The S&P 500 is now over 4% off the lows from oversold conditions. 40% of this entire move came on today’s surge as the dollar plunged over 1% versus the euro. The thrills occurred DESPITE poor news flow from the Greek sovereign debt drama: for example, imminent strikes to protest austerity measures and German hesitancy to use its hard-earned savings for a bailout. In these cases, technicals tell us more than enough to explain the short-term move: buyers rushed in because the sellers over-reached.
The “easy” part is now behind us. Trader Mike demonstrates that the major indices are reaching into overbought territory and are facing immediate overhead resistance. It is under these conditions when bad news suddenly matters, motivates the sellers anew, and quiets talk about climbing a wall of worry (until the market moves up again of course).
Although this is an options expiration week, I would not be surprised if the market experiences very little downside pressure from here to the end of the week – unless some extremely bad news flow hits the street. The selling almost two weeks ago drove a spike in put accumulation, so protected longs should get milked as far as possible. The real test will come next Monday when this protection disappears.
Now a quick review of recent posts on specific trades, most proposed to take advantage of oversold levels:
- U.S. Steel (X) and Nucor (NUE): As projected, X is finally reaching for its 50-day moving average (DMA) and is now a short-term sell (stochastics also getting overbought). NUE bounced yet again from the bottom of its trading range. Resistance at the 50 and 200DMAs are directly overhead. I have not yet decided how much longer to hold.
- Fastenal (FAST): churn and more churn and back to where I mentioned the trade. I am looking to unload this position this week.
- QUALCOMM (QCOM): The bounce from the bottom has now lost steam with today’s relative under-performance (0.5% gain vs 1.4% for the NASDAQ). Time may be running out well ahead of “schedule.”
- Solar stocks: solar stocks were generally able to ride the coattails of the market’s buying fervor. TAN was up a nice 4.8%. The bottom of the months long trading range now looks solid for one more rally (which I still expect to be the last before this trading range finally breaks down).
- Research In Motion (RIMM): Relative strength came to an abrupt end right at resistance of $72. The stock even closed down on the day. I used this as an opportunity to buy (with put protection) in anticipation of an eventual breakout.
- Financials: Saved from the edge of a major technical breakdown. Just like the major indices, stochastics are reaching overbought levels and major resistance remains overhead.
- Toyota (TM): trading volume remains high. The stock closed down for the first time in five days and looks to go lower as stochastics are now overbought and news flow continues to worsen a bit.
Be careful out there!
Full disclosure: long X, NUE, QCOM, FAST, RIMM (hedged), SKF calls, various solar stocks (FSLR, SPWRa, and TSL), TM puts.