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.