ShadowTrader Focus Report_2008

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Good Morning, Traders. Destruction across the board as the market gave back the entire Fed payola gap and crapola. Should be a straight shot now to at least $SPX 1200, where we might see a bounce. This bounce should set up some very nice short entries. Nothing at this point is a long out there. Very little relative strength. The Oil Services sector might get a little play to the upside soon on the swing lows that are about to be tested.

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080910OSX.gif">

<B>HAL, SLB, BHI, WFT & OIH</b> would be names to look for on a test of the prior swing low area above. Small counter-trend bounce would be expected there.

With market as pummeled as it was yesterday, there are not that many short setups currently out there. We made a judgement call to sit out the trading for the last two days as far as the <i>Model Portfolio</i> trades are concerned to see how the monster gap up would resolve itself. The answer is now clear (downward), but we're not exactly at any clear pivot here to short. We're kind of well into the move that is obviously going another clip lower to retest the prior swing lows of 7/15 in the S&P 500 and Nasdaq Composite. Dow has some relative strength going for it (stress on the word "relative") but we believe it will certainly follow on down to the same swing lows eventually.

We are looking for a bounce to get short. If the market plunges further today to test that 7/15 low, we would actually be looking for 'quickie' longs IF market internals are showing some signs of real buyers defending that pivot. Bias is firmly back to down now. Look to short retracements or stay with current shorts until that 7/15 low is reached.
 
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Good Morning, Traders. Looks like yesterday was all the bounce we are going to get. Futures down about 3 and 5 as of this writing and technically we have a picture forming that is definitely indicative of more downside. Note how we are parked right on trendline support in the photo below:

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080910TEST6.gif">

We've circled the recent price action in the <b>SPY</b> chart above to illustrate the sideways action of yesterday that is coming on the heels of Tuesday's bear assault. Except for a tiny breakdown in mid-morning, it was mostly an <a href="http://www.shadowtrader.net/glossary.html">inside day</a>. This is indicative of continuation of trend rather than reversal.

We continue to be non-plussed by any trending type of play and will continue onward with counter-trend reversal type stuff, mostly from the short side, until we see some meaningful resolve to this messy action. We did list <b>CNQR</b> in <i>Bulls & Bears</i> below, however. It's one of the few out there that seems to be acting right. If there is indeed a strong bounce coming off of an $SPX 1200 retest, then you want to have a few solid chart patterns in your watchlist in addition to the counter-trend bounces like <b>OIH</b> for instance. While we are on the subject, 235-236 is the major support on that Oil Services index that is coming up around the corner. Be nimble out there. Market remains newsdriven and volatile.
 
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Good Morning, Traders. Two important things happened yesterday. Both of which are indicative of a possible tradeable bottom, with a slight twist. Lets have a look at a chart of the S&P to illustrate:

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080912SPX.gif">

There's two main points to note in the chart above. Yesterday's action was a gap down then quick move lower very early in the day which reversed quickly and became a strong trending day to the upside. This overshoot of the most recent 9/5 low is bullish. This is what pro traders call "the undercut". When its followed through with a big body candle to the upside it's even better. Ok now for the twist. Why no move to the 7/15 low? This is the part that is puzzling to us. Certainly markets do what the least amount of people expect but something about this just doesn't sit well with us.

Internally it was pretty good. If you check your <i>Under the Hood</i> section below you'll see negative a/d lines on both exchanges, however, be aware that those figures are coming off of some serious lows. The NYSE low on the a/d was -2225 which is indicative of "throw in the towel" type of selling that is indicative of at least a near-term bottom. Hard to say if it indeed holds, though. For the most part, we just want to go on the record pointing out the above factors and also to say that if you look again at the snapshot you'll see that there is of course serious resistance from the bottom of the August trading range just above us. With sentiment out there kind of negative we think it will be the usual 1 1/2 day pop. Expect a possible upswing to maybe 1265 and then chop back down. The failure to touch the 7/15 low could also be setting us up for just that, ie: a later test down as the market makes "candles lining up same size bodies". As we currently feel if could be any one of these scenarios playing out, we continue to be cautious.

A number of readers took us to task yesterday for what they felt was a typo in our mention of the support area in <b>OIH</b>. People thought that our mention of 235-236 as a support level was a misprint. Just to clarify, it was not. We were discussing the <i>Oil Services Index</i> which is $OSX. Although <b>OIH</b> is the ETF for that sector, it is not an index per se. The low we were referencing in the index is for the week ending 1/25/08. Incidentally, the $OSX also did similar to the $SPX and reversed close to that swing bottom but not at it, instead turning up at 244 yesterday, using the lows from earlier in the week as a pivot.
 
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Good Morning, Traders. Divergence in sectors continues on, creating doji's on the weekly bars of the major averages at the close of business last week. Moreover, these weekly dojis are well inside of the trading range that continues to hold the market hostage. Let's look at some key sectors.

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080915BIX.gif">

Banks? Just a weekly doji at major resistance. Odds of powering through to a new high this week probably pretty low.

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080915IUX.gif">

Insurance stocks looking downright bearish on the heels of <b>AIG</b> being reduced to prepubescent status.

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080915RLX.gif">

Retailers have been a bright spot with <b>WMT</b> recently breaking out to new 52 week highs, but can the sector really continue to move right away in the face of that supply area? Don't bet on it. A retracement backwards would be healthy here to form a possible inverse head and shoulders but way too early to tell on that. Keep it on the radar.

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080915XBD.gif">

Similar chart to insurers. Going nowhere fast. Difficult to see an S&P resolving this chop to the upside with this sector in the dumps. Expect news on <b>LEH</b> any minute which could shake up the chart a little. Fellow 800lb gorillas, <b>GS</b> & <b>MS</b> report earnings Tuesday and Wednesday this week, respectively.

As seen above, checking out key sectors that have a large weight in the S&P is a good way to take the pulse of the market. From what the above charts above are telling us, the market seems to want to put in more waffling at this juncture. It is for this reason that we have been focusing more on the <i>Counter-trend</i> type of trades. It's a simple case of what type of market you have. In a trending enviroment you want to be betting that the breakout will be sustained. In a rangebound market you want to be against it. If you can get the sector up against some resistance or support on the same timeframe as your stock, all the better. Top-down analysis that starts with the broad market first, then goes to sectors, and lastly individual issues is best.

In closing we would like to remind readers that the <B>FOMC will have another decision on rates this coming Tuesday at 2:15pm EST.</b> While the consensus is that they will stand pat at current levels for now, never underestimate the potential of these reports to move the markets violently. Whether they follow through on that spike is of course another story.
 
This weekend's video:

Trading ideas in BHI, BP and K


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enjoy

-shadow
 
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Good Morning, Traders. If you are a subscriber to this letter we assume you are already smarter than the average bear, so we won't waste your time on the obvious. Let's look at some stocks that are not getting decimated, just for fun. If a bounce ever comes, which we expect to happen around summer 2020, these stocks could move.

**Disclaimer and waiver of claims** - The above paragraph contains a form of verbal irony commonly known as "sarcasm". It is not meant to implicitly state that the markets will not go up within the next 12 years. It is a type of exaggeration due to the fact that it feels like 12 years since the market last went up.

These stocks look decent and are bucking the trend. (Don't worry, we'll talk about all the bearishness later.)

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080916WRC.gif">

You know all the counter-trend stuff we been talking up lately? Well, it works on longs too, ya know? There just haven't been any conditions to warrant even attempting any recently. If the market takes another hit (and it more than likely will), and this stock does not fall below the lower horizontal line, it could be a nice pickup for a quickie at least back up into the middle of the range, if not an all out run back to the upper line. Keep it in mind for that 2020 rally (just around the corner in dog years).

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080916FSYS.gif">

Alternative energy company that is growing revenues and earnings. Whoa, did the uber-technician Shadow just talk about "fundies"? Yes, every now and then we peek at Google finance. Sometimes we're just curious as to what is behind all these 3 and 4 letter symbols. Usually we're not. Doesn't seem to matter much anyways. Value and price are so often extremely divergent. If they weren't then every pick on that show with the "chair thrower" would be a screaming winner. Nice chart here. The green circle is the buy zone.

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080916SHW.gif">

Nice channel here. Stock seems unfazed by recent events.

OK, as promised on to the bearishness. Today should be crazier than ever. <b>GS</b> is reporting and we have an FOMC announcement coming at 2:15pm EST. Then there is the chart below....

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080916SPX.gif">

The prior swing lows of July 15th have now been violated in the S&P, however, in the Dow and Nasdaq Composite they have not. This creates a sort of divergent situation where one breaks first, then as the others come into their supporting areas, there is a lagging effect where the first index that broke down ahead of schedule rallies back and makes it all look like a false break. That is typical of these types of "horizontal breakdowns", where the chart is breaking down through a horizontal support line. Expect a bunch of volatility as the aforementioned news will be hitting at the same time as these Dow and Nasdaq prior lows are tested.

All in all, the situation looks like its not done correcting further. The wild card is that there are talks that the Fed may actually <i>cut</i> rates today, which would of course go totally against what was discussed at the last meeting. Market should remain on crack to down. We'll leave off with a $VIX chart which clearly shows that sellers may still have another go at it before capitulation comes around. Consider a small <b>ES</b> or <b>YM</b> position on the long side if the $VIX spikes up to those prior highs.

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080916VIX.gif">
 
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Good Morning, Traders. Looks like the gist of yesterday's report which was telling you to not get too excited about yesterdays rally was spot on as the majors got crushed again and made new swing lows. We too were cautiously peeking around to see if there were any longs about, but after seeing how poorly internals opened up this morning on the gap down, we decided to pass. Good thing we did. Even the Oil Services long idea that we have been chatting up is beginning to quickly lose its sheen as even the bump in crude prices cannot seem to stem the tide of selling that makes it darn near impossible for any sector to follow through. Lots of "candles lining up, same size bodies", which makes any sort of overnight trading very difficult. We are flat in the <i>Model Portfolio</i> for now and if you've noticed we've been picking our spots rather carefully for the last month or so which has worked out well, however, finding setups remains more like a needle in a haystack when the S&P can be down 50 in a day and rally back 30 the next.

Although internal indicators yesterday were definitely flashing oversold signals, there is no real major or minor support on the charts of any of the majors that indicates a turn in this area. In looking at the S&P, Dow, and Nasdaq charts on various timeframes, the only prior low we could come up with was on the monthly S&P, shown below.

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080918SPX.gif">

In the chart above, the low in the <b>$SPX</b> was 1136.15 in that month of April, 2007. This is very interesting at this juncture when put together with the internal readings of yesterday (see <i>Under the Hood</i> section below) which are showing signs of the type of selling that is simply unsustainable because at some point there is noone left who has not already sold. On Monday of this week we had a NYSE advance decline line hitting lows of -2,877. Yesterday's figure was -2,853 at it worst point. Breadth on the NYSE yesterday closed at over <b>18 to 1</b> negative! And...we finally got a $VIX spike up over the 34 area into the prior highs which we showed a snapshot of in yesterday's report.

If the aforementioned catalysts coming together do indeed form a bottom in this area, be aware that current market condtions are dictating that the action will be fast and furious and will "all happen at once", so to speak. Meaning that there could easily be an intraday reversal today that puts the Dow's range at more than 500 points from high to low. The best case scenario for today would honestly be a gap down that doesn't hold. Usually gap downs after enormous down days are buyable very close to the open. The second best scenario would be a flat open which fails immediately into some strong selling that comes into the first main reversal period at around 10:30am. One good extra $VIX spike that blows through the prior highs would be a good sign as well. In this environment, it is simply very hard to scan end of day charts and find valid entries for the next morning's trade. The reversals are just too swift and too large currently. Be ready.
 
This weekend's video --->

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The full version of this report with daily stock picks and real-time email alerts is available here for $20 per month

Good Morning, Traders. The gap fill in the S&P that was discussed Sunday's <i>ShadowTrader Video Weekly</i> occurred yesterday. Although the top-line figures look super bearish with the Dow losing almost 400, remember that this portion of the decline was expected as most gaps fill. The questiono now, of course, is whether or not the selling abates a bit, enough to form an inverted head and shoulders on the dailies that could be played to the upside on a push off of the right shoulder. To that end, we have spent the last few hours scanning for relative strength stocks that didn't get creamed yesterday while the market did, thinking that these are the names where the buying is "real" and sustainable. Although a few names met our criteria (see <b>ADM</b> in <I>Bulls & Bears</i> section below), overall the pickings were slim. This tells us that most stocks did not hold up very well in yesterday's gap fill. What we wanted to see was an imbalance of names holding the Thursday & Friday gains of last week and moving down yesterday <i>less than</i> the broad market. Instead we saw lots of stocks that were simply mirroring the major averages and fell back down deeply into ranges.

As it has only been day one of the pullback so far, we cannot yet tell if the market will or won't build out the right shoulder of the inverted H&S pattern or not. <b>Bernanke is speaking the next two days at two different venues,</b> and the Street still awaits the final word on the big bailout. We remain cautious here (flat), and looking for any signal that the broad market wants to put in a higher low which is what is necessary to create a playable upswing. <b>$VIX</b> is holding up high and tight which is telling us that market remains nervous as to the outcome and effect of the recent news cycle which is obviously not over yet. If you must trade stick to higher odds, shorter timeframe, counter-trend type bounces/pullbacks such as the <b>KO</b> idea below. Volatility in either direction is so high right now that directional ideas continue to be difficult to put on and hold for more than a day.
 
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Good Morning, Traders. At one point within the last hour of yesterday's trade, it did appear that we would close strong and create some nice hammers on the dailies of the majors. Apparently not! Bears were just temporarily hibernating (more like a 2 hour cat nap) as indices pushed back to lows in the last 30 minutes of trade and closed negative. Members of Congress all of a sudden got squirrelly over simply rubberstamping Paulson's bailout plan. Reports say now that we may not have a definitive answer before end of week. Market hates this type of indecision and thus you get action like yesterday's where up moves simply cannot get traction. In a word, this ________. Insert verb of choice.

As swing trading continues to be very difficult in this market, we continue to tread lightly and focus on names that are either showing major relative strength, or counter-trend type of plays for short term moves off of major support or major resistance. Remember, <i>major</i> areas of support for instance are prior lows that became sustained trends (one month or more). First and even second or third retests of these areas are good places to intiate positions in the opposite direction of the trend, capitalizing on the fact that the market itself is just not trending strongly right now and thus the odds of stocks moving through those major support and resistance areas is low. <b>KO and GD</b> are good examples of solid stocks coming into major support areas currently that have strong odds of lifting off of these levels if the market would just go up for at least a whole day! Did that sound bitter? Sorry.

In scanning through various sectors to look for anything at a pivot point, Broker-Dealers came up showing some relative strength yesterday as evidenced by the chart below.

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080924XBD.gif">

While not earth shattering, we did think it was of note to point out that the $XBD yesterday opened and closed flat in the middle of the range (circled bar), while the broad market closed at its lows. Industry leader <b>GS</b> actually rallied into the close (Buffett taking a $5B stake) while the market slumped badly. Additionally, the banking index has now come into support of prior highs which as you can see below was a serious cluster (heavy consolidation) of price.

<img border=5 width=560 height=650 src="http://www.shadowtrader.net/focus_report_charts2008/080924BIX.gif">

Is this enough to shake the bears off today? Hard to say, definitively. The problem remains the markets heightened sensitivity to news coming out of Washington lately. If the bailout plan gets the green light then expect some reaction by buyers. If we continue onward with no answer from the Hill, then we could easily retest prior swing lows whereupon we will be monitoring internals closely to see if there is a shot at a double bottom there or if momentum appears to be leading us much lower. Outlook remains extrememly short term here as bias changes on a dime and volatility remains large. Be cool, don't overplay your hand. A better market will eventualy get here and we shall be ready for it.
 
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