Sunday, June 30, 2013

Summer Trading Season + Holiday + Indecisive Friday Close = ???

If you looked at the daily charts of the indices from last week, you'd think it was an easy week to trade.   I went into the week expecting the market to bounce from extremely oversold conditions and traded TNA and TQQQ several times, actually holding a position over the weekend expecting a market that bounced to start the week.  That worked out poorly for me, but even after the gap down was bought on Monday, the market's reflex bounce was not an easy one to trade. 

Perhaps it was just me, but when you look at the intraday chart of the Nasdaq, you'll notice that pretty much all of the price gains occurred off of overnight gaps.   There was very little to any follow-through intraday and in the case of Monday, a very weak close that made holding longs into Tuesday a difficult proposition.  Basically, you had to guess what the market was going to do overnight or be willing to be patient enough to just buy the gap down Monday and hold, which I didn't do.  

 5 Minute Nasdaq Chart from Last Week

The bounce we did see set up a textbook short setup on most indexes going into Friday, with the market selling off hard last week on heavier volume and bounce right back up into several layers of moving average resistance on much lighter volume.   This is a traditionally successful short setup, however, and since the Fed interventions that started in 2009, these type of setups have actually been more bullish than bearish.  Friday did not give traders a definitive answer as to whether this setup would actually work on the short side for the first time in recent memory as stocks closed in the middle of their intraday ranges in most cases.   That presents a lot of indecisiveness entering the week ahead as you can see below. 

S&P 500
 Russell 2K
Charts from TC2000, Courtesy of Worden Brothers, Inc.

In addition to the indecisive charts, we also have a trading week broken up by the Fourth of July holiday (with a jobs number the following day to boot).  Summer volume is normally weak which affects trading, but this week it will likely be even weaker, which might make the trading even more difficult as the machines just play with traders due to the thin volume. 

I didn't see too many interesting setups anyway as I did my scans this morning, so maybe that's a sign that this is not the best week to be doing a whole lot.  If you have to trade, I would watch the highs and lows of Friday on the indices (as I documented on the charts) and use a break of those levels as a clue as to where we head, although it's very possible the machines know these levels are going to be watched closely and could mess with them.   Doesn't seem like much of a swing trading type of week ahead of us, so I would either take a vacation yourself or keep everything intraday or short-term.   Earnings season is going to be starting soon, so perhaps we can find some better action as companies start reporting.  


Shorts to watch:   KBH, BZH, WETF, RYL, LL, NFLX

Good luck this week - ideally the market would rest for a few days, forming a nice flag off of this bounce and allowing the market to move higher going forward.  Somehow I doubt that happens, but we can hope, right?  

Friday, June 7, 2013

Is the Chop Over or Just Beginning?

In my last post, I said the following....

"After having such a slow, smooth, steady (and I would say almost weird) climb from the beginning of this month, it makes sense that volatility picks up a bit and we move up and down without going much of anywhere for a few days.  It's very possible that this rally continues at some point soon and the recent highs are built upon, but for now, I suspect there will be a lot of false moves and headfakes over the next three to four days."

That was pretty spot on, but even I get lucky sometimes.  Based on how the market looks here, however, it's possible that three or four days of chop could change to three or four weeks since the summer is officially here with the start of June.  Yesterday's bounce was nice but the market was quite oversold (T2106 under -300) so it was not unexpected.  

The trend this year has seemed to be nice, smooth periods followed by messy ones.  We are in a messy one right now.  The bears have yet to take control and really push this market into correction mode, but we have to wait to see if the bulls are strong enough to get follow-through on yesterday's bounce.  I hope they do as this is my time off work where I actually can watch the market all day and would like to make some money.   However, since summer is notoriously slow and choppy, I am not that optimistic.


These are the names I am watching today and into next week.  I'm fine with giving the bulls the benefit of doubt but I will go into all trades with lower expectations until the bulls show that they are totally back in control.  My guess is that it is still going to be tricky for the foreseeable future.  Good luck.

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