Stock Trading: Thursday’s Watchlist

I am finding more charts that look good on the long side, although most would benefit from a low volume pullback. Here is the my watchlist, all long: TNH, APWR, PXP, PDO, MTL, DO, SMH, AG, ZEUS, CLS, RRC, RIO, CNQ, FCX, AUY, TBSI, EXM, GPOR, XEC, CCJ, CHL, CRS, BEAV, WAG, ATI, PCP, APA, WW, EGLE, MPEL, RAH, ADCT, EGY, RIG, ENER. While the watchlist is dominated by long picks, I am not fully in the bullish camp yet.

Yesterday’s (Wednesday) end of day selloff created some long upper wicks on candlestick charts, generally a bearish indicator. Let’s take at the SPY (SPY) chart as an example:

The selling was also on heavy volume, which should raise caution levels. On the other hand, buyers were resilient throughout the day, and after the Fed meeting, before they got spooked near the close. Asian markets had a very good day, and European stocks are up as of this post. If we get a decent GDP number this morning, perhaps we can build on the positive momentum. Ideally, I would like to see a low volume pullback to the 90.00 area on the SPY chart, followed by some bottoming action. I am still in the habit of going to cash at the end of every day, and trading conservatively.

It is worth noting that the dollar fell, and oil and gold rallied.

I am not ready to pull the trigger on GLD (GLD) yet, but I am watching closely.

United States Oil ETF (USO) rallied on increasing volume, and looks ready to break its downtrend.

Oil Services HOLDRs ETF (OIH) has already broken its downtrend, and has moved significantly higher for the past two days with strong volume.

Whatever happens in the intermediate term, our economic troubles are still developing, and probably expanding. Satyajit Das discusses the process of de-leveraging in the financial system and the broader economy:

The initiatives are sensible short-term measures to stablise markets. In the longer run, they transfer the problem onto the government and taxpayer balance sheet. For example, US Government support for financial institutions in this financial crisis is already approaching 6% of GDP (compared to less than 4% for the Savings and Loans crisis). The bailout of Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) has almost doubled US national debt. This will ultimately place increasing pressure on the US sovereign debt rating and vitally the ability of US to finance its requirements from foreign creditors.

…The key issues remain availability of capital and liquidity. The perceived abundance of liquidity was, in reality, merely an illusion created by high levels of debt and leverage. As the system de-leverages, it is becoming clear unsurprisingly that available capital is more limited than previously estimated.

…Ultimately, “all the king’s horses and king’s men” cannot prevent the de-leveraging of the financial system under way. The extent of de-leveraging is substantial and likely to take time. In recent years, money was cheap and other assets were expensive. As each of the global economy’s credit creation engines breaks down and systemic leverage reduces, money becomes scarce and more expensive triggering substantial adjustments in asset prices in a reversal of the process.

Paul Krugman comments on the globalization of the financial crisis, and the results of government intervention:

It was good news when Mr. Paulson finally agreed to funnel capital into the banking system in return for partial ownership. But last week Joe Nocera of The Times pointed out a key weakness in the U.S. Treasury’s bank rescue plan: it contains no safeguards against the possibility that banks will simply sit on the money. “Unlike the British government, which is mandating lending requirements in return for capital injections, our government seems afraid to do anything except plead.” And sure enough, the banks seem to be hoarding the cash.

There’s also bizarre stuff going on with regard to the mortgage market. I thought that the whole point of the federal takeover of Fannie Mae and Freddie Mac, the lending agencies, was to remove fears about their solvency and thereby lower mortgage rates. But top officials have made a point of denying that Fannie and Freddie debt is backed by the “full faith and credit” of the U.S. government - and as a result, markets are still treating the agencies’ debt as a risky asset, driving mortgage rates up at a time when they should be going down.

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