Is That Gustav’s Mustache on the Ground?

With oil and gold down this morning, investor sentiment is continuing to turn positive. There is a potential for oil to eventually evaporate down to the mid-$90’s and gold to $600. Just saying.

Keep an eye on overall market sentiment via measures like the NYSE Bullish Percent:

This chart is showing that roughly 50% of the stocks on the NYSE are on PnF buy signals. The 70% level gets us into overbought territory, so it appears that there is still potential for additional upside before things get frothy. For the bears, their hope is a decline in bullish sentiment from here, back down to the 44% level, which is a reversal of the trend and shuts the mouths of the optimists.

One thing to consider is that most of the stocks in the NYSE are comprised of small and mid cap names. In fact, 31% are mid cap and 46% small cap stocks. That leaves us with 23% of the stocks on the NYSE classified as large cap. Could we be seeing a broader rally in the market than just Dow/large cap names? I believe so. It is transpiring before our very eyes. Add to all this a stronger dollar, and perhaps the calls for 1,500 on the S&P by year end might not be so far fetched.

The reason why I bring that up is that I’m continuing to see strength in the small and mid cap names, especially in sectors like: retail, drugs, healthcare, REITs, environmental services, and S&L’s. This may be where you want to continue to screen for new stock ideas as the market does its sector rotation thing.

As always, hedge your bets. This is still a market environment that has a lot of crosscurrents and volatility.

Both bulls and bears may get their own mustaches punched off before it’s all said and done.

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Intent to buy as noted in a previous post, E-House (China) Holdings Limited [[EJ]] , @ $9.00.

 

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Due to some non-fortuitous happenings, I have been unable to post chart gibberish and technical whatnot. Just rest assured in the knowledge that there’s an IT guy with his mustache punched off, laying in a gutter along the side of the road.

The mighty Dow has now violated (egregiously) the bearish resistance line that was established since the last high at 13,000 back in May. (Click here on the stupid link to see the chart).

With the exception of those in Gustav’s path, the unlucky Georgians, and those who were short Ambac Financial Group, Inc. [[ABK]] , happiness is breaking out all over.

I have a 4-day weekend in store, so I’ll wish you all a safe and enjoyable weekend, here and now.

Still bearish? Just wait and see what happens when the Griswolds come back from vacation next week.

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E-House (China) Holdings Limited [[EJ]] , $8.41, is another stock that is setting up for a potential bounce. Check out the Long Tail Down pattern here.

This may be a stock for all you gunslingers and gangstas out there.

Yo, I be buying it on a break above 9 handles, sucka.

Disclaimer: Trading involves risk. Do not attempt this while intoxicated and in a happy mood. You could be severely disappointed by your grievious errors.

 

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This morning, my buy stop on Las Vegas Sands Corp. [[LVS]] was executed at $43.02. As I noted in yesterday’s post, “Costanza Watchlist”, this is a short term trade based on a “Long Tail Down” chart pattern.  Stop loss is at $43.52. 

 

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There are so many ways to make money in the market. Let me be so kind as to show you one that proved to be a profitable trade on [[RKH]] back when it was $80 in July.

The “long tail down” PnF chart pattern is one of my favorite ways to bottom fish for a short term trade. Basically, you want to identify stocks (or ETFs) that have been oversold with prejudice. What’s nice about the PnF chart is that you can see this pretty clearly.

There are only two simple rules to enter this trade:

1. The PnF chart of the stock must have a current column of 18 or more “O’s”

2. You buy the stock on a “3-box reversal” off the bottom.

WTF am I talking about?….Let’s revisit that RKH trade:

Here is RKH back on 07/15/08. Notice the “long tail down” column of O’s.  Supply was in control of this ETF.

 

Based on the rules of this long tail down trade, you buy the stock on a “3-box reversal”, or in this case, 3 points up. Since the low hit $73, the rule tells us to buy it on a break above $76. Why? Because, we want to wait until demand is coming back into RKH.  

The next day, the stock gapped up at the opening past $76. It satisified rule #2, and I ended up buying it around $80. It closed over $89 the same day.

  

Here’s where it’s at now:

  

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That said, here are some stocks to put on your “Costanza Watchlist” that might offer you a potential long tail down trade:

Costanza Stock #1:

 

I will buy E on a break above $66. If the stock goes lower, I’ll keep watching it with the 3-box reversal rule in mind before buying it.

 

Costanza Stock #2:

 

If it doesn’t go below $40, I’ll look at buying it on a break above $43.

Finally, a classic Long Tail Down Pattern…..

Costanza Stock #3: 

 

These are strictly short term trade setups, so be willing to sell to take a short term profit when the opportunity presents itself. But remember, “Costanza trading” involves risk.

Disclaimer: This information is not meant to be the basis for your investment decisions. Trading and investing involves risk. Do your homework first, then decide if you want to risk losing it all based on a philosophy promulgated by a short, fat bald man on a TV sitcom, that is no longer running.

 

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