Saturday, July 15, 2006


Bears have either ceded some of their advantage, or are just toying with the bulls as another day of losses was greeted with somewhat tepid volume. Either that or the bulls are been very stubborn about selling. It could have been a day for traders and investors to hit the panic button as we head into the weekend on the back of escalating trouble in the Middle East - but in the end, nothing really changed.

Yes, the tech indices made new lows - but this happened earlier in the week. Yes, large caps made it all the way back to June lows - but then managed to find the will to bounce. Yes, the semiconductor index is a mess - but it has avoided the bulk of the selling over the past three days (although it probably has more to do with the other indices catching up to it).

But what really got my attention was the strong end-of-day action from my Trade-Ideas scan. The last couple of days have been like squeezing blood from a stone, but today there was a handy clip of stocks in the last hour of trading - the 8 stocks listed at the end of this post covered 5 minutes of the software's time. Not bad for a market which has shed some 3% over the last three days and 7% for the month of July.

The Blogger Sentiment Index has it relatively evenly matched on the bull/bear front with the bulk of bloggers undecided. But shorts would have to be more nervy of their positions given the oversold state of the internals. If you wanted to be short, the time to have considered it was back in February.

My comments were far from perfect (the top came much later and could last a lot longer than "5-7 months"), but it was a reasonable assumption to think the rally was toast at that time.

Now, I am swimming against top dog opinion on this one and I could be left eating humble pie. On June 1st I had this to say:

I am not buying this negativity, it looks premature to be throwing in the towel at this stage. Other than the Tech averages the remaining indices have yet to confirm a lower high and lower low. Secondary tech indicators [$NASI, $NAA50 and $BPCOMPQ] are closer to oversold than overbought and my historical performance for markets at this stage have favored bullish positions.

Markets are down a big chunk (>10%) since June 1st although my Collective2 portfolio has managed to cling to +$651 gains (<1%) for this period. I am still hanging (clinging!) to a bullish scenario. Only when market internals get back to overbought levels will it be appropiate to consider the return of the secular bear market (i.e. will markets put new higher highs or lower highs to that from May 2006).

Anything else is fear talking.

Back to the original purpose of this post. Below are the 8 stocks from the scan. Most frequent appearance on the scan went to SBSI (twice), all other stocks appeared only once.

Favorite stock on the list would be Archer-Daniels-Midland (ADM). Conusmer staple stocks should lead out from the bottom and this stock is nicely positioned at the 50-day MA. Stops can go on a loss of $40.90, or use a fixed % to give the trade more room. Watch for break of $46 resistance on volume between 10-15m. Point-n-figure target of $57 looks reasonable at this juncture.

If you would like to try a full version of the Trade-Ideas software, follow this link for a free 7-day trial.