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.”
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.
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.
$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.
$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.
$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.
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:-