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Weekly Wizards

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Caution Regarding S&P

Wed, Oct 28 2009, 06:28 GMT
by Mike Paulenoff, Jack Steiman, Harry Boxer

AdviceTrade.com

Harry Boxer, On Long & Short Charts to Watch (TheTechTrader.com)

We're experiencing a volatile market here, and both longs and shorts are possibilities, so today we're going to give you ideas on both sides.

The flu-related stocks certainly had some relative strength on Monday in the face of an adverse market. A view of the chart on Biocryst Pharmaceuticals (BCRX) shows it had been bouncing along the bottom of its rising channel for awhile. It tried to create a mini base in early October, moved up steadily, found resistance over the previous five sessions at the 50-day moving averages and lateral price resistance, but it gapped up through that Monday on very heavy volume, closing with a gain of 1.28 or 13% on 12.4 million. That's the heaviest volume in a few months. The stock also broke the declining tops line, breaking three key resistance levels in an adverse market. The stock next faces resistance in the 13-13.10 area.

Protalix BioTherapeutic, Inc. (PLX) was another strong relative performer Monday, up 1.22 or 14 1/2% on nearly 1.5 million shares traded. This Israeli biotech firm made a new closing high, trading slighter higher in the aftermarket, and could extend. The top of the channel reads somewhere around 12 1/2-13. So there's a definite possibility of higher prices there.

Alpha Pro Tech Ltd. (APT) had a mid-day dip on Monday but came back by about 43 cents in the last hour, managing to close with a gain on the day. Volume increased for the sixth consecutive day as did the OBV and Money Stream. This is a stock that is acting well, and with what could be blowout earnings coming out, I expect this one to make some further progress, even as high as maybe 10-plus.

Sinivac Biotech (SVA) had not been acting as well, but has been acting better these days. Over the last month it's been attempting a base, holding the moving averages, retesting and holding the trendline. It was up 57 cents Monday on 3.3 million or almost 8 %. Still needs to get over 8.55 with volume. That could occur as soon as Tuesday. We'll have to see how that goes, but its worth keeping an eye on.

LJ international Inc. (JADE) came out of that rising flag-type of a pennant pattern on Monday. Just 12 cents, it traded 1 million shares, the best volume in about 7 or 8 days. Let's see if we get a follow through on that one but certainly in the confines of a strong rising channel whose top of the channel measures 6-ish.

On the short side, Rovi Corporation (ROVI) broke a key rising channel on heavy volume to the downside over the course of the last several sessions. It's forming a mini-bear flag, called a descending wedge. Looks like we could get some movement into the low 20s with this one.

Other stocks on the short side that we review in our video are CCL, MON, CMG, PSYS and VMI, as well as some of the ultrashort ETFs.

Jack Steiman, On the Good Times Possibly Over  (SwingTradeOnline.com)

The bank stocks broke down Monday and that's a huge negative for the market. In addition, on some earnings reports, we are losing some stocks that were helping to keep this market up. For those of you who wonder why I don't hold stocks in to earnings reports, Baidu, Inc. (BIDU), is down $58 after hours. Yes, I said that right, $58!!!! How is that for pain. This is a take the gains and run market. Never hold on to earnings. We have lost some big wigs such as Research In Motion Limited (RIMM), Union Pacific Corp (UNP), Burlington Northern Sante Fe Corp. (BNI), and Baidu, Inc. (BIDU) to name a few. When the banks break it can't be good news for the S&P 500 thus the loss of 1074 today seems like one that should last for some time. With the dollar looking to rally now, we should expect the whole market to struggle a bit more. Just not a great time to be in stocks.

9653 Dow, 1046 S&P 500 and 2082 Nasdaq are the numbers for the 50-day exponential moving average. If the indexes lose those levels, we basically switch from bull to bear market. We aren't there and if we get there, and there's a good chance we will, those levels should provide, at the very least, a bounce. This is test number two, however, so the bounce isn't guaranteed to be nearly the magnitude the first bounce was. If it's weak and labored then we have to start raising those red flags very high that the good times may be basically over for quite some time. Resistance at 1101 S&P 500 should not be seen for quite some time.

We still have strong negative divergences. One peek at the Dow daily chart and you can see four consecutive highs in price and four consecutive lower MACD's. The piper may be coming to collect. You have to pay sooner or later. No guarantee's but that time seems to be upon us. The process isn't going to be super fast so don't expect a market crash. Its slow step by slow step but strength now seems like a good shorting situation. With the oscillators still high on those daily charts in conjunction with those negative divergences, we should see all rallies die off pretty fast for now.

Mike Paulenoff, On Caution Regarding S&P (MPTrader.com)

Last night we discussed with subscribers the importance of the 1066.50 area in the S&P 500 emini chart largely because it represents the rising 20 DMA, which also is the mid-point of the normalized Bollinger Band line. We determined that the ability for the S&P to hold and rally off the 20 DMA would be a very constructive sign, while a sustained break would point the price structure towards a test of the lower Bollinger Band, in the vicinity of 1025/20 next.

Tuesday morning the price structure was dancing right at the critical level. One piece of evidence leaning toward weakness was the 4-hour RSI gauge, which established its low at the same time the price hit its low late Monday. For a price low to take hold, the RSI usually puts in a series of higher lows, or positive divergences, prior to a sustainable upside reversal. Thus far, we do not have such a series, which warns us to be very careful when tempted to re-enter a new long position in the ETFs that track the S&P indices relatively closely.

As for the S&P 500 emini, if the index does roll over into new low ground, the next near-term target zones are 1055, 1045 and then towards a test of the Aug-Oct support line, in the vicinity of 1035/30.

Published on  Thu, Oct 29 2009, 11:57 GMT