Daily Stock Picks Report Archive

We had a big turnaround in the financials today which brought the whole market up.  The market decided, somehow, that a 10% drop in MER, Merrill Lynch was enough of a drop.  It is not totally surprising because the financial stocks have been beaten down for so many months, over a year for MER from $95 to $20 in stock price.

It is very common that an "event" causes a stock to have a reversal, call it a catalyst.  It was enough to turn on the buy programs for all the financials and it carried over to virtually all sectors except the oil stocks.

I covered the BAC short this morning just under $28 and sold the SKF at $143.80 within 25 minutes of the regular opening.  The clues were that financials looked like they were bottoming and my eyes were especially glued to MER.  I thought that if MER had a big drop it would be likely at the opening.  It had a delayed opening and gapped down to about $22 and immediately started up with subsequent higher highs. 

Virtually all the financials were heading up together in that first 30 minutes because they are linked together on buy programs.  SKF couldn’t get much above $144 so I pulled the trigger on both.  I did not short SKF and was surprised it dropped so much but it is a leveraged fund.

If financials follow through tomorrow (Wednesday, July 30th) in a substantial way, like WFC over $32.50 and BAC over $36, then I would look at shorting them again for a few days but this is a very aggressive idea usually for experienced traders.  If this set-up does occur, then a very small portion of funds should be used for this trade.

I am not convinced that everything is alright with the world of financials so I expect the volatility will still hang around for another week or so in this sector.

Oil dropped 2% today and the technical indicators are signaling that we should be having a substantial rebound and may result in a rebound back up 10-12%.  I think we have very high odds that we will see this rebound start within the next few days.  It won’t take much to trigger it and we don’ t necessarily need political unrest, or some trigger point in news to cause a rebound.

This is sort of a Mitch King rule that I have for myself.  When you see a sector that has had a big run-up like oil has had this year, the first big drop usually has strong rebound caused by short covering and speculative buying from those who "lost out" on the first big run.  In other words, people just don’t leave a sector like this all at once and the stock goes down without a partial rebound.  An individual stock can do that if there is something like accounting irregularities, fraud, or government action against a specific company.

Besides, the indicators on the charts just look really good.  A reader emailed me a good looking chart for an oil long candidate, XTO.

I modified last night’s list of independent oil and gas stocks.  There are a lot more than this available but look at these as very good ideas for long purchases that may last several weeks of moving up.

XTO, XTO Energy

ATPG, ATP Oil and Gas

UNG, US Natural Gas ETF

CLHB, Clean Harbor is a type of chart that is on a sustainable run upward.  It is good to buy strong stocks when they have been going up in a down market.  When the market turns around with a general uptrend, these strong stocks like this tend to continue an upward trend.  This may have a few down days before potentially resuming upward again so let’s say $74 is an entry point for example.  A stop loss of maybe $1.50 would be appropriate.

ACOR, Acorda Therapeutics is a biotech company and this sector has been getting a lot of money this past couple of months.

NOTE:  I have received a few requests for a workshop so if we can get a few people together at my house in West Linn Oregon next Saturday, August 9th for the full day, I have a very comfortable large living room to teach with a LCD projector, sceen and one of my desktop computers.  If you have a laptop and can download the software from the brokerage firm you use, I can help you set that up with charts.  There are chart set-up instructions with all 5 major online brokerage firms in the members area or I can email them to you directly as well.  Cost is $399, bring a sack lunch because we live out in the country so driving somewhere to eat is inconvenient.  Email me at [email protected] if you can make it.

Mitch King