Maybe it was the news that the Grateful Dead is reuniting for a concert tour. Maybe the bounce in the oil and interest rates helped. Or perhaps it was the start of Awards season with everyone, including Mr. (Ms.) Market, walking the Red Carpet.
Whatever “woo woo” one can imagine as contributor, the fact remains that last Friday, as the official six month calendar range activated date, (looks out for the next six months), which also lined up synchronistically to the December 2014 to January 2015 range, the market held and rallied.
As the session began, we were ready to pounce as a short seller under the low of the range. After all, following the way the range breaks is a high probability trade for the active trader, even though we also wrote throughout last week that the market seemed determined to stay range bound for the time being.
Since I look for at least two of the four indices to present the same patterns simultaneously (whether it be phase changes, reversals, breaks of ranges, etc.), the S&P 500 opened just at the January low, held and firmed, while my favorite index, the Russell 2000s opened marginally lower than the January low but well above the December low. To make an analyst’s day even brighter, IWM landed precisely on the 200 daily moving average, then firmed throughout the session.
Therefore, we did not short the market; yet other than a couple of small miniswing longs, we did not want to overcommit to the upside at this time either. The volatility index that measures the level of fear in the market did not decline in proportion to how much the market rose.
The December low to the January high range although wide, has now been one month in the making. If one were to draw a box around the price action from December 16, 2014 until Friday, one could see that the top and bottom of the box are the salient points to break. Pretty much everything else in the middle interprets as indecisive, mixed (friendly yet cautious), while the opportunities for anything more substantial or for a longer timeframe trade comes from specific equities that are either changing phases or conditions. Plus, with earnings season here, those pickings are a bit slimmer than usual.
During the weekend, I dusted off the American Beauty album, filled up the car with cheap gas, took a road trip, spent some US Dollars and donned a SILVERball gown as silver is the new black.
S&P 500 (SPY) After holding December low, rallied up to resistance just shy of the fast moving average. 202.40 an good area to pierce before we start talking about the 50 DMA. Subscribers: Positive pivots all
Russell 2000 (IWM) Held the 200 DMA, good rally like the SPY, up to the fast moving average resistance. That could mean the start of something bigger or just as easily, nothing more than a good short opportunity if fails here.
Dow (DIA) We needed to see this recapture 175, which it could not. Caution does prevail
Nasdaq (QQQ) Even more cautious here since this can go one of two ways. Friday was a new 60 day low with a strong close for a reversal (confirmation important) OR another one that rallied to resistance and that’s that.
XLF (Financials) Similar to QQQs except for one major difference-we are nearly through big banks reporting earnings and this popped off of a new 60 day low which was atop the 200 DMA
SMH (Semiconductors) Good to see this firm yet, the real deal will be over 54.00
IBB (Biotechnology) After a big ouch breaking 310 last Thursday, this roared back near the highs. Way to go biotech!
XRT (Retail) Double top at 97.15 confirmed but not so fast bears, crossed back over the 50 DMA well
IYR (Real Estate) The market didn’t weaken and this went to new highs
ITB (US Home Construction) Ok. So it held the 200 DMA and ran. Lots of overhead but a good start nonetheless
GLD (Gold Trust) The power of a phase change happening after 6 months in a decline. Nice move.
GDX (Gold Miners) 22.80 its 200 DMA
USO (US Oil Fund) Not convinced this was over completely, using the strong reversal pattern from last Wednesday, we jumped back in, locked in ½ and will see if it can clear 18.70
TBT (Ultrashort Lehman 20+ Year Treasuries) TLTs Sorry to be so fickle, but back to the high volume new highs possible blow off scenario, even though I hear every smart person says low rates here for a long while
UUP (Dollar Bull) Another moonshot but now, big volume makes me suspicious of a possible blow off.
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:
MRVL Cleared the 10 DMA and now has to clear R1 15.73. Mini to swing
DKS If holds Friday low, has to clear R1 53.56 for a 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:
VMC Inside day and has to hold the 50 DMA 66.00 and clear R1 67.44 which also clears the 10 DMA. Mini-swing
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)
BYD Got over 13.00 and looks poised to see 14.50 area if holds 13.00
CI Closed well so now, has to hold Friday low and could continue if clears 108
RCL Reports January 26th. Good for a miniswing if holds 82.80 out of the gate
LAMR Inside day. Like if holds 54.30 and clears R1 and Friday’s high
HSP ORR only unless you have a good daytrade risk on new highs
ODP Read has had fresh buying. Now, over 8.14 aligns the 10 DMA and R1 with risk to 7.60
Category 4: N/A
Phase Change:
CIEN Wedge forming which means over 19.50 it clears it for a mini to swing
GOOG Reports January 29th. Will hold as a miniswing trade to see if can get to 530 area
PWRD Sitting under the 200 DMA. If clears 19.26 and holds the low of the day it does it, then we have a swing trade (China stock).
Shorts: The index ultrashorts are all just under the 100 DMA. One more push gets them through as a short option if you can only buy
Category 5: Titanic-Bear Phase, Negative pivots, not oversold, Risk R1 or previous day high. Target: Day to swing
CSIQ 22.55 max risk with weakness now preferred
QCOM Under 70.00 can see down to 65.00
Category 6:N/A
Best Best wishes for your trading,
Michele Schneider
