Watch List Rebuilding

Observing price and money flow during corrections offers an excellent opportunity to rebuild watch list and notice emerging themes. Stocks showing relative strength and demand during these periods are noteworthy. One of the simplest public domain tools available is BarCharts All-Time-High. Going through last Friday's list and sorting by sub-industry shows a cluster in Chemicals: POL, EMN, GRA and NEU.

POL

EMN

GRA

NEU

Another technique I've been using is a year high volume scan on the Worden database and looking for stocks that meet this criteria. I chose this because for one I consider it significant and meaningful and secondly it produces a more manageable universe of stocks to watch as on any given day a very small handful will meet this parameter. Here are some recent additions to my list.

ACI

CFNL

COHR

SSI

TASR

TYL

Weekend Review 10/26/2012

The current correction has been somewhat deceptive due in part to the relative strength shown by the SPX. The close of this week shows the SPX down 3.29 from the 9/14 high and the Russell and NASDAQ are down 5.01 and 5.32 respectively. Usually I use the $BPNYA but this weekend I decided to do a comparison of indexes based upon their specific $BP signals and do a comparison to the corresponding index and it's price relationship the last time it was at these levels. What stood out was the NASDAQ with only 54% of stocks showing a buy signal compared to the NYSE at 66 and SPX at 69.

$BPSPX

$BPNYA

$BPCOMPQ

Many consider the NASDAQ to be the leading indicator and outside of the obvious that it has pulled back further, the 14% disparity in stocks showing a buy signal is more glaring. Going into this week I'm leaning bearish and focused upon SPX related ETFs to short the general market. The main reason I'm looking at the SPX is that should heavy selling begin to hit the market and given the relative strength thus far, this looks like the better risk/reward play.   

Triple Top and Confirmed Down Trend

It wasn't completely clear to me after Tuesday if this was the initial stage of a rally or a short term bounce but after the past two days action there is no longer much doubt.  The SP which looked the strongest through the majority of this pull back and was within range of a new break to a 52-WK high has put in a triple top pattern to close this week and the NASDAQ which was dragging confirmed a down trend.

SP Triple Top

COMP Confirms Down Trend

Wednesday Watchlist

AG

CQB

ELLI

ENOC

INXN

NKTR

RAX

UNTD

GMMA Perspective of Correction

Historically corrections of 5% occur on average of 3 times per year. Of the major indexes that I follow, only the NASDAQ-100 pulled back to this level on a closing basis and much of that has been erased with today's 1.41% up move.  Using GMMA charts of a few of the major indexes I follow shows that this has been an orderly pullback and although the major long term moving averages have squeezed, they've yet to roll over to the downside.  

GMMA NDX

GMMA COMP

GMMA RUT

GMMA SP

In general my current bias is still to the upside until the market confirms otherwise.  Besides retail showing sector strength there are a number of charts setting up nicely, something I typically don't see when there is an erosion in the overall market.  The one caveat I've had as of late hast been a breadth signal I use which has been neutral due to a lack of buyers or sellers.  Now that earnings season is gearing up this week I'll be looking to this indicator to support my views that there is a buying opportunity here on a swing term time frame.  Until then I'll take some shots with smaller positions and wider stops.

10 Day Buyng/Selling

Retail/Textile Sector

With the market correcting I've been pruning off the stocks that have broken down and replacing my watch list with new set-ups. One theme that has begun to emerge from some of my scans has been in retail/textiles.

VFC is approaching new highs and GIII hit a new 52-Week high today.

VFC

GIII

GPS, KORS and CHS continue to base just under their highs.

GPS

KORS

CHS

MW has retraced its earnings break out and is hovering above a well watched 50MA. URBN and ANN have held their earnings break and are also hovering above their 50MA.

MW

URBN

ANN

JOSB and LULU have also held their earnings break out and continue to base.

JOSB

LULU

Trade Review: Opening Range Breakout

Yesterday I mentioned in my weekend review that I felt the market right now is frothy and as such I was going to be more discriminating in my set-up selection and focus upon beaten down or highly shorted stocks. I considered taking smaller positions with wider stops to adjust for volatility as an option, but decided instead to look for short-term opportunities for a day trade. One stock that caught my eye was WNR.

Recently I came to a fundamental shift in my trading philosophy. This shift in awareness occurred serendipitously in April when I attended a trading seminar by Pradeep Bonde at StockBee as well as coming across three books, 'Day Trading With Short Term Price Patterns and Opening Range Breakout' by Tony Crable, 'Hit and Run Trading' by Jeff Cooper, and 'Trading the 10 O'clock Bulls' by Geoff Bysshe.

One of the central principles is that from range contraction comes range expansion and that price tends to move in the direction of this expansion. To gauge range contraction I focus specifically on the same price pattern used by Crable, Narrow Range 7 and Inside Day 4. After the close of the market I scan through my set-ups and watch list for stocks that meet this price bar pattern and place it on a list of 12 that I will watch for the open.


Regarding range expansion, Jeff Cooper notes, “Over the years, I have observed the number of times a stock will trade around its 50-Day moving average for a period of time, and then without warning, explode either to the upside or downside.”


When preparing for this week and making watch list I noted a scan that a number of oil/refineries were in the top 20 and one in particular stood out, WNR. In addition to what I believe to be constructive price action, there was an ID4 that touched the 50MA. As an added bonus, according to FinViz 25% of the float on this is short. I considered this a low risk trade that if triggered should work immediately with price confirming in the direction of the break.

WNR

So now that I had the set up I simple waited until the trigger, a break of the opening range high.  At first my bias was to the downside as there was a price gap up/fade on the open so I set a reminder alert in case there was a reversal and entry signal later in the session.

WNR OR

I differ slightly from what Jeff Cooper considers a Range Expansion.  For consistency with NR7 I use a WR7 which WNR met at the end of the day. Under more preferred market conditions I would have held this for a swing but given my belief that this is market is has breadth issues I opted to sell the position.


Another trade I took today was HAIN which I've been watching for weeks now after it had an earnings break out. 3 days ago a logical pivot low was established confirmed by a higher close the next day. I felt confident about this stock given that it is catalyst driven, confirmed a logical start to a swing and had an inside day 4.

HAIN

This triggered an entry signal early which I took, unfortunately sometimes even the best laid plans... My exit was very premature.

HAIN OR