Weekend Review 10/18/2013

With a debt ceiling reprieve the market continued to march along, but in reality it never really showed much concern to begin with. So, for the folks paying attention to the market alone and ignoring the news it was a very good week indeed. For folks waiting until afterward it was a very good couple of days. Now that the anxiety has expired and the jubilation has commenced, is there reason to be cautious here in the midst of exuberance?

Looking at the breadth numbers I follow the market is heavily extended here and the probabilities lean towards a correction. Will this be through time, rotation, or price remains to be seen. Will there be one at all remains to be answered, but it looks likely.  Coupled with these readings, the COMP, RUT, and SPX popped outside their Bollinger Band today and since indexes have a strong tendency to mean revert, this event is confirming from my view point.

Extreme Readings

% of NYSE > 10MA

% of NYSE > 20MA

T2108

$ NASDAQ > 50MA

NASDAQ BB

RUT BB

SPX BB

The data suggest I should be cautious over the next 5 days. Putting this information into context and a plan based upon my experience, I'll be less likely to trade break outs on shorter time frames and near their highs.  The rational behind this is that follow through during a pullback becomes an issue so avoiding extended stocks and looking for pullback candidates that are breaking out will take priority.  Additionally I'll be more focused on A-grade set ups and whittle my watch list down to stocks on a weekly time frame that are setting up near their 10-period moving average. Some candidates I'm eyeing:

AVG

DGLY

DWCH

ENTA

MKTG

TUES

Also, the meat of earnings season is underway and I'll be dedicating time this week tracking those that meet my requirement and fleshing out a core watch list to trade off of for the next 3 to 6 months. One stock I'll be keeping a close eye upon and look at building a position is ZHNE.  I have a higher degree of conviction in the potential of this candidate and will look to commit some size and hold as a position.

ZHNE