June 6th, 2010

Can QSFT Swim Against the Market Tide?

Friday was horrible for those hoping that the market was close to a bottom. Excluding 40-minute “flash crash” of two weeks ago, the market had been able to stay above the lower boundary trendline of the “ascending broadening wedge” I described on May 27. It did until this past Friday, that is, when the market hit a new low for the year and the S&P wound up being down 4.5% for the year to date. Having broken below that supporting trendline, I believe the market is marching down towards the target identified in that May 27 post of 925-950 (click on images to enlarge) .

It doesn’t seem like a propitious time to be cull a watchlist of 47 stocks that might be candidates to buy but, as I wrote the other day, once the market decides its correction has run its course there will be many more from which to choose. For example, QSFT (Quest Software):

Against the market tide, QSFT was able to close higher on Friday and, in the process, continue widening the gap above key resistance trendlines and 5-year new high territory. According to one service:

“QSFT options saw interesting call activity today. A total of 422 put and 2,908 call contracts were traded raising a low Put/Call volume alert. Today’s traded Put/Call ratio is 0.15. There were 6.89 calls traded for each put contract.

The skewed options ratio suggests that traders are rebalancing their portfolios in anticipation of a price shift. Today‚Äôs unusual volume activity directly reflects investor outlook and confirms that a stock move is imminent.”

Will QSFT or any of the others included in that watchlist of 47 names (the list was a “first pass” so I’m sure some names will be dropped as others are added over the next several weeks) succeed in swimming against the market tide? I’m not sure whether I’m willing to take that chance with my own money.

But when sign up for Instant Alerts, you’ll receive not only this list of 47 stocks, but also the Recap Report for last week showing trades made, the current stocks in the Model Portfolio, a summary of the past several weeks activity and a chart of the Instant Alerts portfolio history vs. the S&P since it’s launch in March.

You have to manage your portfolio the way that best suits your needs and style. I don’t give advice or tell you what to do but you will receive an email within minutes after every trade I make in my own personal account. Either picking winners or avoiding losses in portfolio values for you and me will result in quickly recouping the modest subscription price.

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  • Anonymous

    Guru- what do the 5yr charts of both the SP500/DJ30 indicate to you from a H/S pattern? Especially from 2006 to Sept/Oct 2008. Then what does the inverted HS charts tell us from then to now? Seems that the bigger picture may be telling us something once the correction is over. Germany fundamentals look better today. Maybe Europe will follow and grow a little w/falling EURO.

  • Joe

    Sorry, Anon, but I just don't understand what you're looking at and what you'd like for me to see.

    I see that we're now in a correction after having bolting out of the 2008-9 bottom and, after the correction is completed, we will resume upward drive to potentially, eventually, the previous all-time peaks. But that could be a year or two away.

    All speculation but it only makes sense to deal with what exists today and that is a correction.

  • Anonymous

    "market is marching down towards the target identified in that May 27 post of 925-950". Couple of questions:

    Does XLE already hit the support?

    Where is the IWM's Support?

  • Joe

    If you're asking whether XLE is a buy at this point then my answer would be that it's too risky to be long anything right now. XLE is just below a support level but you'd need to see some upside movement to confirm that a bottom is in before buying.

    As far as IWM is concerned, I'm actually looking to buy some calls on TWM, the double inverse of the IWM. I think a move down to the mid-50's from here (61.92) is a distinct possibility.

  • Anonymous

    Could you take a look at SPY @1998 in 15 years chart, Is there similarity here? Not sure the support is @ 95 or 105? thx!


  • Joe

    OA, I'd say both are areas of congestion and turning points and, consequently, both can be support/resistance depending on the incoming trend.

    You nailed my working thesis: continued declines in this move under 105 on SPY with the next stop being around 95. I'm hoping that will be the bottom with recovery following but only the market can tell us if that's the case once we get there.