Weekend Update: Risk Remains Elevated

There is not much to report that is new this week. The market continues to see strength sold and the sector rotation is moving further defensive. What concerned me the most about last week were two things:

1. Solid earnings moves are being seen as profit taking opportunities, not opportunities to add to positions.
AND
2. All indexes failed to hold early week gains after retesting broken support levels. That means pressure is growing to the downside as any rally attempt is being met with sellers.

Once again the Relative Strength is in the large cap stocks that are paying dividends instead of the growth oriented, momentum plays. The SP500 and the DJIA continue to fare better than the Nasdaq and Russell 2000. I want to show the daily views of these indexes to see the prevailing shorter term price action first:

SP500

While the SP500 was able to move above the prior swing high it still remains range bound. The uptrend here is still intact, but this action is a mess.

Russell 2000

After a 6-day reversal to retest its breakdown, RUT got hit hard once resistance held. The trend is lower and this worries me.

Nasdaq

Just like the Russell, we are seeing the Nasdaq continue to roll over after any decent rally. This could get really nasty if it breaks 4,000...Thats the big level going forward.

Zooming out and looking at the Weekly charts we continue to see similar Relative Strength in safer not riskier:

SP500

On the weekly view you can see the sideways range environment the SP500 has been trading in for the last 6 months. While better than the other two, until it can break and HOLD above 1,880, this will continue to be a high risk environment.

Russell 

It appears to me that the RUT is about done with its oversold bounce and is ready to resume lower. This along with the Nasdaq require further defensive positioning.

Nasdaq

Again, above 4,000 its still ok. Below it though and we could have a problem. It doesn't look too good to me.


While the price action remains in transition we did see some further defensive rotation in our Portfolio this week. With the failure of PBW to recover its lost ground after a one-week grace period I am cutting the remaining holding. I also added an additional amount to the TLT position; the Portfolio is nearing its maximum positioning for a bond holding, I would be willing to allocate another 10% from here should the situation arise that we were in a new bear market. For now however the additional exposure is due to the technical nature of the TLT and impending warning signs from stocks. Defense is the best way to play it during times of market transition. There is no reason to give back your hard earned gains by getting aggressive at this time, wait for a "wind at your back moment" when the odds are more in your favor.

TLT (4/3) added another 1/3 position

Treasuries have now been able to clear all resistance and are now firmly in breakout territory with follow-through. Being that TLT is also a quite low volatility holding, having a larger than normal position size is ok, especially in a troubled stock environment. Just as fast moving positions need to be sized correctly, low moving positions can be dealt with in the opposite manner; its best to hold smaller holdings in high volatility names and larger ones in low volatility names. It is our only hedge position (a position that balances against elevated risk in another asset), so as long we still keep the exposure to less than 1/3 of our total portfolio the size it is not excessive. Currently TLT makes up roughly 20% of our current market exposure.


PBW (0/3) reduced 1/3 holding

We had given Clean Energy an extra week on its sell signal as the break was marginal, however this week's action was less than impressive after giving back most of weeks gains into the close. The RS trend was not able to recover and price failed to retake the $7 resistance level. We will step aside here and wait for both of these trends to resolve themselves before we get back involved. This has been a name that likes to whip you around, so just be ready for another setup should this prove to be yet another shake-out trade.

AEP (3/3)

I want to show two charts for AEP. First here is the weekly view showing prices in a strong uptrend and making a new all time high. Our initial base target is only 30 cents from current prices and I would normally be inclined to reduce some size into that target. However looking at the longer-term monthly view, something is happening that I feel suggests that we stay the course and let the full position run further:

As you can see, going back over 15 years this has been THE level for AEP as every test has lead to a strong downside reaction. With this strong breakout this month I will be running this holding until a failure of the breakout occurs. As long as price can stay above this level we want to be aggressively positioned, this is a strong move.

Other than that there wasn't much movement for our other holdings and we remain in a similar position that we did last week:

Both PPG and UNH continue to trade near our stop levels but are still holding, we will also.
CMI and WFC still have cushion below current prices and have continued to show solid Relative performance.

Chart of the Week

Does this say risk on or risk off?!

Here is the weekly RS trend for AAPL vs AMZN going back 5 years; this is essentially a comparison of safe value vs. risky growth. We are currently seeing a breakout of a consolidation zone that has been building for the entire year of 2013. The last time a move similar occurred AAPL rallied 75% in a 6-month period from Dec 2011-April 2012. This also occurred when both AMZN and the SP500 continued to struggle following a correction. AAPL is breaking out on a Relative and absolute basis and looks like a new trend higher is beginning. Will the price rise dramatically from here? That is unknown. But what is known is that the risk/reward and history suggest strength in AAPL for the near future.

In fact since the end of 2011 AAPL has had a -.13 correlation to the SP500 which means it outperforms when the market and growth names struggle. Does this breakout suggest a strong environment for stocks going forward? I would say NOT, but AAPL looks good here.

Caution Needed

This market needs to be treated guilty until proven innocent. While there was a solid bounce back attempt this week, we still have no confirmation that the recent breakdown was false. The media was awful quick to proclaim the rough patch over and now they want you to load back up. While the bounce back was comforting, this is what markets do when a trend shift is underway. Forming market tops are a process, meaning the trend will not shift in one day and crash, topping takes time. We haven't seen a meaningful correction in over 18 months and while that doesn't exactly mean we are going to start one now, it does mean that it's been long enough for most people to forget what a correction acts like. Just as during uptrends where counter-trend corrections are swift and violent, bounces during down trends are equally explosive. The bounce sucks in the overeager and emotional and then traps them as the next leg lower resumes. Just as uptrends shake-out nervous Longs on dips, down trends tempt dip buyers to chase swift reversal bounces.

While everyone is getting excited about this 4-day rally in the market, we still are not above the prior swing high on the daily charts in any US indexes.

The Russell 2000 and Nasdaq have nearly identical charts. These charts look bearish:

While the Daily bar charts are a shorter timeframe, they are the most widely followed by market participants, and this is clearly a downtrend in process. The consecutive lower highs and lower lows are the definition of a downtrend. There have been nice sharp little bounces, but each bounce is being sold quicker than the last and traders are looking to reduce exposure into any strength. As price has been showing this steady slide lower the RS trends for the "riskier" groups continue to show underperformance vs their large cap counterparts. This is also indicative of a downtrending, weakening environment. As long as prices are below the prior swing highs (RUT 1,160 and COMP 4,200) these bounces are to be sold, not bought. Bottom line, do not chase a bounce in a newly transitioning asset.  

 The SP500 looks better but still in a trend shift as well and still below its prior swing high.

That being the case, one positive is that we still saw ZERO downside follow-through on the weekly views of these indexes.

The longer term has the look of a retest scenario about to play out: both aggressive indexes (RUT and COMP) posted hammer formations with this week's trading and could be set to "throw back" to their broken trend supports. While this relief rally would be nice, it is still too soon to go brazenly jumping back full into stocks. I am of the opinion that this recent weakness has been the first wave of a corrective pattern unfolding and now that sentiment has soured even more, I think here we could see a wave2 or "B" wave rally forming from either a 5-wave correction or a smaller "ABC" pullback.

The SP500 continues to buck the overall downside and was able to put together a rather solid week. It is certainly in better shape than the other two leading indexes at this time. Do know though that there is a reason the Nasdaq and Russell 2000 are considered leading indexes. They are typically the canary in the coal mine indicators as they represent the risk appetite for investors. As markets transition these two tend to lead the transition and it is only a matter of time before the larger stocks follow suit.

 Only time will tell what plays out from here but let's not forget what the situation was prior to this week and still is the case:

1. Weekly (intermediate term) divergences in momentum indicators suggesting higher risk of downside continuation
2. The Fed continues to reduce its stimulus monthly and will end QE buy operations by Fall
3. We are approaching the seasonally worst time for stocks (historically)...May through October
4. The wrong sectors are leading the recent advance. XLU, XLP, XLE and TLT are leaders, while         XLF and XLY lag significantly.

The best course of action in this environment is to continue to ride what is working and avoid what is not. We never truly know what the market will do next so it is foolish to try and be an all-in/all-out investor. Its generally better to continue to let your winners run and cut your losers, let the market show its intentions by weeding out the weak and letting the cream rise to the top.

 We were able to take advantage of the rally this week through our remaining stock holdings as they showed resiliency and no downside follow-through.

PPG (2/3)

I am glad I gave PPG a one week grace period after its marginal break of support last week. They announced earnings on Thursday and showed once again another very strong quarter. The stock rallied over 4% or $8/share on the news and is once again at all time highs. Lets keep going as long as we can with PPG.

UNH (2/3)

UNH came into the week looking solid and well above its breakout levels. However earnings released Thursday morning took care of our nice cushion and gave the breakout level a solid test. Fortunately buyers came in at those levels and were able to recover much of the early damage. It's rarely a good sign for short-term price action when a company posts a poor quarterly report, but above $75.25 the uptrend is still well intact. If we break and close below this week's closing prices that will likely be enough to have us step aside.

PBW (1/3)

Speaking of marginal breaks, PBW is teetering on the line of seeing us exit our remaining shares. We are currently 1/3 invested which is our minimum holding, as the RS uptrend has been steady for the better part of a year. This week saw a little poke through the trend support, yet I'm willing to give this minimum holding one week's free pass to see if it can build on the solid intra-week turnaround it displayed. However if we continue to see indecision and movement below this week's close we will throw in the towel...But lets give it just a little more here to see what it can do.

WFC (2/3)

WFC continues to be in fine shape. After announcing solid quarterly numbers a week ago price has remained firm in the face of some hefty pressure from the Financial sector and broad market weakness. Our line in the sand on WFC is pretty clear as there is a confluence of support at the $46.50 level. A slice through that will see us reduce our exposure. Above that support though I still think its one to own.

CMI (3/3)

CMI continues to hold up well and is consolidating nicely above its breakout support. A break below $139 will see us reduce exposure, but the long term-picture is still quite bright for Cummins.

AEP (3/3)

AEP along with the Utility sector has been very strong year to date. We are getting very close to our base pattern target and price is also running into a key supply (resistance) area going back nearly two decades. This should be a big test for AEP ahead. We will need to see how it handles this all-time high area and continue to ride the strength above the $48.50 support.

TLT (3/3)

Treasuries held up surprisingly well this week during the market bounce, all except for Friday. After touching a new rally high Friday morning, there was a swift reversal that sent prices lower by over 1%. Year to date, Treasury Bonds have traded in a steady rising channel and Friday once again tested the upper range. It would not surprise me to see a pullback to the $108 area and retest the prior resistance zone; I would expect that to hold as support on this test. This retest looks to want to coincide with a wave2 rally in stocks, so thats a confirmation signal to suggest what is shaping up across the market. We want to continue to maintain Treasury exposure above $107 on the TLT.

The key to dealing with challenging markets and trend rotations is to not be too focused on the short term activity and follow the strength in the market. Running your winning positions and selling your lagging holdings generally keeps you aligned properly for any market environment. Let's stick with the plan. To get an idea of how challenging this market is right now, take a look at my chart of the week:

Chart of the Week

SP500 daily view

 Its a tricky market as you can see as it continues to fool anyone leaning too far in either direction. Multiple failed breakouts within a choppy period are not the type of environment you want to be trying to time for any new, aggressive positions. Stick with what you've got here and try not to get sucked into any overextended moves one way or the other.

Weekend Update: Mixed Market Turns Negative

It was another nasty week for the markets. The SP500 confirmed the breakdown signals we have had from the Nasdaq and Russell 2000 over the past month; the large-cap stocks finally followed through with the broader market weakness.

This violation of the intermediate term trend doesn't mean sell everything and hide, but does signal a "no new stock entry" environment. Everyone has a different strategy on how they deal with corrections in the market. Some sell everything based on the health of the market averages, some proceed as if nothing has changed as long as their individual stocks keep holding up, and others do a little bit of both. My plan for dealing with corrections is to continue to hold onto my winners provided they are above their stops, but no longer take new stock* entry signals while the averages are below their trend levels. Roughly 4 out of 5 stocks trade with the market. Meaning if the market trades lower, 4 of 5 stocks will follow the averages lower. Its not that we can't pick winners in that kind of environment, but the risk vs reward is skewed against us and I simply choose to wait for better probability scenarios. It is important to understand that you don't always need to be trading, often it is better to sit on your hands and wait for the dust to settle...Cash is a position too.

Risk is significantly elevated, this doesn't mean stocks are going to crash from here (though they certainly could) but our probabilities of success are much lower.  Momentum indicators RSI and MACD are both divergent and bearish on the weekly timeframe:

These indicators show overall strength of trend direction and momentum. You can see for the SP500 that both of these indicators failed to reach higher highs when prices did on the last advance. A divergence by itself is only a warning signal, but when price confirms the weakness and breaks down, you can have yourself an ugly situation. These charts are weekly timeframe as well which suggests this is not a short term development. The markets have been undergoing some significant technical damage recently and we will need to be extra cautious at these levels.

We have not yet seen the monthly timeframe confirm these signals which would be my ultimate sell signal. That is why I feel this is likely the near term correction I have been sensing before one final major move higher in this bull market. To restate that: I feel this is likely the Wave 4 beginning that will lead to a strong Wave 5 rally. I do not think this is THE top for this current 5-year rally. That being said, we observe ALL signals regardless of our "feelings" because we simply do not know when the next major correction will play out. Sometimes there will be false signals and we will just buy right back in on our next setup. Thats the beauty of having a strong methodology for trading the markets; if we are right and the breakdown turns into a major bear market, we will have gotten out of the way very early. If the market stabilizes and the signal is false, we get right back in once conditions improve. We take a very small risk to protect against ALL significant downside threats.

As expected with the recent weakness, we received a couple exit signals within our Portfolio heading into next week:

Exiting HAIN

We saw a full trend breakdown this week with price slicing right through the intermediate term support going back to early 2013. RS trend also failed the corresponding uptrend support for the rally. This tells me HAIN is either going to correct back down to the prior breakout level near $70 or we will see prices digest the strong gains from the last two years by moving sideways. It will take a strong stabilization and rebound to negate this intermediate term signal. We will take our substantial gains and step aside.

Reducing PBW to 1/3 holding

Clean Energy failed to hold onto its breakout and sliced through its 20 WMA. The one hope going forward is that the RS trend vs SP500 is still holding its support. We are selling 2/3 of our position and will continue to hold 1/3 until the Relative Strength fails to hold trend. While these support levels were breached this week we still have a series of higher highs and higher lows. The breakdown did not create a lower low in the dominant uptrend, so we still have some mild positives for now. We will continue to watch this space closely for any future hints.

PPG (no position change) Close Watch

While PPG technically slipped through our initial stop level this week, I am not selling just yet as the signal was very marginal. We have been watching the $188 level as support and there was a break of that this week by $.18. However RS trend is right at support and there has been a large price cluster around this area. With an uptrend like this in place I am willing to use a small amount of discretion with our position and give this one more week's grace to see what the real intentions are. PPG is on close watch.

 With this week's signals the Portfolio's current allocations are as follows:
Stocks: 41%  (AEP 3/3, CMI 3/3, WFC 2/3, UNH 2/3, PPG 2/3, PBW 1/3)
Bonds: 10%  (TLT 3/3)
Cash:   48%  (F, DDD, HAIN---no positions)

We continue to see increased allocations toward Cash and away from stocks. This is the natural rotation flow that a trend strategy enables; we let the market lead us to the proper investment allocations. This is the most defensive positioning we have had since the blog began in late 2012. Seeing that the market has been so strong for this entire time should give you some pause at these elevated levels.

With no positions in F, DDD, and HAIN the market it telling us that momentum and growth are being sold while dividend and large caps are holding up better due to their more defensive nature. In terms of trend and Relative Performance I would say our Portfolio is accurately positioned to reduce risk and capitalize on what is working in the market.

Chart of the Week

TLT (20+ Year Treasury Bond)

We've been talking about this one for a while now and it was important for Bonds to break above the $109.50 level. That level has been a major inflection point for multiple years and this week's action broke through with conviction. Of course it is notable due to bonds' negative correlation with stocks. I've said stocks could be in trouble over the near to intermediate term if bonds were able to breakout here. Well, they have. This occurs just at the time the SP500 has joined the Russell 2000 and Nasdaq with intermediate trend breakdown. I am positioned bullishly toward bonds in my accounts and will continue to do so above $106 and below $115.40.

---The bottom line is that its time to be cautious. We are not certain of any outcome in the future but as of Friday's trading, stocks are a much more risky bet. I use the charts for one primary task: To know where am I willing to transfer the risk to someone else. When an uptrend fails it logically follows that the trend is changing. If a stock is not going up I don't really care to own it. I will look for something better with a higher probability of success. Thats all this game really is; we are always looking for the highest probability of success with the least amount of risk. When the probability does not favor my position, I adjust it. All that adjustment is is a transfer of risk from my account to someone else's. I might get this one wrong, but over time the odds favor the adjustment.

*Bonds and Commodities are negative and low correlation asset classes. They can be owned at times when stocks struggle.

A Look at Commodities

I'm always searching for where the strength and value is in the market. Currently those characteristics  are showing up in the Commodity space. A big part of my investing philosophy is identifying strength and rotation as money flows from one area of the market to another. For the better part of the past two years there was no need to look beyond stocks as they have been exhibiting exceptional strength over that period. However I have been seeing action that suggests stocks may be at least slowing and there are better risk/reward investments heading to the top of my watch lists.

Russell 2000 - Small Cap Stocks

GCC Continuous Commodity ETF (Equal Weight)

Here is the comparison between the Small Cap stocks and an Equal Weight Commodity fund. Small cap stocks represent investors higher risk allocations and tend to outperform during market rallies; one can see both the Relative and absolute uptrends the small cap stocks have been in since late 2012. Small caps have been the place to be for capturing market upside, but their current look suggests at least some sideways corrective action for the coming future. During that same period, commodities as a whole have been sliding steadily in a very defined downtrend. However it appears that the commodity space has the look of  transitioning out of that prior trend.

*Note: I'm not suggesting that stocks crash from here and commodities duplicate what the stock market has done over the past couple years, but in terms of favorable risk/reward, commodities look cheap relative to stocks. I am seeing strong money flows as investors take profits from stocks and look for other market neutral areas to put that cash to work.

Let's take a look under the surface of the commodity sector and see if there are any favorable opportunities to be had in light of this potential long term trend shift.

Just as it's important to follow price and money flows with stocks, commodities should be treated no differently. When we own stocks we simply don't care what the pundits and media are opining about regarding our holdings, that's just noise and nobody ever made money reacting to noise. Price pays, it's as simple as that. We treat all asset classes the same, as it's the same irrational humans trading any particular market. While stocks carry risks with earnings reports and news events, commodities carry risks associated with weather related issues (drought, storms, heat/cold) and supply/demand inventory imbalances. As with stocks we cannot control how these events play out, neither can we determine how the weather will effect the next crop report. All we can do it assess which groups have the best relative price performance and offer the most attractive risk/reward setups. As with any asset class we invest in, there are some that are better than others. The primary commodity groups we follow are a mix of metals, energy, grains, live stock, and soft commodities. For the sake of simplicity and ease of trading we will be limited to commodity ETFs that represent most of these classes. Since we have recently discussed the metals (link to prior post here), today we are going to focus on energy, grains, softs, and live stock:

ETF Name--Commodity

OIL--Crude Oil
UNG--Natural Gas

CORN--Corn
SOYB--Soy Beans
WEAT--Wheat

NIB--Cocoa
JO--Coffee
BAL--Cotton
CANE--Sugar

COW--Live Stock

It is important to note that commodities should not be bought and held in the traditional investing sense. Commodities are highly cyclical and while trends can persist for extended periods of time, these should be treated as trading vehicles only.

ENERGY

Crude Oil (OIL)

Crude Oil has been forming a multi-year basing wedge since the 2009 stock market crash. Currently price is narrowing in trading range, but a break above or below these converging trend lines should create a very large, multi-year move in oil prices. Up or down is not decided yet, so we will just have to keep this one our radar going forward. It will take a move above $25 (roughly $110/barrel in the futures market) or below $21 ($90/barrel) for the next move to begin in motion.

Natural Gas (UNG)

Natural Gas prices have been declining for years. I am of the opinion that we may be seeing a generational buying opportunity in Nat Gas right here. Prices have been so depressed from their highs that this fund could double in value without batting an eye. Currently we are seeing price stabilize ABOVE multi-year resistance levels and I believe this move is just getting started. Do understand that this is a very volatile investment space, so you need to be sizing your positions in accordance to higher than typical risk parameters. Honestly though, right here, a stop below the prior couple week's lows at about $24 presents a phenomenal risk/reward opportunity.  I am currently Long UNG.


GRAINS

Corn (CORN)

Corn prices have swung wildly over the course of the last few years, but I believe we could be seeing the start of a new uptrend just getting underway. Both Relative and absolute downtrend lines have been broken to the upside over the past couple weeks as well as a nice rounded base formation over the past 6 months. Every signal for trend strength I follow suggests further upside from here; as long as prices stay above $33 (roughly $470 futures price) this is Long and strong all day. I am currently an owner of CORN.

Soy Beans (SOYB)

Soy Bean prices have been quite stable for the better part of the last few years and currently are testing a very important supply level. I would want to see prices breakout above this resistance at $25.50 to suggest a new uptrend and not more of this sideways, choppy action. Prices are above a newly rising 20 WMA and RS vs the SP500 has broken its multi-year downtrend, so an uptrend resumption could be in the works.

Wheat (WEAT)

Wheat has been steadily declining since mid 2012 and still has work to do. Relative to stocks, we are seeing some firming out of the downtrend, but there still is a large resistance level just above current prices. The 20 WMA has started to flatten out over the past few weeks which can often suggest that the downside from here is minimal as the downward momentum is waning. Still we would want to wait for a little more out of the Wheat space.

SOFTS

Cocoa (NIB)

Cocoa prices have been pivoting around a key inflection level for a few years now. The $37.50 level in NIB has been both key support and resistance on multiple tests, yet now prices remain above the line. This presents a very clean exit level should this trade fail. As of now it appears that a bullish Double Bottom pattern is in play with a target $47.50 and over 30% upside from current levels. I do not hold a position in NIB but may initiate one within the next couple weeks.

Coffee (JO)

Coffee prices have exploded, doubling in the last two months. Currently prices are still too extended for a comfortable entry and we may just have to let this one go. But with the last couple weeks' trading, prices have been able to break through a strong supply/demand level and look like they want to push higher. Just know you can't trade them all, and while this may continue to outperform, sometimes the risk is simply too high to justify a new position. Keep this on your radar to see what happens.


Cotton (BAL)

Cotton prices have formed a large, multi-year base. While prices remain depressed from the previous high levels, it seems that a trend resolution will occur soon. Prices are forming a wedging pattern and will eventually break to the upside or down. This is what we will focus on going forward.

Sugar (CANE)

Sugar prices are in a down trend but could be forming a potential basing pattern. Only time will tell if this comes to pass, but what we can say for certain is that CANE needs more time to bottom.

Live Stock

Lean Hogs and Live Cattle (COW)

COW tracks the prices of Lean Hogs and Live Cattle futures. As we can see prices have run into a supply area and have rejected that level. It will be very interesting to see how traders position themselves going forward at this significant resistance. We would need to see a breakout to get more excited about this space, especially after the strong rally it has had to start 2014.

---That's my take on Commodities at current levels. While an Equal Weight Commodity fund would look fine here, there are still notable pockets of strength and weakness within the group. Ideally we would enter the better risk/reward setups and avoid the weaker ones. Currently I like UNG, CORN, and NIB for actionable entries. While JO could get interesting once it cools off a bit. The rest should be avoided as new trades at current levels, but if continued strength comes into the group many may signal entries as well.

***read a basic overview on commodities trading here

Weekend Update: Defer To the Trend As Long As Its There

This week, once again proved treacherous for short-term traders. We continue to trade within the trading range we have been watching, yet we saw one new development that can't be pleasing to the Bulls. There was a breakout attempt that took the SP500 to new all-time highs this week, yet Friday's "sell the Jobs Report" trade killed off that trigger. The SP500 continues to hold up better than the other market indexes as after a short "dead-cat bounce", both the Russell 2000 and Nasdaq continued to show Relative weakness and rolled to the downside to close out the week.

SP500 daily bars- false breakout

SP500 weekly bars- range holds

While we had some theatrics day-to-day, we really are in a similar spot as we were last week. The large cap stocks continue to hold and probe all-time highs, but the more risky groups are being taken to the woodshed. We are still seeing money rotate out of last year's biggest winners and into more safety and alternative asset classes. Commodities have been looking exceptionally appealing recently with several groups already in breakout territory and many others setting up for big moves. Right now it is my sense that stocks are quite risky while Cash, Bonds, and Commodities present very intriguing values at these depressed levels. Only time will tell if that feeling is correct, but in terms of money flow and Relative Performance, that is where the strength is.

As stocks are at the edge of a potential transition, it is necessary to look over our holdings and make sure we know where we are wrong and where we will step aside. There were no changes to our portfolio's allocation this week.

Full Holdings (3/3)

AEP

AEP looks great taking a run at these prior highs. We continue to see breakout follow-through and are moving towards our target. Stops should be placed just below the rising 20 WMA with the breakout infection level @ $47.85. The reversal target is at $53.40.


TLT

Treasuries appear to be giving the weak holders a good shake here. TLT started the week heading higher through the resistance area. Then price dropped quickly back below the $108 level before settling out the week right at the current resistance. This still looks like its going higher to me, but we want our stops just below $105.50.


PBW

Clean Energy got rocked on Friday but is actually putting in a text book throwback to the breakout level. As long as price can hold above the 20 WMA and breakout level of $6.85, its still full speed ahead.


PPG

PPG continues to hold onto its new highs and even bucked the trend and closed higher on Friday. It is still exhibiting fantastic Relative Strength, so as long as its above $188.50, we are riding this one higher.


CMI

CMI gapped higher to open the week and still managed to hold a bit of those early gains. So far this looks fine moving toward our target of $164. Trailing stops should be placed just below $139.50.


Partial Positions 

WFC (2/3)

WFC set another new all-time high this week and relative to the market, this one is a big winner. They have earnings coming up within the next couple weeks, but right now its looking A-ok. Stops below $45.25.

HAIN (2/3)

HAIN is trying to hang in there but it has been weakening for weeks now. Its now failed to make a new high with the market two times in a row. A clean break of $88 would be enough to watch from the sidelines for awhile. Remember, we have been in this trade since $68 per share. Its been a winner for us, but they can't last forever.

UNH (2/3)

UNH continues to hold right at its all-time highs. This is a very bullish characteristic after such a strong surge two weeks ago. Relative to the market UNH looks great here and we have a nice cushion to let this winner run. Stops @ $75.70.


Cash (0/3)

F

We have been watching F decline for a few months now, but just this week things look to want to change a bit. Its still too early to tell but we can see RS breaking out of its downtrend and price is doing the same from its downward channel. We need to see a higher high put in as well as the 20 WMA to begin rising (currently its still declining), but this is about all we could have hopped for in a struggling market with a down trending stock. Lets keep a close eye on this one.

DDD

DDD continues to trade poorly. We have now seen 4 weeks of downside follow-through on the topping formation. I would expect some sort of relief rally soon, but I think this has one more leg down before we can hope for a bottom. The uptrend support at $48 should provide long-term demand for shares and that's where I will start to get really interested again.


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Overall our holdings look quite fine at these levels. While some are testing key uptrend supports, support is support until it is broken. Until we see our stops triggered we have to continue to defer to the overall trend and not try to overreact to our emotions by anticipating. If the stops get triggered, we will step aside. But until that actually happens we need to continue to run these strong winners that we have been riding for so long now.