7/29 - Market Analysis

huge move up in the SPX today but with slightly lower than average volume and oscillators still bearish, i, myself remain bearish. but more cautious on the short-side especially as price was unable to close below the 61.8 retracement:




USO moved lower and closed at its lowest price since early may. but i feel this is more a headfake than a start of a huge leg down. still sidelined when it comes to my oil trade:



financials were strong...mainly in MER though...the damage to the downtrend is not broken but fibonacci support might turn out to be stronger than i originally thought. but still, overall i am bearish on this sector:


Game Plan: I am still very much liking today as a good time to short stocks than to buy longs. In fact, i was damn close to opening another short position on the financials at the last hour of trading but decided not to. As the week is superwhipsawing, i felt it best to see confirmation of lower 30" candles before buying. So if i see them tomorrow, i might step up and buy another short position. One thing i found fascinating is the comparison between the USO chart and SPX. Weird how USO has fallen so much yet SPX has only risen so little. Take a look at early May in SPX when USO was back at this price, SPX was way higher than it is now. Which means that we either have much bigger problems to fix than just oil, or that an oversold rally back to the 1400 area (area when USO was around 100) is in store as value investors must feel that the markets must be way oversold when compared to the price of oil.

Bottom Line: Overall, the downtrend is very much in tact. I wanted to drop a few names from the conviction buy and sell lists, but after doing a scan of a few charts, i realized that nothing has been damaged in terms of the daily chart of the stocks. I can't even find any new longs, except for MER which made a strong case for a double bottom with today's huge capitualation-like volume. Today might very well be a sucker rally brought on by buying for window dressing. Hard to believe today's huge day up fundamentally as MER had the only moderately big news of the day. But in terms of news, it was merely a yawn. Tomorrow we will get a better picture....

*edit...i decided to drop a few names as a way to condense the watch list into only the best trades i see, but because i changed my stance on the stocks (MER is the only exception)

Conviction Buy List:

oversold big cap tech - aapl, goog
agriculture - agu, mos, sqm
pharmaeuticals - jnj, amgn
USO
MER

Conviction Sell List:

exchanges - nyx, ice, ndaq
retailers - nile, hd, low, bare
financials - xlf, lm, leh, ms, wb, aig, ibn
gaming - mgm, lvs, wynn
UNH
FDX