Another overshoot strategy example

We had on watch-list at the 200SMA at 38. Stock based right on the number (not what you want if you are looking for support reversal) broke through but hit secondary support and found footing. Entry is on a lift-off from that area (37.55-37.64 average fills) for a day-trade back into primary support as a target (38) for at least partial sale.

Overshoot Strategy

There's a certain trade we call "Overshoot strategy" that we'd like to discuss today. It's what we look for when we are looking to buy support and the stock goes right through our alert at primary support like a knife through butter. We always wait for some kind of reversal before we enter support (at least for day-trades). If the stock grinds through primary support without any kind of reaction from buyers then go back to the daily chart and look at secondary support. Often a stock that has gone through primary support finally finds footing on secondary support. First target for day-trade is a move back up to the first support. The reason we're writing about this now is because of two examples that showed up today:

DVN was on our watch-list for a possible support buy at the 200 SMA near 66. The stock didn't even hesistate at the number and showed no signs of reversal until it hit the secondary support near 65. Entry would be on reversal off 65 with stop under.



MOS went through the 50SMA without any problem but finally found footing on secondary support of 59.17.




If a stock/sector you are watching for support goes through primary support with ease then go through the daily chart again and set new alerts at secondary support. Chances are that the new alert will develop into a decent trade. As always, wait for the reversal at a level found on the daily chart before entering. We never enter in no-man's land.

Market Talk

From our newsletter tonight:


Some decent break-out action today. Even though it was a good day we could have traded better. Simply put: we over-traded today: a consequence of trading nervously. But we had good reason given that the SPY is up 14 days in a row (previous record was 12). End of day action was sloppy and we expect market to be difficult going forward, at least short term. This is our plan for tomorrow: we're short SPY 117. If we add longs then we will keep it as a hedge. If we don't add any longs then we'll probably give it 50 cents before taking the loss, depending on market action (and breadth -- if spike up to today's highs with mixed breadth then we'd probably add and not bail).

----
We still have a few non-extended long set-ups we like for tomorrow. If the market melts up most likely we'll be involved with those and just leave the SPY short on as a hedge.

For very active traders like ourselves the GS AAPL and metal reversals today were enough of a warning sign for us to retreat back into a more conservative mode. For longer-term swing traders there still is no confirmation to head for the exits (but raising some cash at these levels makes a lot of sense).

Nice breakouts

Extended market, SPY already up record days in a row, yet, yet, yet a lot of nice break-outs. As we wrote last night, "Statistically speaking it would be hard to believe that tomorrow will be green, however, set-ups for us always trump everything else. If it sets with volume, take it. Otherwise, step back and wait for market to catch its breath."

Here is what triggered from yesterday's list

We're out most of all of the following but will swing last partial if the stocks can hold on to the gains. We had a SPY hedge but let go of that due to commodity stocks acting well and due to the small size left in our positions. Update: We sold everything on the weak action on GS AAPL. We're all cash.

Line represents the alert:

GMCR was the only one not in the newsletter but we called out the 95 breakout real-time today in Twitter

Commodity Ideas

Here are some commodity stock ideas for the near-term.

XME and OIH (Miners and oil, respectively) showing very nice base here and look great for break-out.









Our only worry is that the USD here represented by UUP, is heading into decent support as it heads into the 50SMA. Something to keep in the back of one's head while trading these names.



We posted these six with additional notes on Chart.ly under user name HCPG.




MDR not a pure-play commodity stock but the company is heavily involved in off-shore RIG construction.

Market Talk

We've gone to all cash after a two week stint as swing-traders. We don't like the breadth of this pull-back and think that anticipatory break-out trading will not work as well going forward. We'll now enter positions again on actual break-outs or on support bounces but not in middle or range trades in anticipation of a move up.

As we wrote in our newsletter last night we would be fine with a rotation but we would start exiting our positions on a broad sector sell-off.

Position Update

We're somewhat concerned on the breadth of today's sell-off (even though it's very early yet -- will have to see how they close the market) and are raising cash and inching towards a more net neutral position (especially if our stops in MOS COG are taken out). We sold CAT this morning on the return below 60 and sold QCOM swing.

MOS we will sell on a move below 62.3 (or possible close, we have a cushion on this and will assess), and COG we will sell if no bounce near 40.7.

Remaining positions are GMCR RIMM POT NUE: keeping all for now plus SPY short.

Update: stopped out of COG and sold two anticipatory trades from last week POT NUE; covered one load short SPY from Friday for 50 cent profit and sold MOS swing.

-------------------------------

Covered all SPY short, sold last of RIMM GMCR, all cash.