Good evening everyone. Hope you had a safe weekend and are well rested for the shortened trading week. We find ourselves opening the week from a long downtrend that continued all of last week. Every day last week was lower than the previous. This is not a good sign at all.
Last week, we broke technical support at 1040, in the S&P 500. The next true support level is 980, which is still a ways to fall. However, this downtrend has made us ripe for an oversold bounce, technically speaking of course. In the same breath, we have been looking for a bounce for a few days now, yet never received one. The good news is we are typically strong the day after the 4th of July holiday weekend. I am hoping the well rested bulls can get us started Tuesday morning and push us over the 1040 mark. If I was forced to bet on it, I definitely feel we will have some better action from the bulls this week.
FREE LEVEL 2 QUOTES WHILE YOU TRADE
This is not to say one should start buying up any stocks recklessly. You must be selective in your approach as the larger picture is still a serious downtrend, with no reason to think we will turn around anytime soon. Embrace the bounces on the way down but realize they are likely to be short-lived so take profits and protect your capital.
My current focus is energy, as a hot summer with disruptive hurricanes is typically beneficial to many energy stocks. Now that we have a recent selloff in energy pricing, I am slowly adding some positions such as Kodiak Oil (KOG), in anticipation we will start to see some strength soon. The good news is energy is a sector which can lead the market up. When energy does well, the market itself tends to move fairly well.
Another stock I am successfully trading at the moment is Orient Paper (ONP). ONP was recently a victim to a combination of panic selling and shorting when a bogus report was publicized. Now that the news seems to have been cleared up, ONP has rallied. I am currently trading around the volatility while keeping a core position. ONP was $8.33 before the panic sell therefore, I expect us to be near that price by sometime this week, barring a further selloff in the markets.
Outside of that, I am still in a high amount of cash with some other small trading positions. I am waiting for the market to give us a clear direction, whether bullish or bearish, before I commit more capital. If we are bullish, I have a watch list to trade long with. If we go bearish, I have some ETF’s on my watch list which short specific sectors. Either way, we can make money. All we need is a clear direction. When the market trades sideways, it is very complex to make money. If you can not figure this market out, it would be wise to stay on the sidelines until you can.
As always, do your own homework to see if you agree and I will see you in the morning. Good luck out there.
Mike
At the time of publication, Kudrna was Long KOG and ONP but positions may change at any time.
