Japanese Candlestick formations are a great tool. Not the only tool we use, but certainly if not thing else, so much fun to study. Coming into last Friday’s session, the double harami or 2 inside days in the small caps (IWM), although not as clean a move to make it textbook, resolved eventually to the downside with follow through on Monday.
The inverted hammer in NASDAQ and the IWM from last Friday, again not text book, resolved themselves to the downside as well making the beginning of this week either a setup for some unbelievable buy opportunities, or the start of shorting every rally until further notice.
And of course I would be remiss not to mention the contrarian horse theory. Typically, the next 3 weeks are among the most profitable for the year. OPEChas been higher 80% of the time during options expiration, which happens this week. Since 1980, the SPY has been higher in December 82% of the time when the market has been in a bullish phase.
Losses are generally less than one percent. The biggest drawdown was in 1986 at 2.8%. So which will it be? The galloping horse or the one that bucks the trend?
Continue to watch Interest rates, Oil and NASDAQ carefully. Options flow on the buy side has been scant. If that changes or volume (not usually expected from here on in until 2015) comes in, then have more confidence in the trend. Nonetheless, I continue to advise caution with smaller positions sizes, tighter stops and shorter timeframes.
S&P 500 (SPY) So contrary-unconfirmed phase change to warning. Upward sloping 50 DMA so a recapture of 200.28 better Subscribers: Negative pivots in all
Russell 2000 (IWM) Unconfirmed phase change to bearish. Only a recapture and hold over 114.23 would change that. I do like the upward sloping 50 DMA here as well.
Dow (DIA) So contrary-unconfirmed phase change to warning. Upward sloping 50 DMA so a recapture of 172.51 better
Nasdaq (QQQ) The 50 DMA holdout which comes in at 100.75. Last time the other 3 indices broke they’re major moving averages, this held the 50 DMA firm-so we shall see.
XLF (Financials) Also holding the 50 DMA so far at 23.72-look here for a rally even if it’s short term
KRE (Regional Banks) Broke the 3 moving averages and has to confirm. A move over 39.32 would be impressive
SMH (Semiconductors) Definitely faring better than the others and super far from the 50 DMA.
IYT (Transportation) Closed slightly green and above the major moving average. However, this is working a breakdown from the highs as well
IBB (Biotechnology) Sliced below that 305 support, now resistance with next support the 50 DMA 290 area.
XRT (Retail) Another one that did well but still has a reversal candle near recent highs therefore until it takes out 94 not that impressed.
IYR (Real Estate) Broke 76 which is now some minor resistance
ITB (US Home Construction) 24.00 key
GLD (Gold Trust) Broke the critical 115.75 and followed through for a really good daytrade at least.
USO (US Oil Fund) 4 days of major selling and higher than average volume. Oversold. Will look for an inside day maybe even a positive close and then perhaps a near term bottom is in place
TBT (Ultrashort Lehman 20+ Year Treasuries) 46.32 was the 10/15 low in TBTs. Made a new low today and closed higher-maybe some relief ahead
CORN (Corn) Subscribers: Confirmed over 27.00-Like to see a dip to buy
BAL (Cotton) Subscribers: Inside day under the 50 DMA-worth watching
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:
HCA If holds 72.21 have a good day to miniswing trade especially if clears 74.80
KMX if holds 58.50 then might be a good day to miniswing trade if can clear R1
WDC If holds 105.06 the 10 DMA then clears first pivots at 105.78 then R1 at 106.73 has room to upside for mini to swing
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:
AVGO Broke the 10 DMA but still close enough at 98.77 making this a good one to go to if the market firms especially over the 10, pivots and R1 for a miniswing
EXPE Prefer to see this over 88.80 the 10 DMA but for now, continue to like the outperformance with risk 86.45
Category 3: (Double Up) Positive Phase, Condition 1 through 4, Positive Pivots which means can either buy an 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)
ROST Impressive day. Now, over 90.38 rusk and we could see more upside.
RCL If holds 77.51 have a clean day to miniswing over 80.00
UPS over 111.57 good day to miniswing trade if holds 110.34
TSO 75.65 the 10 DMA could not hold, but I prefer buying dips in this especially against S1 74.45
Category 4: N/A
Phase Change:
PNRA Closed on the 50 DMA so now if holds today’s lows have a good tight risk for a day to mini over 166.56 the pivots
CYH Over R1 is the best scenario to wait for now 51.45 with stop at 49.57 and a roll down for swing
FNSR If clears 19.00 that’s bullish with stop at 17.65 for swing
SFM Over 31.42 takes out channel and the 200 DMA
Shorts:
Category 5: Titanic-Bear Phase, Negative pivots, not oversold, Risk R1 or previous day high. Target: Day to swing
UNP Today’s high and the 50 DMA good resistance if breaks 111.89 for day to miniswing
CBS Phase change unconfirmed back to bearish with good resistance at 53.76. Mini to swing
GILD confirmed phase change to warning and has good resistance up to 105 area. If breaks 103.48 the 10 DMA then 100.00 could see much lower prices for mini to swing
Category 6: N/A
Best Best wishes for your trading,
Michele Schneider
