Over the weekend, I glanced many times at my twitter stream (that was when we weren’t binge-watching House of Cards Season 3).
I felt my anxiety level rise every time I read comments from fellow traders I respect that the market is “tired”, “expect a 2-10% correction”, “the month of March can be wonky” and so on. After all, I have been shepherding the notion that the market’s action resembles sheep mainly because of the Chinese New Year Astrology but mostly because it seems to fit the bill adeptly. Market gently rallies (or grazes); fills up quickly (small rallies without a lot of volatility; scatters to sleep off the meal feeling somewhat vulnerable or heavier (gently sell-offs); and within a short period of time, comes back to graze once again.
So why try to predict when the Sheep might get slaughtered? Instead, follow the rotation of money (and of course volume or where the smart money is going.)
My focus last week was the commodities-Oil (USO, Gold (GLD) Commodity Index (DBC) and Silver (SLV). I wrote that none except for USO closed up for the week. I added that none of those had the volume to suggest “smart” money came in to buy. I proposed we look for continuation to the upside only without a big commitment until we see volume. USO remains range bound with low volume.
Noteworthy is that volume was equally unspectacular on the selloff. Conclusion-no major players either way while phases remain negative. Ergo, no focus for me until phases shift and confirm.
We are long equities with most either fairly deep in the money or with several trimmed down already from profit taking. Diversifying using asset allocation into the metals and oil just in case they moved, although seemingly smart at the time, has proved more frustrating. We always sit way longer with winners than losers therefore, the risk was calculated, the losses inconsequential especially compared to our gainers.
Therefore, new shift for now as we continue to survey for wolves. The Financialsector is big this week. Lots of news coming out, the XLF ETF has lagged and continues to elude 24.90 the January Calendar Range high. Secondly, theTransportation Sector (IYT) which if these strong index prices suggest confidence in the US economy (after all, interest rates firmed significantly on Monday) should see play some catch up.
Finally, Retail, which I noted would help with confidence in the market’s overall performance (in spite of those who feel compelled to call tops) rocketed once again to new highs.
Put your ear to the ground and listen to the market-only careful you don’t get your face half covered in sheep poo.
S&P 500 (SPY) Very nice to see lower Relative Strength Indicators (not overbought) as we head back to the highs Subscribers: Positive Pivots in all
Russell 2000 (IWM) Volume on this rally and low RSI’s here too-should be a good sign overall
Dow (DIA) Like a second opinion by a doctor, always wait a second day for confirmation before calling tops
Nasdaq (QQQ) Nice leadership today-new multi-year highs
XLF (Financials) Cleared 24.50, now we need to see over 24.60 then 24.90 the January Calendar Range high
KRE (Regional Banks) 41.06 the January Calendar Range High to clear
SMH (Semiconductors) From consolidation to blast off
IYT (Transportation) Inside day with 165.17 January high Calendar range
IBB (Biotechnology) Muscle man went spinning instead of pumping with an inside day
XRT (Retail) Made the case for more upside as expected
IYR (Real Estate) Finding some support
ITB (US Home Construction) Still looks ok
GLD (Gold Trust) Failed the move over 116.90 again with support at 115
GDX (Gold Miners) Held the 50 DMA which means still in play unless it breaks hard under20.60
USO (US Oil Fund) Light volume range-bound
TAN (Guggenheim Solar Energy) Monster!
TBT (Ultrashort Lehman 20+ Year Treasuries) TLTs Broke the 128 key support –rate talk summer for an increase
UUP (Dollar Bull) Took out the channel but at the top of it
EEM (Emerging Markets) Has to clear 41
EWG (Germany) Like as it long as it holds 29.50
FXI (China Large Cap Fund) long term bullish
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:
FB If holds today’s low, like this over R1 80.23 for a continuation move day to mini
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:
PAY Over 35.69 actually thinking more mini to swing here if holds today’s lows-for a day to mini has to hold the pivots
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)
***NOTE: For now, swings are tougher since we have so many trades on-looking at these as daytrades maybe minis with tighter stop/profit targets
BKD Look for an ORR rather than chase strength. Long term very bullish
GT Inside day-condition improvement. Risk for swing is the 50 DMA for a daytrade to mini is the 10 DMA at 27.15
EBAY 57.85 support with over 59.00 on its way to new highs if we can get a good day to mini risk
EMC Sitting on the 100 DMA and consolidating 28.67 support over 29.00 good (negative pivots has to clear R1)
TOL Over 38.50 with a tight risk to 38.00, like it to see if it can clear 40 and keep going
FDX Negative pivots but over today’s high clears the 10 DMA and if transportation is strong-could be a good day to mini
AMZN Perfect daytrader if holds 381 and holds up-could see 400 or higher
Category 4:N/A
Phase Change:
DDD Leaving this here so we don’t forget about it. Basing and a matter of it clearing 32.40 now
AFL 62.00 now the area of support with an inside day
SLB Waiting to add over 85.00 with risk for all under today’s low
Shorts: SINA DISH
Category 5: Titanic-Bear Phase, Negative pivots, not oversold, Risk R1 or previous day high. Target: Day to swing
NBL Unconfirmed bearish phase if stays under today’s high as risk for a miniswing
Category 6: N/A
Best Best wishes for your trading,
Michele Schneider
