Trailing Stops and Watchlist (4/10/15)

SP500 Still in a Box

SP500 Daily chart

So much for any Jobs Report related weakness. Monday's open was immediately bought and markets saw an upward bias most of the week. In Bull markets bad news is easily ignored, and we saw that this week. Attach whatever meaning you want to the markets reaction to the news (lower rates, Fed dovishness, etc). But the fact remains that this is a Bull market and if you are not treating it as such, you are likely struggling in this environment.

While we saw a nice expansion Thursday and Friday from the tightening trading action, The SP500 is still below the "box" highs. Until the market moves away from this range it is still likely to be a choppy environment.

I am watching the lows at 2040 very closely as a breakdown of that support would be a sign that more downside is likely. Equally I am watching the highs near 2120 as a breakout above that would force many participants to reevaluate their cautious stance and cause them to buy back in at higher prices. Anything in between those points is mostly chop for our time-frame.

Trailing Stops 

We can now trail stops on two of our most recent large breakouts, BA and SBUX. We have seen  constructive consolidation of the initial moves and supports are showing up at higher levels. 

BA

Since Boeing has be able to hold its breakout and consolidate above the prior highs we can trail our stops to the $143 level. This area coincides with the prior ATH's, rising 20 WMA and is below the lowest close of the last 10 weekly bars.

A break of this level would suggest much more pressure on the current breakout and we would want to step aside and let it find its new direction.

SBUX

Starbucks split their stock 2-1 this week, so make note of that. This chart looks similar to BA above and we are able to raise our stop levels up to the next swing point. As you can see this level is where the 20 WMA rests and is also below the lowest close of the last 10 weekly bars.

We have been very patient in trailing our stops because we want to be sure we don't get taken out prematurely by some meaningless "noisy" trading action. If our new level is broken it would suggest more consolidation is required before moving higher.

We will be using the split adjusted price of $43.75 as our stop going forward.

WATCHLIST

I haven't posted many new Lg-Cap ideas recently simply for a lack of decent base supports and appealing opportunities. However this week it appears many more potential candidates are making their way onto my radar. Lets take a quick look.

AIG

Insurers like AIG have been setting up very nicely recently and I have been seeing opportunities in Small and Mid Cap names as well. This group is one to keep an eye on currently, not to mention they are arguably some of the "cheapest" valuations in the market.

GS

 Since being shaken out of GS prematurely in January the stock has regained itself and is now threatening another breakout. RS is very close to testing a 2-year downtrend vs the SP500 and a move through $196 with subsequent RS confirmation would trigger a new entry for our Portfolio.

ABBV

There is still work to do for ABBV but it has been building a defined support base for the last 3 months. Mostly we need to see that 20 WMA begin to flatten and turn higher, that would suggest the intermediate downtrend is ending.

LYB

LYB will be very interesting if it can break above its range highs. The 20 WMA has flattened and is about to roll higher. Nice looking setup forming.

GILD

GILD has gone effectively nowhere since our exit late last year. The current price action has been tightening nicely and all indications suggest this is just a pause in a long-term uptrend.

The stock will not have to break through the upper range to trigger an entry for us; a move above $106 would trigger new 50-days highs. As long as the secondary indicators support the trend change we will be interested at that time.

EOG

EOG is one of the better Energy stocks. While many in the sector have declined 50%, EOG has held up relatively well, only declining 30% peak to trough.

The MACD suggests that the recent decline has done substantial damage to the longer-term uptrend. Until that can trade above zero and hold, EOG will likely remain choppy and range-bound.

Gun to my head, EOG is an Energy name I could get interested in soon.

SLB

Similar to EOG, SLB looks like it could put in a little momo move soon. Still with the weak trend indicator (MACD below zero line) any rally is highly suspect and likely to see false moves and volatile trading.

Neither of these Energy names are likely to find their way into our Portfolio in the near term, but they are two of my favorite companies in the space. When a market is correcting substantially it is a good idea to build a list of your top candidates for when the tide turns for the better.  

All downtrends present opportunity eventually. Unfortunately most traders don't demonstrate the patience required to let the downtrend run its course and turn back positive. They simply cant help themselves and have to buy in early. In the trading profession "early" is the same as being wrong.

Patience is one of the most important attributes that successful investors share. Those that force trades in fear of missing out will struggle and likely fail to be profitable.

GE

 This market loves its boring stocks and GE is about as boring as they come. Typically I don't like moves triggered by a selling off of assets as was the case here. Although the idea is that GE will use the capital raised to increase shareholder value through buybacks and dividend hikes. So there is that i guess.

In terms of price action, this week's move was very impressive. After trading sideways for the better part of 18-months, GE resumed its uptrend on a strong move Thursday and Friday.

Zooming out you can see how far GE still has to go to regain its highs prior to the 2008 crash:

Something I notice is that the recovery off the '09 lows has now regained 2/3 of that correction. Taking out our Fibonacci retracement tool, this week's rally closed above the 61.8 retracement level for the first time. Typically when this occurs price will be pulled like a magnet toward the 100% retracement level and prior highs.

This move won't occur overnight but it is something to have on your radar. I will be looking to see how GE handles these new breakout levels and whether it can hold above this 61.8% retracement level. If it can stay above the breakout area I will become very interested in the future.