Stock Trading: The Struggle Continues

In the last two weeks, the stock market has transitioned from a steep decline to a situation of two-sided, volatile trading. There are clearly buyers interested at this level. However, up until now, the sellers have retained the upper hand, perhaps due to a prevailing sense of fear and insecurity, or maybe due to forced selling. In the premarket this morning, we have a likely gap higher on the heels of a big day in overseas markets. Looking at the SPY chart, we can see that price is sitting at the prior low. If we can rally off of this level on high volume, we have a good chance for a sustained move higher.

I am still in day-trading mode, and nearly all in cash overnight. At the same time, when asked by friends and family, I have been supportive of getting back into the market on a small scale. As I have mentioned previously, my initial focus is on commodities and energy. Oil Services HOLDRs ETF (OIH) is also sitting at the lows. With BP reporting a strong quarter, we could get a big move from the O&G sector.

Yesterday I started some small positions in Pyramid Oil Company (PDO) and A-Power Energy Generation Systems (APWR). In both cases, current price is a fraction of the yearly highs, despite the fact that these are profitable, growing companies. Of course, it remains to be seen whether the growth and profitability will be maintained under current circumstances. At the same time, both are very oversold, and will attract attention if oil and energy rally. Since I have kept my position size relatively small on these whippy stocks, I will give them room to move, and will look to add on evidence of accumulation.

- PDO closed yesterday at 3.93, down from a 52-week high of 36.80. A bounce to the 50 day moving average would see this stock double in price.

- APWR closed yesterday at 4.75, down from a yearly high of 31.89. I like the volume patterns since the big rally on 10/13. Check out this article at Seeking Alpha:

And that selling has created quite an opportunity. While APWR has trended down, business has remained strong. Last week the company announced a major contract and on October 10, management reiterated guidance. Guidance is for earnings of over $2 per share in 2009, making the forward P/E a meager 2.2x. I’m betting this stock hits $20 again sometime in 2009. Ten times earnings for a clean energy company focused on smog filled yet power hungry China seems very reasonable.

- CF Industries (CF): I like how CF held up throughout the day yesterday (Monday). If we rally, it is a good bet that fertilizer stocks will attract buying interest. Note how the distance between current price and the 50 and 200 day moving averages.

- Companhia Siderurgica Nacional (SID): I like the way buyers cam in on 10/16. We are near the lows, and I am looking for another strong move from this level.

- Walter Industries (WLT) is trading near the bottom of a well-defined range. I will be looking to start a position today as long as it does not gap too high at the open.

- Semiconductor HOLDRs ETF (SMH): I like the volume during the past few days in the semiconductor ETF.

Schnitzer Steel (SCHN) reported some good result this morning, so look for a good bounce in other steel stocks. As earnings season progresses, market participants are likely to consider current valuations as extremely oversold, leading to substantial rallies in these sectors. Now seems like a good time to start accumulating shares.

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