Prepared by Geoff Bysshe, President of MarketGauge, filling in for Mish for Until February 11th.
The market is breaking all kinds of long standing records - new heights, biggest moves for the month of January, equity fund cash inflows, and more. So is now the time to jump into this market?
Why did stocks rally? Friday's employment data was not outright better than expected. In fact, the bond market's initial reaction was typical of bad economic numbers. But stocks reacted overwhelmingly bullish, and bonds quickly changed their initial "weak economy = lower yields" stance into a one of the biggest intra-day change of direction days we've seen in months!
This market is not complicated right now. It's going up. Don't fight it, trade it. There will most likely be a pull back into the January range, but as a trader you don't need to wait for a correction. You can simply focus on good low risk entries and letting your profits run right now. The game right now is in selective bullish breakouts and buying dips. I'd expect a trading dip in the coming week, but this should not keep you sidelined until it happens.
Subscribers, "Subs", you should know the short-term rules for keeping your risk tight so that when the market rolls over you're not going to get hurt. Review them, and enjoy the markets momentum right now.
If you're not a premium subscriber, make sure you know how to control your risk - there is plenty of it up here, but the trading opportunities make it well worth being in the game.
S&P 500 (SPY) The melt up continues after a 2 day pause. If it pulls back look for support at 151 and 150.60 because of the pivot levels and the market's prior respect for these levels. Subs: Pivots positive. The FTP and prior swing level of 151 area is the big level to maintain on Monday.
Russell 2000 (IWM) This is has been and will continue to be the intra-day indicator to watch for determining the day's trend. Subs: Pivots Positive. The S1, 89.90, level lines up as key level.
Dow (DIA) The media is focused on 14,000 Dow, but I only care that it follows the rest of the indexes right now.
NASDAQ 100 (QQQ) Hard to trust, and it requires that you keep an eye on AAPL, but there is big breakout potential here. 67.80 is the big level then look for resistance at 68.30. For support, look for 67.50-.35 Subs: Pivots Positive. If AAPL is at all positive and this breaks out I'll be focused on the Q's!
GLD Trapped between the 200 and 50 DMA. I think that if you want to trade this right now on the long side you should consider SLV instead - the chart is cleaner. Either way, I'd wait for a break of the last three day range for a momentum trade.
SLV (Silver) Friday's range defines the tipping point of a multi-day wedge. Therefore a break of this range could lead to a nice directional move. I'll only trade the long side move and 31.22 and 31.41 are key levels to break with a target of 32.40. Subs: look at the 60 minute chart and you'll see the wedge. Draw the trend line from the Sept. 2012 highs and you'll see the target area.
XLF (Financials) Nice big breakout confirms the health of the overall market's rally. I don't want it to pull back, but I don't think it's worth chasing up here either.
IBB (Biotechnology) Nice breakout of a big consolidation. It has weekly highs to contend with but this is one to watch for a big move higher if Friday's momentum continues. 148.50 is key resistance. Support at 147.40 and 146.80.Subs: A nice low risk entry would be against the support listed above or even S1, 141.60 area. There is a risk of a double top being put in, but establishing an small initial position within Friday's range would put you in good shape take a low risk position that you could add to on a breakout over 148.50.
SMH (Semiconductors): Nice breakout over a very key level of 34.69. Like XLF, I think waiting for a pull back is prudent 34.70-.60 would be my first level of support to consider. Subs: S1, and the breakout of 34.70 line up beautifully.
XRT (Retail) I'm not buying it (no pun intended). The very tight range last week had very big volume and no movement higher. Friday, the market moved up and this broke out and stalled. All things considered, I'll wait and see on this one.
IYT (Transportation) One of the best groups this year. May need a little more digestion time before a new leg up.
IYR (Real Estate) Nice pull back, traded well on Fri. Look for support at Friday's low, 67.40 and potential for a move back to the highs if it clears Friday's high of 67.85. Subs: Two days of down pivots now turns to positive pivots. Watch for OR breakouts or O.R. Reversal.
USO (US Oil Fund) Nice recovery from gap lower. Up trend is intact, but trading intra-day reversals is probably the best strategy for low risk entries.Subs: if you're in from Mish's swing trade Friday's low is your best stop.
OIH (Oil Services) Look at the weekly chart. Draw the wedge resistance line from the 2/24 high (let it also extend back to the week of 8/19/2012. It may be a rough ride up but there's big potential here. Subs: The 43.80 area is daily support and FTP. This area will be pivotal and worth probing for long entries if intra-day action agrees.
XLE (Energy) Short-term is a little unclear, but long-term looks very similar if not better than OIH. Subs: watch this and OIH together.
TBT (Ultrashort Lehman 20+ Year Treasuries) Entered on the lower open on Friday. Massive reversal to the upside supports what we've been saying for months - trade this on the long side! If you're not already in, look for a pull back. Subs: I do not trade this without looking at the ETF that really drives it -TLT. The TLT's FTP lines up beautifully with the prior swing low area, 116.16-.30, and the 1-day pivot high lines up with more daily resistance in the 116.80 area. These areas line up on TBT pretty well but look at both. These are good areas to look for a reversal. If you're in the swing trade you've already got over 2 ATR's. A tight stop would be under the FTP and Thursday's high of 68.27.
XOP (Oil and Gas Exploration) Look at the weekly resistance line from April 2011. Key level to break now is 59.80 Subs: Watch the 10 DMA now to hold, but action is getting choppy.
XHB (Homebuilders) Why pause here? Look at the July 2006 lows.
Longs: On categories: Gap higher days we go to all categories and choose ones with lowest risk that break the opening range. On weaker days, we look at
Category 3, especially if the picks hold S1, previous day lows or a major moving average and have a good risk on the reversal. The difference between Category 1 and 2 is the stock condition-a Condition 1 is strongest stock and more likely to make a parabolic move.
Note: Anything that is on this list is a candidate for a swing trade-(of course market condition is a factor) -use the max risk mentioned along with an opening range stop using fudge factor and time confirms. I suggest you decide on 1 or 2 that have a risk you like and then position size accordingly.
Category 1: (Aloha) Positive Phase, Condition 1, 2 days under the FTPs, Risk to Previous Day low, Can buy ½ over FTP and ½ over R1, Target- Day to at least 3 ATRs from entry:
N/A
Category 2: (Pipeline) Positive Phase, Condition 2-3, 2 days under the FTPs, Risk to Previous day low, Can buy ½ over FTP and ½ over R1, Target- Day to at least 3 ATRs from entry:
N/A
Category 3: (Double Up) Positive Phase, Condition 1 through 4, Positive Pivots which means can either buy a opening range breakout or candidate for Opening Range Reversal, with Risk S1 or previous day low, whichever is lower unless noted differently, Target- Day to at least 3 ATRs from entry: (Opening range reversals are good on anything above S1)
HOT (reports 2/7): Tight consolidation breaks over 62.16
FCS: Prefer a reversal, must hold 15.00. Resistance at15.50.
ORLY (reports 2/6): Must be above 92.80.
URBN: Must be above 42.80
TRIP: Looking for a breakout over 46.50 next hurdle and should hold 45.70
LNKD: Must hold 122.90. Looking for breakout over 125.00. Key levels to break are 125.17 and 125.40
BAX: Looking for reversal. Key areas are 68.50 and 68.20. Big weekly resistance / breakout at 69.00
RHT: Trying for a big weekly breakout from consolidation and a multi-month trend line a basis. 56.60 area is pivotal. Friday high is 57.10. Must hold 56.00.
PNC: Only looking for O.R. reversals over 62.40
TSL: Should hold 5.17. Over 5.30 is a nice breakout
V: Must hold Friday low of 157.30. Prefer enter over 158.00. Over 158.50 is a nice breakout. Watch for resistance at 160.00-.20.
CNI: Inside day and very compressed so could go either way. Breakout is over 96.05. 95.50 area should be good support.
CHRW (reports 2/5 after the close): Thursday's flush makes it look ready to go back up, but it must clear 67.11 before I'm interested.
WLP: Nice retrace to the 10-DMA. Must be above 64.70 which is just under S1 and also a key daily support level.
Category 4: (Rip Tide) Oversold (2 or more days under FTP), Condition 4, Needs to clear R1, Risk previous day low unless noted differently, Target- Day to at least 3 ATRs from entry:
RIMM -Note will change its symbol soon. This is a real spec play. Sitting on the 50 DMA so if big volume comes in with a good intra-day set up its worth a shot.
F: Must hold 12.90
Phase Change:
N/A
Shorts:
Category 5: Titanic-Bear Phase, Negative pivots, not oversold, Risk R1 or previous day high. Target: Day to swing
BXP: Sitting on the 50 DMA. Must be below 106.30. Watch for breakdown below Friday low of 105.02.
MNST: Consolidating after a big drop a couple weeks ago. Must be below 48.40
Other Shorts: Not in a negative phase but in a position to fall if the market sells off
ACE: A sling shot reversal. Needs to confirm by trading under Friday's low of 85.28. Keeping an eye on it in case the market gets weak.
AMZN: Struggling after earnings. Negative pivots so looking for O.R. reversals with 269 in the stop. Must be below R1 at 268.15.
STX: Inside day. Must be below 34.00
PVH: Prefer OR reversal against 117 or 117.50. Should not trade over 118.50 area.
Best wishes for your trading,
Geoff Bysshe
President
