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.
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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.
DDD
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
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.
CMI
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.
WFC
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.
ENB
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.
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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.
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