Friday, November 05, 2010

Market Talk

SPY has blasted through the 200SMA weekly and doesn't look like it wants to stop anytime soon.  We believe at some point the weekly will be tested again -- the SMA is too important to be taken out so easily in an extended market, but our time-frame as traders is to short for that type of trade.  Also-- even though we see the trade and believe it will work, it's just not our cup of tea.  We're more trend traders than reversion to mean traders.  Even when we buy support its done within a longer term uptrend. 

 As we wrote yesterday our focus today was on the XLF -- its the only sector that was not extended and one we hoped to see continuation from today    We also wrote in our newsletter yesterday that we were looking for further rotation out of technology and into financials -- something which also occurred today.

We have a running alert on QQQQ 55 so we know how far away it is at all times (currently 2.36%).   The 55 number is one of the fundamental reasons we have not shorted swing tech.  Why? 

 Because as we wrote weeks ago -- 55 will serve as magnet.  Why short within a trend that is being drawn to a magnet? 

Weekly on XME looks fantastic -- definitely helped by its gold holdings. 

XME top holdings:

OIH could easily move to the 200 SMA. 

The weakness in tech did not spread to the market as rotation played out and the market ended green.  We'll be looking at this carefully next week to see if tech weakness simply rotates into other sectors or whether contagion will occur.

Very benign tape -- and traders are buying dips ferociously as the "Fed put" and funny money gives confidence to all.   Interesting times indeed.      

Thursday, November 04, 2010

Fins, finally.

SPX is extended at year high resistance, dollar in death spiral, techs notable underperformance today but into the close comes the massive financial breakout out of multi month base.    As always, continuation will be needed for confirmation but we'll be looking at stocks in the sector extensively tonight for our watch-list.  XLF is one of the only sectors that is not extended and a rotation into financials now would seem likely if we can get continuation in the next few days (i.e. to rule out today being a head fake).

The Indy: Day trader Strategy

We've been trading a lot lately a strategy we came up with 2 years ago -- we finally got around to giving it a name.  Welcome to "the Indy"; a strategy that HCPG subs are well acquainted with and trade often.  

This is the second day-trade strategy we have come up with over the years.  The first, and any reader of this blog over the last 4 years will know it well, is the base and break. 

The name comes from a description of the strategy in which the stock is being held from above by R1/daily resistance and is slowly getting squeezed from below by the ascending EMA. Indiana Jones would often find himself in similar situations and would always find a way to break out of the impending squeeze, thus "the Indy". 

This is a daytrade entry set-up on alerts we have on newsletter from the night before -- meaning we are looking for a breakout on daily.  It is easy for us to catch these type of trades because we are already looking at the stock to break-out.  We usually only look at 5-10 stocks a day for trades -- all the homework is done the night before and mailed to subscribers.   Here are a few examples from the last few weeks.

First you have the stock rally almost to the alert/ R1(or R2) zone and then pull-back. The stock's range is wide as it bobs between the alert and the ascending EMA. As time passes the price pattern tightens up as it waits for EMA to catch up with R1. Once the EMA catches up the the stock is free to break-out. Stop is under EMA/R1 (usually very tight stop which gives you great risk-reward).

Indy can be held from above by R1/R2 or our alert price which is daily resistance.

Very clean example on NFLX:

The risk-reward for this set-up is simply outstanding. 

Nice clean example from today on our alert from GS in last night's newsletter.  Note again the Indy set up against our alert price (but R1 close by and giving support to the EMA).  The important condition is that the stock is being held from above by some form of resistance, be it R1/R2 near alert (alert is always daily resistance) or by daily resistance itself, in the case of GS.

Nice Indy set-up here as stock bases under our alert price (daily resistance) and waits for ascending EMA to catch up -- once it does it's do or die time and usually with set-ups like this, it's Do.   Risk-reward is excellent as stop is always near by (move under the ascending EMA or EMA/R1 if close together).   As stock moves up the EMA moves up also, perfect trailing stop.  We always take profits on spikes up away from the EMA.Entry would either be a break of the base (here 164 break) or on dips to the EMA with stop under EMA.