Author Archive

Wednesday, March 7th

Hit stops in late morning reversal on the gains in the broad market. Still digging for the next opportunity.

The negative move in the broad market indexes helped the position in TZA on the upside. We raised the stop on the close and look to protect the profit on the move. If the positive futures continue into the open we may get stopped out early in the day. Manage the risk and remember the leverage will move the price more dramatically intraday.

Sunday, March 4th

The small cap index fell below the short term support level Friday. A look at the chart below of the S&P 600 Small Cap index shows the clear move lower to break 450. Thus, we are looking for a short play on the move. This is a high risk play in the face of the overall trend and sentiment of the broad markets. However, running our scans we find the risk/rewards similar to taking long positions on extended upside opportunities. Thus we are offering two ways to approach this weeks EGG.

First, you can short IJR, iShares S&P 600 Small Cap index ETF. The entry is $73.25 (sell the shares short) and the Stop is $74.40 with a target of $70. The chart below shows the technical set up for the trade. If you don’t like to short stocks or understand how they work you can play the Short ETF below.

Second, you can buy TZA, Direxion 3X Short Small Cap ETF. We would prefer to use ProShares 2X short small cap ETF, but there is no volume. Thus, the heaviest volume is in the Direxion ETF. We are going to cut the size in half to account for the additional risk relative to the leverage in the fund. The key in trading these leveraged ETFs is the volatility. Don’t let the price swings impact your emotions. The risk of the trade is keeping your emotions under control while holding the ETF. The entry is $19.75 if we pullback at the open, max entry is $20.28. Target is $24.30 and stop is $19.17. We will only use $70,000 to control the downside risk of the trade.

Sunday – February 26th

Running scans this week we find the momentum in the commodities. Oil is too extended for my taste. Doesn’t mean it won’t continue to run, but not willing to buy at these levels. The base metals look attractive, but DBB has too little volume to make it the EGG of the week. That leads to SLV, ishares Silver Trust. The break above the resistance at $33.50 landed right at the next mark of $34.35. Thus, if we break through this level we will take the position in SLV. Watch for a possible test of the $33.50 mark. If that takes place and holds we will adjust the entry accordingly. As always don’t chase the entry or a gap higher. I would put a maximum entry price at $33.70. Chart below shows the picture of what is taking place in SLV.3

Sunday: February 19th

The scan this week are looking for momentum off the selling on February 10th. The top candidates are all moving based on expectations of an event or continuation of a outside influence. For example, FXI, iShares China ETF was one of the top candidates and the move higher will be dependent on their support of Europe and improving economic data. The risk of the trade is the ECB and Greece finalizing a deal on the loan to bail them out. Similarly VGK, Vanguard European ETF showed showed acceleration on the resolution. The old saying buy on the rumor, sell on the news comes to mind on those issues. Thus, I passed on any prospects that would be influenced directly by the outcome on that resolution.

The EGG this week is XLE, SPDR Select Energy ETF. The price of crude broke above resistance on Friday to close at $103.60. The impact on the oil services and conglomerates was positive and there is room for the sector to move higher. IEO, iShares Gas & Oil Exploration ETF is leading the sector currently. This is a play on improving fundamentals to the refiners, drillers and natural gas stocks. Looking for a move back to the high in July at $80. Be patient with the entry price. Looking for a test of the breakout near $73.50. Anything between that level and $75 is where I would like to buy. Watch, be patient and manage the risk of the trade.

Monday, February 13th

The selling on Friday was a reaction to Greece and the signed austerity program by parliament over the weekend should put things back on even footing. Thus, we are have scanned the leadership prior to Friday’s activity and looked for what sold off the most. The scan results were interesting to say the least, but the best opportunity from the scans is the small cap stocks. IWM, iShares Russell 2000 Index ETF gives a broader view of the sector and the potential bounce of 2-4% if investors come back to the buy side bias.

Be patient with the entry and don’t force the trade. The entry fills the gap on the selling early Friday and puts the upside back at the previous high. Watch any gap opens on the trading day Monday. Let this trade develop and remember the objective is to make 1% on the move, if you give up too much on the open elevates the risk.

I like the small cap sector leadership to this point of the rally and expect it to resume the role as investors anxiety over Greece abates.

Hit Stop on Friday – The reaction in Greece didn’t help the global markets. Amazing how one country with the GDP less than most states in the US can control the emotions and sentiment of the markets almost daily for the last 8 months! We will scan and look at what is leading heading into next week.

Watch and be patient on the EGG

ADD AT $43.60 – 43.70

Monday, February 6th

The Emerging markets keep showing up in the scans and the break above the October high last week showed additional momentum. The move above the 200 day moving average last week was positive in addition to the solid volume on the move. I am looking for a test of this move as we start the week to give a favorable entry to play a follow through on the upside move.

A test of the $43 support level would be ideal. The next level of resistance is near the $45 mark, thus room for a nice play on the upside off the $43 support. Be patient, if the pullback doesn’t materialize pass on the trade. The next level of entry opportunity would be a clear move through the next level of resistance at the $45 mark. The 200 day moving average is $43.20 and a good level to watch for the test of support.

Use your judgement wisely on the entry point. We will post intraday as this unfolds relative to the entry. $43.20 is the goal.

Why was there not a rally on Thursday relative to the positive news? Are we ‘tired’ of good news? The Greek deal done with promises of cuts in spending for billions in loans to pay debt? Jobless claims were good again and improving. Apple gained 3.5% on the day to lead the NASDAQ 100 index higher. Banks settled with the states over the mortgage foreclosures. Bank of England agreed to leave rates low and pump more money into the European economy. That should have equated to a 1-2% gain in the broad market indexes, but all of the indexes were basically flat on the day. Are investors tired or are the markets ready to rest from a strong move higher since January 1st?

S&P 500 index is up 7.5%, NASDAQ is up 12.5% and the Russell 2000 is up 11.5%. Sounds like the rally is extended based on those gains. The key going forward for the broad market advance is improving economic data to support the outlook for growth. If that falters the markets can come down just as quickly as they went up. The markets may not be tired, but they do look a bit cautious.

Corporate profits would the obvious assumption if the economic picture is improving, but the estimates looking forward for 2012 are not that impressive. Negative surprises for the quarter being reported have seen the most negative since 2007-08. This shows weakness in the system. 26% of those reporting thus far have missed estimates. 63% have beat expectations or off about 10% according to S&P data. Thus, there are some potential hurdles on the earnings front, versus a boost to stock prices.

Payroll tax holiday expires at the end of this month and that could bring our friends in Washington DC into play. If the process becomes another ugly issue for politicians the markets may react. Thus, it is another hurdle versus catalyst for the investors and the capital markets.

The labor markets, according to the data, is improving as the jobs report for January showed and the weekly jobless claims continue to improve. If the unemployment rate continues to fall and the outlook remains positive, it could provide a catalyst for the investment markets on the hopes of more works, more spending. More tax revenue and smaller deficits. Chalk one up on the catalyst side.

China’s economic picture is another data point to consider in looking for a catalyst. The numbers have been improving economically, but on they report higher than expected inflation data on Thursday at 4.5% increase in January. The policy easing by the government sparked more inflation than expected and thus raises a new issue for China. There trade data today reflected a bigger deficit, but there were excuses of holiday disruption. There is are almost as mnay concerns as opportunities for China to offer upside catalyst near term  I would put this on the worry side more than the catalyst side of the coin.

The challenge is plain and simple… a catalyst for growth is essential for the uptrend to continue. A pullback is expected from moves such as the one experience over the last seven weeks. The key will be a reason to buy on the dip and that is where we are finding it a challenge to find the data or opportunities that leads to the bounce off the dip should it materialize.

Sectors on the Move:
Greece settled and agreed to the necessary cuts to get the bailout money. The market failed to jump on the news, but it also lends itself to the next question… what is the next driver for stocks? ! Volume remains an issues for the broad market indexes. The is no evidence of a top based on the volume and it has kept investors engaged on the upside. For now the trend remains in play and the outlook hasn’t changed. Steady as we go with our stops in place.

Currency is moving again with the dollar dropping below $78.80 support on the dollar index. It has established a two month low against the euro as well. The move above $131.70 on FXE is positive as the buyers step into the euro. Watch the downside risk of the dollar across all the currencies near term. Technical data mounting against the dollar.

Treasury bond yields are hitting against resistance at 3.17%. The thirty year bond attempted to break above 3.2% on Thursday, but closed flat. The ten year bond likewise made an attempt to move higher, but did manage to close above the 2% level. This is important on two fronts. First, the downside play opportunity building to short the bonds on the rise in yields. Second, it show confidence in the  broad markets and the ability to sustain growth with higher interest rates. If the yield does move clearly above the 3.2% mark it is worth watching as an opportunity to short the bond.

Technology stocks hit a new high and continue to set the pace this week. Semiconductors have been the leader on the upside as SMH continues to make stride on the upside. Hitting against the July highs currently. If the sector pulls back and tests support look for the opportunity to add to positions, otherwise tighten your stops and keep moving forward. FDN moved above $35.20 on Thursday. IGN cleared the 200 day moving average, tested the move and moved higher again. CSCO talk pulled the index back some. IGV cleared the October high on Thursday. Tech is still the overall leading sector.

Financials – Attempting to move higher, but some volatility as the bank mortgage settlement with the states was attempting to be priced into the stocks. The banks ended Thursday flat and we are watching to see if they regain their upside momentum based on the data. Looking for a move above the $22.95 mark. The question remains on valuations, some think the sector is cheap, others think it is overvalued. Yet again another example of what makes the market work. Manage the risk of the positions in the sector near term. Overall the outlook remains optimistic, but the earnings and asset risk remain the primary concern.

Energy made a move higher as crude made a move back towards $100. XLE made a move above the $73.20 resistance and held. IEZ equally made a move above resistance at the $57.30 level and holding. UGA broke above $53.50 and resistance gaining 1.7% on Wednesday and 1.2% on Thursday. The sector is making a move higher short term and worth watching the outcome.

Gold has made a solid move off the January low. There is a small diamond pattern developing off the big January 25th move. This tends to be a reversal pattern, but the duration of the pattern is short and could move either way at this point. Look for a clear move higher to buy, GLD would be $170.35. Or a pullback to support near the $163.50 level would be interesting as well for an entry point. The key is to have a plan if you want to add to the metal, and a stop in place if you want to bank profit.

The EAFE index closed above the 200 day moving average and slowly moves higher. The uptrend remains in play. With the Greece worries out of way short term the European markets could see upside opportunity short term. Europe is focused on the news relative to the debt issues and funding the bailout going forward. The island top in October is the next target.

Asia remains in a consolidation range short term. China has been moving higher on improving economic data. GXC made a move to a near term high gaining 2.3% on Wednesday and flat on Thursday. The news is focused on inflation heating up again in the latest reports show a sharp rise in food costs. That could put some downside pressure on the stocks. Japan (EWJ), Hong Kong (EWH) and Singapore (EWS) are in solid uptrends as well breaking through the October highs and their respective 200 day moving averages. They remain a hold short term.

Emerging markets continue to lead the global markets higher as the index has moved above the September and November highs. The play has been aggressive, but rewarding for investors. If the move above resistance can sustain the upside momentum look for a move back to the May/June lows of $45.50 on EEM. The sector has been volatile and the risk is elevated due to the asset class,. Take that into consideration prior to putting money at risk.

What I am watching today:
A break or continuation to the upside on the S&P 500 index. SPY heading towards the high of $137.20.

XLF or financials to deal with the bank mortagage settlement? Can it rise above the deal? KBE?

SMH or semiconductors did clear $34.85 more leadership on the upside. Buy opportunity?

USO or crude oil move towards $100 per barrel and moving towards the top end of the current trading range.

IYT or transportation failed to move back above the 20 day moving average on the current test. The selling is a warning sign for the broad market advance and worth watching near term if a trend reversal results.

Treasury yields to rise above resistance at 3.2% and create opportunity on the downside plays. TBF watch.

Watch and play according to your risk tolerance. Everyone has different trading styles and you have to find what works for you and your personality. Don’t put yourself in positions you don’t understand or take risk you can’t tolerate. Not every trade results in a profit, but controlling your downside risk determines your long term results. Trade smart.