Trader Mike

There was a whole lot of technical damage done on Thursday and Friday. Those days also provided some great trades if you were willing to go short. I think I get some kind of perverse pleasure out of shorting. I almost never look to buy stocks that are in extended slides but put a chart of a parabolic rally in front of me and I’m watching like a hawk for a chance to short it. The metals stocks provided some nice trades and I’ll continue to watch them for entries after they retrace a bit.

Here’s the Nasdaq which was down 4.22% this week. I guess I wasn’t so far off yesterday when I said it was headed for its 200-day moving average. My guess is that the Nasdaq will hit that moving average early next week and then snap back. But I sure wouldn’t be initiating any shorts after a 4% drop and with it being so close to the 200 DMA. I’d look to reload on shorts once it gets out of oversold territory.

The Nasdaq 100 (NDX / QQQQ) entered official bear territory today by dropping under its 200-day moving average. The index is now down 0.54% for 2006. That’s not surprising given all those big cap tech laggards. Here’s the chart:

Henry wanted a chart of Whole Foods:

What do you think of WFMI? I see some divergences in the MACD, Force Index, and Elder Ray indicators. They all have an upwards slope making higher lows while WFMI is making lower lows. It recently also bounced off support in the 61.50 area. You think its a good bet for a bullish reversal?

I don’t use any of those indicators but if those have worked for you in the past and you see so many bullish divergences then the course of action seems clear to me — “buy, buy, buy” as Cramer would say.

However, based on my rules and what I see in the chart I would not be looking to buy WFMI just yet. I’d like to see it back above its 200-day moving average before I even thought about buying it. I’d also like to see it make at least one higher-high — right now that means above the February 16th high. I always want to look at price itself before any indicators that are derived from price.

Here’s the chart:

I just ran though my scans and didn’t see as many interesting charts as I thought I would. I’ve added quite a few to both my long and short watchilists. Since most stocks still haven’t reported earnings I don’t want to comment on them. But here are a few charts that I thought were worth noting:

First, I got this email from Paul about my earlier comments about Yahoo:

I noticed on your site you think YHOO will be a good short candidate if it reaches it’s 200 day MA. What leads you to that conclusion?

I’ve noticed that when RSI indicates YHOO is oversold, it tends to resume it’s uptrend. However, now that I look at the 200 day after the last major gapdown (July), it took two months to break the 200 day. So I’ve got some conflicting signals here.

I said I’d be looking to short it on a weak bounce near the 200-day moving average. What I mean by a weak bounce is a low volume bounce and/or if I see bearish candlesticks forming at or near the 200 DMA. You can see on the chart how formidable the 200 DMA was a few months back. My logic is simply trading with the long term trend — the stock is under the 200 day moving average, therefore the long term trend is down. I like to enter shorts near resistance, which the 200 DMA should be. If I see YHOO struggling near some other, lower resistance I’d try to short it there as well.

Next up is the Banking Index (BKX) which just completed a triple (quadruple?) top: