Buy The Bulls, Sell The Bears

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Only Dead Fish Go With The Flow?

With all the focus on the Fed’s meeting this week, it’s a good time to bear in mind that sometimes the solution to a problem is a little counter intuitive. For example…

Japanese fishing ships keep a small shark in their fish tanks to maintain the value of their prized catches of tuna!

Their problem was that they were having to go further and further from Japan to catch tuna, if they froze the fish, consumers didn’t like the taste. When they put the tuna fish in the tank, they would become sluggish, which apparently, also affected their taste.

The simple solution… The shark, however, would keep the tuna darting around the whole return trip to avoid being eaten.

The FED is Our Shark

This week I have both written and tweeted that ahead of the FED meeting and with the market in a fairly predictable trading range, traders should buy the instruments that are in Bullish Phases when the indices were following through to the upside and short the instruments in Bearish Phases when the indices followed through to the downside.

Furthermore, I began the week suggesting that we, “Keep stops tight and take quicker profits keeping in mind that your risk should not be more than what you expect in reward.”

Sound simple? It is but only because the market is in a particularly unique situation. Typically, following a trend for swing trades makes sense regardless.

However, I would make the recommendation to swing trade in the direction of a trend when the market is actually “trending.”

Currently, the market is “stalled” ahead of what could be a watershed FED meeting.

Review of Bullish Phases For Longs

Between the daily commentary and twitter, I have listed Home Builders (XHB) and Home Construction (ITB) as 2 ETFs to track for short term longs. Biotechnology (IBB) and Regional Banks (KRE) are 2 of the Modern Family picks for longs.

Equities that made the list are Amazon (AMZN), Owens Corning (OC), Google (GOOG), Facebook (FB), Expedia (EXPE). Not all of those outperformed the S&P on Tuesday, but all gave you money without a lot of risk.

Short Side

Retail (XRT) has been a weak link. Of the Modern Family, I mentioned looking there for shorts. Specific Equities mentioned include Suncor Energy (SU), Axiall Corporation (AXLL), Autodesk (ADSK) and Dollar Tree (DLTR). 3 of the 4 underperformed on an up day and have given great short term returns on the down days.

Trading in the direction of the Phase is a Traders best ally. Wallowing in the fish tank, so to speak, can turn a live fish or good position into a dead one or at the very least, a distasteful one.

For now, we can trade like tasty tunas, welcoming the shark (FED) and going with the short-term flow, reducing risk and taking profits ahead of the announcement.

S&P 500 (SPY) Range still the same-200 will be the next big resistance to clear with near-term support at 195.

Russell 2000 (IWM) Holding 114 thus far, trouble if that breaks with 116 closest resistance which marginally failed on the close and now is a good pivotal number

Dow (DIA) 159.74 low from 2 weeks ago is best area of underlying support. 166.75 level the point to clear

Nasdaq (QQQ) 104 to the 200 DMA at 106.93 is a decent trading range to expect ahead of the FED.

Volatility Index (VIX) Back under the 200 DMA for an unconfirmed Recovery phase

XLF (Financials) cleared 23.20, now pivotal

KRE (Regional Banks) Good follow through and not surprising considering its my prodigal son status in the modern family and one I have been friendly to all year

SMH (Semiconductors) Tested 51.22 and closed in an unconfirmed Recovery Phase

IYT (Transportation) 146 pivotal with this closing in an unconfirmed Recovery Phase

IBB (Biotechnology) 346.35 key support

XRT (Retail) Still weak with support to hold 45.50 unless it resurrects over 46.75

IYR (Real Estate) Closed around unchanged. Still like this after we see what the FED does provided it holds 68.45 on a weekly basis. 69.60 short term support to hold

ITB (US Home Construction) Didn’t do much but still in a Bullish phase

GLD (Gold Trust) 107.70 the 50 DMA resistance and 105 support

USO (US Oil Fund) With all the buzz about “oil at $20.00”, this continues to respect the 14 level

UNG (US NatGas Fund) Been basing since May with 12.28 rock bottom support

TAN (Guggenheim Solar Energy) Over 30.93 clears the 200 weekly moving average. 29.50 near-term support

TLT (iShares 20+ Year Treasuries) As confused as I am sure the FED is now on what to do.

UUP (Dollar Bull) 25.00 is the point to clear

EWI (Italy) Higher lows and back over the 200 DMA-after FED could be a contender

FXI (China Large Cap Fund) Still think a move to 38 area possible then hits the wall for best short trade risk

JO (Coffee) Why I love a 2-day confirm-did not confirm the island bottom when it filled the gap