The Sky Is Not My Limit…I Am
T.F. Hodge
Looking objectively at our radar screen and without factoring in the news, we began this week with a question that all discretionary and systems traders ask:
What adjustments to our portfolio and trading style do we or should we make right now?
I’m here to tell you, been there, done that many times in the past.
With the overall indices both breaking down from their highs and deteriorating in their phases, they all are nonetheless holding well above their 2015 lows. That keeps the notion of the giant trading range (Sheep Theory) intact.
That also begs the analysis of examining the times when we broke with our plan and how often that turned out well versus when we broke with our plan only to find out that sticking to the original reasons for the various positions were right on and from the onset, calculated with the perfect risk parameters.
And isn’t that what trading is really all about anyway?
For swing traders, it’s always about a systematic approach that has time tested well against any and all market conditions and with the understanding that no system works perfectly under every market condition.
I rarely subscribe to the flight to cash type of trading, especially since cash yields are a negative with our historically low interest rates. I’d rather diversify our portfolio by having positions spread out among several asset classes and then for further safety precautions, reduce position sizes.
So where does that leave us currently?
Over the course of the last several years, well outperforming the market. In the current year, considering all of our trading models in total (5 fully automated trading models and one discretionary soon to be fully automated model), performing in line with the S&P 500’s performance.
What me worry?
Rarely. I went into trading over 30 years ago with 3 basic notions in mind. One: We have no control over anything except our own attitude. Two: Everything in life and the market cycles. That means although we may have no control, we do have the ability to look for the telltale signs of where things are within the cycle and then adjust our attitudes (and our trading) accordingly. Three: Cycles measure the regularly repeated and temporary nature of existence.
S&P 500 (SPY) Holding the 200 DMA which of course it has to continue to do. Over 208 most likely good. Subscribers: Negative pivots in all
Russell 2000 (IWM) If this can get back over 124.75 that’s a really good sign. Under 123 can see 120
Dow (DIA) Closed just under the 200 DMA and enough to make it interesting should it open higher
Nasdaq (QQQ) 108.20 pivotal with and support all the way down to 106.50
XLF (Financials) Will be interesting to see if this can hold the lower end of the 2015 trading range
KRE (Regional Banks) Over 44.00 much better and the 50 DMA is 43.00
SMH (Semiconductors) Broke the 200 DMA but well above the March lows-Now, 54.50 a swing point
IYT (Transportation) Made new lows again and closed right on monthly support. A game changer would be a move and hold over 146.40
IBB (Biotechnology) 361 support and over 375 hard to argue with
XRT (Retail) 96.00 underlying support and over 100 this will have new life
IYR (Real Estate) Closed over 72.85 to begin the week, therefore positive
XHB (US HomeBuilders) 36.09 the moving average support to hold
GLD (Gold Trust) So choppy but trying to bottom
GDX (Gold Miners) Other than holding March lows, not sure what’s next
USO (US Oil Fund) That short signal under 19.00 was better than I thought it would be
TAN (Guggenheim Solar Energy) Oversold and waiting patiently for a good reason to buy
TLT (iShares 20+ Year Treasuries) 119 been resistance
UUP (Dollar Bull) 25.33 next point of resistance with support at 25.00
BAL (Cotton) Great basing action
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
***Market Tone: Short-term Negative 2, Intermediate-Term Negative 3, andLong-Term Positive 2. NOTE: Market Tone is updated before the open each day and changes in real time throughout the day.
*All starred picks are from the automated list of picks (which now includes short picks!)
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:
*DE Risk more miniswing to around 95.05 and over 96.50 could continue to new highs
Category 2: N/A
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)
ALK Only like an ORR to control risk to today’s lows
Category 4: N/A
Phase Change: N/A
Reversal Trades: (Glass or Brick Wall Bottom or Top):
*EQR Inside day. Over 73.36 clears the 50 DMA then can risk as a phase change to the lows of that day it clears the moving averages. Any OR
PM Needs to clear 81.60 and hold now around 81.00 5 or 30 minute OR
GPRO This is a Mish trade and like against 48.32 and a move over 51.60 clearing R1 with this oversold
Shorts:
Category 5: N/A
Category 6:N/A
Best Best wishes for your trading,
Michele Schneider
