Good Day Traders,
Overview & Highlights: Great news for all Early Warning Alerts and Active Trend Trader Members. This year the EWA system has flashed two alerts but failed to provide a proper buy signal. We went back to work looking for an enhanced primary entry trigger that would better complement the standby alert trigger regardless of the market condition. The standby alert trigger has worked flawlessly at each of the market bottoms since 2002 but often required waiting until other signals triggered before entering. We were successful in our testing and will be using this trigger going forward as an enhancement to the EWA System. Our work also provides additional benefits by providing improved timing for “Second Chance” entries with the EWA’s and improved entry timing for each of the 3 Strategies of the Active Trend Trading System.
As always my objective is to Clarify and Simplify and this minor refinement will accomplish both so we can all multiply!
Webinars: At Active Trend Trading we offer two webinars per week to provide training plus trade and market updates. See the schedule below for the next webinars.
How to Make Money Trading Stocks on Friday, March 11th
Register Here: https://attendee.gotowebinar.com/register/2294699831932429315
Next Training Webinar: March 9th
For Premium Members our Wednesday evening training is developing some fantastic traders!
Mid-Week Market Sanity Check Topic: ATTS Indicators and How to Use Them
Managing Existing Trades: Only Strategy III trades open.
Strategy I Portfolio Building: No Open Trades.
Strategy II Income Generation: No Open Trades—if you trade options this is a good strategy to send up trial trades to see if the market’s direction may be changing. 1-5 contracts of one of the Index ETFs may provide less downside risk than long position in the underlying Index ETF. Trading options is not for everyone and I strongly encourage members to first become successful trading stocks and ETFs.
For members wanting to better understand this Strategy there is a very good training video at: http://activetrendtrading.com/basic-option-strategy/
Strategy III Wealth & Income Generation Trades: Two Foundational Positions are in place to sell weekly options against. The recalculated weekly revenue needed from these foundational positions was forward in an update report earning last week. My objective with this Strategy is to collect enough weekly premium during the life of the LEAPS Strangle on both SPY and TSLA to both pay for the capital invested and gain between 50% – 100%.
Tip for Experienced Option Traders: Occasionally after a weekly trade goes against me but the trend appears to be changing I will add one naked contract over and above my foundation position and close this out after it gains at least half of the premium I’ve collected. Doing naked options is not for everyone and I keep my risk small by only doing one contract above my covered limit. In other words if I can sell 4 contract covered by my long leaps I’ll sell one additional. This helps hedge the losses a bit but it this tactic is not without risk and must maintain a tighter stop than I would normally use with the regular position.
Note: We do our best to get both text alerts and email alerts out in a timely manner, occasionally there will be trades that are missed because of delay in the Text or Email alert applications. Additionally please double check with your broker to assure they allow spread trades like we do with Strategy III. Some do and some don’t.
Trade 1: Foundation Position is 4 contracts of SPY Jan17 205C and 4 contracts of SPY Jan17 200P Current Trade—Currently Up 1.61%
Opened 2 contracts SPY Mar2 200C for a 1.95 Credit–$390 potential Profit
Opened 2 contracts SPY Mar2 201.5C for a 1.12 Credit–$224 potential Profit
Trade 2: Long TSLA Jan17 250C & Long Jan17 220—Current Trade—Currently Up 37%
Sold 1 contract of TSLA Mar2 202.5C at 5.00 worth $500 per contract
Several members have asked about this strategy and a more detailed explanation is available at: http://activetrendtrading.com/wealth-and-income-strategy/
I posted a video about how to choose the weekly options to short for this strategy. It can be viewed at: http://activetrendtrading.com/videos/
Additionally some of these trade may be selling weekly puts on up trending stocks. If you are interested in parallel trading this strategy register at this link: http://forms.aweber.com/form/99/1278533099.htm
Pre-Earnings Trade: Only a few more weeks left in the current earnings season. In an up trending market many stocks will provide upside trades with expected returns between 5% – 20%. Here are some potential stocks that may provide pre-earning moves: DG reports on 3/10 BMO, NKE 3/17 AMC, and BITA 3/10 BMO. Additionally AYI, CALM, FIVE and PLAY also report during March.
Potential Set Ups for this week: The market has just provided a tradable rally over the past 3 weeks. Most stocks are overbought and extended away from primary moving averages. Many are at or outside the 20 day moving average envelope so a pullback or rollover may be close. Our watch list reflects some new leaders that are worth watching and waiting for.
Long set ups continue to be in short supply, but many stocks are showing some signs of positive divergence. With the current market personality choosing one or two stocks and Index ETF’s is a good way to stay focused with potential short term trades for both Strategy I and Strategy II. I like TSLA, AMZN, NFLX and the Index ETFs for this focus currently and will look specifically for trades in each of these until the market’s personality changes.
Upside: NKE & STMP. NKE does have earnings on 3/17.
Downside: FB is not behaving well and is on a low volume wedge up trying to reach past highs. Market weakness may foil this plan.
On the Radar: Stocks & ETFs that could go either way include: UPRO, SPXU, TQQQ, SQQQ, TNA, TZA, TSLA (180 resistance/140 support), NTES, SFM, NFLX, AMZN, OLED, PYPL & VEEV.
Stocks identified by ** are holding up well and may be upside movers if the market strengthens.
Early Warning Alerts for Leveraged Index ETFs: Waiting for Second Chance Entry trigger.
If simplifying your life by trading along with us using the index ETF is of interest you can get the full background video at: http://activetrendtrading.com/etf-early-warning-alerts-video/
General Market Observation: Do you feel that beckoning call of the Indexes this past week? That everything is OK and so it must be time to jump into the market with both feet? If you feel the lure ask the simple question—has anything fundamentally changed over the past 3 weeks? The answer is NO! Tuesday’s reversal and strong rebound surprised many technicians including Mike and I. It is a given that the market will surprise occasionally and this was one of those cases. Should this change our overall posture towards the market? No, but we must remain flexible and patience, waiting for this “Sucker’s Rally” to end. We are still in a short-term uptrend within the context of a longer term downtrend.
What clues are there that the current upswing is a “Sucker’s Rally”? First the rate of ascent is concerning. The velocity of the current move cannot be maintained without pausing to digest gains. Secondly the volume since the bottom on 2/11 has been below average. This is saying that institutions have not been buying in a big way. In fact the Accumulation rating on the Indexes is an “E” the lowest rating. Also notice on the chart below how Friday’s candlestick is a spinning top at a strong resistance zone. This tell us that it may be time for a rest or pullback or rollover. Last clue is the conflicting story between the daily TSI and Momentum. Notice how Momentum was trending lower through the end of last week while TSI was moving up. This negative divergence between indicators is telling us that the force behind the current rally may be waning.
I will use the leveraged Index ETF’s to time some of the potential long or short side trades for the Index ETFs. Each of the leveraged Index ETFs for the Tracking Indexes is either above or at the 10% upper envelope of the 20 day EMA. This is a clear signal not to buy at current levels and if a downside trade sets up to take it for a retracement at least to the 20 day EMA. If Friday represents a swing high then a 38.2% retracement from this high to the low on 2/11 would take the S&P back to the 1932 level. This just happens to correspond with the bounce low from last Tuesday! A break of the 38.2% level opens the potential of falling lower to around support at 1900 which is in between the 50% and 61.8% retracement.
The Nasdaq 100 ended last week with another stalling Spinning Top Doji at a resistance zone. Friday’s candlestick followed two Hanging Man reversal candles. The resistance zone around the 100 day moving average is strong. A failure here would potentially lead to a retracement back to the 8 week moving average that just happens to be just below the 23.6% retracement. A deeper fall would find support between 4177 and 4100. If there is a reversal a trade in SQQQ may provide solid short term results.
The Russell performed well last week but finished Friday below the 100 day moving averages after an attempted breakout above this moving average. Like the other two Indexes the Momentum and TSI are conflicted. A move to the 38.25 retracement level at 1032 would represent a test of the breakout from this level.
SPX: Downside Market Short the SPY, SPY Puts or SPXU.
Preferred Long ETF’s: SPY, UPRO and SPXL
NDX: Downside Market Short the QQQ, QQQ Puts or SQQQ.
Preferred Long ETF’s: QQQ and TQQQ
RUT: Downside Market Short the IWM, IWM Puts or TZA.
Preferred Long ETF’s: IWM and TNA
The How to Make Money Trading Stock Show—Free Webinar every Friday at 10 a.m. PDT. This weekly live and recorded webinar helped traders find great stocks and ETF’s to trade with excellent timing and helped them stay out of the market during times of weakness.
How to Make Money Trading Stocks on Friday, March 11th
Register Here: https://attendee.gotowebinar.com/register/2294699831932429315
To get notifications of the newly recorded and posted How to Make Money Trading Stocks every week subscribe at the Market Tech Talk Channel: https://www.youtube.com/channel/UCLK-GdCSCGTo5IN2hvuDP0w
The Active Trend Trader Referral Affiliate Program is ready. For more information or to become an Affiliate please register here: http://activetrendtrading.com/affiliates-sign-up-and-login/
Index Returns YTD 2016
I’ve added a column to the Index YTD performance chart. The column on the far right shows the depth of the current correction with respect to the highs of the top from 2015. Currently RUT is just out of Bear Market Territory.
ATTS Returns for 2016 through March 4, 2016
Percent invested $100K account: Strategies I & II invested at 0%; Strategy III invested at 20%.
Current Strategy Performance YTD (Closed Trades)
Strategy I: Down -659.15 or -0.94%
Strategy II: 1.65%
Strategy III: Up $4247 or +21.2%
Cumulative YTD: 3.7%
Active Trend Trading’s Yearly Objectives:
- Yearly Return of 40%
- 60% Winning Trades
- Early Warning Alert Target Yearly Return = 15% or better
For a complete view of specific trades closed visit the website at: http://activetrendtrading.com/current-positions/
Updated first full week of each month.
For our all Active Trend Trading Members here’s how we utilize our trading capital
Trading Capital Setup and Position Sizing: Every year we start the year off trading a $100K margin account split up into the three strategies used with the Active Trend Trading System.
- Each trader must define their own trading capital in order to properly size trade positions to meet their own risk tolerance level!
- Strategy I: Capital Growth—70% of capital which equates to $140K at full margin. This strategy trades IBD Quality Growth Stocks and Index ETFs. Growth Target 40% per year.
- Strategy II: Short Term Income or Cash Flow—10% of capital or $10K. This strategy focuses on trading options on stocks and ETF’s identified in Strategy I. The $10K will be divided into $2K units per trade.
- Strategy III: Combination of Growth and Income—20% of capital or $20K. This strategy will use LEAPS options as a foundation to sell weekly option positions with the intent of covering cost of long LEAPS plus growth and income.
- The $70K Strategy I portion of the trade account is split between up to 4 stocks and potentially a leveraged Index ETF. Actual number of shares will vary of course depending on price of the entity traded and amount of margin available. We have found that limiting open positions to only 5 entities greatly reduces the trade management time requirements for members.
- Naked Puts or short term options strategies will be used occasionally for Income Generating Positions
- None of the trade setups are recommendations to trade only notification of planned trades from set ups using the Active Trend Trading System. Each trader is responsible for establishing their own appropriate risk level if they decide to parallel trade.
- The Active Trend Trading System objective is to provide a clear and simple system designed for members who work full time.
Outs & Ins: TUMI makes its debut on the IBD 50 this weekend. TUMI gapped almost 30% on earnings last week and broke above past resistance. Watch for a retest of this resistance at the $25.47 level.
Like the Indexes much of the move up over the past 3 weeks on the IBD 50 has been on lower volume and falling Momentum. TSI and Momentum indicators are in conflict with the TSI showing strong but Momentum weakening. Many of the stocks are overbought and prices are extended about the 20 day EMA’s. If a stock has enough range to move up to the 20 day moving average envelope and is at or outside the upper envelope band then a pullback may be in the offing. In this case wait for a reversal candlestick.
Five stocks will be reporting earnings in March. These include AYI, FIVE, CALM, PLAY and NKE. NKE looks to be the best candidate for a pre-earnings run and reports on 3/17 AMC.
I like both NKE and STMP for potential long positions from proper buy points.
Share Your Success: Many of you have sent me notes regarding the success you are having with the Active Trend Trading System. Please send your stories to me at email@example.com or leave a post on the website. Thanks.