Weekend Review January 04, 2019

Swing trading often involves looking for windows of opportunity before the door slams shut.  The market may be opening a door as the major indices have had a two week rebound of ~8% from their December low.  In the near term there are two scenarios that I find plausible, one being a retest of December lows and the other being a period of consolidation.

QQQ Scenarios

Scenario A will become clearer should selling begin again.  Scenario B may be a little more nuanced with the indices having wild swings up and down while the underlying buying to selling will be asymmetrical in nature.  What I mean by this is that a stock like AAPL may lead the indices to the downside but the upside is the result of a larger basket.

VIX

Of note this week: Volatility as gauged by the VIX is falling.

Highs to Lows

Highs to Lows across a 1M and 3M time frame is positive.

Trading Universe

If the market does continue to improve and commence a new momentum phase, the universe I trade should expand.  As of now this is still anemic.  This week focus will be on a couple of core concepts: improvement in these numbers,  increase in setups, and stocks over my holding period showing price appreciation.

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 09/28/2012

Given that I haven't done a weekend breadth analysis in some time I'm going to backtrack two weeks to 09/14 which showed confluence of breadth metrics indicating that the market was reaching an extreme zone and susceptible to pullback and perhaps a correction. First, that date established a new pivot and 52-Week high which has thus far held for 10 days without being broken.

SP 9/28

Secondly this coincided with an extreme reading on the Primary Ratio of the MM.

Primary Ratio Market Monitor

Thirdly, the 10 day ratio of buying/selling started to wane.

10 Day Buying/Selling

Also of note is this date pushed the $BPNYA over 70. On the following chart I've noted when this reading has moved above 70 and where the market peaks were. Clearly this reading can remain above 70 for extended periods of time as the SP can continues to rise so it does not follow that the markets have necessarily topped when this reaches an extreme level, but it is an indication that in the least a pullback becomes increasingly likely, sector rotation may occur, and profit taking and asset reallocation can happen. There's also a more problematic occurrence to pay attention to that gives insight into the frothiness of the market –junk. At some point when the vast majority of higher quality stocks have given buy signals what remains to increase this reading will be junk stocks breaking out or broken down stocks bouncing.

$BPNYA 09/29

One junk stock that I keep on my radar is ROYL. This is a stock that tends to have significant spikes prior to market pullbacks and corrections and I use as an alert to indicate frothiness.

ROYL

Another stock that I noted began to move during this time was TSTC which showed a price increase of 100%. When I start to see stocks like these have momentum burst bells start ringing and red flags start waving.

TSTC

The SP has seen a 14% increase since the pivot low of this swing that was established in June so this pullback is in keeping with a move of this magnitude. My continued focus is to avoid draw downs to my account as much as possible and to avoid or tip toe around zones where I perceive risk as it relates to my trading style to be increasing. Typically I trade break outs with a tight stop and a time horizon of 5 days for a position to prove itself. What I've experienced is that this is ineffective during periods of breadth extremes so I've come to learn to trade down much smaller in size with wider stops to adjust for a higher propensity of break out failures and widen my holding time for swings as well.

In general I focus my watch list on stocks near 52-Week highs but during pullbacks many of these tend to be extended and subject to profit taking. In a rotational market I've noted that there can be money flow into former leaders or rebounding stocks so I've begun to scan for set-ups that meet my criteria in some of these names and focus my attention on highly shorted stocks for potential squeezes should there be increased buying in these names.