More Shorts for the Fire - Market Is Weak

The Federal Open Market Committee meets today and this means less volatility as the players wait to see the decision and the working in the release announcing the decision.  Most expect no change in interest rate policy but the market hates uncertainty and even the small possibility of a surprise will keep most of those executing larger orders in check until after 2:15 p.m. 

Aside from some type of major news development that shifts sentiment, the market is headed lower.  Monday night I advised people to tighten their stops, sell some longs and put on some shorts.  After today’s action I am even more convinced we are headed lower from here.  As this is a market of stocks, many stocks have very similar patterns.  I look at hundreds of charts a night and I saw a lot that looked like stocks hanging over the edge.  Be careful if you are long and if you do not want to sell your long positions maybe put some shorts on to hedge the move that I think is coming.

Stanley Black and Decker Inc. (NYSE: SWK) looks very weak.  The news that catalyzed yesterday’s sell-off was all about housing and this stock is leveraged to the housing sector.  SWK got hit for 5.42% yesterday and closed below its 200 day exponential moving average (EMA).  The chart looks weak and there is support below at $51.19, $49.69 and $47.91 (closed at $52.27) leaving room for a nice percentage gain.  Today’s move occurred on high relative volume and the stock closed 4 cents off its low, showing conviction in people getting out and no bounce.  This stock is below all moving averages and I can see it dropping to $50 easily.
The transportation index dropped more than twice the market (-3.85% vs. -1.41%).  J.B. Hunt Transportation Services Inc. (NSDQ: JBHT) got hit on higher than average volume and broke below its 200 EMA.  The stock closed at $33.07 today and could easily move to $32 or lower.

I recommended a short on Sempra Energy yesterday and it dropped 3.06%.  I reiterate this short as it has room to drop further.  The stock closed just under its 50 EMA, and if it should sell off through $47.50 I would short more.

Just as with SWK, the other housing related stocks got hit on the same news.  Two shorts from yesterday, Avalon Bay (NYSE: AVB) and Boston Properties (NYSE: BXP) got hit for 3.36% and 3.81%.  Both of these stocks have further to drop.  Going on the household hunt for shorts leads us to Whirlpool Corp. (NYSE: WHR).  This stock looks weak and with today’s close at $97.94 I can see a drop to $90 before it hits some support.  I like the SWK short better as WHR has a lower P/E (17.33 vs. 42.15).

If the Fed thrills the market and it rallies I believe it will be short lived.  The market wants to go down and the economic news is nothing but bad lately.  Whether or not this is a dip before a move higher only time will tell, but I am on the side of a coming double dip, so be careful out there kids.

Wednesday, June 23, 2010 - 3 a.m.