Wk9: Market Forecast

Get out your long playbook.

When everyone thinks sell, it’s time to buy!

The market prices in the FUTURE speculation of the economy so we believe that any sign of a positive 2010 or 2011 will produce a huge rally over the months to come.

In the week ahead make note of these important economic announcements.
· Thurs: Durable Goods 8:30 ET
· Fri: GDP 8:30 ET

We also have Consumer Confidence on Tuesday, Existing Home Sales Wednesday, New Home Sales Thursday, and Consumer Sentiment Friday.

While we are primarily short term swing traders, it is important to keep in mind the bigger picture. We are at a major support level across the indices. This could be an extremely low risk entry point for the stronger companies across the market.

Looking at some of the majors in the NASDAQ 100, AAPL, AMZN, FSLR, GOOG, and RIMM, 4/5 were up on Friday and big money is stepping in giving them some lift. While we can’t call the bottom before it occurs, historically this is an area where a bottom has occurred, so we are looking for signs of accumulation by big money at these levels.

A rally is evident. However there will be pullbacks and bear moves along the way. Stick to YOUR trading beliefs and trade YOUR plan, there will always be another trade out there so keep your risk managed today so you can trade tomorrow.

Wk9: Stocks to Watch

All of them. Especially the strong ones.

Here are a few that stand out...

Long: ALXN, AMZN, CHE, GILD, HANS, IPI, MOS, NITE, POT, SLGN

Short: FE, KR, MMS, PLCE

If we get a rally, you can expect the weakest sectors, financials, materials, and transports to get the biggest lift. Whereas the current leaders, healthcare, telecom, and utilities may not see as large of a rally at these levels.

Black Friday 2?

Taking a look at the S/P and Dow, we are at, and coming into a major support level. The Dow, closing at the lowest level since 1997, has the potential to break down into "open space" meaning the next support level is not clear.
The S/P is not far behind, just off it's November 08 lows which coincide with the lows of 2002/03. If we see a break of the S/P 740 or the Dow 7450 we could be in for some serious panic selling. Be prepared for extreme volatility, and as we stated before, a potential surprise rally which could come at any time.

The largest bull moves happen in the context of a bear market.

Gaps, the EUR/USD, and DOW Correlation

With recent US and global economic new heavily influencing the market, we have seen morning gaps off the open. One indication on which way these gaps will play out is to look at the EUR/USD, as it trades 24-hrs a day.We recently saw a triangle breakdown in the EUR/USD. Measuring the high/low points of the EUR/USD triangle we get a target of 1.22. The Dow is sitting right at its support level of 7500 and any break lower may induce panic selling.

If a panic sell does come in, often times it is followed by extreme volatility and a surprise rally so be cautious and pay attention to the VIX. Of course, we also should be prepared for a bounce at these levels in case more global economic news acts as a catalyst.If we do see a retest back up to the of the triangle in the Euro, the Dow is likely to retest its old broken support around 7800 as new resistance, this would give us a great opportunity to get short if prices roll over at this level.

While we cannot predict what will happen in the markets, planning scenarios can give us great opportunities for higher probability trades. Good luck!

First 15-Min. Rule

One of our rules we use is to NEVER trade the first 15-minutes of the market. This is because many times noise and false moves take place in this time.

For open positions, if a stock gaps down below the established stop, wait for the first 15-min bar to fully form, and then place a stop underneath the low of that bar. More often than not the stock will gap below your hard stop then rally in the first 15 minutes.

The only exception for this rule is when taking profits. Profits can be taken at ANY time during market hours and override any rule.

Wk7: Market Recap

In week 7 we saw more sideways action with candles lining up same sized bodies on the weekly chart of the S/P. Once again the mixed internals confirm this. Gold is moving once again so keep that on your radar in weeks to come.
The VIX is still in its triangle formation on the dailies, holding in the 40s. Oil continues to decline, ranging in the mid to upper 30s. It's the speeches given by political and corporate officials have had a really touchy effect on the market. Often times what is said is more important than the actual number released. Keep that in mind when trading around economic news and announcements, pay especially close attention to what is said by president Obama and his staff.

Wk8: Market Forecast

OPTIONS EXPIRY WEEK!

In the week ahead make note of these important economic announcements.
· Weds: Housing Starts 8:30 ET
· Thurs: Industrial Production 9:15 ET
· Thurs: Producer Price Index 8:30 ET
· Thurs: Jobless Claims 8:30 ET
· Fri: Consumer Price Index 8:30 ET

If you look at the Dow versus the NASDAQ, you can see the divergence in strength. The NASDAQ is showing to be the strongest out of all the indices, putting in higher highs and higher lows, while the Dow struggles to hold at the bottom of its sideways channel.

Look for the NASDAQ to break below it's up channel and the Dow to break down from its sideways channel to get bearish. Be prepared for false breaks intraday as we are still moving sideways on the weeklies.

Wk8: Stocks to Watch

To recap last week’s watch list we had 8 winners, 0 losers, and 4 remain open (1 of which depends on where you placed your stop). View the detailed analysis below…

MYGN – Continues to break to new highs
CECO & COCO – Positions remains open. The gap down on Thursday did not trigger our stop since we do not trade the first 15-min bar. After the first 15-min bar closed, we placed a stop under the low of the day.
POT, MOS, BBG – After strong rallies on increasing volume, small pullbacks are making for more potential entry points. If you took profits on a position here don’t be afraid to jump back in once the stocks signals an entry.
MMC – Broke down to a new low the day before earnings, great point to take profits. It is wise to never hold a full position size over earnings.
KBW & FLIR – Both stocks were crushed, and continued lower after earnings hitting our profit targets.
ROG – Moving sideways.
SJT – Beautiful example of a bear flag, once again hitting our profit target.
COST – Made its move lower and it 10 cents away from our profit target, while it may continue lower through our target, if you are holding Feb options keep in mind they will begin deflating extremely fast this week.

For the following week keep these stocks on your radar.
Long (Enter over the high of the low day, stop under the low):

ABT, ATHN, FNF, MS

Short (Enter below the low of the high day, stop over the high):

NATI, VARI, ERTS, KSS

Trader Interview

Back in October of 2008 I was interviewed by Tim Bourquin of TraderInterviews.com and The Money Show. I delve into my trading strategy, tactics, and market psychology, click below to watch.

VIX Triangle

Taking a look at the Volatility Index (VIX) daily chart, Justin noticed we are forming a symmetrical triangle as well as coming into the 200-MA. Watch for a contraction of the VIX into the 30's to signal a move higher, but if the VIX breaks to the upside, we should see stocks go lower.