Market Commentary for May 31, 2012

The U.S. stock indices had a brutal day to the downside on Wednesday with the S&P 500 finishing down 19 points (-1.43%) to close at 1313.32.  This decline wiped out the entire gains of Tuesday when U.S. markets rallied strong coming off the Memorial holiday weekend.

As I mentioned on Tuesday, with the jobs report coming out tomorrow, sovereign debt woes from Greece and Spain dominating the news, and with the S&P 500 sitting inside a bear flag, this is a week for short term trades only.  It's not a time to put on big directional bets.

From Tuesday's setups list,  ARNA triggered over $6.09 from the tiny cup with handle formation.  That position was exited yesterday for a 4% gain, although it finished the day strong, so I may reenter today for a day trade.  The stock is jumpy, trades very active, and has a decision pending for an obesity drug from the FDA in mid June.

Yesterday after early morning weakness, gold reversed back up.  I took NUGT at $10.28 and still have that position.  Gold recently bounced off support in the 1525 area, and short term I think it can get back to the mid 1600s as there's a lot of bearish sentiment.

                         Click on charts to enlarge:

Market Commentary & Setups for Tuesday, May 29, 2012

Friday's action didn't really tell us much given the holiday induced lower trading volume.  That said, there still were some trading opportunities that happened early in the trading day.  

Last Friday I took a trade in PACB and had a 6% gain by midday, but for some inexplicable reason (stupidity and greed) opted to hold for further gains, and ended up selling it flat.  With the market trying to regain its footing after a tough month of May, it's best to book gains quickly on those lower priced speculative stocks. 

With the jobs report due out on Friday morning, my strategy will be to refrain from making sizable longer term commitments until those numbers are released.  After last month's weaker than expected number, we're at an important juncture as to whether we'll see a bounce back in job creation, or another month of weakness that could signal further action by the Fed on a new round of QE.

This week I'll be looking to make some quick trades on bounce plays from oversold conditions, and go into Friday mostly in cash.  The encouraging thing is that the presidential election year cycle points to strength after the summer doldrums, and some of the longer term charts are setting up in accumulation patterns.

The charts below are separated into 4 speculative, short term trades, and then a few more that have better fundamentals and are setting up in more sound, longer term bases.

As ALWAYS, use stop losses to limit potential losses.  Click on charts to enlarge view.

                           Short term speculative plays:

                               

                                      Longer term setups:

Some Encouraging Action

It's been nearly 2 months since my last blog entry back on April 2.  Little did I know that a statement made in that post would prove to be so prescient.  The broad market indices had a banner performance in the 1st quarter boasting the best performance in 14 years.  Many bloggers and market commentators were opining on what the remainder of the year would bring.  

Here's an excerpt from that April 2 entry:

"There are a lot of blogs stating how historically after a big 1st quarter, the full year performance tends to continue.  And while that's certainly possible, it doesn't preclude weakness setting in for several months in the middle part of the year."

Since then, the S&P 500 has undergone a 9% pull back from the April 2 intraday high of 1422, to the intraday low of 1292 set last Friday.  Many sectors have performed far worse, with the precious metals and basic materials sectors particularly hard hit.

The market has absorbed a tremendous amount of negative news in the last few weeks from the news of JP Morgan's CIO high stakes trade blowup, to continued sovereign debt problems in the Euro zone.  And while viewing a chart of the S&P 500, the topping pattern lasted only about 10 weeks.  

Most larger declines originate from longer and broader topping patterns such as occurred in 2011, when the head and shoulders pattern lasted 25-26 weeks which set up the 21% decline in the SPX.  

So I'm inclined to think this current correction could come to an end in the next short period of time; or at least we'll stop declining and possibly tread sideways for awhile.  That type of action would allow stocks to repair their charts and setup for a renewed advance.

Here are a few stocks that jumped out in my scans after yesterday's close.

ALWAYS use stops to protect from huge losses.

 

Some others of note:  ATHN, TRIP, EXPE, SSI, LL, FIRE