SNDK, T, Trading Ideas, and Random Info

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This first chart is of AT&T, ticker T. The reason I am posting this chart is because when the market is nearing a potential top, there are some things to help clue you in to which stocks to look to short. Today the general market is pushing higher and making highs beyond those of the last few weeks. So when you see a stock that is not doing this, meaning it is still well below recent highs, etc., then you should keep an eye on that stock.

At market tops, both short and long term, some stocks or sectors will diverge or not confirm the new highs of the general market. These stocks are often the ones that get sold off most heavily on the next decline. So we have T below the highs of last month, and the market very overbought short-term, with signs of intermediate term topping as well. If T holds below the 30.65 level and breaks and uptrendline on an hourly chart, I think it would be a good short swing trade with a stop no higher than the 30.65 level.

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This chart is of Sandisk, ticker SNDK. Today the stock broke out of a reverse head and shoulders pattern on strong volume. The volume pattern of the entire pattern looks pretty good. Heavy volume in the left shoulder.....light volume at the head.....rising volume off the bottom up to the neckline.

Many times after a breakout, especially of a bottoming pattern, there will be an eventual test or pullback to the breakout price level. In this case, a test of the neckline would be expected. The problem with buying now, is that the market is short-term overbought and the price is well above the breakout price. Traders interested in this stock could look to enter on a limit order of 10.00 to 10.45 to try to catch the stock as it drops back to the neckline. The stop loss would be about 8.65......under the lows just prior to the breakout.

On another technical note, the major stock averages touched their upper bollinger bands today for the first time since early August 2008. So in a statistical sense we are at the upper end of the price range for this rally. That doesn't mean the market will fall apart right away, but I would take this as yet another caution sign for intermediate term bulls.

Despite many short and intermediate warning signs, I have seen many reverse head and shoulders patterns forming in different sectors. Steel stocks, housing stocks, some semiconductor stocks, retail, and shipping stocks as well. Because of this I am willing to continue to take long trades on short-term weakness. Right now I just think things are too stretched to the upside, and most of these patterns have not broken out yet, so there is still a chance of failure.

As another piece of random technical info......Despite the stock averages powering up into the close, the VIX made a major upside reversal in the minutes prior to the close. This formed a hammer type candlestick in the VIX. The VIX made a 10th lower low since the Nov 20 highs. The VXN (Nasdaq volatility index) made a 13th lower low. I consider 12 or more to be very stretched, but give more weight to the VIX than the VXN. This data is sending another short-term and intermediate term caution sign in my mind.

Pete