Weekend Review January 29th, 2016

10 Day Buying-Selling

During correcting markets it is not uncommon to see multiple days with intraday swings in excess of 2% on the indexes.  While it was positive to see multiple indexes close near their highs with 2-3% moves at the end of Friday's session, it was more promising due to broader based buying.  One means in which I keep track of that is the differential between buying and selling of stocks over a 10 day window.  What has occurred over the past two weeks is one of the lowest readings since I've been tracking this swiftly become positive.

This positive can also be seen in the new leadership scans run which were showing 99 stocks at the end of last weeks session plump up to 368 this week.

New Leaders 338

While some of my shorter term scans are perking up and my belief is that in the least a tradeable bottom is now in place, the next step is waiting for my momentum scans on my time frame to plump up along with stocks setting up favorably to increase.

Weekend Review 01/22/2016

While I view the market as binary, I choose not to do so through the prism of bull or bear market, but whether or not a market is conducive to my style over my time frame.  One of the reasons I take this view is that it is on my terms and not contingent upon someone else's perspective, belief, or just plain bloviating.  Recently I've seen a number of views as to whether the market is currently in a bear phase or not.  I've seen: We're in a bear market because the Russell is down over 20%.  We're not in a bear market because the SP is only down 10%.  We're in a bear market because the number of NASDAQ stocks above their 50 period average is below 10%.  We're only in a correction.  We're about to top after a 7 year bull run.  We're not in a 7 year bull run because the Russell dipped 20% in 2011.  Confused yet?

This weekend I'm not looking at breadth metrics in particular.  Weakness beget more weakness the past couple of weeks and expectation of a reflexive rally failed to produce.  So now my expectation of a strong bounce has only increased and I continue to view this as a high probability event.  Whether it is conducive to trading on my time frame or not is a different issue to assess.  What I am looking at this weekend is my scans to see if there are potential candidates.  The reality of the situation is that there really aren't many to look at since my scans are barren to begin with.

One scan that I run it to look at stocks that have made a $15 move over a month period.  There are only three that met the scan conditions.

$15

Another I run is is stocks that have shown consistently steady momentum readings.  There are 9.

Slow and Steady

A scan to check for stocks that move my expected return over time frame shows 99.  If I limit this by the stocks that meet my momentum requirements there are 17.

Return over TIme Frame

As I'm primarily a long oriented swing trader the scans I run daily tell me everything I need to know about my market.  The number of stocks hitting new lows vs. new highs over different time frames tells me what I need to know about the general health of the market.  What anyone else says shouldn't be informing me.

This is often easier said then done.  As a market participant I believe that most of us have the best intentions but fall into the same pits.  Most of us at one point int time have said we would stop doing something or listening to somebody, yet not follow through.  Most of us have said at some point we would improve one thing about our trading, yet not start.  As some point we've likely said we'd simplify our charts only to add one more indicator after rebuilding them from scratch.  There's a good change we've said we'd simplify our watch list and vehicle selection only to open up the restrictions when there weren't enough candidates.

We're currently in a chippy market when everybody has something to say and expect others to appreciate their 2 cents like it's a nickel.  There will be calls of a crash.  There will be post of people claiming to nail the bottom to the penny.  If ever there are times to focus on controlling what can be controlled and hermetically sealing oneself in a vacuum it is now.  If there is a time to listen to the market alone it is today, with the market closed. Put on a headset and listen to some tunes, the only respectable noise to be letting in right now while doing your own analysis.

Weekend Review 01/08/2016

After nearly a year long hiatus which I may talk about another time, I enter 2016 much like I did 2015.  I'll consider this a tune-up post to get my head back into the game.

It doesn't take more than a quick glance of nearly any index chart to see that the market has been less than conducive to trade on my time frame, and I suspect many other's time frame as well.  This week I decided to take some notes and observations on higher time frames than my usual to get a slightly bigger picture perspective before burrowing down.

I decided to look at a monthly chart of the indexes using a 6 and 24 period moving average.  The logic behind using these two averages is that I quantify my universe by 3-6 month momentum, and that momentum higher than a year tends to mean revert.  One of the things that stands out is a cross of these two averages happened rarely over the past decade and a cross to the upside signified a prolonged upturn in a market cycle while a cross to the downside signified a turbulent period.

SPY Monthly

QQQ Monthly

IWM Monthly

If past occurrences of this are a road map to guide us down the path ahead, treading lightly and being nimble until more concrete positives pave the way might be worth keeping in mind over the next 2-3 months.

On a weekly time frame using GMMA, infrequent occurrences are also forming as multiple moving averages continue to roll over on a higher time frame with the IWM taking the brunt of it for the longest.

SPY GMMA Weekly

QQQ GMMA Weekly

IWM GMMA Weekly

While I think on a higher time frame there are going to be some challenges ahead as the market shakes off whatever it is currently worked up about, there are some positives to be mindful of in the near term.  First, the percentage of stocks below their 40 and 200 period moving averages are in the zone where bounces tend to happen and bottoms get formed.  This suggest that there is a high probability of a snap back rally which can be taken advantage of through the indexes more easily than stocks.  It's simpler to find a vehicle selection from index ETFs then anticipating which type of stocks might see the benefit of a bounce: value, growth, momentum, most oversold, setting up best, fund favorites etc...

% of Stocks > 200 MA

% of Stocks > 40 MA

In addition one of the indicators I follow is in a zone where over the past couple of years there has been a significant low in place on the indexes.  There are a few situations where this has undercut the 6% threshold but this would just favor a probable snap back.

% of Stocks > 25% in a Quarter

Two scenarios I envision Monday morning are a gap down flush which would offer a low risk opportunity to go long from my perspective, or a gap up which would also offer an opportunity but one I'd approach more cautiously.  Shorter term there will be some tactical opportunities and longer term I believe there will have to be some strategical adjustments to be made until the market gives greater clarity of a resumed up trend.  

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.