June was a slow and frustrating month for traders. There were few opportunities and little follow through on those that came up. It was a good time to focus on things outside of trading which is what I did.

As we move in to the middle of July, I see things picking up. There seems to be some light at the end of the tunnel on the Greece issue and second quarter earnings announcements will drive some action in individual stocks.

Today I ran the Stockscores Simple US Market Scan in search of position trades. I wanted to see daily and weekly charts that showed good potential from the scan results. Here are three stocks that I think are worth considering:

1. GES
GES recently broke its downward trend line and is now breaking higher from a rising bottom. This is a good turn around chart pattern. Support at $19.

2. HQH
HQH has been building an ascending triangle pattern over the past four months and is now breaking through resistance from that pattern. The stock looks like it wants to continue its long term upward trend. Support at $35.25.

3. ALK
ALK has paused its long term upward trend for about five months but came alive again Friday and looks like it will resume the long term upward trend. Support at $64

For the entire StockScores Newsletter Tyler lays out 10 points –  “How Information Can Hurt You”

The intermediate-term trend for the stock market is lower… 

Last week, the S&P 500 hit a low of 2,044. As I explained earlier this month, I think it is headed toward the 1,990 level between now and October. 

But it’s not going to be a straight shot lower. And traders can still profit by betting on the upside when short-term conditions hit extremely oversold levels.

ollowing Wednesday’s sharp decline, many technical indicators hit oversold levels. For example, the McClellan Oscillator for the Nasdaq closed at -63. That’s the sort of reading that often occurs near short-term bottoms…

Also, the market’s fear gauge, the Volatility Index (the “VIX”), closed Wednesday at 19.66. That was above its upper Bollinger Band. And the current chart pattern looks similar to the market bottoms in October and December… 

The VIX generated a broad stock market buy signal when it closed back inside its Bollinger Bands on Thursday. That also happened at the end of June. But I told my Stansberry Short Report subscribers at that time that, like we saw in October and December, we could get a second move back above the upper Bollinger Band before the market actually hits a short-term bottom and gives a sustainable buy signal. 

As you can see from the chart, that’s exactly what happened last week. 

Wednesday’s move in the VIX took the index above its upper Bollinger Band for the second time in less than a week. 

We now have a much stronger buy signal. 

The “double buy signal” in October led to a 10% rally in the S&P 500 in just six weeks. December’s double buy signal kicked off a 5% rally in two weeks. 

Take a look at this updated chart of the S&P 500… 

Its 2,044 low is darn close to the 2,038 target of the head-and-shoulders pattern I wrote about earlier this month. Now, with the double-buy signal from the VIX and the oversold conditions on the McClellan Oscillator, traders ought to be looking for a bounce. 

The index has resistance at 2,080. That’s the neckline of the head-and-shoulders pattern. But a more likely target is the 50-day moving average line at about 2,100. 

So now it’s time to start looking for ways to profit off a new short-term bounce in the market. 

Don’t get me wrong… It is NOT time yet to go “all in” on the long side. I still think the broad market has lower to go between now and October. My downside target for the S&P 500 is in the area of 1,990. 

But with conditions as oversold as they are right now, the stage is set for a decent one- or two-week oversold bounce. 

Best regards and good trading, 

Jeff Clark

Also….

It’s Still Too Early to Be Worried About the Economy

Briefly: In our opinion, speculative short positions are favored (with stop-loss at 2,140, and profit target at 1,980, S&P 500 index)

Our intraday outlook is bearish, and our short-term outlook is bearish:

Intraday outlook (next 24 hours): bearish
Short-term outlook (next 1-2 weeks): bearish
Medium-term outlook (next 1-3 months): neutral
Long-term outlook (next year): bullish

The U.S. stock market indexes gained between 1.2% and 1.6% on Friday, extending their short-term fluctuations, as investors reacted to some further Greece debt deal news releases, among others. The S&P 500 index trades within a short-term consolidation, following its late June decline. The nearest important level of resistance is at around 2,080, marked by local highs. On the other hand, support level remains at 2,040-2,050, marked by March local lows:

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Expectations before the opening of today’s trading session are positive, with index futures currently up 0.6-0.8%. The main European stock market indexes have gained 0.7-2.1% so far. The S&P 500 futures contract (CFD) is within an intraday uptrend, following lower opening. The nearest important level of support is at 2,060-2,070, and resistance level is at 2,090-2,100, as the 15-minute chart shows:

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The technology Nasdaq 100 futures contract (CFD) trades within a similar intraday uptrend, following lower opening. The nearest important level of resistance remains at 4,450, and support level is at 4,400-4,420, among others, as we can see on the 15-minute chart:

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Concluding, the broad stock market extended its short-term consolidation on Friday. For now, it looks like a flat correction following a downtrend. Therefore, we continue to maintain our already profitable speculative short position (2,098.27, S&P 500 index), as we expect a medium-term downward correction or an uptrend reversal. Stop-loss is at 2,140, and potential profit target is at 1,980. You can trade S&P 500 index using futures contracts (S&P 500 futures contract – SP, E-mini S&P 500 futures contract – ES) or an ETF like the SPDR S&P 500 ETF – SPY. It is always important to set some exit price level in case some events cause the price to move in the unlikely direction. Having safety measures in place helps limit potential losses while letting the gains grow.

Thank you.

Volatility. It is what we expected and it is what we have with Tuesday’s big down and upward reversal, down hard again yesterday and today very green in pre-market. This volatility applies to most assets markets including the precious metals. It is the nature of the beast during a news-rich summer, with many operators on vacation or semi-vacation (with some players not able to resist peeking?).

The S&P 500 has satisfied the 1st level of anticipated correction by weekly chart. It does not look like much, does it?

But it has been enough to launch pessimism to its highest level in many months. One definition of volatility: “liable to display rapid changes of emotion.” This is perfect for the whipsaw up and down backdrop going on by daily charts.

SPX daily shows that story clearly, with large swings up and down with a downward bias (series of lower highs and lower lows) since topping in mid-May.

Given the fading participation we noted last week (by Bullish % indexes) and the daily down trends (weekly remains up), the market is now bearish until it proves bullish on a short-term basis. Long-term it remains in bullish trends until it proves otherwise. In the meantime, welcome to volatile Whipsaw City.

Here is the updated sentiment indicator graph (courtesy of Sentimentrader.com) showing that people got a little braver yesterday.

With this morning’s burst of joy about some Greek noise this reading should get tamped down some more. Meanwhile, the pre-market pop implied in the futures will only bring SPX back to the top of the recent range and resistance. More resistance is at the EMA 50 and SMA 50 around 2100.

Bottom Line

Sentiment became unsustainable in its bearishness and the market had to bounce to clear this condition. The whipsaw continues and parameters are clear. Until these resistance parameters are cleared and held it is a risky thing to be buying stocks just because the whipsaw happens to be whipping upward today.

Excerpted from an extensive multi-market NFTRH update (including global stocks, commodities and precious metals) yesterday morning:

NFTRH.com and Biiwii.com

LONDON – This morning, a desperate message from our analyst in Beijing puts us in a lighthearted mood: 

I’m sure you must have heard about the recent disaster in the Chinese stock market. 

It’s my first time experiencing something like this. And it shocked me. It’s like the world is suddenly turning upside-down. Everyone is running for themselves. 

People here feel hopeless, as they see so many government bailout plans fail. 

There are so many rumors I can’t tell what’s true and what’s not. Some even said that it was U.S. capital shorting Chinese index futures.

Opportunities Everywhere!

At the Diary, we always look on the bright side: We see opportunity everywhere. 

Investors in U.S. stocks seemed to wake up yesterday with a start. They didn’t panic. But they were at least beginning to worry. The Dow dropped 261 points – wiping 1.5% off its value. 

There is probably a lot more where that came – an opportunity on the downside. 

To recap: Greece’s creditors have given Athens until midnight to come up with an acceptable reform plan. 

Nobody knows what will happen. But Greeks are pulling as much cash out of ATMs as they can… 

There have been lines at gas stations and food stores… 

And Greek stocks are selling with as much as 20% dividend yield and just over two times earnings. This could be a (highly speculative) opportunity on the upside. 

Meanwhile in China, investors have seen roughly $3.5 trillion in paper wealth evaporate over the last two months… as stock prices there plunged. 

The Chinese are not sophisticated stock market investors. They have only been at it for a few decades. So, they tend to get over-excited in both directions. 

It was only a few weeks ago that Chinese brokers were opening new accounts in record numbers. From farmers to hairdressers, everyone was itching to get a piece of the action, as the stock market soared.

A Gambler’s Market

It isn’t the first boom and bust for China. Between 2005 and 2007, Chinese stocks rose nearly 500%. 

Then, too, the moms and pops rushed in, hoping to make their fortunes. In 2008, the market crashed, losing 73% of its value. 

In the 12 months leading up to the peak of the recent rally, on June 12, Shanghai stocks gained about 150%. Now, the Shanghai Composite Index is down by just under one-third. 

These ups and downs are great for seasoned investors. The idea is to buy low and sell high. What better place to do it than where prices go very high and very low? 

When you are investing in stocks, you either earn returns as the companies you own equity in become more profitable, or you take returns from other investors. 

So if you are hoping to make money in U.S. stocks, at current prices, you have a hard row to hoe. The economy is barely growing and corporate profits are already near record levels. 

In China, there are more stock market gamblers than there are in the U.S. They buy too high and sell too low. 

Overnight, Chinese stocks surprised to the upside – with a nearly 6% jump. It was the biggest gain since 2009. Most likely, though, it was not a genuine bounce; it was the result of government rigging. 

In the past few days, the Chinese feds have unveiled a set of market interventions bigger than Washington’s TARP bank bailout package in the depths of the global financial crisis. 

Investors tend to do dumb things in China; so do regulators. 

In addition to cutting interest rates and reserve requirements for banks, regulators have suspended trading in roughly half of Chinese shares… eased margin requirements… ordered state-owned companies to buy back their own shares… and ordered state-owned banks to fund those buybacks. 

And the government has warned the financial press – including our office in Beijing – not to say anything “negative” about stocks. 

It’s even promised investors that the Shanghai Composite will hit 4,500 points – about 20% higher than where it stands today.

Another Front in the Zombie War

Of course, we never say anything negative. So when stocks fall, it is a positive thing. 

It is an opportunity. It means you can get more value for your money. It also means fewer resources are drawn into the financial sector, leaving more for the productive economy. 

The trouble in China has little to do with the stock market. The trouble is in the economy. It is managed, controlled, and centrally planned. 

China is just another front in the Zombie War. The authorities there are under more and more pressure to hold onto their power, their money, and their status. 

The result: too much debt and malinvestment. 

And China’s zombie feds are using all the tricks in the book to try to prevent an economic slump – just like in the U.S., Japan, and Europe. 

This has wide-ranging repercussions. China is the world’s biggest consumer of commodities. As colleague Chris Lowe reports below in Market Insight, that’s why a slowdown in Chinese demand is hitting commodity prices hard. 

Global mining stocks have lost $143 billion – nearly 20% of their value – in the last 10 days. Crude oil prices have fallen, too. Some analysts now say oil will drop as low as $20 a barrel. 

As we warned Bill Bonner Letter readers in April, China could fall into a recession or even a depression. 

And unlike Greece, China – the world’s second largest economy – will have a huge effect on the rest of the world. 

We wait to see what will happen next… 

Regards, 

Bill