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ShadowTraderPro Focus Report for June 11, 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 PictureGood Morning, Traders. Day two of top line divergence as the Dow once again put in a green day while the S&P and Compq bled a bit. This is bearish to us in the near term and so far supports our theory that there should be another leg downward to test that 1325 area on the S&P. The more violent and greater volume move this is, the happier we will be as the ensuing snap back rally will be playable to the upside. There are a number of reasons why we feel this way. Lets check out the chart below first of the intraday S&P to see yesterday's pattern and what it should mean going forward.  Above is an intraday SPY chart showing the last two days of action. The first thing that jumped out at us is the intraday trendline from yesterday. Note that its basically up on a gentle slope. This is not what we would expect on a double bottom in the S&P where sellers got rebuffed at Monday lows. The second factor is that its definitely a clear head and shoulders which is a bearish pattern. Now go below to the Under the Hood section and note the breadth ratio readings. 42.65 on the NYSE and 30.63 on the Nasdaq. These are very poor and show that the market was struggling hard to make any intraday up moves at all. Strength was extremely mixed as usual. At the very least we would have wanted to see these ratios close somewhere positive (over 50) but they did not. So what we glean from all this is that there must be new bulls initiating positions yesterday and shorts closing out positions, all of whom will be smacked with the overhead of the prior two days IF the S&P moves below these two day lows at the 1350 area. Look to get into a short-term short on momentum below that level with a stop over Tuesday's high or high of hourly breakdown bar. Don't overcomplicate this. When a market goes sideways or up very gradually it sucks people into it and that then creates overhead if the market moves lower. This is especially true coming into today where we know we have a minor support level at 1350. So watch this level carefully today. A good momentum break with all the sectors firing downwards together should take the S&P down about 30 points to that prior support of 1325. As we have been saying we will get aggressively long at this point on the theory that there will not be new 2008 lows in the market but rather that we feel the inverted head and shoulders in the weekly S&P will hold . Remember, the above scenario is only in play if the market moves below 1350 and can prove that it can hold the bulls off by closing an hourly bar below that level. Now, what to look for on the scenario playing out perfectly with a violent move lower. Here are some trade ideas that should be of use to you. In any situation like this, get long big beta market leaders that will provide the most bang for your buck when the ensuing violent snap back rally occurs...  Agriculture stocks have shown great relative strength over the past two weeks by breaking out to new highs while the broad market sells off. POT just broke out from a quick pause around 212 and pushed to new highs on better than average volume. One could establish a pullback entry on a test of the 212 breakout level with the 20ma catching up to lend support. POT has tremendous earnings growth of +100% over the past two quarters, as do most of the stocks within this group. MOS, CF, AGU, and MON are also showing very bullish patterns near the highs.  Since bottoming out in late January, RIMM has steadily marched higher, riding the 20ma to new highs. It's currently in pullback mode on lighter volume and is building support at 128.00 with a little help from the rising 50ma. RIMM has great earnings with three quarters in a row of +100% earnings and revenue growth. Look for a break of the downtrend line to get long.  For a stock that was "left for dead" in January, AAPL staged a monster comeback through April and May that stopped just 5% shy of the prior high before entering consolidation mode. Over the past few weeks we have see the action chop around in a flat base but so far so good. Not shown above is the daily chart where the 50ma has caught up to provide support around 172.00. Look for a heavy volume breakout above 190.00 to trigger the next leg up. Under The Hood
Heads Up
Bulls and BearsLong Ideas
ShadowTrader Model PortfolioTo 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
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