Wednesday, July 16, 2008

Big Rally in Stocks, but...

The U.S. Stock Market enjoyed a sizable rally today, with the major averages up anywhere from 2.5% to over 3%. This should be the start of at least a short term move to the upside, and maybe something more significant. However, today’s rally occurred with a decline in volume compared to yesterday, not a good sign of conviction. If this is to turn into at least an intermediate term rally, we need to see a follow through day within the next week. This means a day with gains similar to today, but hopefully on higher volume.

The news of the day was that Wells Fargo reported better than expected earnings and that got the market started, in spite of a nasty CPI inflation report. Then, Crude Oil provided the boost for the rest of the day, as it plunged another $4 per barrell today. It broke initial support at $136, but $131 is the key level to watch, as many commodity funds will have sell orders triggered on a break below that level.

Good Trading!

Scott Cole
www.bestdaytradingstocks.com
www.kungfutrader.com

Tuesday, July 15, 2008

Roller Coaster Day for Stocks

Most traders were property just about sick to their stomachs by the close of trading today after a roller coaster ride of a day in the stock market! The market was set to open lower, and the Dow Jones was down about 100 points within a few minutes. Fed Chairman Bernanke’s comments then sent the market lower, but Treasury Secretary Paulson’s comments indicating that the Treasury should have unlimited funds to help support Fannie Mae and Freddie Mac, along with a plunging crude oil market, helped the stock market erase a 200 plus point loss in the Dow. The Dow was looking like it might end up with triple digit gains, but the rally evaporated in the last hour, and it ended down nearly 1%. The result was a mixed market, with the Nasdaq up slightly, and the S&P 500 and Dow Transports down over 1%.

On a positive contrarian note, the VIX pushed above 30 today, before closing at about 28.5. This indicates that there is beginning to be more fear in the market, which will need to set an intermediate type of bottom.

Crude Oil was off over $6.00 per barrel today, and nearby support for many trend followers is at about the $136 level on the August Contract, which will be expiring soon. Significant moving average support is at this level as well. A break below this level, and then below $130 could finally lead to a significant break in this market. On Wednesday, all eyes will be on the supply report at 10:30 AM.

The Dollar tested its multi-month lows, before rebounding to close nearly unchanged on the day. Treasury futures closed in positive territory, but a bit off their high prices for the day.

Good Trading!

Scott Cole
www.bestdaytradingstocks.com
www.kungfutrader.com

Monday, July 14, 2008

Bear Market Rolls on, Pessimism on the Rise

As expected, the stock market got a boost from Sunday’s news that the government would take steps to aid ailing mortgage backers Fannie Mae and Freddie Mac. Unfortunately, the opening pop fizzled quickly and the market trended down the rest of the day. Pessimism is clearly the order of the day at present with the S&P 500 and Dow Jones Industrial Average continuing to extend its bear market lows on a daily basis it seems. Today, however, the Russell 2000 was the leader to the downside, down over 1.5%.

One good sign for the market is that there are very few bulls to be found, with sentiment very weak. The VIX is now starting to approach 30, closing over 28 today. The March high was over 35 and the January high was over 37, intraday. The higher the figure, the more likely a bottom is near.

There has also been a noticeable increase in daily volatility, but the average daily price range is still well below those seen at the March and January bottoms. Current volatility is nowhere near the levels seen at the bottom of the 2001-03, and not even at the levels seen at the 1998 bottom.

With all this in mind, the market is clearly due for a bounce, but it is apparent that there is no sign of a Bear Market Bottom yet. We may get a rally soon from the current lows, but it likely will not be the Bear Market bottom. Bear Markets rarely die with a whimper.

Some of the recent energy and agricultural related stocks such as ANR, WLT, MEE and others are starting to rally again, and may test their recent highs. Be careful with these stocks as their recent sell-offs indicated clear distribution. If you did not sell at or near the recent highs, this is likely your second and last opportunity to sell these stocks.

As far as daytrading is concerned, the best money is still being made on the short side, and the swing trades to the downside have been amazing. LEH comes to mind in this regard.

Good Trading!

Scott Cole
www.bestdaytradingstocks.com
www.kungfutrader.com

Sunday, July 13, 2008

Weekly Stock Market Recap

The Dow Jones closed down for the sixth consecutive week, ending with another solid decline on Friday. The S&P 500 had the worst week among the major averages, due to its heavy weighting with financial stocks, which lead the market lower. Otherwise, the Nasdaq and ND100 had minor losses for the week, while the Russell 2000 and even the Dow Transports closed up for the week. There clearly appears to be cash flowing into some techs and small cap stocks.

Stocks were spooked primarily on Friday by rumors that Fannie Mae and Freddie Mac would be allowed by the Federal Reserve and Treasury to fail, which would worsen the residential real estate crisis. This sent the market into a tailspin. Later in the day, it was rumored that the Federal Reserve would open the discount window to both companies, but then that was denied after the markets closed. Stocks closed well off of the lows Friday. Sunday, it was officially announced that the discount window would indeed be open to both companies, and Treasury Secretary Paulson indicated that the government would extend its line of credit to both companies as well.

Further pressure was put on the stock market this week by a big two-day rally in Crude Oil, which pushed to new all time highs, before pulling back a bit on Friday. Dollar weakness all week also did not help the market. The Dollar pushed to new two-month lows on Friday, and is just over 1% above its 40 year lows seen in April. With all this turmoil in the markets on Friday, even Treasuries took a big hit, wiping out its rally of the previous four days. The 10 Year Note experienced its biggest one day decline in months.

Based on today’s news regarding Fannie Mae and Freddie Mac, it would be no surprise to some sort of rally early on Monday. Whether this leads to something more significant, only time will tell.


Good Trading!

Scott Cole

www.bestdaytradingstocks.com
www.kungfutrader.com

Tuesday, July 1, 2008

Stocks Open Weak, Close Strong

The U.S. stock market opened significantly weaker today after weakness in global markets over night, only to rally in the last couple of hours after General Motors reported that sales in June were down only 8% vs. an expected decline of 19%. After the automaker reported sales, the stock market took off, lead by the tech stocks, particularly Apple, which closed up over $7 on the day.

The market was also aided by Crude Oil failing to hold its earlier gains. After testing new all time highs again today, Crude actually closed slightly lower. However, Wednesday is a new day, and the weekly supply report will be reported as usual at 10:30 am ET.

The market was certainly due for a bounce today and was looking for any excuse to rally. Furthermore, the beginning of the month and the beginning of a new quarter are typically seasonally favorable times for the market to rally due to new investment inflows to mutual funds. Also, the few days before a holiday also tend to be favorable to the market. With these conditions in place, and likely low volume, it would not be surprising to see a sizable move up in the next couple of days.

With this in mind, the likely bias over the next couple of days should be to the upside, so look for some stocks due for a nice bounce!

Good Trading!

Scott Cole
www.bestdaytradingstocks.com
www.kungfutrader.com