With the potential shift taking place in the market, it is a good time review our current holdings and see where we stand heading into next week. We took a couple exit signals this week in VZ, and F. There also were some close calls in TLT and SBUX but they managed to hold on for another week. The Portfolio added one new position, entering Goldman Sachs (GS) as it broke out of a multi-year base formation.
SP500
This is something to be mindful of but we still need to see price confirm the weakening momentum before we get more worried. Above the 1,925 swing low the uptrend is intact.
Goldman Sachs (GS)
Exits
Verizon (VZ)
After starting out hot, VZ has never been able to recover since the huge reversal that took place in early august. Price has languished at key support and this week broke to a new 18-week low. While the long term setup is still alive, short term it's time to transfer the risk to someone else. I like this setup and as long as price holds above $45 I will keep it on my close watch list. But for now we step aside.
Ford (F)
Ford once again failed at the $18 level and has recently made a lower high. This week price gapped below the 20 WMA and made a lower low for the recent rally. Relative Strength also failed to break out of its long term downtrend and is now rolling over. Again it's time to transfer the risk to someone else.
Similar to VZ, I still like F long term and will be now waiting for a break above $18 to re-enter the position. A break above $18 sets a decade long base formation into motion and would be an opportunity to participate in.
New Entry
Goldman Sachs has been on our watch list for a while now and this week it triggered the base setup we have been waiting for. Price broke above a 5-year resistance level and looks ready to significantly move higher.
The breakout in price is confirmed by the 18-month RS breakout as well as the MACD trend confirmation I like to see. I discussed this the other day (here).
This is a multi-year pattern formation, don't expect this to be a quick trade. There will likely be several opportunities to add to positions here so we don't have to go barreling in all at once. It is best to give this trade some room to move around and I want my stops down near the $164 swing low. The upside projection is near the all-time high at $250, our risk/reward sets up fantastically.
The Best and the Rest
Hain Celestial (HAIN)
Hain had a great week considering the overall market performance. The follow through on the breakout from last month while the SP500 lost 1% is particularly impressive. We still need to keep our wide stop for now down near $85, so there is not much to do but sit back and let this one run.
Wells Fargo (WFC)
Wells has been consolidating for the past 4 months and has seen some mild interest after testing it's long term uptrend support. Considering the strength that big banks saw this week due to rising interest rates I would expect this to begin to resume its trend soon. If price breaks below the uptrend support and swing low at $50 that would be enough for us to exit and wait for a better opportunity.
I particularly like the financials here and think they are ready to continue higher. The recent pause that has taken place has built a solid suport base to launch a new move from.
International Paper (IP)
IP sure had a solid week in a poor market environment and it was mainly accomplished on Thursday's huge 4% surge. This position has been a slow starter but after holding yet another higher low, it appears that price is ready to resume in the upward direction. Long term the setup is fantastic and a base formation this large could propel the stock MUCH higher from current levels.
We also saw RS retake it's downtrend resistance this week suggesting it's trying to sustain another run higher. If this were to fail again we would not want to be holders below the 47.50 swing lows. But for now IP looks to be back on track.
Nike (NKE)
Nike just hung out this week at it's all time highs. After a strong move last week it was very constructive to not see much given back at all. The relative strength here is very solid and this remains part of my bullish Consumer Discretionary theory. So far so good.
Berkshire Hathaway (BRKB)
With the addition of GS this week that now brings our XLF holdings up to 3, although it is debatable whether Berkshire is actually a financial company. But regardless of how it's classified it remains a key member of the XLF and remains in a massive uptrend. As long as price doesn't violate the swing low and support at $125 this one is just fine.
Eco Lab (ECL)
Ecl continues to outperform and was actually up almost 1% on Friday when the SP500 lost nearly 1%. You can't ask for much more than that. Strong relative leader, strong uptrend, and large base support. Above $108.50 this is a winner.
Time Warner (TWX)
Time Warner continues to move positively away from its large support base. Apart from that nasty sell off 6 weeks ago, the stock is a winner. The upside potential is massive in this name and I believe it's just getting going. Stops still remain just below the breakout level near $71.
Starbucks (SBUX)
SBUX came about as close as one can to triggering a sell this week, yet it managed to hold on. As of now price is retesting its breakout from support, but it will need to turn higher immediately for us to remain long here. I still think the setup is good and expect higher prices from here. Hopefully this week was a good hard shakeout before the uptrend resumes but that remains to be seen. Stops are set just below $75.20.
Enbridge (ENB)
Despite the volatility in ENB, the trend and price action continues to remain solid. You can see the large cup/handle formation still in motion and after a successful retest of the breakout, prices have moved higher. The action on Thursday and Friday this week were nothing to feel good about, but the overall trend remains intact. Stops still remain near the handle lows at $47, but soon we can hopefully slide it up to the breakout level.
20+ Treasury Bonds (TLT)
Interest rates popped this week and took our long term treasury position down in sympathy. TLT nearly triggered stops on Friday but managed to stage something of a recovery right at the end of the day to hold the $113.25 stop I have.
The Federal Reserve meeting results next week will likely dictate whether this one survives for us or not. If the Fed announces that it may raise interest rates sooner than previously expected, that would likely end the run in bonds. If however they continue their dovish positioning, bonds should still be fine and would likely bounce back. Keep an eye on this one next week.
Gilead (GILD)
GILD has the look of a stock that needs a correction. It remains to be seen if that will play out, but the rapid increase in volatility after the parabolic rally usually creates a short-term top for prices. That being the case this needs plenty of room to wiggle so we don't get caught out of position. Stops should still remain near the breakout level as there is no support above that. A consolidation and new base area would be very constructive and we could then look to move up our stops.
We continue to take our positions on a case by case basis. Some fail to sustain their uptrends and others continue to make new highs. The best we can do is move out of the stocks not keeping pace as leaders and continue to focus our funds on the best risk/reward setups available.
As long as the overall market remains in it's uptrend we want to be looking for the strongest opportunities. I continue to see constructive things across the markets and have no reason to doubt the rally when so many fantastic stocks are breaking out of multi-month and sometimes multi-year base formations. This is not "bubble" structure, when massive large cap companies are breaking from decade long base consolidations the upside is very healthy. These aren't companies with no earnings like back in 1999. Companies like INTC, GS, YHOO, Time Warner are massively profitable and have been around for decades. To see them emerging from the bases that they are suggests this rally could be just getting going.
As long as you focus on strong risk/reward situations from companies with excellent profitability you will be just fine. If you find yourself flopping back and forth on every geopolitical headline or doom and gloom commentary you will never make any ground. The only way out is to develop a plan that removes emotions from your decisions making. There is no place for emotional trades within a successful investment approach.
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