Disclaimer: The majority of these ideas come from the @Tickerville Saturday morning brunch. In fact, many of these are direct quotes that I use as a check-point during the week. Trade at your own risk. Any reference to "I" is from @tickerville. The blog author did not grammatically update that piece.
**Thanks to StockTwits for hosting. An excellent venue!
Weekly Recap
S&P 500 up 1.58%, NAZ up 1.80%.
Before we recap some of what we talked about last week, I want to break down the indices a bit. The reason I want to start with these 2 charts is to establish the foundation that bulls still have the ball until they don't. I think if it was ultimate bottom we'd see bigger bars. For now it still is what it is, bear market rally.
S&P 500, we often talk about constructive pullbacks. So far this is precisely what we're seeing here. http://twitpic.com/2b8jr When I review that S&P chart, I see a V shape reversal that is now starting to be digested. Close below Nov lows would be danger sign. Friday looks like massive distribution but don't be fooled as it was options expiration, skewing volume tremendously. So, in summary, S&P still looks good to me, and I am looking to redeploy should this constructive nature continue. Ideas in 2nd hour.
Next up, QQQQ this is quite interesting and an area I am stalking very closely. QQQQ chart I am stalking and like the pullback quite a bit. I suspect the Nov trend line could break on a shake. http://twitpic.com/2b8si
We have talked about FCX for many weeks now. It has been a big winner. I took sold it and am out for now. Same goes for AMZN which had a nice run. I am back on the sidelines and watching this leader.
We talked about CAB over the last 2 weeks and I mentioned I was still a spectator. I did not enter and won't as it is too chaotic
Now, some ongoing themes that I am still watching closely for areas of re-entry.
2 areas I am watching very closely are China and Semis. FXI has been good and still looks decent. http://twitpic.com/2b9ds FXI is improving a great deal and gives me confidence to continue looking at the individual china names.
I have a very interesting routine in that I'll often become interested in a major sector after finding a series of indv. charts. Once I identify the group, I'll then watch the ETF for the big picture clues on whether or not to keep playing those indv. charts.
Favorite tech sector continues to be Semis. They started consolidating the recent run. the 50 day will be key. http://twitpic.com/2b9j5
Now, last but not least, the heart and soul of the market. The fins. We broke this down last week here: http://bit.ly/Qvde
We should all know this chart by heart. Its the key to the entire market. Don't let anyone tell you differently. http://twitpic.com/2b9qp
Now, let's talk activity. Once I unloaded on Wed, I did squat the rest of the week. If I had a boat I would have pulled a Livermore. In summary, I like what I am seeing out there from the long side. I am about 98% cash waiting for my fat pitch.
What makes me nervous about the commods is that everyone is now watching them. However the setups are there. More to follow.
Another thing I want to hit on that we spoke of a lot last week is re-entries. We talked about just how important it is to try and try again, regardless of how many times you are stopped out. In years passed I would swear off a stock after a failed attempt only to see it run without me. I will now play it 100 times if I have to and while I may throw some things in my office while that happens, I'll keep at it.
Example: A few weeks ago, we started discussing DXO and last week i talked about how I was stopped on my first attempt. This week it broke again presenting another great long opportunity. I took it and profited nicely. Chart is saying it goes higher. http://twitpic.com/2baxe I will now be waiting for another setup to add shares.
STOPS
So many will set a fixed stop based on a certain % or a certain $$ amount. I think this is very wrong and quite dangerous. To say you are going to enter XYZ with a stop 10% below your entry, is a guess and again, very dangerous. Stops begin first and foremost with the plan surrounding the trade.
Let's look at a specific example on what exactly I would do. Let's look at WFR again. The trend line here would be my critical point. http://twitpic.com/2bb6s If I looked at this stock I may conclude that I would enter a position on a move BACK above the trend line which is around 15.25. My stop strategy is unique in that on the day of the break, I will first use the day low as my stop. So let's assume that on Monday the stock opens at 14.70 and has the break out above $15.25 sometime during the day. My initial stop would be at day low, or a move back below 14.70. This is to avoid getting snagged too bad on an intra-day reversal.
Now, I do have a few caveats that I have developed over the years that are very important. If the break out is $15.25 and the stock does NOT close above this break out. Meaning it broke, then failed, I will NOT hold it overnight. I have seen this happen time and again which ultimately traps longs.
If however the stock does hold the break out point, I will then move my stop TO the breakout point, and typically use an end of day rule. Meaning that I will allow it to go back below the trend intra-day but if it closes below that line, I'll be out.
I think traders MUST understand that it is the pattern that determines their stops.
Remember what we talked about last week. Once you determine your stop, you can then fully quantify your risk, meaning share count. So, in the case of WFR if you determine that your entry / stop is .55 (15.25 - 14.79) you can calc your total share count. This will be different for everyone based on how much you chose to risk on each trade. This will also depend on market. I will sometimes risk as little as $500 on each trade or as much as $20k, but once I know that my stop is .55 , I can then determine my share count with a little math.
In today's market I have had a simple rule. When I reach 1 times my risk , I take half off and adjust my stop up to my entry. Now, after that, some use trailing stops. However I chose to adjust my stops once the pattern shows its hand.
Here are some requested stocks:
SLX, broke your 26 on huge volume, then pulled back on very light volume. I think it is improving a great deal.
I like both of these.
WFR: http://twitpic.com/2ba16
IYM: http://twitpic.com/2ba1c I like quite a bit but like most it needs to set up again.
I like BRCM quite a bit. http://twitpic.com/2ba5a
ACI one of my favorite potential longs. http://twitpic.com/2ba9h
UNG had a nice move this week but it has been a suckers trap each time. I have to see it set up. I am playing DXO
I am short the dollar via UDN and will continue to ride the trend.
UGA above 24 looks nice, would like to see a pullback but good accumulation so far.
SLX is a commod key. They have everything going against them yet are improving. http://twitpic.com/2baha
CAF not the one I would play, but FXI back towards 50 day is for me.
IDEAS
A key to market is AAPL. It is acting well and could be setting up for move higher. http://twitpic.com/2bc1z
My dear friend and phenom trader @prakasht says 'GOOG is the market' http://twitpic.com/2bcd6 This will be ultimate tell. I am preparing to play GOOG in either direction when the actual break takes place.
Oh, don't get me wrong. Fins are heart and soul of market. They'll decide, but GOOG break in either direction must be played.
My strategy this week is simple, to stalk and play that which I see setting up. GOOG and AAPL are 2 examples.
Lots of talk about commods. BTU is an attractive candidate should it break. http://twitpic.com/2bcmo
NBR is another I am watching closely for a similar trend break pattern. http://twitpic.com/2bcqn
GS broke over multi-month base. It can come in, but not too much. 50day is important. http://twitpic.com/2bcwf
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