Letter to my Subscribers:
Given the historic event of the US downgrade by S & P, let's not lose perspective that any/all historic events have created and will create opportunity. To survive as a trader, one has to adapt. And to adapt, one has to have an educated plan. If you have been a classic position/swing trader, unless you have been short for some time, you must now expect volatility which will make risk harder to calculate. Although there are those who have maintained a short position, for the most part, even seeing the signs coming, you most likely have been more like me-in spite of the island top in SPY, the poor economic numbers of late and the increasingly dysfunctional US government, you have daytraded, taken small overnight positions, but stayed mainly in cash because you could not or would not believe that the US could be in fact downgraded; nor could you bring yourself to profit from the country's negative outlook. Now, we must take emotion out of the equation.
Currently, the indexes are in a distribution phase trading under the 200 DMA. A bearish phase occurs when the 50 DMA crosses beneath the 200 DMA. That has not happened yet and there is no guarantee that it will. However, even in a distribution phase as we have seen, 200 point ranges are typical. The strongest rallies happen during distribution and bear phases and typically last 1-3 days. Therefore, daytrading and at most miniswing trading will prevent carrying too much overnite risk right now. And let's not forget that every historical drop ultimately becomes a buy opportunity. We have the tools and the experience to help you determine when those buy opportunities will occur.
It is during volatile markets that our strategies work best. As former floor traders in NY, we honed our strategies during volatile times with short term trading. Understanding how to look at the pivots, their stack, resistance and support points, and most importantly combining all of that with the opening range strategies from the breakouts to the reversals along with understanding risk and proper position sizing, trading success is within your grasp.
Sure, we will have losing trades, but controlling risk is the penultimate goal. Then, when you lose you lose small. But, when you catch the momentum you are riding a wave of fear or greed and the profits far exceed the losses. No random trading right now. This environment requires focus, discipline, and a trading plan that is adaptable and flexible according to the sentiment of the day. At this point, it is difficult to predict the short and long term impact of the downgrade. But I do not trade with an opinion nor do I listen to the opinion of others. I read the signs that charts tell us. The volume patterns tell me this for sure-volatility is a reality and the trend is in a strong warning. But, we are not in a bear phase yet. Fear can turn to greed on a dime and still anything can happen. I urge you to use the strategies and be flexible!
Today's picks are based on technical analysis after Friday's close before the downgrade announcement. Use the picks as guides but wait for the perfect lineups of support, resistance, the opening ranges and risk before entering any trades. If you are currently not using my twitter feed, now is a good time to do so as things will change rapidly and I will be there to help you manage your trades and take advantage of this historic opportunity. If you know what to do, this is time to make the most money.
SPY More about volume patterns. Thursday, the volume did indeed double. But what is fascinating is that in anticipation of an accumulation day in volume on Friday with a close in the green, instead it tripled the average volume and closed in the red putting in a huge Distribution day once again. Given the announcement about the downgrade after the close, if 177.25 area holds up, would be interesting. Otherwise, expect the FTP to be resistance.
DIA Although it is a smaller barometer, the volume patterns are a bit different. Thursday was indeed a Distribution day in volume, but not double what the average daily volume is, hence not as potent. Friday, however, it had an Accumulation day in volume closing in the green. 113.70 the FTP now pivotal.
QQQ Same as SPY. Had triple average volume, 53.73 pivotal area, R1 55.15.
IWM Friday we got double the average daily volume with prices in the red. 71.62 the FTP, now pivotal.
ETFs:
GLD A bearish engulfing pattern followed by an inside day is powerful. Add the positive pivots and this is really an "anything can happen" scenario. Under Friday low, see a quick drop to 159. Over Friday's high confirmed over R1 162.62, and clear skies.
SLV Got short the Opening high failure Friday for a great position daytrade. I did not stay short because it landed on and held the 50 DMA at 36.36. The positive slope is now neutral which means a move back above 38.37 very positive otherwise, under the 50 DMA trouble.
OIH Triple the average daily volume Friday. To get long for more than a daytrade, needs to clear R1 and Friday high at 141.37. The FTP is 135.69 to work from. XLE very similar with R1 at 70.38.
TLT** One of the best trades Friday, which I publicly tweeted, was buying TBT near the lows and riding it up 1.40 after anticipating Thursdays run in TLT was a blow off rally. However, since TLT did not break Thursday's low, I sold the TBT at the end of the day. Under 102.27, will look to re enter the TBT in anticipation of a move to 99.00 in TLT the 10 DMA.
Longs: "I had an awesome trade today fading PCLN at the 5min or low. Picked up a quick $750 and was out." Ken. All 3 of us have talked about the fade/follow the 2 or 5 minute OR especially on earnings gaps. Nice to see subscribers using it and making money.
Monday's picks a combo of Oversold Condition 4 Nuggets, Non Nuggets that outperformed the market on Friday and a couple of inside days.Note that if the market comes in much lower, the FTP and R1 can turn out to be resistance on any of these picks.
QCOR Filled the gap which I usually find not as strong a scenario as when the gap is unfilled. Nonetheless, still want to see R1 now at 30.60 taken out before holding a long position for miniswing or even swing. Low risk is around 29.00. Day to mini
MA 2 inside days now and 2 days under the FTP. Friday was amazing. First a 5 min OR failure, then an OR reversal off of the 10 DMA. Great both long and short. Provided it holds 323, would then like to see it rally over R1 at 333.87 for a bull flag breakout and retest of the highs or beyond. Daytrade
FO**Held the 200 weekly MA and ended Friday with an inside day, triple the average daily volume and positive pivots coming in at 54.38. Would risk to S1 53.55 less than .5 ATR for miniswing trade looking for possible move to 59.00 if market cooperates. Day to mini
SYMC** Way oversold and holding the 200 DMA at 16.85. Big volume Friday. Over the FTP at 17.14, low risk to the 200 DMA and over R1 17.68 could see a run to 18.30 or even 19.30, the high of last week. Day to mini
AGP**The last week of 2010 the low was 43.90. The first week of 2011 the low was 44.03. Last week the low was 43.17. It is way oversold on the weekly chart and ready for a short covering rally perhaps to 54.00-just under the 50 DMA. R1 is 45.39, the FTP is 44.28-areas to watch depending on how it opens. Day to mini.
BIDU As long as 138.80 area holds, the 50 DMA and it gets above the FTP at 140.97, could see the beginnings of a rally with good confirmation over R1 which corresponds with Friday's high147.20. Then can see a move to the 10 DMA at 154.67. Day to mini
IDCC Has a bull flag forming which will cross above 70.20. In the meantime, 2 days under the FTP now at 67.03 with immediate resistance it must clear at the 10 DMA which lines up with Friday's high 68.97. Day to mini if market firms
COG I want to include an oil and gas stock and this is a Condition 4 oversold on the daily and holding a positive sloping 50 DMA on Friday at 64.48. With 6 days under the FTP, has to clear 67.07 with a good risk to 64.36 for swing, 65.90 for mini and the 1 Day pivot low for daytrade. Then, R1 is at 69.55. The 10 DMA is at 72.25. Day to mini.
HLF*tested and held the upward sloping 50 DMA and held the 10 DMA at 57.87. 3 days under the FTP at 57.79, a good risk. Must clear R1 59.90 and then could continue the rally if market stays firm. 64.00 overhead resistanceDay to mini
Note: SODA has earnings and could be flagging to upside
Shorts: So many oversold stocks still. Watch for any of the above picks with negative pivots that fail R1 and have an OR high failure to short with a low risk if market is weak.
CF**Even with great earnings failed the negative sloping 50 DMA at 149.64 and has negative pivots at 145.24. Over 152.18 would not short. But, if can't get through Friday's high and fails the FTP, would with a target of S1 139.66 and possibly beyond. Day to mini
COST Price under the negative sloping 50 DMA with negative pivots at 76.30. Should that level break, risk to Friday's high 77.53 with R1 at 77.83. If breaks S1 75.15, has underlying support at the 200 DMA 74.50. Day to mini if 200 DMA breaks.
Have a great Sunday!
