Saturday, December 21, 2013

Weekend Update: The Fed Tapers and the Markets say...Yay!?

What a week for the markets, but first thing first, we had 3 changes to our Portfolio that need to be addressed prior to next week. We have added 2 positions and lost 1 as of Friday's signals. We have finally received a strong entry signal for the Financial ETF (XLF), we entered a short position in Gold and we sold our remaining position in Ford. Lets take a look at each of these individually, then we will get to this week's wrap-up.

 Entering Financials (XLF)
I have been watching this breakout to new highs for the XLF but hadn't received confirmation from volume and the Relative Strength trend vs the SP500. Well this week we saw too much price action confirming a bullish bias. Since price has taken out its prior highs it has consolidated nicely and retested the prior resistance level. This week saw a strong push off of that level confirming the breakout, but this time volume surged with the move. We also saw XLF:SP500 make a breakout of its own...

While the breakout is very early, we have been waiting for a sign that the Financials were ready to outperform the market and take a leadership role. This week's action in price as well as RS shows that money is flowing in strongly and I believe the XLF is ready to lead once again.

Entering Short Gold
I have made a separate post for this trade here. Being that its a Short position and is new to our study I think its important to look at it a little more in depth. Please take a look at it even if you are uninteresting in shorting positions. I am showing and introducing that trends can be traded in either direction and that the entry/exit signals are nearly identical. Being that we are in a liquidity filled Bull-Market, shorts are not as favorable in strong uptrends. However there will come a time when our bias lean heavily short just as they now lean heavily long. Markets trend in cycles and we will see a time where the trends are down. This is just an introduction to taking the other side of a trade, if you are interested in that.

Exiting Ford (F)
We have been neutral on Ford for some time now. We were maintaining a half position from our original holding and this week's action showed enough weakness that we will step aside and book our remaining gains. There are about as many signals as I can have triggered simultaneously; the prior significant swing low from $15.70 failed to hold, as did the 18-month rising uptrend support. We have also seen the move come from beneath a rolling over 20 WMA and it came on VERY high sell volume. This all occurred on one of the best weeks for the market all year as well. When we are talking Relative Strength, this fails the test miserably.

It is true that there seems to be the formation of a massive 12-year base reversal in the making, which would be extremely bullish for potentially years to come. But this has not triggered and the shorter timeframe is signalling a lower probability setup going forward. There should be strong support around the $14.30 level and if this will have any chance of fulfilling the base reversal, this level will need to hold and stabilize shares.  

Now, back to the normal weekend recap. I was very surprised to see the Federal Reserve "taper" their stimulus program. I was even more surprised that the announcement was met with a surge in the market averages. First I expected no action from the Fed this month, and if they did reduce purchases I fully expected the market to trade significantly lower on the news. This just shows how "thinking" and "predicting" is a really terrible investment strategy. Even if we correctly predict the news, we still cannot predict how the market will react to that news. Which leads us to feel even more confident in following what PRICE says and not what some economist or analyst says will be the reaction.

I couldn't have been more wrong with my assessment of what would transpire should the Fed taper their stimulus, yet I profited fully on the outcome because I don't trade what I "think", I trade what I see. This is a fantastic lesson for all, including myself. 

Here's a look at the SP500 and this weeks' breakout to new all-time highs

After trading sideways for the better part of the last month markets took a definite turn for the positive, surging to new all-time highs on very strong volume. While the market has churned recently, it never traded below the prior resistance level and old highs. The SP500 has managed to hold that short term support and is now lifting off of it with force. The 20 WMA is beginning to play some catch up and once it catches up a bit more, that short term support will have more significance sharing it with the 20 WMA. Lot's to like going forward!

We saw big moves in many of our holdings this week also, lets look at the best performers.

3D continues to rip. At the slightest inkling of weakness, traders rush in to buy every little dip. With the exception of that large outside week we saw 5 weeks ago, the price action is simply stellar. Relative Strength is continuing to rise, as is volume on this advance. The only real issue we have is that since price has run basically straight up, we have no well defined support levels to adjust our stops. The best thing to do with a winner like this is to simply hold on for the ride. Once we see a cooling in the price we will be able to use that consolidation as our new support base and stop location. As of now I think it's best to be very positive with any consolidation above the "outside week" low at about $70. The 20 WMA is beginning to rise sharply and should catch up as price moderates a bit.

I mentioned last week how when the market is weak you really want to focus on those stocks that performed well during the broad market weakness. I highlighted DDD's performance last week and you can see what happens to those relative winners once the market turns positive...those stocks continue to lead with even more outperformance.

HAIN continues to act well. It seems to be continuing its pattern of "consolidate and pop"; it will chop sideways for several weeks and then it will pop to new highs. We seem to be in a new "pop" phase with the very strong move we saw this week, finishing at new all-time weekly closing highs. With this week's surge we can move our stops up to the low of the consolidation range and prior resistance near $79.50. This stop coincides with the 20 WMA, prior swing low and 1-year uptrend support. A clean break through that level would be enough to take profits and wait for better price action.
Cummins finally looks like its ready to resume its uptrend after holding strong support and rallying this week.. CMI also made a new weekly closing high and looks like a winner going forward. Our stop remains just below the support level at $128. The risk/reward here looks amazing! New positions can be added on this week's signal.

Wells followed the Financial sector higher this week and finished at new all time highs. The move out of the recent correction looks to be sustainable and I think this has upside written all over it. New positions can be added here as well with stops below $42.75 or a little looser stop at the low near $41.70 depending on how aggressive you want to be.

While Enbridge's chart is far from as pretty as the others above, it is notable how well it has acted since testing the lows of our support. We saw a nice accumulation bar in volume this week (buy volume exceeds the previous bar's buy volume). In fact this is the third time price has tested the $40 level and seen a surge in buy volume. This is certainly a secondary indicator but it does show definite interest in shares at that price level, which is a good thing for us. This will continue to be our stop going forward, now we want to see the prior closing high at $43.76 taken out.

The rest of our holdings saw modest gains in general but didn't set any new highs. With the overall positive price action this week following the Fed's trimming of stimulus, we have to expect that the market wants higher prices going forward. The Fed has said they will remain accomodative for the foreseeable future and that the economy is gaining traction. The market seemed to like what it heard this week and people are beginning to come around to the idea of a higher stock market and improving economy. Individual investors are gaining confidence and we could see this continue for much longer than most people think is reasonable. Sentiment can be a very powerful thing and when its starts gaining momentum, it can do great things for equity prices.

But we will continue to do what we do and that is follow price and ignore noise. It has worked well for us and we will continue to invest in the direction of the dominant trends.

Wednesday, December 18, 2013

Entering Short Gold

I'm going to throw some new stuff at you here, something I haven't done in a while is enter a short position. Do understand that my signals work for both up and down trends. You simply buy and go long uptrends and short downtrends. We haven't had too many downtrends in the groups we have followed this year, but i have recently decided that within our ETF tracking, we do follow Gold and Bonds and we should include them as asset classes for investment going forward.

That preface aside, this is just a really simple and clean downtrend. It looks just as nice as some of the strong stock uptrends we have seen this year. This one just happens to be flipped over.

 Here is the longer term downtrend. We can see that price is steadily declining underneath an also declining 20 WMA. I've been watching this for a while closely and today's action signaled an entry.

  We have some pretty bearish price action on the zoomed in Daily view. While price attempted to break to the upside last week it was unable to sustain anything and has since gapped back lower and today extended below the consolidation. Volume was also really high today adding more confidence to the move.

When the long term charts are showing the trend, and the short term views confirm the break, that is what we like to see. Multiple time-frame setups lead to higher probability trades.

We will use the $126 level as our stop and will enter at tomorrow's open.

Even If You Knew, Would it Matter?

I am often asked what I would do if the Jobs numbers come in weak, or if the Fed decides to reduce their stimulus, or what if that company doesn't hit their earnings targets? People wonder if I would sell my stocks. You would be amazed at how difficult it is to explain to someone that it really doesn't matter. Doesn't matter?! How can it not matter if the Fed reduces its stimulus activity?

This is what I try to explain: It's not the number itself that is important, all that matters is how the market handles/interprets the number. The Jobs number could be weak and the market could rally because it means the Fed would continue to ease. The Fed could reduce (taper) its stimulus and the market could sell off. The Fed could reduce (taper) its stimulus and the market could rally.

It's not the news that is important (the "why" rarely matters), it is the reaction by the market to the news that matters (the "what" is most important). So if they told you at the open this morning that the Fed was going to reduce their bond purchases by $10B per month at 11:00am, what would you do with your holdings? If you are like most reasonable people you would decide to sell at least some of your stocks to protect yourself...The Fed is going to take its foot off the gas a bit, so the market likely will too. It should correct and I will protect my profits from a strong year. That's what You, Me, and most anyone else would do. And its smart, we've had nice gains this year and why take a chance giving back those hard gained profits when the market will sell off into the disappointing stimulus announcement?

...and we would have been 100% correct...

At 11:00am the Fed announced the taper, the SP500 was at 1,780. At 11:01am the SP500 was at 1,768. That's a 12 point drop in a matter of seconds! It looks like a lot of people wish they would have known the outcome ahead of time, like us. They could have gotten out of the way more quickly too.

We would have been spot on, for 1 whole minute...

At 11:05am the SP500 was at 1,794 and never looked back, closing at a new all-time closing high.

Wait! What?! What just happened to logic and our plan?! Oops, I guess the market doesn't give a shit about your plans. Go complain to the guy who bought your shares this morning and is now riding off into the sunset.

You see, its not the number or the news that matters. All that matters is what the market says matters. Far to often people are caught up in the "why" and the "what" takes them to the cleaners. I know many people think they can anticipate the news and predict the future. But really, no one can.

You still want to guess that Jobs number or the next Taper amount? Let me ask you this, even if you were right, would it matter?

Saturday, December 14, 2013

Weekend Update: Consolidation Continues

*First off, I need to apologize for suggesting that the December Fed meeting was suppose to be held this last Wednesday. It is in fact this coming Wednesday and I wanted to clarify that.

As I suggested last week, it appears that the market is going to acknowledge the prior pattern of consolidation/pullback after breaking the upper boundary of the Bollinger Band. We saw the first substantially negative week for the market in over two months. No significant technical damage was done in the major averages on the longer time frame, but it was notable enough to be mindful of where the key supports are going forward. Lets take a look at the Weekly S&P chart:

Once again these arrows show the recent instances of where the market had poked through its upper range. In each case price either traded sideways or lower in the subsequent weeks that followed. Since its most recent violation we have seen two sideways weeks and now a decidedly negative move. This is just something to be mindful of.

The most important things will be the key support levels just under current prices:

First we will be watching the upper triangle line that has now acted as support since its breakout back in October. That will be the short term level of interest as well as the horizontal support from the 3 week consolidation at the end of October and early November...That low is right near 1,745.

The next and most important level to have on your radar is the intermediate term uptrend support and rising 20 WMA. Ultimately a break of the 1,700 level will be needed to seriously threaten the current rally.

The last line of defense of the uptrend will be the current swing low within the trend at 1,646. A break of that low will suggest a trend shift that we have not seen in over a year. That will be a time to become very cautious and the market will be in a "prove it" mode. That's still a long way off, so there is no reason to anticipate that move and panic here. But it is important to know the risk levels we face as the rally continues.

Lets see if we can hold the short term support and triangle breakout in the coming weeks.

--Now we need to take a quick look at our Top 10 list and see where everything stands heading into the final two weeks of 2013.

Enbridge (ENB)
Enbridge has been testing the lower boundaries of its support and our stop out level. While it has been crushed since we bought it, buyers seem to finally be coming in at the $40 level and supporting shares. We have seen two weekly bars showing bullish wicks after bouncing off of the weekly lows. But there are problems here as we are now squeezed between the support at $40 and a now declining 20 WMA. Being below a declining 20 WMA is not the highest probability place to be, but if the $40 continues to hold, that would be positive going forward. While the position has been far from great, it has managed to hold twice now and its time to show what the real intentions are for the next wave in prices.

PPG continues to hold up really well. I've been waiting for this thing to correct for the last several months and it just never goes lower. It is still holding above its upper channel line and continues to find aggressive buyers on any decline in prices. Nothing much else to say here, stick with it.

3D Systems (DDD)
Since the larger reversal week we saw a month ago, prices have steadily continued to climb. This week prices finished at new all-time closing highs while the S&P went through its first corrective week in two months. I love to see a stock perform so well when the market is weak. Also notable is the fact that since the large selling week, volume has shown two consecutive accumulation weeks and higher volume is accompanying the new highs in price. All good stuff.

While we are not fully positioned here we do still maintain a half position from our original entry. This is exactly why you never sell your entire holding in a strong uptrend. Nobody can call the tops consistently and big trends can continue much longer than most would consider reasonable. We will continue to hold our 1/2 position going forward and await the inevitable consolidation before we determine our new stop levels and new setups to add back to our holding.

Hain Celestial (HAIN)
HAIN continues to hang out at all-time highs. Its most recent pattern has been to consolidate and pop, then consolidate and pop. Right now we are consolidating, and until the uptrend support fails we have to assume that the pop will follow. I'm very pleased with the setup going forward and think there is still plenty of upside to come.

Apple (AAPL)
AAPL is holding very nicely since rallying hard recently. There is not too much to say here except that as long as prices hold the support band at $500 and the Relative Strength continues to trend positively, you want to be positioned along with this uptrend. This is a very nice bullish rounded bottom formation and the long term bull market seems to be resuming.

Home Depot (HD)
HD has the look of a stock ready to surge and resume its strong uptrend. Since taking out its downtrend resistance 5 weeks ago, price has flagged really nicely and seems ready to bounce right off the retest area and 20 WMA.

Cummins (CMI)
CMI has been in stall mode for a few months now. That being said it has been able to hold onto the prior all-time highs and should be ready to continue higher. The RS trend is sliding right along the uptrend support and will either bounce or roll over. Price is just hanging right on my stop level also, closing right at the rising 20 WMA and prior high inflection support. A break and close below that level will see us exit.

Wells Fargo (WFC)
WFC has a very similar look to Home Depot and is flagging since breaking its downtrend. This looks really good above about $42.

Ford (F)
Ford continues to show signs of rolling over but the price trend is not quite dead yet. This week was a follow through week from its 20 WMA failure and is now about to retest the key uptrend channel we have been following closely. We have a reduced holding and will continue to stay with the name as long as price can stay above the uptrend support and key low at 15.70. I am not encouraged by the RS trend failure we have seen and will need to see a quick stabilization to get re-interested in this longer term. A breakout above the $18 area would be quite notable, as would follow through above $19 which would set into motion the large Inverse Head/Shoulder base we have discussed previously.

Clean Energy (PBW)
We had one change to our Portfolio this week and that was the exit of PBW. We saw a clean breakdown of the uptrend support, 20 WMA and inflection swing point from the failed breakout. While the longer term setup (as shown above) has some very intriguing potential, we are better served to step aside for now and await a more positive setup. I hope this just holds around the $5.50 area and turns right around. But I can't be sure it will do that, it could just as easily roll over from here and resume the long term downtrend. Only time will tell, but if this stabilizes and breaks out, we will get right back in.

That's about it for this week. It will be interesting to see how the market handles the Fed meeting on Wednesday as many on the Street feel that they will begin to reduce their asset purchases. I don't see this happening since it is the final Fed meeting with Ben Bernanke as chairman. It just doesn't make any sense that they would begin to change policy with a lame-duck chairman, especially considering how dovish new Chair woman Janet Yellen has been when addressing future stimulus activity. But as we well know, the market doesn't care what I think and will do as it sees fit. We will be best served to simply follow our plan and ride our winners, while keeping a watchful eye on the key support levels for the SP500.  

Wednesday, December 11, 2013

Exiting Clean Energy (PBW)

We have received an exit signal on our Clean Energy fund with today's action. This has been warning us for a couple weeks that things might not actually be as good as they seem on the surface. The Relative Strength had broken its uptrend while price was attempting to hold a multi-year breakout. Usually a divergence in the Relative Strength like that leads to short term weakness. We were also watching the uptrend support, 20 WMA, and support zone from the prior consolidation and breakout...All those levels were broken today. We saw the market close convincingly below the $6.00 stop we had in place and will take our exit signal at the open tomorrow.

Here is a weekly view of the failed breakout attempt and then subsequent roll over in price. Let's zoom in a bit to get a closer look at the breakdown.

This is the closer look of the 8-month uptrend channel. If you recall we took partial profits after its big run up to the $6.35 mark (here). We then saw the stock push through the overhead resistance level and we bought back our shares (here). Unfortunately that happened to be the top it seems. I noted that we should expect some "healthy consolidation" above the $6.50 area when we added back to our position. We did see 5- weeks worth of cooling after our entry, but the last 3 weeks have broken below that $6.50 support and then today finally took out our lower support band. With the Relative Strength having broken the uptrend also, it looks like a more hefty correction is needed before continuing.

Here is a look at what we should be watching for at this point going forward. We should book our gains and wait for something more positive to develop.

So here is the potential Bullish case I can make for this space. I can see this pullback creating a possible Right Shoulder formation to a large reversal base. Remember with these technical patterns, in a positive trending and strong stock, reversal patterns will build upon themselves and often create other opportunities with larger patterns that form. When we entered this position back in May it had just broken out above a small reversal Head/Shoulder pattern at $4.80. That pattern completed itself and has now formed the Head portion of the larger potential formation. Positive action often begets more positive action.

 Now that we have no position and have booked a 25% gain since the initial pattern breakout, we can observe with no bias what happens next. If it forms the Right Shoulder and sets up, we will get right back into this baby. But as of now the risk simply outweighs the reward. That's all timing the market is; it's trying to get your money in when the gettin's good and taking it aside when the probability shifts to a more negative likelihood.

Bottom line, long-term this is a space to be invested in and be mindful of. But short-term it is time to take profits and let it settle out in a more favorable setup.

Sunday, December 8, 2013

Weekend Update: Strong Data = Media Taper Mania Continued

Well the SP500 closed lower finally, after 8 higher weekly closes in a row, the market posted a red weekly bar. Of course it only finished 1.8 points below last Friday's final trade. Not to say that nothing happened this week, because we certainly had a choppy ride to our first lower close in over two months. At one point the S&P was down almost 2% from last Friday's close, but a strong November payrolls number cleaned up much of the damage and left us once again testing the highs.

There still is rampant speculation that the Federal Reserve will begin reducing its stimulus efforts at the December Fed meeting which is this coming Wednesday (there is practically zero chance of this happening). The economic data has been very strong, signalling that the economy may be strong enough to stand on its own with less Fed intervention. This rash of strong economic news has led to itchy traders trimming some gains and anticipating a Fed reduction. It has also lead to the wonderfully accurate (I'm attempting to be as sarcastic as possible) media analysts/pundits calling for this reduction in Fed easing. It is really starting to drive me nuts when listening to these media sources. All I hear is analyst after analyst spouting off these amazingly complex theories about where they "think" the market will go next and why it can't continue to move higher. From someone who follows price action and trend strength, there is simply WAY TOO MUCH THINKING GOING ON!

All you hear on these financial shows are, "I think", "I think", "well I thought", "I think"...Who gives a rats ass what these people who are constantly wrong THINK! I sure as hell don't care what they think. I suppose I just need to turn off my tv and radio, but there is just something that keeps me listening. I guess its the every so often Carl Ichan interview that makes me laugh, or hearing one of the few commentators I actually enjoy (or maybe I'm just too much of a junkie). But why can't these so called professional investors focus on a plan or a system for investing that doesn't require needing to know the exact day the Fed will taper or when the market will break its uptrend? Wouldn't someone who manages money for a living have some hard and fast rules to keep their investments on track in moments of high emotion? Or would they just do like most everyone else and panic along with the crowd?

The one main thing I take away from an afternoon of listening to CNBC is how relieved I am that I have a solid trading plan that doesn't involve hitting the "trade" button based on what every analyst thinks or what a pundit says I should do with my money. Having a plan means having conviction in your own ideas and having the confidence to take signals regardless of what the masses think of my transactions.

Here's the weekly chart of the SP500. Each arrow above points to when price exceeded the upper Bollinger Band and then led to a subsequent correction/consolidation. Since the recent move above the band just a month ago we have seen the market trade more or less sideways. This is very typical action and in no way represents a major corrective top; the market runs hard, gets a little overheated and needs to cool off a bit. While we may see some more weakness or sideways trading over the near term, the longer term setup still looks intact.

The other thing I notice from this week and two weeks ago is the long lower "tail" on the weekly bar. That shows that while prices sold off intra-week, they were strongly bought and finished near the highs into the weekly close. That is strong action and these are what are called "bullish wicks". The "wick" comes from another major charting style known as Candlestick charts. We have looked at these before. But the takeaway is when you see a long tail, wick, shadow, etc on a weekly bar, it means while prices were initially taken lower, downside pressure could not sustain and buyers took back control. For our sake of discussion this is a good thing and something to look for.

Since we had no changes to the Portfolio this week, let's revisit our Sector Groups and see where we need to adjust our stops going forward.

 Financials (XLF)-- Cash
  Here is the Daily chart of the XLF. While I have been stubborn with this position since exiting back in September, I still see the Relative performance against the SP500 as in a downtrend. Relative Strength has not confirmed the breakout in price. While I struggle to let this continue to go on without entering a position, I still think I need to see a little more. If price takes out the high near $21.60, I will enter as that will show a breakout, follow through, pullback, and again confirmation of new support. I would expect the Relative Strength to break the downtrend if that happened, but I would then take the position regardless based on the individual strength in price.

I actually like many of the individual names within the XLF more than the ETF itself. I currently hold two of the top 10 holdings and am entering a 3rd at Monday's open. Currently we hold WFC for the Portfolio, I hold BAC in personal accounts and will be adding MET on Monday. With many of the individual names breaking out and showing strength, it seems to only be a matter of time until the group follows.

Discretionary (XLY)--Invested
After the most recent advance and break to new highs, there seems to be nice level of support along with the 20 WMA right near $61.75. A breakdown of that area with a RS confirmation, would be enough to let me book the gains on a strong year.

Technology (XLK)--Invested
Tech has been smoking hot over the past nine weeks, and looks to be a trend that will continue. The Relative Strength chart says it all here. I'm actually going to post a larger version of the RS to zoom in:
This is the Weekly chart of the XLK Relative to the SP500 over the past 18 months. After lagging severely for nearly all of 2012 and then continuing into mid-2013, it appears that the ratio is about to turn back in favor of the XLK sector. The white trend lines depict a symmetrical triangle formation that is breaking out to the upside. The grey support line shows an area of interest coinciding with the prior swing low. If the XLK:SPY ratio were to fail here and break below that support, it would likely be a bad sign for the market and very bad for Technology. But right now it looks picturesque for bullish activity and a trend shift. Pair that with prices continuing to hit new multi-year highs and you have a sector looking to outperform for some time to come.

Our stop however still sits below the $31.38 low prior to the recent rally. I expect the stop to rise once prices consolidate and for a new low to trade off of. When a stock moves straight up it is often hard to raise your trailing stop as the most relevant support/demand area is still at the prior breakout level.

Industrials (XLI)--Invested
I much as I would like to raise our stop to the $48 area, there is just not enough of a retested support to call that a stop level. The XLI did acquire its upside target near $50 over the recent weeks, so that does make me want to be conservative. But we also need to give this strong performer room to pullback and still continue higher. If we raise our stop too soon it opens the possibility of getting a false signal. We end up getting shaken out near the lows of simply a corrective profit taking, not a full blown trend failure. We should sit tight for a while with this one.

Materials (XLB)--Invested
Materials have been acting weak for the past month now and the Relative Strength trend seems to be struggling with multiple resistance areas as it appears to want to roll over. While I like this uptrend, I am getting a little spooked by the recent weakness relative to the overall market. That being said, we are not selling here and would still need to see more than 5% of downside before our stop is even tested. I will be watching for the support band to hold and for Relative Strength to break to the upside out of the larger downtrend pattern.

Energy (XLE)--Invested
Energy is in a similar situation as Materials. They just can't seem to keep it going in terms of relative performance. The stock continues to grind slowly higher, just not at the same pace as the overall market. there has been enough interest at the $84-83.50 area to make me tighten the stop on this potential lagging group. A clean move through the support zone and 20 WMA will see our exit.

Staples (XLP)--Invested
The Staples have been holding their breakout and have just cooled off into the breakout retest area. We have also seen nice accumulation of shares on the initial breakout and now the retest bounce. I think this goes higher. Our stop continues to be the swing low near $39.50. We have no reason to tighten the stop yet as the trend indicators are intact.

Health Care (XLV)--Invested
Health Care continues to perform well and we now have an anchored support level from the prior breakout highs and 4 week consolidation over the last few months; this shaded area also holds the 20 WMA. A clean break below $51.35 would stop us out.

Utilities (XLU)--Cash
Utilities, while showing a potential breakout from a symmetrical triangle pattern, have really struggled to continue putting a rally together. They are showing a nice trend of higher lows, but we would need to see a higher high above the $39.50 peak before we would want to get interested. Relative to the market, the Utilities have sucked lately and don't represent an appealing space at the moment.

20+ Year Treasury Notes (TLT)---Cash
Treasuries continue to be weak and can be shorted on a breakdown of the prior low.

Gold (GLD)---Cash
Gold continues to be weak and can be shorted on any bounce attempt below $132.

Overall the trend continues to be higher for stocks and the offensive sector groups are doing the heavy lifting. I really like what I'm seeing out of Discretionary, Technology, Industrials and Health Care. I also am encouraged by the price performance of the Financials. With all of the nonsense buzzing around the media you would still think we are in a bear market. Its refreshing to be able to take a step back from the noise and really see the clear picture of the market and what is actually happening instead of what some analyst thinks will happen next. We try to simply take prices one week at a time, with as an objective eye as possible. And we are not easily swayed by the ramblings of others.

We have had a great year here folks, it will really get interesting when things turn the other direction and you can see how easy it is to protect those gains you've made and how you don't have to watch your accounts evaporate when the market seriously corrects. We will take our signals and step aside. But until that time comes we continue to follow the trends higher. 

Saturday, November 30, 2013

Weekend Update: Low Vol, Holiday Trading

In this shortened week not a lot was accomplished. The S&P did reach a new high this week, but closed only 1 point higher than last week. The market still seems in creeper mode, but we could see volatility pick up next week as traders will have lots of time to digest the retail numbers from Black Friday. There is no rule that says the market has to pullback, but I expect we could see a small "sell the news" into official Black Friday results. That's just my feel. Feel doesn't matter much with a trend following strategy, so as always we will wait for price to confirm any sort of negative momentum before we get bearish on stocks.

This week makes 8 consecutive weeks of higher prices for the market and its got to come to a halt at some point. When I'm looking at my positions I see many places where a little pullback would make sense and then refresh the next move higher. I'm not thinking big drop or anything, clearly the bid for stocks is too strong for the bottom to just fall out, but it wouldn't be a terrible thing to see a couple lower weeks in the early part of December. I feel very confident with my stop placements on our holdings and believe a refreshing correction could open some decent swing opportunities coming into year end. You have to be willing to let some of your gains go to really catch all of a powerful up move. Markets don't just move in one direction, but you have to be willing to sit through some healthy pauses to keep yourself aligned with the bigger picture. And if the market decides to move into a deeper correction mode, we will follow our stops and step aside before too much major damage is done. Always remember to manage risk first.

That being said we do have a couple positions that need monitoring and a few others that might be ready to continue to the upside. Let's take a quick look.

Enbridge (ENB)
ENB is still struggling to put together a rally. We continue to see selling and closed lower on the week. This was also a confirming week with a second consecutive close below the 20 WMA (which has turned down after this week). I am still positive on the position above the $40.50 low, but the recent action needs to be reversed quickly or we will be stopped out.

Clean Energy (PBW)
PBW is toeing the line here, although it did bounce nicely on the 20 WMA this week and closed out near the highs. We still want to be in this name above $6, but the Relative Strength trend seems to be nearing a failing point. Sometimes this is a warning and other times it corrects itself quickly. This will need to hold these support levels soon if we are going to be able to stay aggressive.

Ford (F)
Ford is in a very similar boat to PBW. The stock is just hanging at the 20 WMA and near price support, while the RS trend is poking through the uptrend. I want to give F the benefit of the doubt but a close below $16.50 with a failing Relative Strength will force me to step aside.

Hain Celestial (HAIN)
On a better note, HAIN once again continues to find buyers near the 20 WMA. For the third time now in this recent uptrend, price has bounced right off that support line. The RS trend is strong and intact and if price could breakout above about $84.65 I would expect another leg higher. That would be a nice place to add to existing positions if you have been looking for a place to increase your HAIN exposure.

Home Depot (HD)
HD is also looking good after a nice bounce back week. With this week's move we now have a new all-time weekly closing high. The RS trend also shows a nice little retest of the breakout before it continued higher. If we get another follow-through week soon, we could move up our stop to the $75 low.

20+ Year Treasury Bond (TLT)
Something that is getting my attention this week is the potential for a Double Bottom formation in the Long Treasury Bond. We saw the previous low from August matched this week, yet price recovered nicely from the lows and momentum is not confirming the same low as price. Momentum is making higher lows since bottoming out back in late June. Nothing has been confirmed here at all and this is still a very early progression in this pattern, but the potential is there for this to begin to evolve into something more.

The pattern will trigger if price breaks above the prior high around $109. If this pattern forms and breaks to the upside it would be time to hedge or reduce your overall market exposure. I would most likely be inclined to buy the breakout in TLT and would thereby hedge my overall market risk. Bonds typically move inverse to stocks, so a positive move in the Bond market would be seen as a likely negative for stocks. If you were holding an 80% stock exposure and added a 20% Bond position, you would effectively reduce your market risk exposure to 60%. The bond position would protect your portfolio by a healthy margin while this pattern was in play.

On a short week like this I really don't have much else for you. I hope you all had a great Thanksgiving and that this review helps you proceed into the seasonally strong month of December.

Wednesday, November 27, 2013

AAPL Double Bottom target aquired

Our successful position in AAPL has reached our initial price target today. The beginning thesis for our entry was based on the Double Bottom formation from the April and June lows. We have been targeting the $545 area as our place to trim a little gain. Our position has moved nicely since our entry and I am taking half of our position off at this target acquisition. Let's take a look at the setup:

 There are a couple interesting factors in play at this level:
1. Price has acquired the double bottom target
2. AAPL is testing the underside of its extended longterm support line (yellow), now turned resistance
3. $545 is the 50% retracement of the decline from AAPL's big selloff last year
4. This is another key inflection point going back to early 2012 and then again in late 2012

This is not an automatic sell here as there still are many positives as well. I like to trim up half of my positions once a major price target is hit, but I can understand if you would like to continue to hold your positions. One could certainly argue that this week's move is a buy signal if we can close the week above $532; it would be the highest weekly close since late last year. You can see also the presence of a cup/handle pattern in progress where the last month's trading action has acted as the breakout and this week is the follow through of that move. So there are still lots of things to like in this space, but after the move we have seen recently and my primary target acquisition, I feel its worth harvesting some gains.

Sunday, November 24, 2013

Weekend Update: New All-Time Highs

US markets closed at new all-time highs again this week with the SP500 closing above 1,800 and the DOW above 16,000. This has been one impressive year for stocks and it still seems like more new highs are ahead. The S&P started out this week pulling back slightly, but then rallied on better than expected jobless claims and closed out at the highs. It is clear that traders are still distrusting and afraid of this market as the slightest thing will cause them to duck and cover. As an example of this, the weakness early on in the week was attributed to a tweet from Carl Icahn suggesting he "feels" that the market will be correcting soon. Now Carl is a legend of an investor, but even he cannot see the future. The important take away here is that we need to focus on the trend and our key support levels instead of comments and jittery traders trying to scare you out of your positions. Usually when someone like Carl says he thinks the market is going to come down, all he is hoping for is for traders to do exactly what they did. He wants them to sell their stocks so HE can buy them at a cheaper price. Comments like this really should have nothing to do with your investments as your plan should be able to ignore the noise.

While its fun to be bullish as heck with these continued new highs, it is important to know that the S&P has been up for the past 7 weeks straight. Just be aware that the markets will go in both directions and even a hefty pullback from here (say down to the 20 WMA) is still very constructive for the longer term trend. A 100 point drop would still just barely test the key uptrend support. While it makes sense that we should see a decent pullback, markets can remain extended much longer than seems reasonable, which is why it is so important to continue to stick with the trend until it fails.

SP500 weekly view

Lets first take a look at our 3 newest positions:

Home Depot (HD)
HD attempted to follow through on its breakout this week, but saw selling in the face of the strength after earnings. This is the second earnings report in a row where they easily beat expectations, yet the stock was sold into the news. It will be interesting to see how this breakout progresses. While this week's trading was disappointing, it is still above the prior swing high and breakout area. Let's see if it can bounce back.

Enbridge (ENB)
ENB has been pulling back the last couple weeks and seems to be retesting the breakout level. While the stock closed just below the 20 WMA, it did manage to find buyers at the $41.50-42 support level. There is not much to worry about at the moment, but we will want to see this week's lows hold and especially we would want it to stay above our $40.50 stop. It is still very early in its bounce back and new moves need to be given time and room to settle out. Considering the magnitude of the 5 year uptrend, you have to be a little more patient with this one, and a more willing to stick with the long term trend.

Wells Fargo (WFC)
Wells and the Financials stayed strong through the week and closed out at the highs. This looks like a nice continuation of the prior uptrend.

And here our some notable charts from our watchlist:

Cummins (CMI)
Here is a perfect example of why its good to strip back your charts and just observe price. By taking out my prior bias and trendlines, I was able to much more clearly see the presence of a very large cup/handle pattern formation. Cummins is in a very interesting spot here; the stock has broken out from a large rounding base and has retested the prior highs on this consolidation. The 20 WMA is also just under the closing price of last week. Relative Strength is soon to be testing its uptrend support as well. All of this together will make CMI a very interesting watch over the next couple weeks to see what will happen next. Is the stock going to resume its breakout and rocket to new all time highs? Or is it going to be a false breakout and roll over? I have an overweight positioning on CMI and will depend on this $128 support level as my tight stop. Based on the prior trend and pattern formation, I am very positive on the stock here and think the risk reward based on Friday's close is about as good as they come.

3D Systems (DDD)
You could say that DDD has an interesting week. After reaching a new all-time high early in the week, the stock got slammed Tuesday and Wednesday and then saw further profit taking on Friday after an attempted bounce back. While the move relative to the prior month's rally is still rather insignificant (price closed at the upper bollinger band), the implication for this type of reversal could be problematic in the near term.

Lets take a look at the prior surge in DDD back at the end of last year:
The initial surge and decline look very similar. We saw quick 6 week rally that extended the stock to the upside and then a high volume breakdown week. After one bounce back the following week, it took the stock 6 more weeks to stabilize. While this week's reversal was not as damaging to the big picture, it could just be the start of a healthy consolidation and correction.

 A move back into the $55-60 area will offer a solid risk reward opportunity.

Clean Energy (PBW)
PBW is doing its best to hold the breakout and large support area between $6-6.50. So far so good, but going forward I will be treating the massive support band, 20 WMA and uptrend support as my stop level. I want to be aggressively long above this support zone. And I want to be conservative below the zone.

Apple (AAPL) daily chart
I think AAPL looks great right here. This is another one of my largest current positions. The stock has been consolidating its breakout for about a month now and seems ready to pop. When price breaks through a key resistance level and then cools sideways just above the breakout, there is a high probability that it will continue to the upside once the churn resolves itself. There is a lot of demand for shares here. Above about $510, I am very bullish the stock.

Financials (XLF) daily chart
The Financials continued to push to the upside this week, but we still have not seen the price relative to the SP500 breakout of its downtrend. I still need to see that there is a real trend shift under the surface before I get all on board here. The price is the only thing that pays, but the RS non-confirmation of the higher high in price concerns me that the "real" money is not fully convinced yet. By the way, if this does in fact turn out to be a bull trap situation, that would be VERY bad for the near term direction for the market. We want to see the price relative to the market break from its downtrend and make a higher high as well.

I think that about does it for the week. We are holding many positions currently, yet I feel the market has earned a certain benefit of the doubt. Until we see some real breakdowns, we will need to stay involved in this market.