Back to Support. Where To Next?

After receiving the first Long entry of 2015 from my SP500 Trend Model last week, the market immediately rolled over and triggered a failed signal. The Trend Model is now in a "Cash" position.  

To compound that false signal were the trend invalidations that occurred in 4 of our Large-Cap Portfolio holdings. 

We will be taking exits in GS, HAIN, BRKB, and NKE. With the exception of GS, these holdings have been longer term winners for the Portfolio. Their weakening trends suggest leadership changes in the market and the signal should be taken as a warning. 

EXITS

GS

GS finally broke our stop after coming within cents two weeks ago. Last week's bounce attempt failed and we will take our small loss.

Longer term the base formation is still intact. This will be one to watch if the Financials can regain their footing.

HAIN

HAIN has experienced a sell the news reaction to their 2-1 stock split. While it is oversold on the short-term, the intermediate trend has come under pressure. Price closed at a new 12-week low and RS vs the SP500 has begun to roll over.

Despite the recent skid we still have a 15% gain in the position, it is time to protect those profits.

Longer term the uptrend is still well intact, should price firm up we will likely look to re enter the trade.

BRKB (Daily chart)

NKE (Daily chart)

Both of these setups require looking at the Daily bars to see the support failure and stop trigger. NKE and BRKB made new 50-day closing lows and broke down from an orderly consolidation pattern.

Take extra care when a bullish continuation pattern fails to move in the expected direction. After the rallies in 2014, the recent price action had the look of a steady and bullish consolidation. The expectation was for the stocks to break higher resuming the uptrend. However in both cases the pattern broke to the downside and trapped many bullish positions.

This is how resistance gets formed. Those trapped buyers will look to exit their holdings into any strength and create downside pressure on the shares.

Similar to HAIN we have strong gains in these holdings and now is the time to realize those gains.



With those four exits we now hold 11 positions going forward. Let's take a look at how they are faring: 

WEAKENING

TWX

I still like the stop location for TWX. While it has been a disappointing trade so far, its not dead just yet. The situation is weakening, but the trend is still intact. 

 DIS 

I was hoping to move the stop on DIS up to the $91 level, but Friday's close snuffed it out as a strong enough support. If price can hold right here and make a new high we can move the stop to this week's close. Until then we want to continue to use our initial stop and give DIS the benefit of the doubt. 

On that note, They will be announcing earnings Tuesday after the market. So we may have our answer either way by the end of next week; either we get a new breakout, or earnings disappoint and out stop is violated. Regardless of the added volatility due to earnings, we have our plan and the uptrend is still intact. 

HON

HON has seen its breakout to new highs last week engulfed by this week's decline. That isn't a particularly great sign for the strength of the stock, but our initial stop is in a great position. 

STRONG

TLT

TLT continues to confound the masses who insist on a "rising interest rate environment". Don't let yourself get caught up in the punditry and noise surrounding this. Follow the trend and be patient.

This is the Weekly RS going back to the 2009 peak. Since that high TLT has mostly underperformed the SP500. That 6 year streak of underperformance is under pressure currently. Despite how "far" TLT has risen and how "low" interest rates are, the implication of this chart is that the outperformance in Bonds vs Stocks could just be getting started. 

Be mindful of this chart as a rally in this ratio suggests trouble for stocks. 

SBUX (Monthly bars)

SBUX on the Monthly view is breaking out to all time highs. After a 17-month sideways correction this is ready to resume higher.

This is a monster stock making new record highs and we are holding above $79. I'm very bullish SBUX here longer term. 

BA (Monthly bars)

I wanted to show the closing January monthly bar for Boeing also. This week's positive reaction to earnings caused a huge surge in the stock. As you can see above, BA has never closed a month higher than it closed last Friday. 

I think this has tons of upside potential so lets just get out of its way and let it work. Stops at $120.

PCG

Maybe this is the week that starts the correction. The candle formation from this week is called a "Shooting Star". The implications are for a short-term bearish shift. Honestly I can't wait for a correction here. The sooner we can get a higher low to trail a stop up to the better.  

PCG pays over a 3% dividend. If interest rates remain low, as TLT is suggesting, investors will be coming into a strong payer like PCG on any weakness. 

 UNH 

UNH posted a nasty week and basically took back all its gains from the prior earnings breakout. With our stop still more than 10% away, I hope we get a decent pullback here so I can add to this long term winner. 

BMY

BMY has seen its recent breakout extension sold, but it is still well above support and our stops. I would expect more sideways action over the short term, but likely nothing too drastic. 

The nice thing about having to wait for a stock like BMY to consolidate is that you get to pick up that 2.5% dividend yield. I feel very confident with this stock here. 

PPG

PPG is just hanging out. There is no reason to get antsy with this one. The RS is fantastic as the stock is still 5% above its 20 WMA. Lets give it some room and see what it can do.

IP

IP is just trying to wait out this market. Since the large base breakout a few months ago, price has quite bullishly held in a tight range above that breakout level. Above the breakout at $49.90 this one is fine. 

International Paper also sports a 3% dividend yield, another one we can afford be more patient with. 

As you can see most of our remaining holdings are making or at new highs. As long as that is the case, their trends are valid and we will maintain those positions. The few that are getting close to invalidation will need to be watched very closely going forward. 

With this week's changes our portfolio sits with a 50% cash position. This is our most defensive posture since the October shakeout. Maybe this time will be the same and we quickly regain market highs. Maybe it won't and we head lower; we will just have to see. 

Because we never know what will happen next, it's most important to stick to your process and avoid emotional trading. Stick with your winners, eliminate your losers, build up cash reserves, and watch for the new stocks emerging from the correction. 

Should the market regain its trend, here are a few names that are atop my watchlist:

AMZN

AAPL 

UNP 

BIIB

A few concerns I have: 

1. The underlying trend is weakening. Big stocks are breaking down hard (MSFT, INTC, IBM), along with the entire Financial and Energy space. This is a drag on the overall market. 

2. The market failed to rally from good news: Massive stimulus from the ECB, positive news from the fed regarding interest rates, no bounce at all in market averages after AAPL earnings.
So Its selling good news and really selling bad news: weak GDP, poor Durable Goods, poor earnings guidance, etc. 

A couple good things I see: 

1. Leaders are still being rewarded. Strong earnings beats are being bought, not sold: BA, AAPL, SBUX, BIIB, AMZN 

2. The SP500 is holding above key polarity support 1980-2000. As long as this level is intact, the market maintains a positive trend bias. 

I use simple trend filters to attempt to identify the strength of the market and by all indications from those filters and price, this market is weakening. My research suggests that a dramatic run back to the highs is going to be difficult to sustain. So with all likelihood that's exactly what will happen : ) 

However I'm always keeping an open mind, and will be ready to adjust my thinking should it be proven otherwise. 

If you would like to keep up with our holdings and watchlists during the week please follow me on Stocktwits @RelativePerformer.