Muted Buying

4% Break Outs

There has been a persistent but muted bid to the market since 11/16. This buying was enough to flip the timing model I use to buy and I acted in accordance and started to initiate some positions. Regardless of what my views and interpretations are of the market, in the end I choose to trust the signals that I follow. Yesterday there was a rare tie in the +/-4% break outs that I monitor with 66 each. I consider this stalling action and am reminded of an earlier occurrence I documented in a March post. I still maintain this view and am proceeding forward with caution as of this time.

The Primary Breadth indicator that I follow has also peaked and turned down.  If this flips it will be another red flag for me.

Primary

For myself it was prudent today to draw down my risk exposure by liquidating one position and taking some money off the table to compensate for what I still have exposed. If selling hits the tape and the Primary flips bearish again I'll look to liquidate the reaming positions and wait for the market to reset for me.

CFNL Trade Plan

CFNL

One stock triggered from my watch list so I took a position in CFNL for a swing trade. CFNL is in my Year High Volume watch list for the month of October so I've been stalking this for quite some time now waiting for a set-up. The trigger for the trade today was a wide range 7 day that followed a narrow range 7 with an increase in volume from the previous session. The wide range bar triggered first and I waited for volume confirmation before taking an entry at 15.35 with a stop at 14.87, risking 1%. Volume continued through the close and established another year high volume day.

My first target is 15.83, a 1R gain at which point I will ratchet my stop up to 14.94 to cut the risk exposure as much as possible to 0.5R. My next target is 16.31 when I'll move my stop to 15.83 to lock in 1R. At this price the stock will be at all time highs with no overhead supply so I'll adjust my stop incrementally in attempt to balance catching as much of the swing as possible without choking off the trade too early.

Weekend Review 11/30/2012

I was reminded today that now all is what it seems, especially with indicators.  For the past few weeks I've been comparing the following two charts and have noted divergences between the $BPSPX and $BPCOMPQ with the later showing the most weakness.  The same can be noted in RHSPX and RHCOMPQ respectively.  The following charts clearly show this.

SPX

COMPQ

However, when taking these same two indicators and viewing them in relation to a PnF chart from which they are derived a much different perspective emerges.  As determined not by a line declining along a chart but by the price action of the underlining components another story was being unfolding.  This was a helpful reminder to be more conscious when taking indicators and abstracting them in a different form and trying to draw the same conclusions.

$BPSPX Point and Figure

$BPCOMPQ Point and Figure

This oversight aside, my bias is still to the upside and this is the direction I am leaning in my analysis coming into the week.

Of note on Friday was a clustering of year high volume in Industry Group: Health Services in the Worden database.  Of these, the most notable is GNMK which did so with an all time high as well.

ATEC

CSU

RMD

USPH

Going through the All-Time-High and New-High database that I've been collecting since October 26th, there are a few stocks that I'll be keeping an eye on this week, with quite a few being new issues that have held up well since their debut.

AMBA

CFNL

ODFL

RH

SSTK

TYL

WAGE

The Other Third

Yesterday I wrote a short post about how the market conditions at that time led me to a scenario in which there is a 66% probability of a sideways to continued down trend and given this the odds were not stacked in my favor. This belief was very much situation specific and not set in granite. I've played enough poker to know that a hand can go from hog to dog on the turn and how a failure to reevaluate can be very costly no matter how good the flopped set looks on what appears to be a blank. It's important to me to pinpoint the nuance between when I waffle in my beliefs and when I am reevaluating my beliefs based upon new information.

Based upon today's action there's reason for me reevaluate the probabilities and prepare a plan of action for becoming more focused upon long opportunities and having a focused watch list for tomorrow. There are a couple of things that happened today, namely that the SPX technically, although not by much, closed with a higher high; also today's low may establish a higher low to compare further chart action against. From a price action perspective this is exactly what I want to see strung together from this point forward.

SPX

Secondly, the main breadth tool that I use had 3 bullish signals today. 

Breadth

This is more significant to me than the action and pattern of an index because these signals are based upon price and volume action of stocks I follow and tells me what stocks as a whole are actually doing. When these signals turn it gives me the green light to begin operations on the long side with greater confidence. From my perspective the odds have increased since yesterday. I'll be selective in my watch list with emphasis on stocks that have made recent year high volume such as BGFV and OSTK.

BGFV

OSTK

One last thing I wanted to document today is the intraday action of the SPX which reminded me of a passage I reread last night from “Hedge Fund Market Wizards”.  I've often come across the view that bullish markets open weak and finish strong while bearish open strong and finish weak, but this section in particular highlights more deeply the psychology behind market participants during these stages.

Excerpt from Hedge Fund Market Wizards

SPX and Probable Direction

It's well known there are three directions a market can move: up, down, or sideways.  How it moves and how it gets from point A to point B can have varying behaviors and characteristics and patterns.  Sometimes it's choppy and volatile, and other times smooth and trending, and often in between.  Looking at the SPX today I decided to break down what is now known and what is probable.

The information that is known as of now is that the SPX is in a down trend as defined by a series of lower lows and lower highs.  Additionally it's known that a key pivot low has now held for 6 days and a lower high has now been established as well.  This is basic information that can be witnessed from a chart.  Using this information, the next step is to determine the probable market direction which I admit is somewhat subjective.

The main reason this is subjective is that it's dependent upon one's beliefs of the market and their plan of action.  My prejudice is to trade in an up trending market. This is the market action that I believe gives an edge and is much more judicious when I make mistakes and errors.  So, given that market direction is divisible by 3 and the market is clearly not in an uptrend, I can remove this variable.  It's still too early to tell whether or not there will be a sideways move, but a range bound market can be just as deadly as a down trend --especially in a down trend --so these two stack the odds 66% against.  

SPX

One thing I'm keeping in mind is that if this market breaks to the down side it could renew fast and furious selling.  Each dip has been more severe than the previous and this bounce has brought relief like the last breath before Jaws pulls Chrissie down for good.

New Highs

In keeping with the all time high database that I've been tallying I've also been keeping a list of stocks making new highs.  I'm not 100% committed to exactly what qualifications for new highs I want to use just yet.  When I started I used the New High feature in TeleChart 2000 on US Common Stocks but found I was getting a number of stocks trading less than 10K shares a day.  Additionally one of the problems is the garbage data in the universe such as HOTR which sneaks in.  On top of that I still need to figure out a way to weed out buy outs which has been skewing some of the results as well as some of the sub-industry "Close End Funds".

One of the significant changes I've made mid-stream is using the Price New High feature which will populate with not only new 52-Week Highs, but also new highs on stocks trading less than a year which I find useful for keeping track of promising IPO candidates.  Additionally, I've been placing a liquidity condition of 100K shares, but even this seems to pass on stocks trading less than this.  Thus far the list begins on 10/26/2012.  At some point I may alter this as well and keep track of highs over different periods.



One of the stocks this process has drawn my attention to is a recent IPO, Restoration Hardware which since its debut has put in 5 new highs.

RH

Another is Burger King which has been showing promising price action and has eclipsed it's IPO high two sessions in a row.

BKW

Which Ever Way the Wind Blows

Some long and short ideas I'm watching should the market direction clarify this week.

LONG:

AVG

BGFV

MYGN

NTE

SPRT

TASR

SHORT:

AMZN

BIDU

LULU

RKT

SLW