vix spike to 35+ looks like its coming which should be the "bottom" (<--note the quotation marks)

Gold and Silver continue to move up a bit and should be bought on any pullbacks.

enjoy


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The Big Picture

Good Morning, Traders. Markets continue to make new swing lows on dailies. Friday saw another spike lower which took the Dow to the hallowed 11,000 level and somewhat below actually. The chart below which is a monthly shows the support level here in the Dow that we are currently sitting at. The S&P, although not shown because it was shy about all its recent losses and wouldn't let us take its picture, also has a similar area at 1219 to 1224 which was discussed in yesterday's <i>ShadowTrader Video Weekly</i>. Usually in bottoms that are meaningful (read: can hold for more than the one day which is the current trend), there is a washout underneath some key level of support that will decrease confidence in the majority of players and create some super-bearish sentiment to go along with those new lows.

<img border=5 width=550 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080714INDU.gif">

To that end, as far as the sentiment is concerned or some other signal that would tell us that there will be some relief, we shall look to the $VIX now as it has started to creep up to those levels where historically there have been big spikes down that have been panic-driven and tend to wash out sellers for at least some time. Lets have a couple more charts...

<img border=5 width=550 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080714VIX.gif">

<img border=5 width=550 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080714SPX.gif">


We have annotated the above $VIX and $SPX weekly charts with numbers 1-4 which are put on the charts at the same time. Note how whenever we have had these spikes in the $VIX to the 30 area and more importantly to the 35 area, there have been market bottoms where there has been at least enough of a relief rally that would send some shorts running for cover and make people reassess the trend. These spikes occurred in August and November of 2007, then again in January and March of 2008. Note how each time in the S&P these spikes have correlated with the end of down moves at least temporarily. Moreso than the current modus operandi of one day rallies that end with the market going down even lower within two days.

Again with the recent creep up towards 30 (Friday's $VIX high was 29.44), it just feels like this is coming soon. If and when it does, don't be afraid to buy at least some small size of whatever catches your fancy. The rally after such a spike will be fast and furious and will come off of a low that will feel like the world is ending. If recent events are any indication it will probably be timed with some crude spike aroud the nice whole number of $150 per bbl. Another fresh swing high of $147.30 was made this week. Stay tuned...
 
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The Big Picture

Good Morning, Traders. Below is basically the only chart out there that looks like its not going to fall apart any time soon. <b>GLD</b> has well cleared all pivots where it has resisted in the past while bouncing during the consolidation period that has been in play since April of this year. Next stop should be the $1,000 per oz mark ($100 on the <b>GLD</b>.) We are thinking at this point that the low of the big body candle of last week should hold and any retracement into that body (between 90 and 95 basically) is a buy point. The weakness will probably not last long though as the metal is now in a more confirmed uptrend.

<img border=5 width=550 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080715GLD.gif"><br><br/>

Yesterday's commentary dealt almost exclusively with the $VIX and the odds of a spike coming that might correspond to at least a short-term market bottom. This setup is still intact. The markets didn't go lower yesterday but action was bearish nonetheless as a 15 point S&P gap up evaporated straight from the open, taking markets down to levels of Friday's low. Dow touched back down to the 11,000 number but did not violate this time. This is just more indication that there is more selling coming.

We've said it many times and we stick by it that the best barometer of a market is simply how are stocks acting. Not necessarily en masse but individual issues that are either breaking out or turning off of pullbacks. The action in our <b>MASI</b> long yesterday certainly confirms the lack of support out there for stocks right now, even ones that should by all intents and purposes be breaking out. We saw a number of trendline breaks similar to the action in <b>FLIR</b> fail yesterday. We dipped a toe in on a half position of <b>TRA</b> after seeing some bottoming action from the fertilizer group. The stock was up as much as $1.00 from entry and closed relatively strong. We will add to the position if it does not fall apart but make no bones about it, we are treading lightly here on the long side.

We've received a few emails from subscribers as to why we are not more short biased here. The simple fact is that we actually were, very close to the recent top and made the mistake of not re-entering when we got stopped out by a small margin. Obviously we spent a little too much time during this last meltdown thinking that a violent bounce upwards would ensue from prior support levels in the S&P. This of course never materialized and we have paid the price. At this point its just dangerous to us to short because the volatility is so large that you could get your shorts run during an intraday rally of a couple hundred Dow points very easily. Though it bugs us to no end that we are not short, we do feel that now is not the time to enter them either. The fact that each bounce since June has lasted exactly one day has also made it nearly impossible to get off a bearish position. The $VIX continues to hold just under 30. The washout, and (probably temporary but longer than one day) low should be upon us soon if this indicator is working properly.

Bernanke speaks today and tomorrow at 10am both days. Earnings season is also in full swing now so pay closer attention to the <i>Heads Up</i> section below where we'll alert you daily to the key events that may move the market.
 
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The Big Picture

Good Morning, Traders. Ok, not bad. Kind of a stealth rally but to be expected after so much negativity. What awas interesting about yeterday's action was that we didn't make a two day high in the S&P until 2:30pm. We did close over it however, close to the highs, so a two day high which we have not seen in awhile was printed. Is it the end of the bear. We don't think so. The $VIX only hit 31 on the last spike. There is still upside there on a pullback.

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080717spy.gif">

The tertiary trendline (chart above) on the daily <b>SPY</b> was tested yesterday on what we felt were quite good internal indicators. NYSE was a bit better than a very respectably 3.5 to 1 with advancers beating decliners by 1658. Not amazing, hit it out of the park numbers but we'll take it. Most of the bullishness was carried by banking stocks which had a "short covering day" and rallied an enormous amount intraday. To all of you who took the time to write in and lambaste us about the <b>RKH</b> trade we can only say that the chart below illustrates the scenario that we figured would happen when the covering in this sector started. We were just <i>dead wrong</i> on <u>when</u> it would happen. Timing is everything.

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080717RKH.gif">

But enough about the past, lets look forward. Obviously yesterday's change in tone perked up a lot of groups across the board. Some sectors we'll be watching in the days to come include $TRAN with shipping stocks starting to build the types of bases that should hold longer than 1-2 days. Keep an eye on <b>DRYS, EXM, TBSI, GNK, EGLE </b>and <b>DSX</b> in the near future.

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080717TRAN.gif">

Also Semiconductors ($SOX) are acting similarly and took back all the losses of the last swing downwards and parked themselves right at the 360 level where the last downward move started. Note in the chart below how this is the first time since the downtrend in semis started that there was a retracement back to where the last leg started down all in one day. These "big body" candles tend to hold their lows as they are kind of a 'shock' to the bears and as prices retrace down into them, there are pullback buys to be considered if they come in on decreases in volume. <b>SMH</b> is always a good proxy for this sector.

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080717SOX.gif">

In closing we'd just like to mention that every rally since the beginning of this downward pressure has lasted no more than a day and a half. We are also concerned about the long oil, short stocks scenario (and vice-versa like yesterday) which still seems to be the play. We say this because we would like to see stocks go up because people want them and want to hold them, not just on a constant knee-jerk reaction to every minor nuance of the <b>CL</b> contract. Either way, the chart to pay closest attention to is the first one in this report. The trend is still firmly in place to the downside. Gold is coming in to an area where positions should be added to. Once it bottoms which should be shortly, expect $GOX stocks to rip another leg upwards. Relative strength is still the key as always and will keep you safe if you stick with stocks that don't get beaten up when the market gets hammered, its just a lot safer. We took a small size with a very wide stop long in <b>ENER</B> yesterday which has been exhibiting this characteristic perfectly during the month of July.
 
This week's video...

Strength in Trucking on the heels of the crude pullback has some names coming up on scans that could be in play on pullbacks.

The flipside shows some Chemical and Steel names that are acting opposite and could be shorts on any bounce

We name a few names

To watch this week's video, click here
 
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Good Morning, Traders. Top line figures basically flat at end of day yesterday after a gap up that faded after the first 30 minutes of trade to close near the lows. So far market is holding up on upper side of downtrendline but certainly not inspiring any bulls as of yet. Extremely mixed read on internals as breadth chopped back and forth on both sides of the zero line for most of the day. We did get a daily close on the <b>$VIX</b> below the uptrendline on the daily chart which is shown below.

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080722VIX2.gif">

We still think its too early to tell, but the above chart would be a feather in the bulls cap as to which direction the consolidation will resolve itself in. Yesterday's gap up outside of the consolidation range and subsequent slow bleed back down into range would be one for the bears. Tie score so far. Core sector list was also in a tug of war. Still consolidating those gains basically. 1250 on the downside and 1265 to the upside seem to be the pivots for now on the mighty S&P currently.

The weekend's commentary on the long trucking, short steel and chemicals is about 2 for 3 we would say. Meaning, the truckers are still setting up, the steel is rallying into resistance and a probable short point, but the Chems acted in a very strange manner and were basically all over the place but mostly up. Check out intraday and daily charts of <b>POT, ALB, & FMC</b> for instance to see some strange reversal action. The S&P Chemical Index ($CEX) is still stuck under its 200 ma daily but has made a bullish engulfment of Friday's bear action so its probably not a short here anymore.

Utilities are setting up for a possible short soon. Rates are probably going up and these highly leveraged companies generally don't like that. These prior swing lows at the 525 area would be prime. We're watching and will keep you posted. We'll name some names in this commentary this week.

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080722UTY.gif">

As far as the long side is concerned, if the consolidation resolves itself upwards we still like those truckers as per the weekend's video. It's only day one of the pullback however, so time is still needed to take some of that froth off before they run again. The oil is of course the ever-present wild card that seems to be able to turn the whole game on its head at the drop of a hat. Trendline support on the black gold is at 128.00/bbl. Yesterda's close was just over $131. Futures are down about 12 on the ES and 30 on the NQ as of this writing on the heels of Apple's <b>(AAPL)</b> report. Expect a soft open. Watch the aforementioned 1250 area in the S&P's. We could open right there and have the entire range of the consolidation overhead which would probably create downside momentum from the open.
 
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Good Morning, Traders. Continuing on with yesterday's commentary, the dollar did rally quite a bit yesterday and closed above the trendline. The next couple of days will be crucial to tell us whether or not the trendline break is real and we will see further erosion in the price of crude which will continue to prop up stocks. Honestly we expected more from equities yesterday on the back of oil getting hammered yesterday right down to the 20ma weekly that we discussed yesterday. The next stop would be the ascending trendline at about $100 per bbl. Weakness in key sectors made it seem disconnected however yesterday as Oil Services and Financials took it on the chin a bit, acting as a drag on the S&P.

Market closed close to the lows at its open yesterday which printed a bearish topping tail on the dailies of all of the majors. However the hourly charts of all of them would show just a bullish consolidation that looks more like a flag here (bullish). A lot of sectors got worked today and some were strong creating the tight range that we see below.

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080724SPY.gif">

One sector which is not bouncing much or rather has bounced to prior lows and reversed rather hard is the Internet sector. A chart is below. This is a similar setup to our call on shorting utilities recently which would have worked out beautifully if you took the idea and ran with it. Those stocks got killed yesterday after backing off from prior lows on a similar setup.

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080724DJUSNS.gif">

<b>GOOG</b> and <b>EBAY</b> look to be the best setups in this sector for downside moves. On the upside, keep an eye on ALNY above the $32.00 area. Big cap stalwart <b>IBM</b> looks to be setting up for another upside run. If the broad market does not fall apart completely here and stays in this uptrend, that's a play that is acting right for a long. The stock tends to consolidate gains, however, longer than people expect so it may need to put in some work here at the $130 area since it was also a prior swing high before. We are maintaining our stance from yesterday's report which is to be on alert that we still have yet to see crude go up at all in many days in a row. Let's see what the market can do on a day when the <b>CL</b> contract actually goes up for a change. Be careful out there.
 
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Good Morning, Traders. So? Could it be disconnecting, or is the market telling us that oil is going to bounce soon. Yesterday showed us another new swing low (albeit a very minor one) in <b>USO</b>, yet the market sold off all day anyways on weak economic data and a news that <b>F</b> lost $8 billion dollars last quarter. What's kind of bearish here is that the last move upwards has evaporated and we are now back inside of the consolidation that was digesting the first big move up off of the lows.

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080725SPX.gif">

In terms of bias, there is not much more to report other than the above. All the majors are just floating back down to their respective 20ma's on the dailies. The S&P seems the weakest as its already broken back down through with the others just slightly above. This tells us that more weakness could be coming. The crude chart which we have been talking about a lot still looks like it wants to spring upwards at any moment, although certainly a further slow bleed is possible. Obviously the recent strength in the dollar which caused us to abandon our small metals positions would counter that argument. The <b>UUP</b> remains well above the trendline now as shown in the chart below.

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080725UUP.gif">

Unfortunately the move back down into the low end of the consolidation range is putting the market into a sort of "no-man's land" where there is no clear pivot at this juncture to report on. If the market is going to put in a higher low at some point here and not test the prior lows, then we would definitely like to see it coming in on better internals than we saw yesterday. NYSE breadth clocked in at almost 7:1 negative and decliners were beating advancers by a healthy 2000 to one in the last hour of trade. The week could close out bearish. In a recent <i>Focus Report</i> we talked about a move below 1250 as having a lot of overhead above it due to the consolidation. This could be even worse now with the rally to new swing highs and subsequent failure.
 
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