Anticipation Entry

Today I took a position in HAR in anticipation of a break out within the next 5 trading days.  Today was a very narrow price range day on the smallest volume after a sizable move.  Although the previous break out failed price has been contracting within a tight zone.  My expectation is that if this gains interest it can make a 5-10 point move from here with with a stop at yesterdays low giving a 2-1+ R/R trade potential.

HAR

The action on LNKD today stopped me out of a recent position for a loss.  One of the points of anticipating breakouts is to avoid potential traps like today where price moved favorably in my direction only to give up all the gains and then some.  Had I the opportunity to pay more attention today it is clear in retrospect that moving my stop to BE after giving up four points in my direction would have been wise.  Although my stop did not get hit officially I closed the position at the end of day as the price history shows this can trade with wild swings and with my stop was not much further below today's low so closing it was prudent as my risk/reward ratio is now inverted.

LNKD

One positive trade from my list yesterday was ORLY which after taking some heat yesterday, made a clean $2.68 move today, closing near the highs and with volume behind it.  As a price target I don't see why $214 isn't achievable on this.

ORLY

Buying Before the Break Out

One set up that I continue to explore is anticipation entry before a break out, however rather then waiting for an actionable price entry signal I've been honing in on buying during price contraction.  The inspiration for traversing down this path was the lack of follow through on my vehicle selection through much of January and early February.  As with most investigations, the market wagging the dog and potential style drift should be acknowledged.  Whenever exploring new ideas it is important to filter them through one's trading philosophy and determine whether or not it compliments current set ups or not.  I've done this by reverse engineering my current set up and focusing not on ensuing price action after entry, but rather the action leading up to it and one of the immediate benefits was recognizing where better triggers or price patterns were available.

An inherent problem to address with entering prior to a break out is having capital tied up in a stock that is not moving.  It's of paramount importance to be exceptionally selective in vehicle selection and awareness of price action and stocks that have a higher probability of putting on the jets in the near term.  As I test this out my current willingness to hold is ten days without movement but market dependent I'll be looking to drop this down to five because in a strong environment like last week, holding for a prolonged period results in missed opportunities cost elsewhere as capital is not available.

Currently I've developed two scans to narrow down my opportunities.  I've isolated stocks that are up 25%+ between 20 through 40 days ago, stocks that are up 25%+ the past 20 days, and stocks over $100 that have moved $15+ in the past 20 days.  I'm focused on stocks that have had strong price/volume moves and have recently shown exceptional strength.  Further refinement is focusing on stocks that have had a near term catalyst, particularly earnings.  In addition I'm narrowing my list down further by sectors that have been rotated into as well as probability stacking through low float/high short interest stocks.  Essentially this is a mealy-mouth means of stating I'm looking for stocks with oomph.

Unlike break out trading where I am looking for expansion with high volume, in this set up I am looking for narrow range days with the some of the lowest volume during the consolidation phase.  I'm also looking to buy within the average price zone over the past ten day period.  One of the main principles behind the logic of this set up is to buy a momentum stock with recent velocity when others have lost interest.  When a stock is in a quiet period it is easier to get one's price and one's size while being able to maintain a fairly tight stop that isn't adversely effected by slippage.  If the stock is truly under high demand the expectation is that there will be buyers on a higher magnitude absorbing at price, and our advantage is when algo and shorter time frame players bid up and assist the the ensuing burst while being positioned early to withstand volatility and potential fading of intraday price hitting a low of day stop on the break out.

The following list is a few recent candidates that fit the set up.  This is the price action I'll be looking for in the future.

ORLY

AMZN

LNKD

NFLX

EBIX

SWHC

BA

Additionally, by preparing for anticipation entry, my watch list gets refined to locate and foresee potential break out trades setting up.  Having confidence to enter these trades before a break out gives me greater confidence to enter these trades on an actionable price trigger of actual break.

Weekend Review 02/20/2015

The week closed positive with both the Russell and COMPQ holding the range break.  The longer this holds the more significant the break becomes, however it wouldn't surprise me to see a pullback/consolidation at this zone.

$RUT

$COMPQ

The main reason I expect some form of consolidation here is that the number of stocks above their 20 period moving average is at levels where the market tends to at least pause if not outright pullback.  So while I entered last week hyper aggressive in my buying and going nearly full on margin, this week I'll be slightly more cautious.  Running my scans I've not noted many anticipation set ups as a number of stocks this past week have had breakouts and continuations.  There are however a number of stocks that could use a couple of more days consolidation.

$MTMW

I've also noted that there has been a plateau in the differential between stocks making new highs and new lows across multiple time frames.  Breadth tends to turn before the indexes so being mindful of this will taper my enthusiasm slightly and increase my focus on how the stocks I'm holding behave.  If I notice a skew away from stocks hitting targets to stocks hitting stop points I'll decrease my position sizing and increase being selective in trades.

New Highs - New Lows

One of the strong positives is the continued sector rotation away from more defense oriented stocks into more aggressive categories.  The market may in turn continue to rotate through over the next few weeks setting up a wider plethora of opportunities to in turn take profits and move them into where money is flowing.

52-Week High Sector Tally

ATH Sector Tally

Weekend Review 02/13/2015

Punch Out

For the past six weeks trading the market on my time frame has been more akin to punching a wet paper bag, only the bag jabs back, and inside is Tyson.  Break outs were failing, those that moved were muted, and neither dropping down in size nor increasing scrutiny of entries seemed to make a difference.  The chop and slop market was better suited for dog paddling or wading than trying to ride a wave.  It was to say the least a frustrating period which in itself was informative because it reminded me that when I most wish to turn away in disgust is when I should be paying the most attention to signs.

Unfortunately the market never informs when it's going to be chop chop death by a thousand cuts and it may take a while before this begins to become increasingly apparent.  A daily of the $COMPQ shows the chop since December and it wasn't until mid-January that it started to become clearer what was going on.  The general market was becoming more volatile with large daily swings to the upside and down where trading with tight stops resulted in one day being in and the next out.  Defense oriented sectors we're making new highs as REITS and Utilities dominated my list.

$COMPQ 02/13

Not only has the past two months been increasingly challenging to trade, much of the previous year had it's nuances as well.  The Russell stepped off the stage in January 2014 and while occasionally making an appearance, disappeared for longs stretches of time.  Much of the universe I trade was stagnant or dormant and misidentifying this action lead to some inefficiencies in vehicle selections for trades.  This board year long base/chop looks to be finally punched through this week indicating to me for the first time in a while it's time to become hyper-aggressive.

$RUT 02/13

Over the past two weeks there has been a significant sector rotation occurring as the stocks making fresh highs has shifted from utilities and REITS to Software, Semi's, and Retail.  This is broadening out as well, and themes for this year are beginning to emerge from cyber security to aerospace that might be playable for the remainder of 2015.

52-Week Highs by Sector

ATH by Sector

It would not surprise me going into a shortened trading week to seem some rest in the market as the move over the preceding three days has begun to extended some shorter term breadth signals.  A pause will be welcomed here as a number of earnings plays the past few weeks have had significant gains and some consolidation will set them up for another leg.  My focal point for building out a watch list this week will be seeking out strong recent earnings with 25% plus moves over the past month or two with young trends forming and notable sector strength.

Weekend Review January 23, 2015

Breadth trends are still struggling and the lack of momentum in the general market continues to be an issue across multiple time frames.  On a shorter time frame of ten days, less than 200 stocks are up my expected value.  One positive is that on a 5 day time frame over 300 stocks have made moves of my expected value.  What I would like to see is this continue into a higher time frame.  Looking at the differential between 4% break outs to break downs, these are net negative ending the week indicating a lack of thrust.

4% Break Outs vs. Break Downs

Moving to a higher time frame of 6 weeks, the number of stocks having moves greater than 13% vs. those less than 13% has had a negative crossover again.

Stocks <> 13% in 6 Weeks

Moving to a 3 month period, theres continued waning of stocks with 25% or greater moves while those declining 25% or greater has been consistently high.

Stocks <> 25% Over 3 Months

Looking at my focus stocks over the past week, while there has been some increase in a few of them, but the extent of the moves has been muted.  The general lack of robustness in the overall market is effecting the post break out behavior and price expectations over my holding period.  This makes for a difficult trading period when 1R losses are not balanced by 2R+ gains.  Easy money isn't being easily acquired during this chop so my general attitude is less is more until there is a bid in the market vigorously increasing prices.

The major theme from sectors making new highs and all-time-highs continues to be dominated by REITS, but there are some other sectors beginning to emerge that might be worth investigating, such as Restaurants and Business Software & Services.

ATH Sectors 10 Days

52-Week Sectors 10 Days

Three stocks that I will focus on through this week in anticipation of a break out:

ISIS

LJPC

SIGM

Potential Change of Character

Two positive breadth developments today worth paying attention.

First, there was a thrust in the number of stocks above their 20 period moving average.

% Stocks > 20 Period Moving Average

Second, the number of new highs - new lows is positive across multiple time frames.

New Highs - New Lows

Four stocks on my primary watch list for tomorrow:

IPXL

PWRD

SONC

VIMC

Weekend Review 01/16/2015

Gauging from the Morning Star Industry groups making new All-Time and 52-Week highs, the current market continues to show a more defense oriented environment.

ATH Sectors

52 Week High Sectors

Additionally the number of stocks above their 20 period moving average closed the week at 39.  The number above their 40 period moving average is at 42.  This indicates to me a lack of robustness in the current environment.  If these conditions remain, one of the adjustments I'm considering is prolonging my holding period since the number of stocks showing my expected move over my time frame is 90, but double that by doubling the holding period.

% Stocks > 20 MA

Anticipation set-ups I'm following for the week ahead:

CDK

RDUS

TASR

Strange Signals

$SPX

$COMPQ

V-shaped recoveries have become the accepted norm and this has held true through December when once again a swift dip was quickly bought and the indexes returned to new highs.  As the recent dip struggles to make a new marginal high, has this tried and true formula begun to run it's course?  It seems odd to me that the one of the signals indicating short term market extremes should trigger while the general indexes are less that 4% from their highs.  It seems stranger still that this signal should come when there's increasing breadth erosion on multiple time frames.

Short Term Extreme Signal

Short term extreme breadth readings typically arise during extended periods where the number of stocks above their 20 period moving average is in the range of 70 or greater.  What's unique about the current situation is that this number is at 37.  These extreme readings are typical of frothy periods of exuberance and has been a key signal during the past year for reigning in risk exposure.  What we're witnessing here is exuberance in one particular sector, biotech, while the vast majority of stocks have been lagging.

%Stocks > 20 Period MA

New Highs - New Lows

This is also happening during a period where the number of new highs - new lows over a 1, 3, 6, and 12-month period has expanded to the down side showing net negative across all time frames.  

New Lows

Isolating just the lows it can be clearly seen that there has been sharp acceleration in the number of stocks making lows over a 1, 3, 6, and 12-month time frame all while the indexes are hovering near their highs.  This is not typically what one would expect to see

As always it remains to be seen how this plays out but for the time being I'm erring on the side of caution until things firm up or give clearer indication which direction the market intends to go.  As of now it's a sloppy environment to be swing trading in.

Scanning For Extreme Momentum Burst Pull Backs

Short term momentum extremes over a month period tend to mean revert.  A recent example of this is CUBA which went parabolic with gains in excess of 100% over a 4 day period.  Another example from last September/October is LAKE which gained nearly 400% over month.

CUBA

LAKE

One approach to these types of extreme moves is to devise tactics for shorting, particularly if there is a high degree of emotional based speculation, which in the first example was the thawing relationship between the US and Cuba, and in the second example, Ebola.  Even though CUBA has very little, if anything at all to do with the country Cuba, it has a cute ticker and sometimes that's enough.

Personally, what I will begin to focus my attention on this year is curating an anticipation watch list of stocks that have exhibited moves of 25%+ over a month period and have had constructive consolidation thereafter without imploding.  The fundamental premise behind this is to isolate stocks that have shown themselves capable of moving quickly through an up swing followed by range contraction while exhibiting characteristics of linearity.  What I'm scanning for is the following:

• Price > $3 
• Price %Change from 40 to 20 days ago > 25%
• Sort by Average Close 2/Average Close 20
• Visually identify linearity, use BB width squeeze for contraction, focus on Nr7 or 1% days
• Focus on minimal Price %Change over the previous 5 to 10 sessions

One of the better looking candidates I've identified for this week is OVAS

OVAS

Another biotech that looks like an interesting candidate is TTPH

TTPH

A stock that moves 200% over a year must first move 100%.  By prioritizing my anticipation list and stalking momentum candidates that have proven themselves capable of moving between 25 to 50 percent I'm looking to increase my odds of taking a sliver of the burst between 100% to 150%.