Sunday, February 24, 2013

First Heavy Selling of 2013 - What Does It Mean Going Forward? Top or Pause?

Wall Street saw some significant selling this week - by far the strongest of the year - which has put the current rally in question.  Will the bulls bounce back quickly like they did in March of 2012 during a similar two-day selloff, or is this time different?  That's what traders have to try and figure out for the trading week ahead. 

In my last few posts, I have discussed how this rally has been a little weird in that there haven't been a high number of strong breakouts and therefore it has actually be a rather underwhelming rally underneath the surface.  That low number of breakouts might not be as big a deal if there is also a low number of breakdowns, and up until Wednesday that was the case.   However, on Wednesday, it became a big deal.

We saw by far the highest number of 4% or higher breakdowns on Wednesday with 351.  In fact, it was the highest since November 14, 2012.   When a market goes up weakly and then has a sudden breakdown like that, it is something you want to pay attention to closely.  There was some follow-through selling on Thursday as well.   The bounce we saw on Friday came on much weaker breadth than the previous two sessions of selling, which is also not good.

This selling, along with several other factors, has put my market timing model to a sell at -3 (-6 is lowest possible score).  I have to respect that and have been in cash except for a day trade since Wednesday. 
$BPYNA Indicator Turned Down

Looking at the indices, the Nasdaq had the biggest technical breakdown, but that is to be expected as it has been the lagging index this year.   Back in March of 2012, the Nasdaq had a similar two-day breakdown through its two short-term moving averages (shown below).

Nasdaq 2012

Comparing that situation to the current one (shown below), this one looks worse in my opinion.   If you look at 3/12, you'll notice that both of those sessions had a little bit of a bounce that took them off of their lows for the sessions.  We saw none of that on Wednesday and only a slight bounce off the lows on Thursday.  Volume was also much higher to the downside this week than it appears to be in 3/12.  The one similarity (at least after one day) is that in March, the bounce back came on low volume, but it didn't matter as the market kept going higher.  Because of this, perhaps Friday's weak volume on the bounce isn't a big deal. 

Current Nasdaq

The S&P had a breakdown this week as well but looking at the chart, the bounce seen on Friday looks more impressive than the one on the Nasdaq.   It almost completely took back its 9 day EMA and if the bulls follow-through on Monday, the sell-off may be very brief indeed like it was in 2012.

Charts from TC2000, Courtesy of Worden Brothers, Inc.

Overall, I think it is too early to know if we are topping out or have just hit a little bump in the road. My guess is that we will chop around here for a week or two in this area before the market decides what it wants to do.  Obviously, if the market moves right back up from here, taking back the losses from Wednesday and Thursday with ease, you have to go with it.  The selling we did see was heavy, however, and for now, I am playing cautious and remain in cash, although I am OK with taking some long setups if they trigger.

I was surprised that I found a good number of long setups in my scans this weekend and perhaps that bodes well going forward.  Maybe the bulls can pull off a similar fast recovery to March 2012.  I am keeping my list short however because I still think the selling on Wednesday and Thursday was significant and will take a little time to overcome.   Here are the names I will concentrate on this week.  I did NOT check earnings dates on these so please do your own due diligence.

Charts from TC2000, Courtesy of Worden Brothers, Inc.

For what it's worth, I saw very few if any short setups in my scans so I don't plan on looking at that side of the market yet.  If we are putting in some sort of a top here, it will likely take a few weeks to play out and there will be chances to get short.  I just don't see many right here. 

Good luck going forward.  It could be a tricky week with lots of fakeouts, so be careful.

Monday, February 18, 2013

The Grind Continues...Market Outlook and Setups for the Week Ahead

The grind continues.   We saw a choppy and rather boring week last week on Wall Street, as the trend continues of very weak moves on the overall market with a slightly positive bias with a few individual stocks working underneath the surface of the market, but also many more frustrating traders with fakeouts and uninspired moves following breakouts.  This is the type of market we've seen pretty much all year and the numbers I talked about last week in regards to breadth and timing haven't changed. 

A market that grinds its way higher can be frustrating, but it is not necessarily a bad thing.  A year ago, we saw a market that grinded its way higher but I think it was a much different market than we are currently seeing.  If you look at the Nasdaq chart below, you see a market that moved up slowly and steadily, but compared to the 2013 market, the key work is "up".  The Nasdaq is 2012 went from a close of 2648 on the opening session to 2918 on February 15, a gain of nearly 300 points.  So far this year, the Nasdaq has gained 80 points, using the close on the opening session. 

Nasdaq 2012

I've mentioned breadth as being disappointing with this current market and a comparison to a year ago proves this.  Last year, we had many sessions with breakout numbers over 200 and even 300.  This year (not counting the opening session), our highest number has been 158.  By this time last year, we had eleven sessions over that mediocre number of 158.   I think this is the reason individual stocks have been frustrating and somewhat disappointing so far this year.  I was up about 20% in the first quarter of last year, and am currently looking at my account being down 6% this year.  Maybe that's just bad trading on my part, but I think it says a lot about the way individual stocks have acted as well.

2012 vs. 2013

During the past week, both the S&P and Nasdaq did very little other than chop around.  This can easily be seen on the five minutes charts below. 

S&P 500

When looking at the daily charts, it's certainly possible that the Nasdaq is consolidating here for a big breakout that will lead to a powerful move higher.  Let's hope so.  The S&P meanwhile is above resistance but is doing very little.  Perhaps a meaningful pullback would set up a more exciting move higher but that doesn't appear to be in the cards at this point.

S&P 500
All Charts from TC2000, Courtesy of Worden Brothers, Inc.

Going forward, I am going to sound like a broken record if you read my posts regularly but it does hold true.  My timing signal remains positive and as such, I will continue to lean to the long side.  It is not overwhelmingly positive so I am remaining conservative, but if stocks trigger, I will consider them.  In order for a pullback to really start, I think the 20 day EMA has to be taken out.  The 9 day EMA has been broken a few times but the market has been able to bounce back.  Perhaps a 20 day break will get the bears going.  A decent pullback might be a good thing here for the longer term.

Here are ten long setups for this week.  After being screwed with so many times this year on individual names, I am in a "take what you can get" mode on stocks so most of these setups are one or two days swing trades at most.  That's just the type of market we are in - I wish it was different but it's not.  If you're frustrated, don't be.  In my opinion (and of course I could be wrong), there are very few traders lighting it up out there, although very few will admit it.  If you can day-trade, it will help, but if you're like me and can't watch things all day, it remains a tough market to play. 

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

Good luck this week.  

Sunday, February 10, 2013

A Look Back and A Look Ahead - Your Game Plan for the Week

Last week brought some choppy trade to Wall Street, as stocks gapped down and up at various points before breaking higher on Friday to new highs in the S&P and (almost) new highs on the Nasdaq.  When trading gets volatile and choppy like we saw this week, it sometimes is the market's way of giving a warning sign.  It may not mean anything but the week ahead should give us a much better idea.

The Nasdaq put in a nice session on Friday if you ignore that volume was lighter than the previous two days.   That is a bit weird considering the gap took us above a little consolidation area of the past week or two and also put the Nasdaq near new yearly highs.  If this can clear the 3196 level, it would be big, but at the same time a fakeout followed by a reversal wouldn't surprise me as I continue to see a lot of individual stocks do the same thing.


The S&P meanwhile did move to new highs on Friday but that move was a bit underwhelming when you look at volume being lower and the move just barely clearing a week-long consolidation.

S&P 500

My market timing numbers remain positive overall but the past two weeks, they have been lagging slightly where they were in early January and I actually got a cash signal after Monday's action.  One main reason for this is because we simply have not had a lot of powerful breakouts (or breakdowns for that matter) during this move.   It has been much more of a grind, both on the overall market and individual stocks.

Looking at these numbers, you can see that since the opening session of the year, there has not been even one session where 4% breakouts or breakdowns topped the 200 number.   The market really hasn't even come close to that number.  That illustrates that the "grind" in individual names and the overall market that I just discussed.  This has not been an easy "rally" as many stocks have given false signals and the breakouts that have occurred have been very hit and miss in terms of follow-through.

As long as my timing score remains overall positive, I will continue to focus on that side of the market.  I got finally got lucky with an earnings play on Thursday, getting into LNKD in the IRAs, but even those plays have been hit and miss.  LNKD and NFLX have been great examples of how earnings plays and gap-up should act, but I've seen just as many this earnings season that have gapped up and given everything back the same day.   

Potential long setups for the week are shown below along with the notes I made in TC2000.

One observation I made this week is that I am starting to see more stocks look like potential short setups than at any point in a long while.  A lot of these names are big, well-known stocks that acted well in 2011 or even recently and are now looking much more bearish.  I am not looking to short these names - just sharing an observation and thinking about how this may relate to the overall market.

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

Good luck in the upcoming week.  Still lots of earnings reports coming out so pay attention to any names you may look at and know their earnings dates.  Take care.

Sunday, February 3, 2013

A Quick Look at the Week Ahead

Really short on time this week so here are charts I am watching along with the notes I made in TC2000.  The new follow feature is great as you can follow any trader that uses TC2000 and see his or her personal notes on charts they are watching on a nightly basis.  I do try and make notes on my watchlist stocks on a daily basis because of the convenience and how much less time it takes.  If you're interested in this feature, feel free to email me and I can give you more information about TC2000 and also about the free trial. 

Charts from TC2000, Courtesy of Worden Brothers Inc.

Wanted to share an article from Pradeep over at Stockbee as well.  I have thought for a while now that this rally was rather "weird" in that for as bullish as it seemed on the surface, there were lots of problems with individual stocks.  Pradeep does a nice job using specific data to explain this concept.  I am glad I am not the only one seeing this "weirdness".   

Have a good Super Bowl day (I myself am rooting for a tie as I hate both teams) and best of luck this week.  Take care.