Lg-Cap Portfolio Review

Had you been in hibernation for the past few months you would likely have been better off than if you were actively following the market. The sideways environment we have been experiencing in 2015 is still in place despite recent efforts to break the market higher.

Looking at the Weekly chart of the SP500 you can see that with the close Friday we are no better off than we were at the end of February. The SP500 has traded between a high of 2,134 and a low of 2,039 over the past 15 weeks, yet here we sit unchanged for more than a 3 months.

Something constructive we can take away from the recent sideways trading is that prices have been able to hold (on a weekly closing basis) above the February and March highs. We can also see steadily higher trending ranges. There has certainly been a fair amount of top calling recently as well as a bullish cohort expecting a breakout higher, however sustained momentum in either direction has been lacking.

While the Bears continue to point to any divergence they can find and all the reasons the market should crumble, there remains a strong demand to buy any and every dip. This underlying support for stocks continues to force the trend higher albeit at a snail's pace.Until the Bears can produce some consistent pressure and begin to break trailing support levels, the benefit of the doubt has to be given to the Bull camp and long-term uptrend.

 Daily chart

Something the "early" Bears fail to see is that selling pressure has not damaged the trend in any meaningful way. We continue to see swing low areas defended and intact. As long as this is the case and higher lows remain in place I see no reason to try to anticipate the end.

Another key hint that the market is not currently high risk is to look at the status of a group of moving averages. Switching back to a Weekly chart, this is how the SP500 looked during the most recent market peak in 2008:

As a market trends, the direction of that trend can be seen in a more smooth manner by using moving averages. When these averages are all moving in the same direction is when you have a trending market. For the better part of 2007 these averages were all moving in the same general direction and were layered in order of their timeframe. We refer to this layered movement as "stacked". This means the 5-average is above the 10-average, the 10-average is above the 15-average and so on. Where you need to begin taking defensive positioning is when this "stacked" formation shifts and changes direction. Above you can see that by January of 2008 the slope and relative positioning of the moving averages had completely reversed. Instead of the averages rising and in ascending order they all began declining and were in a reverse "stacked" formation. This was your big warning to be defensive in your allocations.

With that in mind, here is a look at the market's current posture with relation to these same moving averages:

Apart from a few short-term wiggles these averages have been moving higher and in a "stacked" uptrend formation. For this market to truly be at a top we would need to see much more deterioration and a change in this "average" trend.

While no indicator is perfect in terms of its predictive ability, having a process that aligns you with the dominant trends will be the most effective way to approach the markets over the long-term. There will be false signals and shakeouts along the way (see 2010 and 2011 for examples of this), but by simply not over-thinking or attempting to outsmart the market you will improve your returns dramatically.

--We had one exit for our Lg-Cap Portfolio this week. We received stop signals for Boeing (BA).

Exiting BA

Boeing busted through our stops this week in a convincing way. Not only did it fail a retest of its 20 WMA, but this week's close was also below the "hammer" low from 3 weeks ago. This is not bullish behavior and set new 85 day lows. We will take our exit for roughly a +7% gain.

I still am constructive long-term here as the trend is still higher overall, but for our purposes its time to transfer the short-term risk to someone else.

Our remaining holdings are listed in inverse order to their current performance within our Portfolio. As always we will start with our laggards:

FB

Facebook continues to struggle with resistance in the $81 area and is once again challenging its 20 WMA. The trend (if you can call it that) is quite sloppy and unconvincing. Currently the stock is wedged between our stop at $78 and overhead resistance at $81. At some point this will decide a direction, but for now we will just wait for it to declare itself and not overreact to daily wiggles.

TWX

TWX continues to tighten its range near multi-year highs. When this action finally resolves itself there should be a convincing move in one direction or the other. Our focus will be on the range highs and lows. A move either above ~$87 or below ~$82 on strong volume will give the best indication of where this is headed.

Tight trading ranges near highs are often bullish, but we will simply have to wait and see.

CSCO

After a slow start, CSCO has come right back to the highs and is acting quite resilient. Once a new breakout occurs we will look to trail our stops higher. But for now the current placement is just fine.

WFC

Wells tried to breakout last week but was met with late week sellers. This week they tried to push it lower but found buyers quickly. I am certainly encouraged to see it continually pressing against the highs. Its also abundantly clear that the pullbacks are progressively shallower and are in a "higher low" trend. Our stops sit below the most recent weekly swing low, I feel the bullish thesis would be put on hold should our stop level fail.

AIG

AIG has had an up, down, up, down month. However the trend is clear and the stock is well above the prior highs of 2014. I see no trouble until the breakout fails. Any downside above $54 is simply noise and consolidation within a larger uptrend.

HON

Honeywell is doing what it does, which is to fade breakout moves. If you have been trying to buy breakouts in this name you are likely frustrated. But again, the longer term trend is well established and the stock continues to make higher highs. Above $101 this is just fine.

AAPL

AAPL is steadily moving higher within its consolidation. The longer prices can stay near the highs of the range the better the chances of an upside resolution. Last week set a new weekly closing high and this week gave much of that move back. But no real harm is done as long as the stock can hold above the $123 support lows.

GS

GS has been on fire recently, a rest here would do it some good. We can trail our stops up to $186.90 on a weekly closing basis which is still far from trouble currently. The long-term chart looks very constructive with a substantial breakout underway.

GILD

GILD has been impressive considering the choppy environment the major indexes have been mired with. This is what we look for: strong trending stocks moving out of rest periods that lead the market higher. We want leaders in our Portfolio and GILD is demonstrating solid leadership at this time.

BMY

BMY was on its way to setting multi-year highs this week before a sudden and sharp slam in the late afternoon on Friday. All stocks have inherent risk, drug makers tend to see risks elevate when there are major results for a hot drug in the pipeline. BMY released some results that inspired selling on the part of traders.

The decline found buy support right near our stops and then bounced back to finish above the 20 WMA. As far as we can know it appears the trend is still intact, but if something were to change in the next couple weeks we will act accordingly and cut our risk. For now we still hold the position and have quite substantial open gains even if a $62 stop violation occurs, so we can afford to be patient.

UNH

UNH seems to be doing its best to "correct" through time rather than price. I have been concerned slightly by the recent signs of selling pressure as the stock has challenged new highs. While at the same time any sell-off has found swift buy support near the $112 level. There is a clear range developing between the highs at $124 and the swing lows at $112. That is roughly a 10% trading range and anyone looking to play swings can trade against those levels until a breakout takes place.

We will keep our stops at the range lows and look for a positive resolution higher as long as those lows are intact.

SBUX

SBUX set new all-time highs this week and continues to trade bullishly. Of all my holdings this one feels the most like a true leader. There has been just perfect trending activity for all of 2015.

Just for perspective the SP500 is currently up 1% in 2015. SBUX is +27% YTD. These are the moves we want to catch and hold onto for dear life. We have done that all year long and I see no reason to quit now. Stops can trail to $46.90. If you are trading SBUX more aggressively I also think $49 on the Daily timeframe is an excellent stop location.

DIS

Disney has been trading quite tightly at all-time highs. There are just simply no aggressive sellers currently and buyers are there for even the smallest dip. We can trail stops to $105 on a weekly basis.

Disney is currently +17% YTD

--The bottom line is the market sits 1% off all-time highs, this is not a bearish indicator. The trend is higher, swing lows are intact and many stocks remain in market leading posture. It is our job to find those winning stocks and get on for the ride. Once the tide actually begins to turn then we can look at the Bearish case. Anyone who is telling you "this is the top" or "the market is going to crash soon" is lying and trying to scare you into an emotional decision.

The truth is nobody knows what the future holds. All we can do is position ourselves as correctly as possible in relation to the market's overall direction. That direction is clearly higher and you should be shaping your strategy around that reality. Predictions, opinions and beliefs are not an investing strategy. It has been proven throughout history that humans are terrible at predicting financial markets, why do you think this time is any different?

Have a strategy that aligns you with the dominant trends in the market; Be invested while the market goes up and protect capital when it goes down. 

GL trading! -ZT

Follow on Stocktwits and Twitter @ZenTrends

Review at New Highs

Despite more early week volatility, the SP500 was able to set a new closing high on Thursday and held those gains heading into the close Friday. This is the most productive action we have seen in some time. While there are cracks appearing, the price action continues to suggest higher prices in the near future.

A pattern this market has enjoyed recently is the "trap" trade. Breakdowns below key support that should indicate a trend shift seem to just snap right back higher; Breakouts are being sold causing any sort of sustained momentum to be missing. Its been choppy and sideways for months, this is often the case before a new trend develops. If we are seeing a new trend emerge, sustained momentum through the resistance band between 2,115-2,126 will be needed soon. We also will want to see this prior resistance become support on any pullback that occurs post breakout.

SP500 Ascending Triangle Breakout Daily chart

While much has been made about a top for stocks the SP500 has been carving out a typically bullish formation. This pattern is an Ascending Triangle and is formed by a flat resistance level and higher swing lows. As price moves closer to the apex the range tightens creating a "loaded spring". This spring precedes a strong move in one direction or the other.

I say "typically bullish" because an Ascending Triangle more often resolves to the upside. But as we know nothing is certain with the stock market. We have to assume with the weight of price evidence that this will continue higher, but if it were to turn lower from here 2,080 is quickly becoming my line in the sand. A break below that would likely cause a fast whoosh lower after the failed bullish pattern.

SP500 MACD (for trend health indication)

I use the MACD indicator for trend health, not buy/sell signals as many do. In a strong trending market the MACD line will not break below Zero during pullbacks. As you can see over the past 6 months, every pullback in the market breached the Zero MACD line. Each subsequent rally back was then followed by more volatility. If the whippy price action didn't convince you of a lack of trend, the MACD confirmed it as well. What this means is that any inital rally attempt after a Negative MACD reading is highly suspect and should be treated with caution.

Something I find notable about this new move higher is that this is the first time the MACD did not violate Zero prior to its bullish crossover. This is another reason I feel more confident of the new breakout attempt and possible new trend developing.

With the market finishing at new Daily and Weekly closing highs it is a good time to review our Lg-Cap holdings to see where we sit currently.

First of course will be our laggards:

Exiting PCG Daily chart

I may have jumped the gun here and sold. I waited all this time and then may have been shaken out. Only time will tell. But the stock made new YTD lows and sliced through what had been key support since March. Wednesday I made the call to cut PCG. We will just have to wait and see if this can regain its footing and make another move higher through the ~$54 range highs. 

Fortunately we still walked out of here with a 3.4% gain, but it certainly was a disappointing trade considering how it started. 

FB

I thought FB put in a very constructive week. While our stop was tested last week and early this week, by Thursday it received a strong push and regained both our key support level and 20 WMA. I'm happy with how its continued to dig in at $78. As long as that level is intact I see no reason to sell here.

CSCO

CSCO announced earnings this past week and reported a fine quarter. The stock initially sold off on the news but was able to quickly recover and close near the highs.

Looking at the weekly volume, this is what an Accumulation phase looks like. The largest volume bars are coming on the positive weeks showing buying interest is greatly outpacing selling interest. I'm pleased with how this continues to trade.

TWX

Time Warner continues to coil and sit just below multi-year highs. I have to think a breakout is imminent. We are able to trail stops up to the lowest close of the past 10 weeks and feel a break of that support would be enough to look elsewhere. Above about $82 though, I expect an upside resolution.

WFC

Wells continues to hang out at highs as well. Every swing low is more shallow than the last and the $56 resistance area is being bombarded regularly. Signs point to higher prices in the near future.


"In the Green". Our remaining holdings are all showing profit and holding key support areas.

AIG

AIG faded along with most of the Financial space on Friday. The swirling uncertainty of interest rates finally went the other way this week. For over a year rising interest rates were a forgone conclusion. But this week showed that maybe that theory is not so automatic. Maybe it is maybe it isn't, that doesn't concern me. AIG is still well above its prior highs and in full breakout territory. It will take a move through its breakout level and the swing low at $54 to make me reconsider this position.

GS

Goldman dodged the Financial related weakness and powered to higher highs. Along with JPM, this has recently been the best performing stock in the XLF. 

GILD

GILD is quickly becoming my favorite setup. It has seemingly found a floor near the $100 level and is beginning to move away from the tightening price action of the last year. 

I hold the position in several accounts as GILD shows fantastic fundamental metrics, a very strong chart setup and low risk opportunity. 

AAPL

AAPL is maintaining its trading range between $133 and $123. Our stops are right up against the lower support as the stock has seen stronger than average selling recently. If support at $123 were to break I would prefer to protect capital first. 

Currently the stock is in a clear uptrend and there is no reason to get cute. We will run the position until we get our signals. 

HON

HON busted through its all time highs this week on stronger than average volume. The move was great, but we have seen this before. HON loves to give false start signals. 

Bottom line though the trend is in great shape and as long as it keeps making higher highs and higher lows we will stick with it.

BA

BA showed a little more bounce after last week's test of our stop level. It's still not out of the woods yet, there is a band of resistance at about 149-148 that has been acting like a short-term ceiling. If that were to be broken to the upside I would feel much better about the setup going forward. 

DIS

DIS seems resistant to the idea of pulling back at all. The stock just continues to grind higher and any small dip is being bought right up. For now stops near $103 seem plenty far away from immediate danger. But I would expect some consolidation in the future to test the Bulls resolve. 

SBUX

SBUX is trading simarly to DIS and there is simply nothing to do until it can form a new level of meaningful support. Our stops are out of the way and the trend is higher. What else could we ask for?

BMY

BMY appears on the verge of making new highs soon. After an orderly pullback the stock found support right at the rising 20 WMA and we will trail our stops to that level. Should this turn south on us we will still be locking in strong gains as our cost basis is in the low 50's. 

UNH

UNH put in quite the shakeout move on the Daily charts over the past few weeks, yet it now seems ready to resume higher. If you only look at weekly charts you wouldn't really have much to worry about here, the test of the 20 WMA and subsequent bounce is pretty standard for this stock. What a beast. 

All our stops are nicely tucked in and in fairly aggressive locations. Should the market provide another shakeout move and break lower we will be in a position to exit with preserved profits and only a couple very small losses. This is where we want to be. The ability to let winning trades run while limiting downside risk is my edge as a trader.

GL trading! -ZenTrends 

For up to date charts and ideas during the week, please follow on Stocktwits and Twitter @ZenTrends.

Weekend Review: The "Stick-Save" Market

In the spirit of the NHL playoffs I would like to draw on the analogy of a common but fortunate hockey occurrence: The Stick-Save.

While not being an avid Hockey fan I do appreciate the subtlety of the game. For most causal observers (myself included) a hockey game looks highly chaotic and random. There are big hits, wild swings and a seemingly invisible puck flying around. Yet most of the time, for the more astute fans the game hangs in the balance on every trip down the ice. Each challenge of the opposing goal could mean a win or a loss, yet more often than not a deflection or the relatively monstrous goalkeeper turns the try away.

Even when a player has the advantage and slaps a shot toward the goal, a beaten goaltender can still make a chance save by lunging his stick toward the puck. Just when things looked the worst, the goalie is able to prevent the potential loss with the "stick-save". This recent bull move has had many of these very same stick-save moments.

Just when the Bears think the top is finally in, when optimism has reached its peak and the Bulls have just been juked out of their skates, the market wings out its stick for the save. We saw this action not only in the major Indexes, but also in many individual stocks.

SP500 Daily chart

Monday morning saw a gap higher open that ran right into the resistance zone at 2,120. Tuesday saw a sharp reversal away from the highs and Wednesday was following through with a lower swing low. Not only did price make a new 20-Day low, but it did so on higher than normal volume and sliced the 50 DMA. A reversal from key resistance like this is textbook breakdown action. Except that right as things looked the worst for the Bulls, they stepped in at 2,068 and have taken back 50 points in two days.

We still need to see a push through 2,120 for a breakout to trigger, but a shakeout like we saw on Wednesday could be the fuel behind a new sustained move higher.

SP500 with the stick-save!

We saw similar moves early this week that violated many of our support levels only to snap right back and close above them Friday.

BA

UHN

 FB

 
Granted these aren't the prettiest charts out there right now, but the reversals that have formed at key support appear notable at least. Keep in mind that these bounces could fail and we may get exit signals next week. We will just take it one week at a time, for now we survive and move on.

XLF Gives Bears Heck

 Financials (XLF)

 A major Bear justification of why this market is doomed has to do with the "wrong" sectors leading at the later stage of the Bull run. The arguement was that only the Defensive groups were showing Relative Strength: XLV, XLU, XLP. While the offensive groups were lagging, mainly Financials.

We have seen XLY and XLK lead recently and provide fuel to keep the market afloat. Even Energy pitched in over the last month. But if this market is really going to have some movement behind it, I believe the Financials need to take the baton and run for a while.

XLF has been a relative laggard since July 2013. Yes the sector has managed to trade higher, but it did so at a slower rate than the rest of the market. It has spent the better part of the last 6 months coiling in a narrowing range between $25 and $23. As this triangle formation has moved toward its apex, trading volumes have begun to dry up as equilibrium is being found in the supply and demand.

From periods of compressed volatility come expansions in one direction or the other. In fact the range since mid-March hasn't been larger than 2% from support to resistance. However Thursday and Friday's action moved over 2.5% to the upside. This move also occurred on higher than average volume.

In my opinion there is a lot to like from the Financial space currently. Many names have consolidated recent gains and are either breaking out now or setting up for moves off of support bases. Insurers, Money Centers, Regional Banks. You can find winners in each group. Here are the names I have exposure to accross my accounts:

GS, AIG, WFC
HOMB, ISBC, BOFI, SIVB, RDN

Other names of interest include:

SBNY, AGO, OZRK, BLMT, WIBC, COWN

Lg-Cap Portfolio Updated Trailing Stops

AAPL 123.25
AIG     54
BA      143
BMY    58.75
CSCO  26.35
DIS      102.88
FB        78
GILD    97.70
GS       182.70
HON    100.44
PCG     51.38
SBUX   45.70
TWX     81.60
UNH     112.45
WFC     53.29

So far this market continues to behave consistently with the pattern of buyers supporting stocks on any dips. While there will be much discussion on to what Friday's bounce back really means, our focus needs to be on the current long-term trend in place as well as the trading range the major Indexes find themselves in. Until the pattern of buy every dip fails we have to assume this market just zooms back to new highs. That has been the playbook since 2013 and the signs are still in place suggesting a similar environment.

We have low volatility (measured by VIX), bearish sentiment around future prices, and accommodating global central bankers. That is the recipe for higher market prices in a nutshell.

GL trading! Follow on Stocktwits and Twitter @ZenTrends for updated charts and information. 

Protecting Your Mental Capital

As traders we think in terms of gains and losses, the monetary end of the game. Is my account equity more than it was last month, quarter, year? Often however we overlook our "mental capital". Trading well requires a high level of confidence and discipline. If you aren't confident in your strategy, you will not have the discipline to execute the signals without letting your emotions interfere. This is very important. We need to protect our mental or emotional capital to have lasting success in the market.

I had a tough week in the markets. Our Large-Cap portfolio did just fine, it was my Growth Portfolio that took a beating. I don't often discuss my Growth Portfolio on the blog, but this week I need to work through some things.

Growth stocks have inherently more volatility than the Blue-Chip companies. The increased volatility is especially exaggerated on earnings announcements. This week I had negative reactions in FB, RDN, ICLR, HAR, and TYPE. Those stocks made up roughly half of my growth portfolio. ICLR dropped -10% on Tuesday, HAR initially fell -16% Thursday morning but closed down -8%, and TYPE dropped 15% on Friday closing at the lows. Roughly 1/3 of my portfolio dropped over 10% this week. I don't care who you are, you feel the cumulative effect of those beatings.

Despite the emotions involved with the heightened volatility this week, I executed my plan and took the exit signals when they presented themselves.

Volatility happens in the stock market, it impacts our individual positions and overall account equity. When we are losing money it can be painful, both financially AND emotionally. This is why eliminating losing trades quickly is so vital to our survival in the markets. Nobody likes to be wrong, especially when being wrong costs money. But letting a small manageable loss turn into a huge loss can be more damaging than just on a monetary level.

To trade our best and to execute our systems properly we need to be confident in our ability to read the market signals. Big open losses can alter the way we view things and exaggerate our bias.

It is imperative that we stick to our predetermined plans for all trades we enter. These "plans" made in a clear/rational mindset are in place to make sure our losses stay small and within our risk boundaries. When a position gaps against you it is most important to continue to execute your plan despite the rapid change of character.

Getting stuck in a large losing trade not only ties up capital that could be used for buying new market leaders, but it creates a drag on our emotions. The natural reactions to these events are: "it will come back", or "I'll just hold on until I'm even", or even worse "its cheap, I'll buy some more".

If you react this way and change your plan after the fact, you set yourself up for a massive downward spiral. Keeping your emotional capital intact is one of the most important aspects of successful investing. Shedding losses early allows you to move forward with a clear head and approach the next opportunity from a position of strength. If you allow that loss to fester and grow, your account will continue to under perform and you will become emotionally attached to your losing trade. 

By cutting my losses quickly this week and continuing to run my winning positions, my Portfolio only suffered a -2% drawdown overall. Considering TYPE had the worst trading day ever in its history Friday and half of my holdings had negative reactions, I feel like I got out relatively unscathed.

This has been the most ruthless earnings season I can remember in the last 5 years. My strategy was able to withstand quite a lot and came out the other side ready with new cash to deploy into the next potential market leaders.

I followed my plan and have been able to preserve my mental capital.

--Our Lg-Cap Portfolio had no exits this week and we will be adding two new holdings. We discussed last week how we parted ways with a few lagging positions so if new opportunities presented themselves we would be able to act on them. Well we in fact had new signals emerge in GILD and AIG. Lets take a look:

Entering Gilead Sciences (GILD)

Gilead has been on our watchlist recently and this week gave us our signal to enter. In a market environment that has been slaughtering companies on the announcement of their earnings reports, GILD rallied 4.5% on Friday after posting another strong quarter.

Price has made new 10-week and 50-Day highs, with long-term moving averages stacked and rising. Our indicators suggest that the long-term trend is intact and may now be resuming after a 9 month consolidation. 

Our initial stops will be placed at 97.70, below the swing low and where the 50 WMA is sitting. 

Entering AIG (AIG)

AIG appears poised to resume higher after a year long consolidation. They announced earnings late last week and posted a strong quarter. Most importantly the reaction to the report was positive, confirming the recent breakout with a higher weekly closing high.

Our indicators are in the preferred posture and initial stops will be placed below the $54 swing low.

Trailing stops tested

We had three holdings come down to test our trailing stop levels. Fortunately Friday's bounce helped all three hold above those levels.


UNH

BA

FB

By most metrics I use, the market appears destined to resume higher. Prior leading stocks are now testing support levels while breadth continues to improve. The rotation into Energy names recently has strengthened the underlying trend for the SP500, and it has also allowed some of the leading stocks a chance to consolidate. If the market wants to push higher I feel it is about to do so very soon. Either we see a push through new highs or we will see major rollovers in many of the leaders of this bull market.

The next few weeks will tell us a lot. Good Luck!