The Kirk Report

Wiggle Room

Every dip continues to attract interest including today:

Notice the linear regression trend channel in place? While we're overbought and need time and/or lower prices to remove that condition, there's a lot of wiggle room to work with on a short-term basis.

Top Performers Under Pressure

One of this year's top performers - Avis Budget Group (CAR) - is now testing its average true range:

If it closes here, it will be the first ATR violation/sell signal we've seen since its ATR buy signal on March 20th at $1.09 per share (a +900% return). Whether stocks like this can rally back and hold above these support zones is critically important.

* For more information on the ATR indicator I use and how I use it, please visit the members' only website.

Mystery Chart

Many stocks are under pressure even after reporting good earnings this morning. Here's one exception:

The stock has been under an ATR buy signal since March 25th at $1.60 per share. Remember, the longer the buy signal, the more impressive the stock in my view. In addition, that pullback & oversold conditions (but no violation of the ATR) in mid-August provided for an attractive entry point.

What's the name of this company? Visit the members' only website to find out.

Focus On Basic Materials

If the bears are going to take back control, they'll have to first shoot down the bull market's leader:

We've seen a breakout and this group is very overbought right now, so how it handles the inevitable pullback will be key.

Market Timing Signals

You have to love this quote from Helene Meisler this morning:

"The issue is that it seems everyone is out there looking for a special signal that is going to ring a bell and make them a million bucks. It just doesn't happen that way. There is no signal that works like that. If there were, would we all be working so hard at this game we call the market?" -Helene Meisler

With all of the chatter recently of bullish moving average crossovers and golden crosses, you have to respect how the market always finds a way to rattle the confidence of those who are utilizing these simple signals for market-timing purposes. I've seen this phenomenon many times over the duration of my career and we just saw another timely example of this behavior.

Speaking of market signals, many of you have asked how the major market averages are holding up according to their ATR stops (and 2-period RSI following the recent Q&A). Well, not so good as you can see below as all remain below their exit signal:

As things go, I wouldn't be at all surprised if we see frustrating whipsaws on both sides of this beast just to keep all of us on our toes this summer. While I continue to see the 50% fibo retracement in the S&P down to the 811 area as a clear possibility, we'll need some help from terrible earnings and poor guidance for that to come to fruition.

Six Chart Reviews

Last week I ask for members to submit stocks/etfs they'd like for me to do a chart review. 31 were submitted and 6 of those were requested by two or more members. Let's start with those:

Apple (AAPL):  Technically, this is about a strong as a stock you're going to find out there. The problem is that EVERYONE knows it.

As you can see from the stochastic reading, we're now severely overbought and trading well above the 10 day moving average. Bottom line - if you're not long, this is not a good risk/reward entry point. While the stock continues to move higher (even while overbought as a sign of strength), I still think you've got to be more selective in your entry. The lack of volume in this stock's rally is a red flag and one which tells me to be more skeptical than trusting of the recent gains.

To buy a popular "everyone knows it's a winner" stock, you need to see something negative to happen (i.e. Steve Jobs is dead, Mac's start exploding, sales fail to hit expectations, margins show material decline, etc.) With all winners like this, I like to buy them when they get oversold and the last time that happened was in mid-May (see stochastic reading above) and that would have provided a decent entry point to the recent uptick. For my money now, I'd have to find an entry point somewhere around the 20 day moving average ($129) which is coincidentally the current recommended stop price. In my view, that's the definition of a good entry point - a pullback within a strong trending stock with a tight stop and a break below May's closing low at $119 would have me entirely stopped out on this one. Again, look for those oversold entries and stay away unless you can find them. Also, if owned only for a short-term position right now, I'd be using strength to take some partial profits and to reduce position size in order to allocate the capital to other positions.

Agfeed (FEED)  Another big momentum mover of late and a stock that has pretty much gone vertical in recent days. When the stock failed to move to oversold status, it was a clue that a big momentum run could come to fruition and that's exactly what happened in this one

If you didn't catch the breakout setup early (like back in mid-March and again in April) you've got to move onto other trades now unless we see a pullback entry point. Like before, I'd have to see a stochastic reading around 50 or so and a move around the 20 day moving average before I could entertain a setup in this one. Stops should be set on a break below $5 right now or violation of the 20 day EMA.

Sohu.Com (SOHU):  I'm starting to detect a theme - members want to take advantage of pure upside momentum. Much like the other two, Sohu has its fair share and managed a nice pop to new year-to-date highs on Monday. Right now, it appears to be consolidating a bit and still has that gap to fill from Monday's uptick (at some point). Frankly, I would have liked to see better volume on that breakout (yes, I'm always that picky).

Like the others, I don't like to chase'em unless I'm operating only on a daytrade time frame. Beyond that, I think we'll see SOHU fall back to its 10 day moving average (around $59) setting up a potential aggressive short-term trade with a tight stop at the 20 day moving average. Two days of closes below the 20 day would tell me this rally is in jeopardy.

Teck Cominco (TCK):  Boy, these charts are all looking pretty similar, aren't they? Teck is currently overbought and pulling back, but has better volume than the others we've seen. I also like the fact that it refused to get oversold on that pullback in mid-May which is always a true sign of strength. I'd look to enter the stock around the 20 day moving average $14 with a stop at $12.44 on this one. Be patient until then if you desire to add this to your portfolio.

Titanium Metals (TIE):  Another strong stock and unlike some of the others the volume here is acting as positive confirmation to the recent uptrend. Still, I wouldn't be interested in giving chase right now. Instead, I'd set a price alert at the 20 day moving average for a potential entry point below there (like we saw back in the April dip) it with a tight stop around $8 per share. As with other stocks that gapped up Monday, watch closely how those gaps get filled and whether we see the buyers step in with a vengeance at those levels (which happens in bull markets but rarely happens in bears). In general, if I own a position that gaps up beyond the upper trend lines, I take partial profits and let the rest ride until stopped out.

US Nat Gas ETF (UNG):  Commodities have been doing well of late so I understand the interest in this natural gas ETF and the increase in volume alone shows that this ETF is on more people's radar right now. However, I must say this ETF hasn't participated much in the rally and is barely off from its yearly lows. Whatever future potential it has, we've yet to see it technically.

Using simple trend channel analysis utilizing the 200 day regression as a median line we see that it is still stuck within a longer-term downtrend. Until this breaks and we see both the March and May highs broken (and later confirmed through subsequent retests), I'm not all that interested. If you disagree, I'd still wait for severe oversold conditions to develop like we saw back in late May before making any attempt to bottom fish.

A Timely Reminder

On such ugly day, it is always nice to be able to share a happy chart to serve as a timely reminder of why we're still in this game. Shares of Nova Chemicals (NCX) soared +285% today on news of being acquired by the country of Abu Dhabi.

If you recall, NCX was one of the 36 stocks we're currently tracking due to their wide discounts from book value.

Apparently those with cash to spend in Abu Dhabi are running value stock screens these days. If the market is going to bottom, we need to see a lot more of the same as vultures go to work.

How Overbought?

Remember the McClellan Oscillator I've talked about in the past? Here's how it looked as of this morning:

Or, how about the T2108 (% of stocks above 40 day):

Among several others, these two explain my "extreme overbought" comment in the premarket post. Frankly, if the market were simply able to pull back a little (without too much technical damage) and not fall completely apart in these overbought conditions, it would be a positive sign.

Shorts On The Run

While everyone waits for the Fed to do their thing, there are some explosive short-squeeze situations out there today. Case in point - many of the gaming stocks which looked like they were headed to zero have reversed course in a truly spectacular fashion.

Remember, trend channels work both ways and there are a number of reversion to the mean setups (i.e. playing oversold counter-trend situations) if you have the courage and cash to trade them. Frankly, if the market is truly bottoming out, we should see many, many, many more of these kinds of setups.

More Charts

Let's take a look at 5 more stocks among those in which I received more than one request to review:

Dryships (DRYS), Hasbro (HAS), National Oilwell Varco (NOV), NVIDIA (NVDA), & Potash (POT).....[READ]