We came into the week heavily Long and we enter the weekend in a similar posture.
Short-term accounts were 80% invested heading into this past week and are currently 85% Long, although we did some adjusting and took advantage of a couple opportunities that came our way.
Longer-term accounts were invested 90% coming into this past week and are in about the same position as they were, but with a couple new moves.
In the very near term the markets are extended, everyone and their Mother knows that. However the price action (in our holdings at least) remains pointed north with constructive consolidations later in the week.
TWTR
Twitter continues to work off supply in the 18 area. The trend remains solid and an orderly consolidation has formed once again.
SHW
SHW
Sherwin has made a swift move to its prior all-time high and used the past few days to work sideways. This is still a positive structure for continuation.
SCTY
I've been buying SCTY as a spec trade following the recent buyout rumors from Tesla. The short-term action continues to coil and press against the high end of the range.
Friday's move through 24.80 is a good start as the stock could pop once it breaks through resistance. I like this position as it seems to have a strong "buyout put" providing underlying support for the stock.
ACIA
I've had a position in this recent hot trade and on Thursday it gave us the chance to beef up our size for a quick move.
Thursday created a nice tight flag following its bounce on Wednesday afternoon and the stock popped to the upside. Friday morning offered us some strength to scale back this aggressive play and we booked a nice gain on the opening gap up.
FONR
FONR has been on fire recently and we have been participating. Following our quick trade in ACIA, this stock gave us a similar setup and we rolled the proceeds from ACIA to add to FONR Longs Friday morning.
While the stock closed off its intra-day highs it is still in a constructive posture for more upside and we remain in our aggressive swing position. Honestly the way it closed the day we will add again on this little flag if it resumes Monday morning.
With these continuation trades we can keep going back in on any viable consolidation. They are the gift that keeps giving (until they don't) and should be treated as such until the momentum changes. For now it remains in place.
Trimmed TSN into resistance
TSN has been a smoker since our aggressive swing entry following the downtrend breakout. It is now right into its prior highs after a very impressive run. While it appears this could still press higher, my plan was to reduce some exposure into this resistance level and reevaluate once we see how it behaves up here. We did that on Friday. I took my standard 1/3 position off and will see what comes of it.
Any time we reduce a winning position we also want to be sure we continue to hold a portion as we never know when a trend will come to an end. Leaving a "runner" portion is a very good way to continue to participate in further upside while acknowledging more rough sledding could be in store over the short-term.
You'll never see me blow completely out of a position that's moving in my favor.
It's always best to let the trade run and wait for the market to prove the trend has in fact come to an end.
Lg-Cap Add/Subtraction
-Reduced 1/3 GE into next week's ER, following swing add and target capture.
GE has been on an impressive tear the last few weeks and now is smack into major overhead resistance from before the Financial Crisis. I added shares following the weekly trend signal on 6/12 . We decided to take 1/3 off and run the remaining holding which is an overweight holding. Half of the position will use a weekly stop at 29.79 and the rest on a Monthly close below 27.10.
+Added to CVX
While we reduced some excess exposure in GE, we ended up rolling the proceeds right into a new add for our long-term CVX position.
Following a 12-week flag into the rising 20 Week SMA, CVX popped through the highs and resumed its trend. On this new overweight portion we will use a weekly close below 99.50 as our stop.
Growth Weekly
+We added a new position in CNK
+Increased current longs in TXRH and trailed stops
While my intuition and rationality told me to scale back risk this week, price action told a different story. So I did the uncomfortable thing and ended up adding net exposure rather than reducing it. As Charles Kirk said in last week's weekend report to members:
"Remember, the market is not there to make you feel nice and comfortable. If you seek out comfort, you will not succeed in trading. By nature, we must train ourselves to seek out discomfort as that is where the opportunities to profit most always reside. Always keep this rule in the back of your brain."
In my mind the comfortable thing to do right here is to sell half of everything I have. Take some profits on very strong trades we have had over the past year, reduce some of the winners and wait for the next pullback to buy them back cheaper. De-risk is what's "safe" at this point. But the market rarely rewards safe and secure. Especially when it moves above a 2-year trading range and then sees zero selling, blasting to new highs in a relentless vertical ascent.
So you must ask yourself, what makes the most sense right here? What do I think should happen next? What feels the most comfortable course of action?
Some key things to realize:
-If you are looking for logic and for moves to "make sense", the market is the wrong place for you.
-You don't need to know what is going to happen next to prepare and manage your risk.
-The comfortable trade right now is to wait for the pullback to buy in.
-If you sell now the thinking is all you have to do is just wait for the market to hand you a gift. Easy right?
What's the hard thing to do right now? I think it is to simply stick with your trades, to continue to let them run in the face of the looming correction. The market always wants to lull us into a pattern. The pattern for the last two years has been on any breakout, SELL IT and run for the hills because a sharp decline was coming. We saw two double digit corrections between August and February. Also don't forget the September 2014 minor new high that immediately led to a 10% correction over the next 4-weeks.
These events are fresh in our minds. The market has programmed us to sell any strength, especially a breakout attempt. It has told us to just buy all dips with reckless abandon. So this is what we want to do. The market shows strength moving to new highs, but we all know how this story ends. Its going to drop hard and we can all pile in near the lows. Right...
This is exactly why trend-following works; Traders play for the reversion trade (because its worked before), but instead of reverting back to the prior range like the last 3 or 4 times, it just smokes higher. As prices rise managers get nervous because their funds are now under-performing the S&P and they have to do something to keep up. They press more risky bets to make up ground and that fuels offensive sector rotation, similar to what we have seen the past two weeks: Materials +10%, Financials +10%, XLI +11%, XLK +9%, XLY +9%, XLU +2.5%. That is a major offensive rotation, especially considering the SP500 is up +8%. The right groups are leading the advance.
To think this is just some garden variety rally within a bear market or trading range is missing the clues on display. This isn't a valuation thing, it has nothing to do with the economy or presidential elections. This is strictly a market breakout following a strongly negative sentiment period and 2-year low return environment.
And now its resuming higher. I feel strongly about this. But I'm always open to the opposite scenario occurring as well. We always have to keep that chance in perspective. Because if the market does in fact plunge we need to have a plan in place to account for that risk change. For now that key level remains the 1990-2000 support area on the S&P. If that were to fail to hold on any reversal attempt we would need to rethink the bullish thesis. For now we are in breakout mode. Regardless of whether we feel we should be pressing bets here, the price action continues to tell us the trend and momentum remain intact. It is in our best interests to follow what the action suggests. When that changes we will adjust, but for now we hold on for dear life.
"Remember, the market is not there to make you feel nice and comfortable. If you seek out comfort, you will not succeed in trading. By nature, we must train ourselves to seek out discomfort as that is where the opportunities to profit most always reside. Always keep this rule in the back of your brain."
In my mind the comfortable thing to do right here is to sell half of everything I have. Take some profits on very strong trades we have had over the past year, reduce some of the winners and wait for the next pullback to buy them back cheaper. De-risk is what's "safe" at this point. But the market rarely rewards safe and secure. Especially when it moves above a 2-year trading range and then sees zero selling, blasting to new highs in a relentless vertical ascent.
So you must ask yourself, what makes the most sense right here? What do I think should happen next? What feels the most comfortable course of action?
Some key things to realize:
-If you are looking for logic and for moves to "make sense", the market is the wrong place for you.
-You don't need to know what is going to happen next to prepare and manage your risk.
-The comfortable trade right now is to wait for the pullback to buy in.
-If you sell now the thinking is all you have to do is just wait for the market to hand you a gift. Easy right?
What's the hard thing to do right now? I think it is to simply stick with your trades, to continue to let them run in the face of the looming correction. The market always wants to lull us into a pattern. The pattern for the last two years has been on any breakout, SELL IT and run for the hills because a sharp decline was coming. We saw two double digit corrections between August and February. Also don't forget the September 2014 minor new high that immediately led to a 10% correction over the next 4-weeks.
These events are fresh in our minds. The market has programmed us to sell any strength, especially a breakout attempt. It has told us to just buy all dips with reckless abandon. So this is what we want to do. The market shows strength moving to new highs, but we all know how this story ends. Its going to drop hard and we can all pile in near the lows. Right...
This is exactly why trend-following works; Traders play for the reversion trade (because its worked before), but instead of reverting back to the prior range like the last 3 or 4 times, it just smokes higher. As prices rise managers get nervous because their funds are now under-performing the S&P and they have to do something to keep up. They press more risky bets to make up ground and that fuels offensive sector rotation, similar to what we have seen the past two weeks: Materials +10%, Financials +10%, XLI +11%, XLK +9%, XLY +9%, XLU +2.5%. That is a major offensive rotation, especially considering the SP500 is up +8%. The right groups are leading the advance.
To think this is just some garden variety rally within a bear market or trading range is missing the clues on display. This isn't a valuation thing, it has nothing to do with the economy or presidential elections. This is strictly a market breakout following a strongly negative sentiment period and 2-year low return environment.
And now its resuming higher. I feel strongly about this. But I'm always open to the opposite scenario occurring as well. We always have to keep that chance in perspective. Because if the market does in fact plunge we need to have a plan in place to account for that risk change. For now that key level remains the 1990-2000 support area on the S&P. If that were to fail to hold on any reversal attempt we would need to rethink the bullish thesis. For now we are in breakout mode. Regardless of whether we feel we should be pressing bets here, the price action continues to tell us the trend and momentum remain intact. It is in our best interests to follow what the action suggests. When that changes we will adjust, but for now we hold on for dear life.
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