From a “student of the market” perspective, this is truly an incredibly fascinating summer market. From a“trader’s” perspective, this is somewhat agonizing and certainly a test of one’s resolve in one’s trading system type of market.
The most difficult market to trade for a swing trader is one that goes contrary to typical swing trading formulas-buy strength, sell weakness. Had one followed that formula for most of this year, it could have done some real damage to one’s P &L. So, how does a trader adapt to buying weakness and selling strength?
For me, it’s all about knowing the phase the instrument you are trading is in. Once you know that, then one must calculate the risk/reward relative to that phase keeping in mind where the current price lies.
To that end, let’s examine the Russell 2000s. No surprise that has deteriorated in phase, entering anunconfirmed distribution phase (price under the 200 DMA). At the same time, it held the July 17th low 112.20. Therefore, that becomes the risk point to keep in mind. What has to happen though to trigger a potential buy? It now has to clear and close above the 200 DMA, which if it does, offers a solid risk/reward setupprovided the buyer sticks to the stop and understands risk/reward ratios.
The above is a brief bird’s eye view of how I apply technical analysis for buying dips-way different than merely catching a falling knife!
S&P 500 (SPY) The notable feature here is the hold of the trendline which one can draw from the lows of 6/27 runaway gap day Subscribers: Negative Pivots in all except QQQ
Dow (DIA) Almost touched and for now held the 50 DMA
Nasdaq (QQQ) Held the fast moving average with 96.30 pivotal Subscribers: R1 is 97.18
XLF (Financials) A move back over 22.98 would give this some juice
KRE (Regional Banks) Not ready yet
SMH (Semiconductors) Touched and held the 50 DMA
IBB (Biotechnology) Fairly close to the 50 DMA
IYR (Real Estate) 73.00 pivotal
ITB (US Home Construction) 22.58 the 2014 low
GLD Digestion day
USO (US Oil Fund) Subscribers: 37.84 is R1
TAN (Guggenheim Solar Energy) Subscribers: Held the 200 DMA so might be an add tomorrow over 41.75
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:
*NOTE: If the risk to the 50 or 200 DMA is more than 1-2ATRS of risk, assume that the trade is a miniswing trade. Swing denoted with a * Also not including anything that reports within 3-4 days of writing list
*PANW Reports 8/27 80.25 good risk if this clears 83.52-probably better for a miniswing risk but can hold if works out
*JPM 58.60 good risk with 59.40 R1 to clear-also good miniswing risk that can be held if works out
Category 2: (Pipeline) N/A
Category 3: (Double Up) N/A
Category 4: (Rip Tide) N/A
Phase Change:
LGF Day to swing depending on risk setup-over 32.30 looks good to 33.60 last swing high and perhaps beyond
*CSIQ Reports 8/15. Over R1 or 28.42 looks good with risk to 26.75
*PM Only if clears 84.95 and holds 84.10 for a new swing trade
DRI Darden Restaurants CEO Clarence Otis steps down, board appoints Charles Ledsinger, Jr. as chairman effective immediately. Read on twitter end of day with a big jump-makes it worth watching at the 50 DMA
*FSLR Reports 8/6 Still like after today’s gap over the 50 DMA-has to hold 65.00 Longer term can see 107-108
*STM Never traded this semiconductor but had a slingshot under the 200 DMA and crossed plus retraced to the 80 month moving average. Confirmation is over 8.63 with risk 8.46 ATR .25-great risk
Shorts:
**NOTE: Thinking that we should use daytrading risks on shorts and only carry overnight if closes in our favor-while market in bull phase
Category 5: Titanic-Bear Phase, Negative pivots, not oversold, Risk R1 or previous day high. Target: Day to swing
ACT Reports 8/5 After a slingshot high broke the 50 DMA which if confirms could see drop to around 205
OXY Reports July 31st. Good day to mini if stays under the 50 DMA at 100.65
TRIP Reported under S1 98.45 looks weak with risk to 100.45
Category 6: White Cap-N/A
