Dorm Room Daytrader

April 13, 2008

GE falls and brings the market down with it.

Filed under: Trading — naufal @ 2:37 am
Tags: , , , , , , ,

General Electric (GE)’s horrid earnings release and forecast has brought back recession worries into investors’ minds. Standing firm to expected numbers only a week ago, the GE surprise characterizes the consumer spending problem in the United States and the effect the housing bubble has had on financials.

On a technical level, the market is moving exactly as I forecasted it to. Looking at the SPDR ETF (SPY), it is bouncing off of long term resistance, retracing to the trendline support. If it breaks this support, it should head down to long term support near the March lows. If it bounces off of the trendline, it should continue back up to test the long term resistance, and we’ll see if a breakout occurs. With volume increasing as the price falls, and money flow indicating increasing distribution, there’s a good chance it will break down through the trendline support and head back down toward March lows. If this happens, this retracement should be a prime candidate for a true “bottom,” setting up a bullish reversal, finally.

Here is today’s SPY chart:

Again, whether the market is short-term bullish or bearish depends on how it acts around the trendline support, but I am looking for bearish stocks for Monday specifically.

Walgreens (WAG) is breaking down below its 50 DMA, as well as its support trendline, on high volume. The stock has been retracing from its channel resistance trendline to its support, but volume has been increasing with the falling price. This is a marked difference from the previous two times the stock dipped below the 50 DMA. Cut your loss just above the 50 DMA if the stock does not move downward immediately.

Blackrock Muni Intermediate Fund (MUI) has been testing resistance around 13.50 since February. The price has been hovering around that level in recent weeks, with no breakouts on high volume, with no indication of accumulation. This consolidation comes after a huge price spike, characterized by overall distribution and low volume surges, suggesting a correction is on the way, especially if the overall market trend is bearish. Cut your losses just above the resistance line if it surges on high volume.

CIGNA (CI) has been trending upwards in recent weeks. This price surge has been on low volume and increasing distribution, however. The price is right on its support trendline, and I’m looking for it to break down on its support. Cut your losses at the resistance trendline if the stock does not move downward immediately.

Valhi (VHI) has also been trending upward with increasing distribution. The stock just broke a support trendline, but on low volume. Volume has been following the uptrend, as well, so whether or not this is truly a reversal has yet to be seen. Trade this stock with caution, and cut your losses just above the support trendline.

Kindred Health Cared (KND) just suffered a bearish 50/200 DMA “death cross.” At the same time, price broke a short term support trendline. All of this occurred on high volume, as the recent price fall is characterized by increasing volume. Cut your losses at the 200 DMA.

Good luck trading.

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