After Market Close June 3, 2008

Look Lower, but Get Ready

If my read is right, we've got a bit more work to do to complete this correction (if this is just a correction). Soon, however, we should see a surprisingly strong reversal higher. The Dow is a sticking point, but so far, everything else is looking pretty good.

DJIA: The Dow could still be in a correction, but it's also possible that there's a larger decline afoot in this part of the market.


SPX:  The S&P bounced hard yesterday, but I think it was early.


NDX: The Nasdaq is breaking up the channel but it's not acting all that bad. Still, we may have to take out the 1945 area before we come on.


RUT: The Russell too is breaking up the trend line, but the rebound implies sub-surface strength.


HUI: The miners look to need more correction. Maybe an ugly day or two ahead, then a rally is my guess.


RTH: The retailers are holding well still.


PPH: The Pharms are building energy for a move.


SJM: Smuckers keeps giving the shorts the "jam-job". Heh-heh.


PLT: Plantronics may be suffering from "sellers' fatigue".


EPIQ: Epiq got whacked but it came back. It nearly got us. This still has promise.


KG: King was down, but we've got some support.


PALM: That spike in PALM looks like a spent move to me. Is there more upside? Probably, but there's also a good chance of some give back here. I say, make them prove the rally with immediate strength. Snug the stop.


ORI: Old Republic shouldn't be so strong, so it's likely heading higher.


FRE: Freddie Mac also "should" be going down, right? Maybe there's better news afoot?


LAMR: Lamar was down but it's above support.


VCLK: Valueclick bounced smartly off support. That's Bullish.


MFLX: Multi Fineline bounced smartly off support, showing great relatives strength and broke the trend line. We want to buy followthrough.


GRO: Boy, sometimes I wish we are less risk averse.


PSS: Collective Brands looks like it's in a good pattern. Good RS, too.


APKT: Acme Packet was down but not much.


ABCO: Advisory Board looks poised for a run at 55 ish.


GFF: Griffon also looks like a classic Buy. It's got volatility.


Summary:

This action looks corrective and if I'm right, they ought to take the market down today, just enough to make the Bears feel confident, then reverse it hard and fast. Now, even a pretty large decline today would not be inconsistent with the correction scenario. Be prepared. Breadth has been holding well and that's usually a sign that the selling isn't for real.

Be Well, and Trade Smarter Than the Average Bear!
-The ChartSmarts Team


Current Positions:

Long 50% SJM at 50.81, stop at 52.11

Short PLT at 23.81, stop at 24.87. Target 21.28

Long 50% EPIQ at 15.83, stop at 15.83

Long 25% KG at 10.08, stop at 9.59

Long 25% PALM at 6.02, stop at 6.41

Watch List:

ORI: Buy 50% on a print of 15.17, stop at 14.61

FRE: Buy 25% on a print of 26.39, stop at 24.23

VCLK: Buy 25% on a print of 20.47, stop at 18.83

MFLX: Buy 25% on a print of 20.69, stop at 19.03

PSS: Buy 25% on a print of 11.64, stop at 10.71

APKT: Buy 25% on a print of 9.41, stop at 8.77

ABCO: Buy 25% on a print of 47.21, stop at 43.73

GFF: Buy 25% on a print of 9.53, stop at 8.76

Changes in Current Positions:

Move the stop up on SJM to 52.11

Move the stop up on PALM to 6.41


*30 Minute Trading Rule:

In order to prevent whipsaws, we use a 30 minute trading rule. This means that, as a general rule, we are going to "sit on our hands" during the first 30 minutes of trading,   this includes the lifting of stops during this 30 minute period as well. Additionally, if after the first 30 minutes of trading the range of the stock pick is within the stop and buy/short boundaries presented, the trade recommendation is valid. If the stock's range is outside of the buy/short and stop boundary, the trade recommendation is VOID. E.g. if the recommendation is "Buy a print of 10.25, with a stop of 9.95," and the stop trades up to 10.50 during the first 30 minutes, we would pass on the trade. Similarly, if that stock were to trade down to 9.90 before 10:00, the trade would also be void.

There is no 30mn rule on limit orders, but if price gaps out of the buy/stop range the trade is void.

Rule on stops:

As a general rule for the model portfolio, we will lift all stops on existing positions for the first 30 minutes of trading. As a practical matter, subscribers may wish to leave their stops in place if they expect to be incommunicado or unavailable during that time to monitor positions.
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