ShadowTraderPro Focus Report for January 22, 2008

The ShadowTraderPro Focus Report is your every morning dose of market reality brought to you from the resident geniuses at ShadowTrader. Overseen by Chief Equity Strategist, Peter Reznicek, each issue contains a full report on the prior day's action, including market internals, technicals, and what sectors were hot and cold. Each issue also includes the ShadowTraderPro Model Portfolio, which updates members on what stock plays STPro is currently engaged in officially, as well as provide a daily list of long and short setups for more self-directed traders and investors.

If you have any questions regarding commentary or plays in this newsletter, please email to focusreport@shadowtrader.net.

The Big Picture

Good Morning, Traders. As of this writing at 7pm EST on Monday night (1/21), S&P futures are down 53.75 points and Nasdaq futures are down 69.50. This means that without Fed intervention (or some other catalyst that would have the propensity to reverse these losses) between now and 9:30am tomorrow, the markets are going to open much, much lower. This will be the mother of all gap downs if the situation does not improve between now and then. The SPX should open somewhere well below 1300 in the 1260-1270 area. Given this situation, there is very little we can say here as to what will happen in the bigger picture.

If the aforementioned catalyst does not appear then we can be relatively sure of one of three scenarios playing out. One is that the market will open 50+ points lower and rally immediately. If that happens then we would see the market probably remain strong all day. The second option would be that the market opens much lower and sells off right from the open and continues to sell all day long, taking the spx down by at least 80 by the close. In this option, the market might not fall immediately at the open but would more than likely move below first 15 minute and first 30 minute lows which would set the tone for the rest of the day. The third option would be that the market would open much lower and use most of the morning and lunchtime to digest the gap down, going sideways for the morning session and then sell off harder in the afternoon. These are the three scenarios that we feel have the highest probability of happening tomorrow. Note that just chopping around, ie: going up a bit then down a bit are probably not happening. There is too much emotion out there. Therefore, people are either going to all panic en masse immediately (option 2), panic only a little then full on Armageddon later as they realize that sideways after a 50 point gap down is not bullish (option 3), or the whole world is going to see bargains in front of their eyes and there will be massive short covering on the open (option 1). Those of you who are reading this and are long stocks (or short vertical put spreads), please make a mental note of what you do tomorrow and then realize that probably all of the retail money in the world is going to do the exact same thing. This is because human nature is human nature and people are people. Everyone is going to pretty much act the same way.

So, what are some clues as to which scenario is going to play out? The market internals of course. There will be a breadth reading and an advance decline reading and a trin reading. The way these indicators react to the open and are trending both in the first 15, 30 and 60 minutes of trade will be key in figuring out sentiment and direction. If these numbers open up rather benign, then we could see rally. If these numbers are very bearish from the open and make no effort to improve, ie: breadth worse than 10:1 negative on open, A/D lines opening up -2000 or worse, trin over say 4.0, then the selling will probably continue. Remember that whatever you think is oversold or overdone can always become more overdone. The last panic situation that we had was almost a year ago on 2/27/07. Anyone remember that? Breadth (the relationship between up volume and down volume) was 100:1 negative on that day. Yes, 100 to 1. You read that correctly. On that day the SPX gapped down 20 points and then sold off about 30 more, ending the day down about 50. As of now we are going to just gap down that much at the open. Should be interesting.....

Please take a moment to read the user's guide of this newsletter (down below in the Model Portfolio section there is a hotlink to it), and re-read the gap rules which can give you an objective viewpoint on what to do when stocks gap down past your stops. We strongly feel that if you apply these principles it will take a lot of the emotion out of the action and you will be acting according to a plan and not reacting in a knee-jerk manner. We would also like to point out to everyone, especially those of you new to this letter that the ShadowTraderPro Model Portfolio is not long at all except for the 100 shares of GLD (gold). We are not short either but honestly that does not bother us one bit. Our p&l is strongly positive and the market is going to finish q1 '08 down huge. Many other swing trading newsletters and advisories will be out of business after tomorrow. The market was already pretty oversold coming into this gap, so we feel pretty good that we did not chase shorts down. Nobody could ever have foreseen the amount of gap down that is about to happen, we only knew that little by little over the last month or so, leading stocks started to crumble and many of our long plays ended up being situations where we had to dump break-even or get stopped out because breakouts just failed. Note that the last position we took which was a long in IVGN on 1/17, only ran up for one day and then failed miserably the next. We only took half size on that play. Let's just say we had a feeling.......Cash is king and the best bet is to sit this out. Gold should remain strong after a further shakeout and we'll probably add to our position if so. There will be opportunities in '08 and we'll continue to find them for you as we have done since inception. Best of trades to you all on this eve of destruction......

Under The Hood

When we say "under the hood" we mean market internals, ie: what was really happening behind the scenes. ShadowTraders who listen to our daily broadcast every day live on the thinkorswim platform know that all closing figures on the major averages should only be interpreted in the context of market internals. Look for convergences and divergences in the breadth, a/d line, and trin figures below to either confirm or cast doubt on what all those talking heads on TV are telling you.

Dow Jones Industrial Average	12,099.30	-59.91	-0.49%
S&P 500	1,325.19	-8.09	-0.61%
Nasdaq Composite	2,340.02	-6.88	-0.29%
Nasdaq 100	1,844.09	+1.99	+0.11%
Russell 2000	673.18	-7.65	-1.12%
Spot Gold	$881.70/oz.	-1.20	-0.14%
Crude Oil	$89.92/bbl.	-0.21	-0.23%
NYSE Overall Volume	2,455,250K	n/a	+19%
Nasdaq Overall Volume	2,986,550K	n/a	+17%
NYSE Breadth	1.4 : 1	negative
Nasdaq Breadth	1.8 : 1	negative
NYSE Breadth Ratio	7.56
Nasdaq Breadth Ratio	20.61
NYSE Advancers/Decliners	-845
Nasdaq Advancers/Decliners	-813
NYSE Trin	.84
NASDAQ Trin	1.03
$VIX	27.18	-1.28
Strongest Groups:	Semiconductors	Amex Oil	Transports
Weakest Groups:	Insurance	Biotechs	Banking

Heads Up

Up and coming economic and corporate data that may move markets this week:

Today: 10:00am EST - State Street Investor Confidence Index; Reporting earnings before the open: AKS, BAC, DD, JNJ, LM, SLG, UNH, WB; After the close: AAPL, TXN
Wednesday: 10:30am EST - Crude Inventories; Reporting earnings before the open: ATI, COH, COP, DAL, GD, MOT, PFE, ROK, LUV, STI, UTX, WLP; After the close: COF, EBAY, FFIV, GILD, NFLX, NE, QCOM
Thursday: 08:30am EST - Jobless Claims; 10:00am EST - Existing Home Sales; Reporting earnings before the open: T, CBE, F, IMCL, LEN, LMT, NOK, NUE, POT, SPWR, TXT, UNP; After the close: AMGN, BRCM, DV, ETFC, KLAC, MSFT, PCU

Bulls and Bears

This section is for self-directed traders and investors who like to "do it themselves". Every trading day, Bulls and Bears will list long and short equity setups with defined entries and stops. Note: A listing in this section does NOT necessarily mean that the stock will end up as a part of the ShadowTraderPro Model Portfolio. Plays listed here change daily and are not managed or tracked by ShadowTrader unless traded via e-mail alert.

Long Ideas

Symbol	Trigger Price	Stop Price	Notes
none

Short Ideas

Symbol	Trigger Price	Stop Price	Notes
none

ShadowTrader Model Portfolio

The matrix below shows all current ShadowTrader Pro plays in the Model Portfolio. The Model Portfolio contains only those plays that are sent out in real-rime via email. Bulls and Bears plays above are not actively managed or tracked. Current open positions are on top, with positions that were closed in the current calendar week on the bottom. Closed positions are moved out of the matrix on Monday mornings and posted in our performance page here.
To get the most out of your subscription and for detailed instructions on how to structure your own portfolio, read our Focus Report User's Guide

sym	dir	size	date entered	entry price	date closed	exit price	target	stop	status	mark to market	p&l points	p&l capital	capital commit
OPEN POSITIONS - week of 1/22 - 1/25
GLD	long	100	12/21/07	80.57	n/a	n/a	100.00	78.10	open	87.42	6.85	$685	8,742
	comments: still in pullback mode
CLOSED POSITIONS - week of 1/14 - 1/18
IVGN	long	125	1/17/08	95.71	1/18/08	93.95	n/a	n/a	closed	n/a	-1.76	($220)	n/a
	comments: trailed tight stop due to lack of follow through on break of hourly downtrend line
TRN	short	275	1/15/08	24.13	1/16/08	24.30	n/a	n/a	closed	n/a	-0.17	($47)	n/a
	comments: closed position with a small loss to guard against potential reversal
CROX	short	300	1/15/07	28.28	1/16/08	27.73	n/a	n/a	closed	n/a	0.55	$165	n/a
	comments: locked in small gain to guard against potential reversal, covered half at 27.21 & half at 28.25
GLD	long	125	12/21/07	80.57	1/15/08	88.54	n/a	n/a	closed	n/a	7.97	$996	n/a
	comments: sold just over half the position to lock in a $1,000 gain.
QGEN	long	450	1/9/08	22.37	1/15/08	22.14	n/a	n/a	closed	n/a	-0.23	($104)	n/a
	comments: sold for a small loss due to ugly market conditions
CF	long	50	1/11/08	112.61	1/15/08	117.00	n/a	n/a	closed	n/a	4.39	$220	n/a
	comments: sold remaining half position to lock in a 4.5 point gain
	TOTALS:	100	open shares (open capital committed doesn't include closed trades)										$8,742

Click here for ShadowTrader Pro closed trade stats

Disclaimer and Waiver of Claims: Disclaimer and Waiver of Claims: The ShadowTraderPro Focus Report is a newsletter service, designed as supplemental material for the ShadowTraderPro Newsletter subscription service and it is not intended to be a stand alone newsletter. The risk of loss in the trading of any securities products can be substantial. The strategies mentioned here are active trading strategies, therefore you should carefully consider whether such trading is suitable for you in light of your personal investment objectives and financial resources. This material is for information purposes only and should not be construed as an offer or solicitation of an offer to buy or sell any securities. Past performance of any trades mentioned never guarantees future results.

Securities and options involve risk and are not suitable for all investors. See the characteristics and risks of standardized options.