Nov 21

Weekend Review and Watchlist

Earlier this week I sarcastically noted it was very generous of Mr. Market to give everyone a chance to get positioned for the correction that the latest batch of goldfish with their six-second memory were forecasting.

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Instead, I ventured, a range as narrow and tight as we had seen was more likely to produce a resumption of the trend that preceded it, rather than a full blown reversal. Sure enough, by the end of the week we had a pickup in volatility with several wider range days, only with an upward bias, finishing the week with an all time high close on the S&P and Dow. The correction roadmap is now looking more like the road to riches.

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Oh there’ll be another one, there always is, and you have to manage risk like your biggest drawdown is always ahead of you, but there’s no need to engage in guesswork anticipating when it might happen or fight the trend that’s underway. Better to go with what’s working and be prepared to step aside when price confirms it’s over.

It’s incredible that a 10% correction from here, something we haven’t seen for over 3 years, now just gets us back to the lows of only 5 weeks ago. That’s how fast this move has been. It was like a stress-test for your strategy.

There were no new signals for our portfolio names this week but the numerous moves to fresh highs gave plenty of opportunity to trail stops higher. Here are a few highlights:-

I’m going to show $HD in two charts to really give it some context. Here’s a 2-year weekly and a 6-month daily. This is an incredibly strong trend, especially when you consider how easily it overcame the credit card breach news after the huge August breakout. Look how the stock consolidated and stretched higher again. We saw a microcosm of that move on the daily chart this week following its poorly received earnings report only for the stock to stage a strong reversal from near its 50-day and finish the week unchanged back near its highs. Our stop now moves to $93.34, just below the most recent breakout at what would also be a 5-week low near the 50-day MA.

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This most recent 4-week stretch by $NKE is really impressive. I love these kind of stair-stepping moves, the definitive ‘higher highs and higher lows’ of an uptrend, but it’s more than that, it’s the efficiency of the trend with relatively narrow range days resulting in slow and steady gains. People might make more out of Friday’s candle than is warranted just because it reversed off its highs, but this remains a very strong trend. Don’t fight it.

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$SBH is developing into a really healthy trend now with an impressive follow through this week after the brief consolidation of the post-earnings advance. The big news though is seen by look at a much longer-term weekly chart. This was the highest weekly close this year, and the all time high from July 2013 is now tantalizingly near.

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Needless to say with the market at all time highs and sectors like Industrials, Materials, and Energy leading the way on Friday, the mix of names on the watchlist is perhaps the broadest its been in a while. Consumer names clearly still dominate, but it’s also interesting to see names from sectors that haven’t featured as heavily recently.

$INTC

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$TSO

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$AA

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Full analysis and commentary on all current signals as well as additional trade ideas and a comprehensive watchlist are now available via subscription. Click here for details.

 

 

 

 

 

Nov 15

Weekend Review and Watchlist

This week, rather than showing the S&P, which again finished at new highs, I’m going to show a weekly chart of the DAX. I shared this chart several times as a talking point prior to that big break of support in October, as it looked as if Europe could lead the US to the downside. As we know, the US market has since recovered far more strongly, racing back to new highs, while the DAX and most of Europe has lagged badly. In fact, that is still one ugly chart. The DAX has failed to convincingly retake its 10-week MA, which remains below its 40-wk, as it has for a couple of months now, not to mention the sequence of lower highs and lower lows that remain in place.

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Why do I mention all this?

Because as fascinating as it all is, it doesn’t matter until it does. I’m happy to share what others are seeing and talking about because it helps give you context, but if like me you are only trading US stocks, then analyzing US stocks is all you should be concentrating on when it comes to assessing your risk. I have learnt this the hard way. Once you start trying to assign causality and use it as part of your investment rationale, you are on the journalistic slippery slope of having to justify each day’s price movement within the narrative you’ve weaved for yourself.

There will always be something to worry about somewhere in the world, and some chart for someone to point to and say ‘just you wait, you’ll see’. Maybe we will. But if we waited until everything was perfect in the world we may never be invested at all, or by the time all our ducks were in a row we’d then be told we’ve already missed the opportunity, the easy money has been made.

My usual riposte to the litany of ‘yes but what if’ responses towards mys approach is “It’s called risk. Manage it”.

In this regard, having a highly concentrated portfolio helps immensely. During that October pullback my number of positions was reduced from around fifteen to just eight with around 35% in cash. Note that cash isn’t a ‘weighting’, it’s just what isn’t being used because of the lack of opportunities. It didn’t get to 35% by ‘raising cash’, it got there by following what price action dictated and managing risk. As stops were hit on existing positions we got out. If new opportunities arose we took them. If they didn’t the cash would sit there, and possibly grow further, until they did.

As it turned out, those opportunities came pretty quickly and as the market traced out another ‘V’ we took the new entry signals that triggered until we were fully invested again. Clearly, this is much easier to do with a portfolio comprising of less than 20 names, than for a mutual fund manager with potentially hundreds of names. For them, taking a market view and raising cash indiscriminately may make sense, for us, we are looking at each stock on its own merits and we manage them accordingly.

The downside is the temporary gap it creates in performance. By exposure being reduced on the way down, and increased on the way up, after a 7-9% market slump and swift recovery your portfolio will likely be lagging by around 2%. That’s the price you pay for managing risk. You aim to capture most of the upside and avoid the worst of any downturn. This is where the big difference occurs vs ‘Buy and Hold’. This most recent correction wasn’t big enough to make protecting from further downside appear worthwhile, but we absolutely know it is longer-term.

With ‘Buy and Hold’ in order to capture 100% of the upside you must be prepared to endure 100% of the downside. Maximum gain = maximum pain. You want that 7% annual average return for doing nothing? You have to stand there on the ropes taking an absolute beating for as long as it lasts, and as the behavior gap shows, most can’t take it and throw in the towel. Or you can simply step aside until the market has punched itself out and then you come out fighting to claim the victory. Sometimes it’s over quickly and your prudent management can subsequently be viewed by some as unnecessary. Other times it may result in you ducking what could have been the knockout punch to your portfolio from which you would have never recovered.

What I’m talking about is the need to avoid negative compounding in order to create long-term absolute returns, rather than focusing on short-term relative returns. It’s what I explored in this post explaining my use of the term Alpha Capture. This is the business I’ve chosen. I buy stocks in uptrends and manage risk.

This week was a relatively quiet one with no new entry or exit signals, but the continued gains did allow us to trail some stops higher, and add to winning positions or reduce risk where necessary.

$DPS moved modest higher this week, consolidating recent gains in a tight range.

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$HD came tantalizingly close to the hundred roll but didn’t quite make it. This still looks rock solid.

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$BRK.B started the week strongly in reaction to Friday night’s earnings and digested those gains thereafter.

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$NKE is another very strong looking weekly chart as it continues to stair-step higher.

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$ED finished lower on reasonable volume, closing below its 20EMA as utilities along with other defensive sectors such as healthcare and consumer staples showed some weakness. There’s no shortage of opportunities out there with the market at all time highs so we won’t hesitate to exit this for a small gain if it triggers next week.

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$CNSL – This is one of those charts where you could argue we’re in no-man’s land or it’s rangebound, but in actual fact it makes for a very clear assessment of risk/reward. The stop is multi-faceted; a previous breakout level, the most recent swing low and support, the 50-day MA, and if taken out it would put in place a sequence of lower highs and lower lows. It makes it more ‘obvious’, and granted there is always a danger obvious stops become the target of false breaks, but to be honest in this market with so many setups and strongly trending names I don’t need to waste time playing games and second-guessing what may or may not happen or the intentions of other players. Bottom line is the uptrend remains intact, and as soon as that changes we won’t hesitate to bail.

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$SBH had a rollercoaster week, initially following through on the previous week’s decline before moving strongly higher midweek ahead of its earnings announcement. Thursday’s initial post-earnings reaction saw the stock open -4% only for it to subsequently trace out a huge 8% reversal on strong volume to finish at 9-month highs with a near 4% net gain on the day. That move was enough for our stop to move up to the previous breakout level that had triggered our initial entry, and now coincides with Thursday’s lows and the 50-day MA.

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Other names include $ALXN, $COST, $QLYS, $ANAC, $CAG, $LM.

 

In terms of our watchlist the selloff in defensive sectors towards the end of the week made its mark with many utilities and healthcare names making way for more technology stocks, as well as what I would call the traditional growth and momentum names you might expect to see in IBD’s top 50. Here are a handful worthy of note:-

$VRX

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$AMT

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$BITA

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$CSCO

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$CMG

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Nov 08

Weekend Review and Watchlist

It’s incredible that the most recent correction already seems like a distant memory with the S&P tacking on a further 0.7% this week, an impressive follow through to the previous week’s 2.7% advance. But this is what bull markets do. They go up on good news, they go up on bad news, they go up on no news.

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That latest ‘V’ sure is something to behold. What the market lost in 19 days, it made back in just 12. This week, after a brief pause it extended that run further to finish at all time highs, 1% above the so-called 9/18 Alibaba top.

This is not how it’s supposed to work. As the market shows signs of trouble the good and virtuous portfolio manager is supposed to be able to take profits and cut his losses as the pullback intensifies. Then as the market staggers to its feet and slowly recovers our star PM gets to pick up the best bargains with ease. No such luck.

If you exercised good discipline your efforts were rewarded with a face-ripping rally that gave you absolutely no chance to get back in on your terms, and made any prudent measures you took look like an overreaction.

On a closing basis we’ve climbed over 9% in 17 days. Our star PM is likely now lagging the index severely, and if like him you’re playing the institutional managers relative return game, there’s less than 2 months of the year left and the performance chase is on.

This week was a fairly uneventful one in terms of signals. We ended the previous week exiting $CCI which made only a modest recovery attempt in our absence, and our only new signal this week was an entry in $LM, having been rangebound for 5 months. Last week it moved to fresh highs as it reported earnings, and this week was the big breakout and follow-through on high volume we’d been hoping to see.

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Let’s turn to some of our existing names.

$DPS moved modestly higher, recovering from what would typically be perceived as a nasty looking bearish engulfing candle midweek. $DPS is still a fair distance from its MA’s and our stop.

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$BRK.B reported after the close on Friday, and although I haven’t seen a read on the numbers yet, I have to tell you I’m really not too worried about it. $BRK.B put in a strong showing this week which triggered an additional entry point or opportunity to add, with our stop moving up to the 10/10 weekly close of $136.76.

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$COST – what a beast this is. The numbers might not be big, but that’s some fine price action right there on the weekly chart. On the daily chart $COST has risen for 14 of the last 16 sessions. For now our stop is still a safe distance down near the breakout level.

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$QLYS continued its big run on huge volume, boosted this week by a favorable earnings report and following on from its moonshot breakout the previous week. Our stop now moves to the breakout level. We’ve been giving this plenty of room since taking the initial entry the day the market made its low, a testament to why we treat each stock on its own merits and still take entry signals during corrections, as it now becomes our biggest open winner.

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$CAG isn’t necessarily the prettiest trend, even more so on the longer-term weekly chart, but it’s risen for 6 straight weeks now, and slowly but surely in spite of the swings this market has put us through, is getting the job done.

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Other names that remain open are $HD, $NKE, $ALXN, $ED, $CNSL, $ANAC, $SBH.

 

The continued advance in the market has finally started to increase the breadth of names we’re seeing on our watchlist. Although many of the strongest consumer sectors along with healthcare and utilities continue to feature heavily, it’s been interesting to see some new names from technology, chemicals, and homebuilders. Only energy remains completely off our radar. Here are some names of interest:-

$PHM

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$RTN

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$ASH

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$JAZZ

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$GPRO

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$SNCR

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$PKG

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$AZO

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Nov 01

Weekend Review and Watchlist

Another market pullback over, another vicious V-shaped reversal in place, returning us to all time highs.

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This one clocked in at -7.4% on a closing basis. I have no doubt the next batch of top-callers are moving from make-up to the green room as we speak. For those that tried to call it this time around, some will have learnt their lesson, but most won’t, because some people simply never learn, and that’s what makes it better in the long run for those of us with a systematic process who don’t listen to them and have learnt the hard way prediction doesn’t pay. The media may not make these clowns accountable, but the market always will.

Let’s turn to how our names performed.

It was a great week for our longs, the major exception being $CCI which triggered an exit for a 6% loss at Friday’s close, after a volatile post-earnings sell-off that saw it break below its MA’s and previous support.

Otherwise, there were no other exits or new entry signals, but the further advance in many of our names did provide an opportunity to move stops higher to their next level of support or trend invalidation.

One thing I did notice on Friday was how many of our names underperformed in that move unlike the rest of the week. What was a great day for the market by reaching all time highs wasn’t reflected in the p&l for the first time in a while. The reason for that was Friday’s move was clearly led by the Energy and Materials sectors climbing 2%, and with financials also putting in a good performance, all sectors in which we have no exposure. It will be interesting to monitor this going forward, if it was just a one-day wonder for heavily beaten-down areas of the market, or some form of longer-term rotation as former leaders rest while the market continues to move higher with fresh legs.

 

$DPS, our largest and oldest holding, continues to act very well, rising for five of the last eight days on increased volume. Our stop now moves to the 10/17 close, alongside the long-term trend line and just below the 50-day.

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On a relative basis $BRK.B has been rather slow to recover and still remains below its September highs, but switching to the weekly you can see there’s nothing to worry about here. We’re still giving this plenty of room and should we see new highs next week it may give us a chance to trail the stop to that previous low weekly close.

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$NKE followed-through to fresh all time highs, allowing our stop to move up to the 10/14 close near the 50-day.

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The numbers may not be big, but $COST put in a solid performance this week, moving to a new all time high close every day this week, having risen for 10 of the last 11 sessions. The 2-year weekly chart is just as impressive.

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Utilities remain one of the strongest sectors this year and $ED has continued to trend higher since taking our entry after its range breakout in early October. We’ve now moved our stop up towards that level.

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$QLYS is an interesting name that many people won’t be familiar with. This entry came a few weeks ago as it made new highs while the broader market was correcting, and is typical of the kind of entry you can get during corrections. They might not be at all time highs, or 52-wk highs, but instead 50-day or 10-week highs or whatever your timeframe allows. This is how we got one of our biggest winners last year in $QIHU, during a correction.

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If you use a market index as a proxy for entering a position you will always miss these, names that lead during market selloffs and then continue even stronger when the market itself resumes higher. With $QLYS, despite the fact it initially looked like a failed breakout, it never pulled back further than the 20EMA, and it’s clear the volume continues to increase on advances, most notably this week. The significance of this week’s move is even more apparent when looking at the 2-year weekly chart, blasting clear of Jan/Feb 2014 levels to all time highs.

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Other names not shown include $HD, $ALXN, $CNSL, $ANAC, $CAG, $SBH.

 

In terms of a watchlist, there were plenty of names beforehand (contrary to what many people thought), but now with this week’s move to all time highs there are literally hundreds of them. The vast majority of the names I was already watching remain worthy contenders, some are setting up, some are alternatives to names I already own, some I feel I’ve missed but I simply don’t have room. You just can’t own them all.

Here are some I’m watching:-

$LM

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$TRV

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$RTN

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$JAZZ

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$BIDU

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$GPC

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Oct 26

Stocktoberfest 2014 – New Trends, New Friends

This weekend I’m on my way to Stocktoberfest, the annual event hosted by StockTwits’ Howard Lindzon. I love the intersection it represents of new trends, innovation, and markets, and I’m looking forward to it immensely, not only for the chance to meet and network with friends old and new, but also in anticipation of what new ideas I will learn about that will be part of my life going forward.

Take last year for example.

Before the event had begun, I took advantage of an offer to try out Uber on my way from the airport. That was a publicity masterstroke. By the time I was intently listening to Howard’s interview of Uber’s head of global operations Ryan Graves, I was already converted and have been an avid user and advocate for the service ever since.

I was also inspired by Retrofit’s Jeff Hyman’s presentation on the future of weight loss and signed up immediately. Exactly one year later I’m happy to report I’m a good 15lbs lighter, most of which was lost in the first 3 months, but more importantly, has since been kept off. That’s because it wasn’t necessarily about losing weight, it was about changing behavior and having the tools to monitor it. Diets don’t work, Retrofit does.

What this year’s Uber or Retrofit will be for me I don’t yet know, but I’m here to learn and I know from looking at the extraordinary line-up of speakers and array of subjects they will be covering, I won’t be disappointed.

Stocktoberfest 2014 Schedule

 

 

 

Oct 24

Weekend Review and Watchlist

In last week’s review I stated:-

“Is that it? I have no idea. Certainly a correction of around 7% would fit very neatly into the typical range of corrections, and it would look very similar to the last test of the 200-day MA two years ago.

The 200-day hasn’t started to roll over just yet, but it will likely start to make its first marginal prints lower in the next few days. At this point the bears would love nothing more than to see a test of that break that subsequently fails, and then a resumption lower, that if it occurred would likely lead to a very fast move down to around 1815……

…But I am getting way ahead of myself. That is purely subjective opinion and just one potential scenario. We could just as easily continue on up in the now traditional ‘V’ shaped pattern that has so often followed these moves.”

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What a week it turned out to be.

The S&P ran higher on Monday, then gapped straight up through the 200-day and ran again Tuesday. After a brief pause midweek it was ready go again and finished the week just shy of the 50-day with a gain of 4.1%.

Two things to note here:

First, I’d mentioned anecdotally how in the public’s mind the moves in the market last week were seen as being a reaction to concerns over Ebola. I think we can safely put that notion to bed now. With the news breaking Thursday night of a NY doctor testing positive, the futures slumped over 10 points but by the close we’d put in another solid move higher. We never did see the “Stocks rally as NY doctor tests positive for Ebola” headline that would have made a mockery of it all, but that’s what happened and to be honest – New Yorkers look away now – given how there is a huge bias in market reporting for something to only be considered important once it effects NY (Full disclosure – we Brits are just as guilty of the same in London) that was pretty impressive to see the market rally.

Second, last week I had teased that for those that preferred their 200-day MA’s to be declining to consider the move a downtrend, it was likely to print its first downticks any day. It never happened. The rally was so quick and strong, after barely going flat the 200-day has started to tick higher again.

What does it all mean? That this now just looks like another 5-10% pullback with a vicious V-shaped reversal, you know like all those other ones, only this included the first break of a still-rising 200-day in two years. That’s what.

If you’re waiting for the market to make new highs before you get the all-clear, you’re still waiting. As I invest in individual stocks rather than the market, I’m happy instead to take my cue from individual stocks, and there were plenty of names giving entry triggers. Early in the week I took entries in $ANAC, $CAG, $CCI, and $SBH.

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By the end of the week the watchlist was looking like something from 2013, dozens of big names back at their highs. The market isn’t at new highs, and may instead chop around here for a while, (let’s face it we now have a 10%-range sandbox for it to play in) so the top-callers’ 15 minutes might not be over just yet, but for anyone who just looks at individual names there’s plenty to keep you busy. Manage your risk, set your position size to sleep-friendly levels, and be ready to change at a moments notice if the price action demands it. No view necessary.

Let’s go through some of our other existing holdings:-

$DPS moved fearlessly towards new highs into its earnings announcement and came out the other side gapping to fresh all time highs. In space no-one can hear your resistance levels. These kind of moves are where I like to give it some room, and time, to settle down again before moving up our stop, which for now remains at the confluence of the previous swing low, long-term trendline, and the 50-day MA.

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$HD finished the week at all time highs. We’re currently using the $87.85 level as our stop but that will likely move up to the $90.24 level on a weekly close basis in the next week or so.

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$NKE put in another solid week to close at all time highs (are you noticing a theme yet?) The stop is currently at the second breakout level but that could soon move up to the recent daily low close from last week.

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$ALXN had come so close to triggering a stop less than 2 weeks ago, but this week it continued to move higher into earnings and then gapped and ran to all time highs on the better-than-expected report. Friday it put in a nice follow-through too. This isn’t a big position as it had a wide initial stop, but once it consolidates it might give an opportunity to trail the stop higher and increase the size on the next resumption.

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Additional positions include $BRK.B, $COST, $ED, $QLYS, $CNSL.

 

In terms of stocks to watch, although the number of names with attractive setups increased dramatically, the sectors where they’re coming from didn’t change anywhere near as much. To be fair, there are signs of life in financials with names like $ALL and $TRV showing very strongly, and among industrials some transports and defense names look strong, but materials and energy are still nowhere to be found, and the list continues to be dominated by healthcare, utilities, technology, and the full gamut of consumer sectors. Here are 10 names of interest:-

$TRV

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$UNP

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$DTE

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$BCR

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$GILD

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$AAPL

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$GPC

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$SONC

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$ROST

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$LB

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Oct 18

Weekend Review and Watchlist

I met with several non-financial people this week, and it was interesting that the market became a subject of conversation, as it was more than the usual chit-chat because they know I’m involved in it, they actually wanted to ask about it, so it appears the market has become volatile enough that it has their attention.

What was even more intriguing however, was they associated it entirely with Ebola, and in the way that you might mention elements of the economy when talking about the market, they twinned the market and Ebola as if each twist and turn in the market was a reflection of the Ebola story.

Now to be fair, you can hardly blame them, because that is not dissimilar to how the media has portrayed it recently. The media will say they’re in an impossible situation as they can’t be seen to not be reporting on it, but if they do they get accused of scaremongering. It’s a fine line to walk for sure, but they’re clearly failing at it.

Sadly the truth is it’s inevitable that when people see panic over Ebola, and they also see stock market declines make the headlines, they immediately assign causality and link the two.

It’s also perhaps telling to see the suggestive symmetry that exists, that this move in the market is somehow seen as a panic commensurate with the panic surrounding Ebola. Which one do they see as a bigger more immediate threat I wonder? There are always risks in our lives, but clearly some much-needed perspective is in order.

I can’t help you out with the medical stuff, but I can certainly show you where we stand market-wise.

Here’s the updated Correction Roadmap for the S&P 500:-

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As of Wednesday’s close the correction was 7.43% off the high close of 9/18. We put in a modest bounce on Thursday, and then had a huge rally Friday, although we did finish off the highs.

Is that it? I have no idea. Certainly a correction of around 7% would fit very neatly into the typical range of corrections, and it would look very similar to the last test of the 200-day MA two years ago.

The 200-day hasn’t started to roll over just yet, but it will likely start to make its first marginal prints lower in the next few days. At this point the bears would love nothing more than to see a test of that break that subsequently fails, and then a resumption lower, that if it occurred would likely lead to a very fast move down to around 1815.

This is because any new long rentals of the last few days are likely using the midweek lows as their stop, and any breach of those levels could lead to an air-pocket type of move as those that never sold on the initial decline join them in using it as their signal to bail.

But I am getting way ahead of myself. That is purely subjective opinion and just one potential scenario. We could just as easily continue on up in the now traditional ‘V’ shaped pattern that has so often followed these moves.

I had gone over a week without any exits, but his week’s volatility was enough to trigger five additional stops leaving just the strongest holdings and 30-40% cash. However there were also three new entries as some individual names continued to shine and show absolute strength despite the broad decline in the market.

Let’s look at some exits first:-

$TSLA had triggered an exit signal last Friday for Monday’s open, which ended up being the high print of the day leaving only a modest loss, and it never got close to recovering those levels the rest of the week.

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$MSFT had also triggered an exit signal last Friday for Monday’s open having breached a trailing stop level.

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$AAPL had been consolidating for over 5 weeks, and with the rest of the market falling as it continued to hold up relatively well the base of that consolidation became an all too obvious support level, a break of which took us out, and I suspect many others. It’s since recovered and may continue to do so, but this is a good example of the discipline required when trend following stocks. Sometimes you need to get out at what could be the low for a move. You just don’t know. We had a similar thing occur in $MSFT (see above chart) earlier in the year, but were able to re-enter when it recovered to fresh highs. Whether $AAPL will do the same or not remains to be seen.

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The new entries were in $ED which had an impressive high-volume breakout and follow-through beyond our entry, $QLYS which has since retreated but which we’ve given a lot of room, and $CNSL with a high-volume breakout.

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Let’s now turn to a few of our open positions:-

$BRK.B – Nothing to see here. Although it’s a second close marginally below its 10-wk, $BRK.B actually finished higher this week. On the daily chart it’s nestled between its 20 and 50-day MA’s, a safe distance from our stop.

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$NKE was unchanged on the week, and is one of the few remaining names still above its rising MA’s.

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$COST got hit hard this week, pulling back to the 10-week MA in a test of its breakout level, but it remains in between its 20 and 50-day MA’s and a relatively safe distance from our stop.

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In terms of new opportunities there’s still a reasonable number of names on the watchlist. Utilities, which had dominated in the last couple of weeks have now pulled back, but healthcare, consumer goods, and consumer staples still have a strong showing. Within those areas, specific sectors like business services and specialty retail, such as beauty products feature prominently.

AMN Healthcare Svcs ($AHS)

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Advance Auto Parts ($AAP)

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Booz Allen ($BAH)

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Sally Beauty ($SBH)

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Oct 16

It’s Not 2007, It’s 2014

 

 

 

 

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