Wednesday, September 10, 2008

Commodity Trades and Last Night's Game Plan from the Trade Report

Commodities are bouncing off of yesterday's lows. I entered three trades on weakness today. I bought:

100 shares of POT at $139.22
150 DIG at $63.85
100 X at $96.36

My strategy going into the trading day was to only buy when the stocks were in the red. I don't want to chase the bounces, especially when they may be short lived. However, X is my favorite bounce play and has been showing good strength, so rather than wait for it to get in the red, I bought the morning dip close to the gap level.

Bounce trades can turn on a dime, so I am keeping stops tight and won't hesitate to take small losses.

Here is what I sent to Trade Report subscribers last night:
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September 10, 2008

A few of you have asked why I have not included my usual "market notes" section in this week's reports. Simply put, I am not trading the indexes, so there's no point. Until I receive a better clue from the market, I am going to stick with my trading themes and eschew the broader market.

Trading Themes

Commodity bounce
I was stopped out of my three commodity bounce positions for two small losses (X and NOV) and one overall gain (POT). Since getting stopped out early in the morning, almost all commodity stocks took a big dip lower. Thus, I am looking to enter again using the "rubber band" bounce setup.

Here are a few things to note in almost all commodity stocks.

1. Volume was huge today--this could act as short term capitulation.
2. Stochastics are more oversold than ever.
3. Prices have gradually lowered over the last few weeks, and today made a huge move down. This could act as short term price capitulation

I am hoping we get some weakness tomorrow. If we do, i will enter one or two positions with a positions 1/2 to 3/4 my normal size. If these stocks open higher, I may still enter, but with a 1/4 position size.

All of the commodity stocks are showing similar setups. Here are a few charts. In each chart, make note of price, volume and support levels. All match points 1-3 that I noted above. I have included EWZ with the commodity charts.

Steel Bounce Play


Ag Bounce Play


Coal-Gas Bounce Play


Energy-Drilling-Refining


Brazil is very dependent on commodities. The Brazilian ETF EWZ reflect this and also presents a good bounce setup



Retail and Other Strong Stocks

Retail dipped today, but we still need more of a pullback for entry. Here are possible entry points for retail and strong stocks on the focus list. Remember that pullbacks must be on low volume and with orderly price movements--not big down moves to support levels.

KSS: $50
DKS: $22
ARO: $34
BKE: $54
URBN: $35
MDVN: $30
ZLC: $26
FSYS: $46
CRY: $15-15.25

Financial and Semi Conductor themes:
The other two main trading themes for the week, financials and semis, will continue to be monitored. However, I don't foresee entering either tomorrow. Semis need a significant bounce for short entry.

While financials did pull back today, it was not the kind of orderly pullback I look for when buying a dip. I still will keep an eye on the banks and UYG tomorrow. I did make a very small entry in UYG today. Very small.

1 comment:

Chris said...

This market is nasty. The commodity stocks you point out had a little bounce yesterday but are down again today. The selling seems indiscrimanate. I have only been studying the market for about 8 year so I lived through the tech bust. The volatility of this market is amazing compared to the tech bust. These commodities names have been destroyed 20% in less than a week on top of the previous declines. Hard to play this market and you are absolutely correct abtou VERY tight stops.