Sep 14

Weekend Review and Watchlist

I won’t go into a full top-down review here as there are others who do that far better than me, but I want to just briefly touch on the $SPY as from where I stand the pullback we saw in the S&P this week looked to be well contained.

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So far it looks as if we’re just testing that previous breakout level inbetween the 20 and 50-day MA’s. I actually welcome these choppy overlapping moves so typical of countertrends, because they provide a good opportunity to more readily identify the leaders and laggards amongst individual stocks.

 

Last week I highlighted the break we saw in $PCLN which triggered an exit for Monday’s open.

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There is always a possibility when exiting close to a perceived area of support that a stock can bounce back and compound your frustration, but $PCLN had clearly been acting poorly, and after a brief rally Monday continued its path lower throughout the week.

 

It was a similar story with $IPG which had been languishing for several weeks.

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This was a signal harder to take than most for a couple of reasons. First, it was a marginal break of a trailing stop at a previous support level, the kind that can keep you in as you repeatedly give it another chance, and second, it’s well known that $IPG has been the subject of interest to activist hedge fund managers and has been talked of as a takeover target. This last factor is a double-edged sword, as whilst it’s tempting to think there is increased upside and reduced risk involved, the danger is it can influence you to deviate from your trading plan. At Friday’s open I took the exit Thursday’s marginal break of the trailing stop had triggered, and by the end of the day was very grateful I had. That opening print proved to be the high of the day (the exit is shown slightly above to reflect the 9.5c dividend from 8/28) and it slid lower throughout the session taking out levels from early July.

The only new entry during the week was in $NKE.

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This looks good on multiple timeframes and had appeared on our watchlist for quite a while as it neared a long-term breakout level. The subsequent tight consolidation is a positive development, and a resumption higher from here may even enable the stop to be moved up from its initial level up towards the 50-day.

 

Of our existing holdings $MSFT was again a highlight moving to fresh 14-yr highs.

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$MAR continued its remarkable climb and saw its trailing stop move up to the July highs just below the 50-day.

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$AAPL was another obvious standout and it will be interesting to see how it acts this week as the dust settles around its product releases. Despite the noise generated that day, the much vaunted ‘sell-the-news’ action never materialized finishing more or less unchanged on the day and rallying for the rest of the week. This is where it now gets interesting. With a new high we will have another higher low in place and an obvious next trailing stop level. With a new low we’ll have lower highs, lower lows, a break of the 50-day, and will quite possibly trigger an exit.

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Other existing positions are $AA, $FISV, $DIS, $ATVI, $GILD, $DPS, $HPQ, $LMT, $TSLA, $JCP, $HD, $BRK_B.

There weren’t many names added to the watchlist this week. I have a total of 20 that I’m watching, more than the total number of positions I have, so for me to make room for any of them they really need to be special.

$DTV continues to set up nicely:-

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$JACK broke out this week:-

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$INTC is holding a remarkably tight range:-

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$NFLX looks similar:-

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Solar is looking interesting again. $SCTY is worth considering, currently though I prefer the look of $FSLR:-

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Sep 06

Weekend Review and Watchlist

The market is a stone’s throw from new highs yet again, after giving a few scares in a handful of names this week. Anyone who plays momentum names is all too aware of the ‘stairs up, elevator down’ price action that comes with it, and we saw it happen this week with swift but arguably modest pullbacks in $GILD, $AAPL, and $TSLA.

Elon Musk said Tesla ($TSLA)‘s stock price was ‘kind of high right now’. Well I guess he is ‘kind of right’, I mean isn’t that just a statement of fact if your stock is at all time highs? The price is high. Yes it is Elon, isn’t it great!

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I would be surprised if this turned out to be anything more than a speed bump, but either way I’m still giving it some room here. It would need to go back below that previous breakout level and the 50-day MA around the $240 mark for me to think the intermediate trend was in doubt. This is one of the benefits of having a longer timeframe and smaller position size than short-term oriented traders. If you’re a little too close to the action you will get hit on noise.

 

Apple ($AAPL) stumbled then steadied ahead of its launch event this Tuesday for the new iPhone and iWatch. Wednesday’s move was certainly big relative to the lack of volatility that preceded it, and it left the stock inbetween new highs and what I would consider the first invalidation point near the base of the previous consolidation around $94. Clearly there’s some imminent event risk, but in the grand scheme of things I think it’s fairly modest. A new high from here within the next week would be extremely bullish in my opinion, and leave in place another higher low (and future trailing stop level). New high or stop, I don’t mind which happens, I have a plan for either.

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Despite the high profile names stealing the headlines, there were several stocks worthy of attention that received very little, and that’s just fine by me. New highs are boring for the media. They want volatility, drama, panic, something people can react to, something that generates opposing views.

Here’s some of what they missed:-

Microsoft ($MSFT) still has the small matter of the dotcom crash to retrace, so we’ll forgive it for not being at all time highs, but I’ll take 14-year highs thank you very much. That was a good-looking breakout on Friday on increased volume having been held in a tight range for the last two weeks, and this looks to be on its way again.

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Alcoa ($AA). The return of the beast. A solid resumption of its long-term uptrend providing an opportunity to enter anew or add to existing positions with the trailing stop moving up to $16.00, just below the 50-day.

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Fiserv ($FISV) is another name you won’t hear people talking about, quietly going about its business with a new all time high close every day this week, extending its winning streak to six straight days, and four straight weeks.

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Marriott ($MAR). Still taking the stairs. Not sure what floor it’s going to but it’s been a slow and steady climb and we’ll rest when we get there. I’m amazed there’s still a 7% short interest on a stock like this, what are they thinking?

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Activision Blizzard ($ATVI) got a little choppy throughout most of August but notice the 3-day pick-up in volume that took it to new highs, that’s a nice breakout and follow-through and it finished the week with a new high close too.

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But it wasn’t all new highs and lunch at The Palm.

The one big disappointment this week was Priceline ($PCLN). That last breakout entry was swiftly retraced but then frustratingly never completely invalidated, and it briefly looked ready to resume higher before sliding relentlessly through some big levels this week.

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I have no doubt this is the level at which shorter-term players will be stepping in, but that’s not my game and I can’t be hanging around to discover how it all turns out. A stop is a stop. In cases like this I’m reminded of something Michael Martin discussed in ‘The Inner Voice of Trading’, that you should place your stop at the price where you’re willing to transfer the risk to someone else. We are precisely at that point in $PCLN. It was a well-placed stop.

 

As we’ve already seen, there are plenty of strong trends out there, and there are also numerous other setups vying for our attention with some good risk/reward opportunities.

Here are some names on my current watchlist:-

Actavis ($ACT) has been a tease but seems to be on its way now. I’d need to have a very generous stop on it though to enter here, down near the previous base and the 200-day, and that might be a little too rich to make it worthwhile. There may be a better opportunity down the road if it breaks out again from a fresh base and this current breakout level could then likely be a much closer stop.

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Crown Castle Intl ($CCI). This looks like a major breakout technically, but in price and percentage terms it’s been a modest move so far. I’ve had others that just screened ahead of it in the last few weeks and kept me from taking it, but it’s definitely one to watch.

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Google ($GOOGL). An obvious choice, and an obvious chance if it can take out those previous highs, with two higher lows in close proximity setting up a potentially juicy risk/reward trade.

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Directv ($DTV) is starting to set up nicely. Friday’s close was a 50-day high and saw the 20EMA cross back above the 50 to leave the MA’s stacked and rising. A couple of daily and weekly highs from May are all that remains.

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Harman Intl ($HAR) has been frustrating breakout players with several false starts, but it seems to be coiling and setting up again here with another potential higher low in place which could give several good risk/reward angles.

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Additional notes:-

I also like the look of $GBX, $ILMN, $INTC, $LOW, $NKE, $SLXP, $SNCR, $THRM.

I don’t currently have any financials. I have $BRK.B but I don’t consider it to be one despite how market websites classify it. To me $BRK.B is a conglomerate or a value ETF. The only financials I’ve found screening for me recently have been $LNC, which looks to be retesting its breakout, and $OKE & $MS which show strong breakouts.

I’ve missed the move in Airlines this year, and the most recent one to catch the eye is $UAL. It looked as if the 9/2 breakout had immediately been reversed the following day, but then it came back with an even stronger breakout that followed through the next day. That’s impressive action but the stop needs to be a bit too far away for me.

 

 

 

Sep 01

Futures Update

I have slowly been winding down the futures part of my blog, not showing new signals and just taking exits.

This is because since becoming a RIA, despite my best efforts at disclaimers, the inclusion of futures on my blog creates potential issues and areas of conflict for what I am pursuing professionally longer-term.

As of 8/29/14, with only one remaining position (Long 30yr) now rolling from Sep to the Dec contract, I have taken the opportunity to mark its exit here and bring an end to showing futures signals until further notice.

Going forward I will make further changes in the coming months and align what information I can provide with what the existing regulatory framework allows, but for the moment I’m sure you will appreciate I have to make that compliance my priority and hope to eventually make this part of the blog active again.

I am NOT a Commodity Trading Advisor (CTA) or Commodity Pool Operator (CPO). 

 

Aug 26

New Highs, New Fears

There’s a scary chart doing the rounds this morning. It wouldn’t be a new high without one. Take a look:-

Let’s assume it’s well-intentioned, and it’s trying to give us some context of where we are in relation to previous occurrences. The implication is two-fold, that the markets will see a stunning reversal not dissimilar to the two previous bear markets, and whether intended or not, that we’re at that reversal point right now.

Here’s the problem with charts like this.

You could have shown this chart at any point in the last two years and its message would have been the same. What has the market done during that time? How would seeing this chart back then have helped you?

When we see charts like this we always assume by looking at the previous turning points and seeing similarities in the formation that the next one is imminent. Hindsight is a wonderful thing. I wish I could trade it.

Now take a look back at the previous data and imagine you’re seeing this chart in 1995. Wipe out what you know now. It would have looked pretty scary then too with the market at all time highs and an extreme negative credit balance level never seen before. Did it help?

You could argue the message from the chart was eventually right some 5 years and a few hundred percent later, but this is a good example of how in the business of top-calling you can eventually be right but have nothing to show for it. The cost of maintaining that position is just too great. Emotionally and financially. Only newsletter writers get to stay bearish that long and claim victory, you can’t do it with real money.

There is nothing to say the message from this chart won’t eventually prove to be right again, but the real message should be to have a plan to deal with such an eventuality rather than live in fear of it, or worse try to position for it.

Better to acknowledge the trend we’re in, and trade a method that allows you to benefit from further upside, but protects you once it’s over.

Easier said than done?

Of course.

It wouldn’t be a strategy worth following if it wasn’t.

 

 

Aug 24

Stocks To Watch

The run to new highs has not surprisingly provided a new wave of stocks flashing buy signals. Whether or not they’re actionable for you will depend on your own risk profile and timeframe. Earlier this week I took entry signals in $HD after its gap higher, and an arguably belated signal in $BRK.B which continues to act very well. I have two other positions that may trigger for me Monday which will appear on the blog at a later date should they confirm.

The main frustration with selecting positions now is that there are so many great setups you just can’t take them all. That’s a nice problem to have! For my own part it’s been exacerbated by the fact I’ve slowly been moving to a more concentrated portfolio, so at the end of last week I made a one-off adjustment, a kind of rebalance if you will, where I exited some positions that haven’t necessarily invalidated their trends ($DOW, $FDX, $F, $BAX) but I considered them sub-optimal compared to existing positions that remain strong, as well as the new signals emerging now. I also exited $NOC which remains perfectly valid, but I already have $LMT, obviously a very similar company, which I prefer in terms of of its technical position and trend strength.

I’ve got 15-20 names on a watchlist, some of which I’ll go through now, which is as many stocks as I currently already own, so anything that comes from that list as a new position will need to be exceptional. This is where you can be more demanding of the trend in order to take new signals. A good example would be $ACT:-

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Strictly speaking that’s already a new closing high in place right there, even if it is only by a nickel. It’s a marginal break and a good example of what I mean when I say you don’t need to take sub-optimal signals when there are so many stocks breaking out to new highs. Believe me, $ACT was a good name last year that gave a great trade and I have some bias that would want me to get back in to this, but I have plenty of others that look better so it needs to be an unequivocal signal when it’s got competition to make it to the portfolio. It’s not necessarily that we want it to ‘confirm’, it’s just that we can afford to be more demanding. Can it follow through, can it then follow through again, when it consolidates will it give back a whole day or will it be a tight one suggesting it will move higher again soon? Is it going to drive you crazy to sit there waiting to find out? Are you prepared to watch it for a week in order to get the signal you really want, and then would you still take it? It’s really hard to do, but it’s a great discipline, and when there are so many valid signals it can be necessary to be a little late in order to be sure.

Here are some other attractive setups:-

$GBX – I love this trend, and arguably could have taken it earlier this week, you still could now, but for where and how I place my stop the risk is a little less favorable than other positions I have. If your timeframe is shorter than mine or if you place your stops tighter then it may still be good for you.

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$INTC is another one. Beautiful trend which made a fresh high Thursday for a new signal. That swing low near the 50-day looks like a good level for a stop too, although there’s also a gap there so it might need a little more room.

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The breakout potential for $NKE is arguably the market’s worst kept secret, this has been so long in the making. As a result this could have a lot of option plays in place around the prospect of it happening so I wouldn’t be surprised to see some volatility when it gets close and more backing and filling or a false move before it finally confirms either way. This is an example of where if your timeframe is long enough you can afford to just let it play out before you make your move, be more demanding, maybe use a weekly close instead of a daily one.

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$GOOGL is another company I love where as long as it’s in an uptrend that meets my criteria I want to be involved. I consider it a tech ETF it has its fingers in so many pies and has so much insight into consumer behavior and technology trends. If it takes out $605 cleanly I could happily get on board with a stop down in that $571 area.

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Aug 22

New Highs

Another potential correction over. This time we barely made it to the -4% mark before ratcheting higher to leave in place another V-shaped move that has been the hallmark of this rally over the last 18 months.

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If you just play the indices or use them as your guide for your stock positions these type of moves can really get you chopped up. Witness the exit signal on the NASDAQ I had to execute two weeks ago, only for it to trigger a new entry on new highs. That’s fine if futures is all you’re doing, it’s an inherent part of the system, but on stocks I don’t believe making the index your master is wise. There have been plenty of stocks that continued to trend well and make new highs before the broader market indices found their footing and started to recover. By all means be cognizant of the larger trend and its implications, but don’t have a moratorium on taking new positions based on what an index has done. The thinner the leadership supposedly is, the easier it should be for you to spot the true leaders, the names and sectors of the market showing strength where you should concentrate your resources.

 

 

Aug 11

Exit Long Live Cattle

Exit Long Live Cattle ($LE_F) 3/28 +$1,870.00 per contract

Live cattle closed below its trailing stop following a second limit-down session that triggered an exit signal for a profit of 3.26% or $1,870 per contract. This leaves only one position, long 30yr, which is still in a strong uptrend dating back to February. As I mentioned in the post detailing the NASDAQ exit last week, I’ve slowly been winding this part of the blog down, not showing new signals and just taking exits. This is because despite my best efforts with disclaimers, since becoming an RIA managing equities the inclusion of futures on my blog creates potential issues for what I am pursuing professionally longer-term. Some of you may already have noted the more muted commentary in this area for most of the year. I will be making further changes in the coming months and align what service I can provide with what the existing regulatory framework allows, but for the moment I’m sure you will appreciate I have to make that my priority and hope to eventually make this part of the blog active again.

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Remaining positions:-

Long 30yr ($ZB_F) 2/3 +$7,843.75 per contract

 

 

 

Aug 07

Exit Long NASDAQ

Exit Long NASDAQ ($NQ_F) 6/26 +$855.00 per contract

The NASDAQ finally triggered its exit signal for a small profit, a week after the S&P did the same. It looks to have fallen even further overnight so it could be an interesting end to the week tomorrow.

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There’s no question this is not the uniform sell-off or correction people are making it out to be. I highlighted earlier tonight on twitter it’s extraordinary to see so many traditional momentum names like $FB, $NFLX, $TSLA, $PCLN, $GILD, $CMG, $UA, all doing incredibly well in this environment. Some are even making new highs. If you took one look at the indices without knowing what these names had done and I asked you to guess how much they were off their highs you’d be guessing double digit percentages, of that I’m sure.

Although it’s perfectly possible a further decline in the broader market can eventually make its mark on them, it still suggests to me there is an element of rotation in this move, and it’s only by continuing to pick stocks on their individual merit rather than having a moratorium on new positions based on what an index has done, that you can identify the strongest areas of the market where you should be concentrating your resources.

That was the case previously in January when the market last had a pullback of this magnitude, only then it was a severe sell-off in momentum names while safe dividend-paying blue chips outperformed. Now it’s the opposite. Most of the exit signals we’ve had so far have been in so-called defensive sectors. The higher growth momentum-type names are still giving entry signals, in fact there were two more this week which I’ll detail at a later date.

Elsewhere, on the futures signals the only ones remaining are Live Cattle, which is now very close to its trailing stop, and Long 30yr which is still defying everyone’s expectations with no ‘rising-rate environment’ in sight. I’ve slowly been winding this part of the blog down, not showing new signals and just taking exits. Despite my best efforts with disclaimers, the inclusion of futures here creates potential issues for what I am pursuing business-wise. Some of you may already have noted the more muted commentary in this area for most of the year. All will become apparent eventually (and it’s all good!), so I hope you can understand I have to make that my priority.

Long 30yr ($ZB_F) 2/3 +$8,468.75 per contract

Long Live Cattle ($LE_F) 3/28 +$3,660.00 per contract

 

 

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