The Present Is The Equilibrium Of The Past and The Future
Charles de Leusse
Tuesday, we saw corporate consciousness, first by Walmart and then by Amazon, as they both announced the end of selling Confederate Flags and such from their inventory.
The distinction, on the other hand, of the stock prices of those two companies couldn’t be more glaring as what I imagine is the distinction between those celebrating the flag removal versus those criticizing it.
Amazon had a huge move higher on Tuesday, closing better than it has since April 24th and challenging the all-time highs made the same day at 452.65.
Walmart is trading near 2015 lows and at the lowest levels since 2013. I will note that Walmart is at the critical 200 week moving average support. These long term weekly moving averages are inflection points. I make no conjecture here other than the risk, either for shorts or for longs, should be clear depending upon which way the stock reconciles.
2015 Divisive Market
2015 is no stranger to this type of divisive price action, especially within various sectors and groups. This diversion has led me to watching the rotation of my so-called Economic Modern Familythis year, (IWM, XRT, IYT, SMH, KRE, IBB), as well as evoking the Sheep imagery as the trading range 3 of the 4 indices remain inside of.
NASDAQ appears even more convincingly now as the one to watch for a break of 111.16, the intraday 2015 high, and what happens once or if it gets there. Since it’s super close, probably safe to say there’s a high probability.
Equilibrium Theory Applied to Trading
Tuesday, I did some reading on John Nash’s theory of Equilibrium. John Nash, a mathematician and subject of the film, A Beautiful Mind, recently died in a car crash.
Basically, it’s a game theory that is widely used for predicting outcomes using a set of players, a set of actions and a payoff function that represents each player’s preferences over actions or list of actions.
His theory states that no single player can obtain a higher payoff than the other opposing player given that the outcomes are equally unknown. To put this another way, those outcomes are like trying to ascertain which came first, the chicken or the egg. It’s unpredictable.
To apply this to predicting the market outcome based on what happens with Greece, the Fed raising or not raising rates, random tragic events, weather related disasters etc., is UNPREDICTABLE.
Probability
Therefore, what we have to sink our teeth into is risk/reward ratios based on probability.
Probably NASDAQ will rally over those levels, probably Amazon will make new highs, probably Walmart will sell off further, and probably the Economic Modern Family will continue to work in concert to tell us what’s coming next.
That’s the best way I know of deciding what is investable: relationships and their probable rewards and discernable risks.
S&P 500 (SPY) Volume lighter, while this remains range bound Subscribers:Slightly negative pivots SPY QQQ Positive Pivots DIA IWM
Russell 2000 (IWM) Quietly unstoppable and closer to but not yet overbought
Dow (DIA) Confirmed bullish phase with 180.30 support and over 182 better
Nasdaq (QQQ) Until we get a decent clearance over 111.16, lots of range bound noise
XLF (Financials) Held near the highs from last week
KRE (Regional Banks) New highs!
SMH (Semiconductors) Over 58.47 better but for now, we at least want to see this hold 57.08
IYT (Transportation) Holding onto 152 which is highly pivotal
IBB (Biotechnology) Quiet move to new highs!
XRT (Retail) Granny got her groove on-like to see this clear the 2015 highs joining Gramps
IYR (Real Estate) Buckled to the rising rates
XHB (US HomeBuilders) 36.98 is the highest weekly close since 2007- Maybe this week
GLD (Gold Trust) Typical lack of follow through type action since April
USO (US Oil Fund) Noisy until it clears 21.50 or fails 19.00-note cleared 20.45 the calendar ranges
XOP (Oil and Gas Exploration) Good reversal from Monday’s lows but not on impressive volume-worth watching however
TAN (Guggenheim Solar Energy) Inside day. If holds 42.00 good and over 43.50 even better
TLT (iShares 20+ Year Treasuries) 115.26 the 6/10 low
UUP (Dollar Bull) Back up near the 50 DMA resistance after holding the 200 DMA support
IFN (India Fund Inc.) Interesting over 27.00
GREK (Greece) If this holds now over 11.34 seems 13.00 will be the next hurdle
EWP (Spain) *Subscribers: Corrected today which means watching for a move back over 36.22 with risk to under the 200 DMA
EWI (Italy) *Subscribers: Inside day at 16.00-good place to hold
CORN (Corn) Looks like it wants to base-cleared the 50 DMA-first time since March if holds
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 3, Intermediate-Term Positive 4, andLong-Term Positive 10. 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:
*TXT If holds 45.85 like for mini to swing ½ over 46.10 and ½ over 46.50-5-30 minute OR
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:
*LLY 2 days under pivots. Like risk to under 82.32 and has to clear 82.96 for ½ then today’s high for the other ½ swing or mini 5-30 min OR
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 15.15 risk. Good over 15.50 any OR any timeframe
*EWI Inside day at 16.00-good place to hold-negative pivots-swing best
*DE Day to swing risk after an inside day. Has to clear 94.15 with potential to see multi-year highs
*TASR Risk to today’s lows max. Over 34.52 good and over 35.80 should take it to new highs. Any OR
Category 4: (Rip Tide) N/A
Phase Change:
*ALKS 2 inside days. Risk 64.20 over 67.88 clears today’s highs. Good for day to swing. Any OR
*NFX Phase change unconfirmed to bullish. Over 38.00 looks good with risk to 37.00 near today’s low for a mini to swing –any OR
CDE Since we have only a partial position, would add 250 plus shares over 5.85 R1 and have stop under 5.53
GM Inside day. Over 36.54-58 like if gets volume with risk to 36.13 for a mini to swing trade-Any OR
Reversal Trades: (Glass or Brick Wall Bottom or Top):
N/A
Shorts:
Category 5: Titanic-Bear Phase, Negative pivots, not oversold, Risk R1 or previous day high. Target: Day to swing
*PH Risk 119.50 Support down at 116-Any OR Good for any timeframe depending on how it sets up
*QCOM Risk 67.80 and under 65.93 breaks recent support. Any OR Day to swing
LMT Watch for move under the 200 DMA at 190.67 for swing with risk to high the day it breaks the 200 DMA
Category 6: White Cap-N/A
Best Best wishes for your trading,
Michele Schneider
