Is this the top?

Hey all, I've been traveling and busy with some other projects so sorry I couldn't get around to posting on Sunday as usual. I think the other contributors have been on vacation lately too and why not! Its summer, time to kick back and catch some rays. But also I haven't been seeing many great setups lately and the market has been making all sorts of wild moves. This is by far the toughest market I have seen to trade. Fundamentally, it makes sense to me that this market should have crashed back in February as it almost did, but then like magic, the market reversed higher. Now, the credit/housing problems have really started to effect other areas of the economy and I would say again, the market should crash. Its as if the bulls have played dumb just to make sure that, in fact, a collapsing housing market would be bad for the stock market before giving up on this five year bull market. Miraculously, this market has charged ahead squeezing the shorts, leading to new all time highs in the the Dow Jones Industrials and S&P 500 while the Nasdaq has made new 6 year highs even as economic growth is the slowest it has been in four years. The bears have brains too big for their own good and the bulls played dumb squeezing the heck out of them hungry bears. Now the markets are in this state where everyone is scared, the shell shocked bears and the bulls who pressed their luck seem to all be confused about the direction. Is this the top of the market, who knows? At everyone moment the market seems like it is about to roll over and die, it plows higher like god himself is invested.

These times have reminded me to stick to my roots, to the chart, the only thing we can be certain of as traders. Letting go of personal bias about the market, even if this bias may be based on sound financial information (fundamentals) has been the hardest part of making money in the market for me. The chart never lies. A stock goes up because demand out weighs supply and buyers are willing to pay higher prices. The same stock will go down because sellers are more aggressive than the under-demanding buyers. Our job as traders to is sniff out the supply and demand by looking at the chart in anticipation of future price action. Now more than ever is is important to listen to the charts and accept whatever it is the market is telling us. I think Brian over at Alpha Trends and Trader Mike (see links to the right) are some of the best technical traders on the web for the broad market indexes and I suggest reading their blogs for broad market trends. What I hope to provide here are ideas about some individual stock charts since this has always been my strength. I will tell stories sometimes about the company's business prospects, but my best picks have always been chart plays. Let me just say that right now I see a heck of alot of charts breaking badly, even leaders like ICE. Is this the top, I don't know, but a ton of previously strong stocks are starting to look topped.

Take a look at CAT, whom until last Friday was the second biggest gainer in the Dow Jones Industrials for 2007. The stock had been a leader, in part, due to their healthy "global" growth business. But sure enough the housing slump caused them to miss expectations by a wide margin and predict hard days ahead. Enough with the stories, this stock is done. It broke it's 50 dma badly on record volume before a dead cat bounce (no pun intended) which has set up a sweet shorting opportunity. And by the size of the last two day's volume I'd say plenty are doing just that. I will be buying some CAT august $80 puts.

The rapidly growing and leading commodity exchange ICE had a failed cup n handle breakout last week, but watch for earnings :


Here's an island top on AAPL:

Partially in response to an earnings miss by Google, the rapidly growing Chinese internet giant BIDU is dropping fast:

Even my favorite solar stock in this red hot sector has taken a hit:
Now some of these stocks have reported earnings while others are due to report in the next few weeks (check for yourself, I know WFR, AAPL and BIDU are after the close Wednesday, ICE is Thursday morning). And these reports have the potential to outweigh any selling or chart breakdown, just look what happened to AMZN. The stock broke down today (below it's 50 dma) just before posting record blowout earnings after the close and the stock made new all time highs in the after hours trading. In addition, these stocks are leaders for a reason and it is typically unwise to bet against them. However, they are good barometers as to the overall strength and health of the market, the market's reaction to these companies earnings may be the key.


Any opinions, is this the top?