Saturday, February 4, 2012

Saturday Mornings Setups for The Week Ahead Plus Market Analysis

Hi traders - here are the setups I will be watching early next week along with a look at the overall market.   First the market.  After the big run we have had (including Friday's big move), I am very hesitant to get aggressively long here.   I was long the entire run so far except for a hedge here and there and still do hold a few long positions, but I took some profits the past two days as well.  The main reasons I am hesitant here are as follows...
  • The T2108 indicator in Telechart (% of stocks over 40 day PMA) is now at 87.68.   From what I can tell, that's the highest level since April 2009 (basically the beginning of the bull market).  Now back then, that level proved unimportant because we continued to rally hard for a long time.  However, the move was just starting back then.  This move has been going on for over a month now so I don't know that we'll see the same thing.
  • Market Monitor indicators are stretched.   Ratio of stocks up 25% in 65 days to stocks down 25% in 65 days is about 8.7 to 1 right now.   Anything over 8/1 indicates a stretched market.  Three other indicators like this are also in the "stretched" range, including the number of stocks up 50% in a month versus the number of stocks down 50% in a month, which is at a forty to nothing count right now.  The last time we got near that level was the end of October 2011, and we did end up with a choppy correction soon after.   These indicators were created by Pradeep over at Stockbee.
  • My RSI(2) overbought/oversold indicators (which just keeps track of how many stocks are below 10 or above 90) is as high as it has been since late June/early July 2011.  We did correct soon after.
Of course, let me state the obvious.  NONE OF THIS MATTERS UNTIL IT DOES.  We may keep running early next week in a blow-off manner.   Hopefully we just rest a few days and form a nice flag on the Nasdaq.  Being "overbought" for long stretches is actually a good thing in that it shows how strong a market actually is. There are certainly tons of stocks acting well and making big moves so there is no reason to be bearish here.   However, since these indicators are shouting some warning signs, there is also nothing wrong with locking in at least some profits as we move higher.   The type of stocks I trade can sell off very quickly if the market has a shakeout or two or three day pullback, so I have to trade accordingly. 

Here are some setups I will be watching early next week, but if I do trade any of these names, my time frames will shrink due to the market being extended.  I will take profits quicker on new names until we get a little consolidation.  Here is the first group that do NOT have earnings this week according to my ThinkorSwim data.   As you can see, there are not as many as past weeks due to the extended nature of things at this juncture.

Here is the group that does have earnings this week.   They all report later in the week, so it is possible to buy Monday if they trigger and then run them into the report.   However, I unless I have a large cushion, I NEVER HOLD A STOCK INTO AN EARNINGS REPORT.

All Charts from TC2000, Courtesy of Worden Brothers, Inc.

Hopefully this helps you out - we had some nice winners over the past week which I reviewed yesterday.   We'll have to see how this week plays out - I won't be surprised if we see some choppy action.   That's not necessarily a bad thing however - anything that will let the market rest a bit without major damage being done is a good sign for the longevity of this rally.   Good luck next week and enjoy the rest of the weekend.    

1 comment:

Anonymous said...

Great list, had about half on watch, thanks for the others