Feb 8, 2015
Good Day Traders,
The Orlando World Money Show was great watched some very good presentations and best of all met some fantastic folks! We had the opportunity to see FBN’s Making Money with Charles Payne live TV show. Now I don’t usually watch this it was a fun change of pace and I sat next to a floor trader from the CME who goes by WACO. He is often interviewed on FBN and other channels about trading. WACO asked me what I thought of the show and I told him I don’t watch the Business networks to trade. He said, “That is wise, most of the noise on the business channels is for entertainment!” One of the panelist recommendations was DIS which broke out after earnings—wonder if she was playing to the Orlando crowd.
General Market Observation: If you’ve read anything on the Indexes this weekend you know prices are stuck in a box or trading range. Price hit the top of the range on Thursday and Friday tried to break out but then fell back. The zones of support and resistance are very well defined. So until we break out one way or the other trading building a large position in any entity will probably be challenging. We move into the midpoint of earnings season and expect stocks that surprise in a positive manner to be rewarded and those which have smallest kink will be punished!
SPX: Try as it might the S&P could not stay above the 2065 resistance zone and finished Friday with a Bearish Harami Reversal candlestick pattern. On the weekly chart the range totally engulfed the past four weeks but does not represent a reversal candle. If this Index respects its current character this week should be a sell off to support zone between 1980 and 2000. A few years ago the SPX consolidated in a range like this for several months and every time it hit the bottom of the range it bounced into a tradable move back to resistance where it could be sold for a profit. When an index behaves in this manner traders can get some great short term gains by just trading the bounces. Take a look at SPXL the 3x Leveraged ETF of the S&P. While the range on the S&P is just below 4% on SPXL the range is a bit over 12%. As long as the Index maintains its current character these are viable trades.
The daily chart below shows little strength to take prices higher. Now if we do get a big surge next week and power comes back in then our posture will change accordingly. While it is a bit early to put much credence in the Futures market price a currently down and if maintain this negative bias we could start tomorrow off with an Evening Star Bearish Reversal signal. But we’ll check the pre-market to see if this biases last through the night.
NDX: The Nasdaq 100 remains the weakest of our tracking Indexes. The weekly range was constrained and Friday’s price action resulted in a Bearish Engulfing reversal pattern. If this pattern completes on Monday and the Index maintain its current character expect a fall back the support zone around 4100. If this level fails then watch the price action at the uptrend channel line and the 200 day SMA.
Over the past couple of years every time price has dropped to the 200 day SMA the Nasdaq and reversed back into a strong move. However the current price action appears to be different than those other times. Could these differences be signaling topping action which leads to a more negative character? We shall see. Right now support and resistance is holding.
RUT: The sideways action in the Russell has been going on longer than either of the other two tracking Indexes. Price found the ceiling on Friday and reversed. While this was not a reversal candle it does show that the end of the surge back to resistance may be over and the elevator is going back to the ground floor at about 1160. The current trading range on the Russell is about 5% and just under 15% on TNA the 3x leveraged ETF of the Russell.
If a trader wants to take advantage of these moves take you trading triggers from either the IWM or RUT directly. Conditional orders can be set up to trigger off IWM or RUT and execute trades for TNA. The main reason to use the IWM and RUT for triggers is because their price action paints a truer picture of support, resistance and interaction with the moving averages. This is just one of the wrinkles in trading TNA.
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Summary of Monthly Closed Trades as of the Feb 6th:
The Margin Account is in Cash.
Total Booked Profits since Jan 1 when the timing service began: $1202.00
ATTS Returns for past 3 Years—Each account is now reset to $100K to begin 2015!
Since 2012 we have traded the Active Trend Trading System with the following net performance. Sharing this data is not a representation that similar results will continue in the future:
Compounded Return = 126% for the three years or an average of 31.41%/Year
Active Trend Trading’s Yearly Objectives:
– Yearly Return of 40%
– 60% Winning Trades
For a complete view of specific trades closed visit the website at: http://activetrendtrading.com/current-positions/
Updated at the beginning of each month.
Managing Existing Trades: We opened a half position in AMBA Friday at 56.25 and have identified the first target and the hard stop loss. Last week AMBA sold off in sympathy with GPRO’s earnings reports. While providing similar products as GPRO, AMBA is further along than GPRO with multiple products. AMBA’s earnings come out on March 5th so there may be a bit of an earnings run if the market helps out. Price may continue to consolidate between the 50 day and current levels. Our first profit target (T1) has been set approaching resistance at 59.90. There is a hard stop below the Swing Low from Feb 2nd and the moving average. The hard stop loss is 50 cents below the swing low at a value of 53.83 and will move up if price takes off above the 8 day EMA.
Pre-Earnings Trade: The next three weeks will the majority of remaining earnings reports will be belted out. This week TSLA and BIDU could provide some fireworks as both report on Feb 11th After Market Close (AMC). Other stocks from the private watch list reporting this week are INCY and PAYC on the 12th and 10th respectively. Both of these have been movers over the past few weeks so we will see if they continue to fly high or have their wings clipped.
AKRX & NOAH report in two weeks so if they set up there may be a short pre-earnings run on either of these that could amount to a 5%-10% quick trade.
Potential Set Ups for this week: There was a lot of commentary both at the Money Show and online about how the market so far this year has been a challenging market to trade. This is primarily because about 70% of all stocks swing in synch with the market so if the market is range bound so are the stocks. Additionally part of the reason why there isn’t more upside and breakouts are failing is where we are in the Bull Market—it’s Old! When IBD talks about how bounce trades off the 50 day moving averages have been the best trades so far this year for quick gains, we know something is up with the market. We’ve seen some good quick returns that didn’t hold in our own trading so far this year. It does seem to be a market where base hits and bunts are the most productive approach to stay profitable.
I will be adding some additional stocks to my private list this week and retiring some tired names. This will be posted to the website by midweek. Remember for the highlighted stocks below, some are not at an entry action point so we wait for the setups. Additionally, if you see a strategic trade on any of the picks below take the trade by the rules.
Upside: Here are some long side stocks to focus on ALK, NOAH (pre-earnings run), SWI, ULTA, and HAIN. Also keep your eye on GLOG for a potential energy play. Many stocks with even a weak association with oil have been hammered like pipelines and transports. GLOG is a LNG shipper which appears to be righting the ship. The fundamentals have not totally turned around but it does appear to be strengthening. Typically the oil and gas transporters charge a fixed rate that is not impacted by the price of oil or gas, so many of these types of stocks have been thrown out bath water as oil has plunged.
Downside: There seems to be better long setups this weekend but CAVM, CAR & GILD look to have some downside potential. Also see if GMCR fails in its current dead cat bounce.
Toss Ups: The only toss up I have this week is AAPL. While AAPL is the big tech stock on the block and currently propping up both the S&P and NDX it has reached resistance at 120. The daily candles show two self-confirming bearish reversal candles a Hanging Man and Bearish Engulfing pattern in succession. If AAPL tops for a while the weighted Indexes may retract to a greater extent.
Leveraged Index ETFs: We follow SPXL, TQQQ, TNA & FAS for potential trades. Currently the path of least resistance appears to be a retrace within the trading range. If I’m trading the Index ETFs to the down side I lean towards the non-leveraged ETFs because they can be either shorted or traded with put options. TNA is the best of the four leveraged ETF for option trades. On the Early Warning Alerts we are waiting for a trigger reset.
Outs & Ins: IPGP and MCK make their debut on this week’s IBD 50. IPGP is breaking from a long term consolidation pattern on improving volume but is extended. MCK has been on the list in past years and broke out above resistance at 220 on earnings last week. MCK is a slow and steady mover that finds support at the 50 and bounces.
Forty percent of the IBD 50 will report over the next three weeks. The notables that report this week are AAP, UVE, SAVE, CDW and AFSI.
Comments and opinions written below this line of text may be provocative and only obliquely related to trading. Some may find these “Off the Wall” comments challenging to their outlook on life. I will not post any comments made on subject matter below this line, so if you disagree blast away.
OFF THE WALL
Off the Wall: On the flight home last night I was thinking about what it takes to trade for a living. Many traders seek this objective as the ultimate goal of learning to become a master trader. Life would be so simple if I could just watch the market all day and take those trades when they appear! If I could do that I would be a much better trader.
Personally I believe this is a misguided, romanticized idea that can provide a slippery slope to failure and frustration. For whatever reason there is an idea that the work in trading is watching the market all day long waiting for just the right moment. Now this may be true for Day Traders and Scalpers but few people really possess the psychological makeup to for these two types of traders. Yet the bias of belief is that watching the jagged line or bouncing price quote all day long is the real work of trading. If you are contemplating trading for a living—the above mindset for most people is a lie!
The real work for successful trader is done during non-trading hours when we review charts and design strategically sound trades that can in place and function without the need for us to watch them during market hours. But there is the draw of the ticker that pulls us in as if our watching imposes some magic force over the price action. Some never learn to apply this critical piece and fail to learn their systems. Learning to trade properly must be achieved prior to stepping into trading for a living. If it is not then stepping into trading for a living will be a painful experience. We’ll talk about this in one of our upcoming Mid-Week Market Sanity Checks.
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