Weekend Review 02/21/2014

One of the characteristics for much of 2013 was the tendency of the general market indexes to be in lock step with each other.  There was a high propensity for V-Shaped bounces to make a marginal new high that was followed by a dip or digestion.  While there wasn’t perfect harmony, and outside of short windows where one would outperform, there was unison in that if one made new highs the others would follow shortly thereafter.  Since the January pullback and bounce the COMPQ has been the first to make a new marginal high, the SPX is within a whisker, and the $NYA, $RUT, and $INDU are still trying with the later two struggling slightly.  This may simply be a period of outperforming by two while the others play catch up, but if there isn’t unison in new highs, a change of market character should be noted.

COMPQ

$NYA

$RUT

$SPX

$INDU

Based upon what has been the norm since 2013 I’ve jotted down a few things to pay attention to in the near future.  1) Will the lagging indexes catch up and make new highs or will the leading draw down?  2) The SPX is in a zone where it churned from December through January.  It is a concern if this does not break and run through convincingly.  3) December and January are seasonally strong for small caps and they are now beginning to lag.  4) There are breadth divergences occurring.  Will they matter this time?

The breadth divergences that I have jotted down are the following:  The number of stocks in the NYSE above their 20 period moving average is in a zone where pullbacks or digestion zones occur.

$MMTW

The T2108 has been showing divergence with fewer stocks participating with each bounce:

T2108

The number of 100 day highs on the SPX has been diverging as well showing a divergence as fewer stocks participate.

SP % 100 Day Highs

This is also shown on the NYSE where the percentage of stocks at 52-Week highs has been steadily declining.

NYSE % at 52-WK Highs

I believe that we are currently in a stock pickers market, especially due to decreasing participation from a narrowing basket of choices. One of the focal points of my chart review session this week was newer issues that are setting up on the weekly time frame near their 10-WK MA or their all time high, as well as those that have gone up 100% from their low.  As the meat of earnings season is winding down and catalyst will be fewer, I suspect there will be some good risk/reward trades from many of these newer issues.

BFNT

SBGL

ADHD

CTRO

LEAF

STAY

Weekend Review, February 14, 2014

Across the board the major indexes have undergone another V-shaped recovery with the COMPQ and SPX testing new highs while the RUT lags.  Whether this matters remains to be seen, but for the time being there's at least one chart with a head and shoulders pattern for one to hang their hat on.

$COMPQ

$RUT

$SPX

Going into this holiday shortened week I'm optimistic given the number of charts from my watch list setting up continuation patterns.  I return to bar charts from candlesticks yet again as I reevaluate my charts from the perspective of developing one's chart eyes (Kacher/Morales).  I tend to find that the patterns are simpler for me to perceive and I'm able to more quickly and efficiently identify the set ups I'm willing to trade.  This weeks bakers dozen:

AEIS

AER

APOL

ARAY

DHT

DXM

HZNP

SIMO

SMCI

TK

UCTT

VMC

CSII

On my time frame the market I trade looks healthy with a bountiful of opportunities to take advantage of.  Given the V-Shaped recovery it's important to avoid stocks that mimic the markets pattern and look for those that have consolidated in a sideways fashion.  One of the keys for me over the next week or two is the behavior of the indexes when they clip new highs as there has been a strong tendency for this to mark the end of the meat of the move before there is a pullback.  During these periods I've noted that the tactics used have more importance than the overall strategy and that while the later should not wag the dog, the prior are more subjective to the markets whims.  For myself that means more aggressive in profit taking and less forgiving of stocks that lack follow through within a few days of entry.

Our Trading Data Lies to Us

We are only as good as our data source and our data source is often inconsistent if not outright misleading.  I’m not 100% sure if realizing this earlier would have improved my trading but I understand it now much more vividly and it has altered my approach, especially in stock scanning.  One would think that the most simple of data points, a stocks float, would be constant across multiple providers, but it’s not.  Ex: SNCR- 18.2M from TeleChart, 34.4M from FinViz, and 21.15M from Yahoo.

What about volume?  Well, TeleChart’s volume is provided through BATS and often TC rounds, so 2.4M today, 2,363,466 from FinViz, and  2,364,181 from Yahoo.  And keep in mind this is just the known volume on the session and does not include dark pools so we can assume it’s probably much higher than any of these numbers. And Price?  Our charts deceive us here as not every price tick gets recorded and this results in the fact that the days high and low may not be accurate not only because of dark pools, but sub-100 lots will not register a tick on the end of day chart.

What about earnings? Today FLDM had earnings and ThinkorSwim has an estimate of -0.18 with an actual of -0.15. Briefing has and estimate of -0.13 and an actual of -0.04. Now I understand how analyst estimates can be site dependent, but the actual result should have no wiggle room what so ever.

Trading is a game of incomplete information and so is our trading data.  This can effect our entire trading plan from our vehicle selection and which stocks enter our universe and which do not based upon our scans as well as the criteria we use to build them.  This can effect our entry signals based upon which source has the most current and up to date information let alone the most accurate.  This can effect what type of alerts we use and what combination of criteria they are based upon.  This can effect how much we choose to micro-manage our trading.

What I’ve taken from this realization most is acceptance that there is an inexactness to trading and to release the tension of perfection in making sure I have the best candidates to trade. I no longer worry that I have the most precise entry requirements.  When price runs through an alert but it never triggers and I lose profit as a result of not exiting at my target or my stop runs slightly and my loss is larger, I’m much more at ease in letting it go.  In other words I’m learning remove precision, allow for sloppiness, and be OK with keeping it simpler.

Model Book February 06, 2014

Some recent additions to my watch list for the next three to six month time frame.

YELP

SNCR

PTEN

ENS

Model Book January 31, 2014

On occasion even one of your favorite, long defunct bands, can surprise you with a gem you've never heard before. It got me thinking there must be a trading lesson in there somewhere, and maybe it's in my Pick-6 I pulled from one of my scans.

ARAY

MOD

MTW

SZYM

WYNN

ZYNGA