Year High Volume and Rotation and Watch List

Since late October I've been keeping a list of new highs, all time highs, and year high volume. In the beginning I had a concept as to why I was doing this but I didn't have a clear direction. Through this process a number of ideas were germinating but I was clearly lacking a cohesive plan on how I would begin to use this information. Each time I take on a project like this I become concerned with redundancy in my process and the possibility that what I'm doing is superfluous and unnecessary and takes time away from applying myself to more significant and pressing issues. Luckily this has had a positive effect and the time I've spent on this has proven to be worth while.

In keeping tabs on year high volume I've noted that this does not occur often on a daily basis so that it is easy enough to keep a watch list that isn't overwhelming and can be managed easily. Additionally, it's been excellent at highlighting significant changes in a stocks character when price begins to follow volume after a clustering of such days. Another feature is the clustering of sectors and sub-industry groups for observing rotation in the market.

The following images contain the symbol and Worden Sub-Industry Group of stocks in November that I decided were worth adding to my list. Using this process I jotted down the Resort & Casinos theme with the three listed stocks, PENN, PNK, and ASCA all making year high volume on 11/16.

In having this information accessible it has become more meaningful when other stocks begin to follow . This past Friday another Resort & Casino had year high volume, MGM.

MGM

The same process can be applied and adjusted to IPOs for which I look at 3 Month and 6 Month volume highs and CZR, also in the Resort & Casino industry, had its highest volume since it's debut.

CZR

For myself, keeping tabs on this information is simple, easy, and more importantly, manageable. Volume of this magnitude is not created by retail traders, it's the foot prints of institution money. It's worth paying attention to when and where this happens for context as well. On neglected stocks hovering at lows for months or years, this can be the first signs of accumulation. After a prolonged down trend this can be the last flushing of old hands capitulating, especially if it's a gap down. At highs this can be a warning. For further research I'd recommend the price activity of CPSS and ZIP.

ID4/Historical Volatility Set-Up Confirmed

Primary

Intermittently today the Primary Indicator I follow flipped positive and negative. Although by the end of day this finished positive by +10, I had a decision point when it was negative as to whether or not I would further cut down on my risk exposure and chose to do so by closing out a couple more positions including CNFL which I posted a few days back. There continues to be headline risk assessed in the market so I'd rather scale back positions to a more comfortable level of management and continue accordingly.

There's a set up of interest that completed today on the SPX which is described in the Connors/Ratchke book 'Street Smarts, High Probability Short Term Trading Strategies' that is based upon the work by Tony Crabel and is described as follows:

When volatility reverses direction, it is more likely to continue in that direction. Thus, once volatility starts to contract, it will continue to decrease until it reaches a critical reading. At this point, the cycle will reverse itself. Then when the volatility expands, the ensuing explosion will continue to propel the price in one direction. 

Inside Day 4/Historical Volatility < 50

The Set Up:

1. First, we will compare the six-day historical volatility reading to the 100-day

historical volatility reading. We are looking for the 6/100 reading to be under

50 percent (in other words, for the six-day historical volatility reading to be

less than one-half the 100 day historical volatility reading).

2. If rule one is met, today (day one) must be either an inside day or an NR4 day.

When both rules one and two are met, we now have a setup.

3. On day two, place a buy-stop one tick above the day-one high and a sell-stop

one tick below the day-one low.

4. If your buy-stop is filled, place an additional sell-stop one tick below the

day-one low. (The reverse applies if your sell-stop is hit first.) This will allow

you to reverse the position in case of a false breakout. This additional

sell-stop is done on the entry day only, and expires on the close of this day. A

trailing stop should be used to lock in profits on a winning trade.

If this set-up triggers then there may be an increase in volatility and a directional range expansion which may set the tone for the market in the near term.

Muted Buying

4% Break Outs

There has been a persistent but muted bid to the market since 11/16. This buying was enough to flip the timing model I use to buy and I acted in accordance and started to initiate some positions. Regardless of what my views and interpretations are of the market, in the end I choose to trust the signals that I follow. Yesterday there was a rare tie in the +/-4% break outs that I monitor with 66 each. I consider this stalling action and am reminded of an earlier occurrence I documented in a March post. I still maintain this view and am proceeding forward with caution as of this time.

The Primary Breadth indicator that I follow has also peaked and turned down.  If this flips it will be another red flag for me.

Primary

For myself it was prudent today to draw down my risk exposure by liquidating one position and taking some money off the table to compensate for what I still have exposed. If selling hits the tape and the Primary flips bearish again I'll look to liquidate the reaming positions and wait for the market to reset for me.

CFNL Trade Plan

CFNL

One stock triggered from my watch list so I took a position in CFNL for a swing trade. CFNL is in my Year High Volume watch list for the month of October so I've been stalking this for quite some time now waiting for a set-up. The trigger for the trade today was a wide range 7 day that followed a narrow range 7 with an increase in volume from the previous session. The wide range bar triggered first and I waited for volume confirmation before taking an entry at 15.35 with a stop at 14.87, risking 1%. Volume continued through the close and established another year high volume day.

My first target is 15.83, a 1R gain at which point I will ratchet my stop up to 14.94 to cut the risk exposure as much as possible to 0.5R. My next target is 16.31 when I'll move my stop to 15.83 to lock in 1R. At this price the stock will be at all time highs with no overhead supply so I'll adjust my stop incrementally in attempt to balance catching as much of the swing as possible without choking off the trade too early.

Weekend Review 11/30/2012

I was reminded today that now all is what it seems, especially with indicators.  For the past few weeks I've been comparing the following two charts and have noted divergences between the $BPSPX and $BPCOMPQ with the later showing the most weakness.  The same can be noted in RHSPX and RHCOMPQ respectively.  The following charts clearly show this.

SPX

COMPQ

However, when taking these same two indicators and viewing them in relation to a PnF chart from which they are derived a much different perspective emerges.  As determined not by a line declining along a chart but by the price action of the underlining components another story was being unfolding.  This was a helpful reminder to be more conscious when taking indicators and abstracting them in a different form and trying to draw the same conclusions.

$BPSPX Point and Figure

$BPCOMPQ Point and Figure

This oversight aside, my bias is still to the upside and this is the direction I am leaning in my analysis coming into the week.

Of note on Friday was a clustering of year high volume in Industry Group: Health Services in the Worden database.  Of these, the most notable is GNMK which did so with an all time high as well.

ATEC

CSU

RMD

USPH

Going through the All-Time-High and New-High database that I've been collecting since October 26th, there are a few stocks that I'll be keeping an eye on this week, with quite a few being new issues that have held up well since their debut.

AMBA

CFNL

ODFL

RH

SSTK

TYL

WAGE