Friday the S&P/SPY was technically called a one-day key reversal. In Candlestick vernacular it would be called a piercing pattern, for all intents and purposes they are the same thing, a reversal pattern. Remember, reversal patterns need to be confirmed with follow through and it's not unusual for the market to close on Monday in the same direction as FRiday.
The S&P 500 saw increasing volume. The Dow did not qualify for a true piercing pattern, but did dee rising price and volume-bullish. The NASDAQ 100 qualified for piercing status but volumr fell off slightly-which is s bearish P/V relationship, but it wasn't a huge difference. Same story for the NASDAQ Composite. I prefer all 3 or 4 majors confirm together, it's a more solid foundation especially at a critical moment like a market reversal.
The SPY/S&P may have outperformed due to financials strength. XLF put in a full strength bullish engulfing pattern-stronger than a piercing pattern, but again volume fell off. But is it enough to look at the dailt volume itself and make judgements? Not always. It's obvious on these charts and the XLF chart that volume fell off into the rallies, it picked up at the deline bottoms and at the lows of the day, which ordinarily would be bearish to me, but in this case, knowing and seeing what we have seen, I think we are seeing accumulation-now out in the open, on the dips. So perhaps the daily P/V relationship isn't as meaningful as usual. The other observation would be the fact that they are now accumulating in the full view of the public, which as I mentioned last week suggests that they are ready to take this market higher and then we get reversal days in the majors. The strength in financials would also explain the relative strength in the S&P as it is more heavily weighted with financials then any of the others.
So if you are not in already how do you play this? OR if you are in, how do you play this. At this point nearly every chart I see has a positive divergence suggesting upside in the near term, so what to pick? I told you last week to use the Ultra/3x bull ETFs and to have broad market exposure through an index and exposure in financials, if you have that, then you should be fine. I like the ETFs in this situation because they are not as sensitive to individual news events and they can be heavily leveraged.
I think continued upside early in the week is a strong possibility, but do we want to use the ETFs or the individual stocks? MAPP is a strong looking chart, it has a bullish engulfing candle, rising volume, huge spikes near the close when Wall Street trades and 3C q-min suggests early upside Monday. The target is about $17.00 so that is about a 22% gain, not bad. Using the same target criteria, but this time using FAS (1 3x leveraged long on financials), I come up with 21%-the same for all intents and purposes. The only real differences (besides the 1-day target on most ETFs-which can work to your advantage occasionally) and the market specific news, would be the volume. FAS is averaging about 85,901,100 shares a day over the last 50 days. Whereas MAPP is averaging about 153,00 shares over the last 50 days. So you have to consider how big you are trading, the spread and slippage. Also I consider what market they trade in, MAPP trades over the NASDAQ-and so long as you are not using level II (unless you know every player on there and what their tricks are), I have no problems with the NASDAQ. FAS is trading on the NYSE-not my favorite exchange. Why? First because I've seen significant profits erode because I couldn't sell my profitable SKF position because the Specialist had not opened the SKF market (and it was a fast moving market that morning). Also there is the discretionary opening price which is chosen by the specialist, whereas issues trading on the NASDAQ have their opening price dictated by actual supply/demand. Does this so far sway me one way or the other? No. I point out these issues because your trading is different than mine and maybe these issues will sway you. I also have a general disgust with the NYSE, many day traders won't trade the NYSE at all due to ongoing corruption issues, at least in their opinions. These issues could include things like front-running-”Oh but times are different?” yes they are, but some things aren't.
When considering shorts, which we will be back to adding shortly, you must consider the fact that the inverse ETFs do not put money in your account that you can use as they become more profitable-you need to close them like any other long to gain access to the gains, whereas a true short on a stock will put money in your account and allow you to use it without closing the position, read my article on Trade Guild “Making More Than 100% in a Short” and you'll understand.
OK, now that you understand those issues and you know what ETFs I recommended, lets take a look at individual stocks and what I'm going to do is look at Friday's gain for all 228 Industry groups through Morningstar and choose 5 of the top performers.
Copper +5.44%
Steel and Iron +5.29%
Industrial Metal and Minerals +5.19%
REIT/Hotel/Motel (condominium...-just an inside joke) +5.06%
Aluminum +4.51%
Problem? If you have read WOWS for any amount of time exceeding 3 days you will know that I always say not to “over-diversify” as it kills returns, but more importantly not to trade any two individual issues (unless you split them as if they were 1 position) in closely correlated industries. With the exception of the REIT, we are heavily correlated so I'm choosing Industrial Metals and Minerals because there is a larger pool of securities to choose from-this is 1 group. Group 2 will be REITS, based on financials strength on Friday, I'm choosing Financial Diversified Investment for Group #3 because they are in the top 10 best performers for Friday and there are 441 securities to chose from (and yes I will look at every chart, now you know why I charge $50 a month). Group #4 will come from one of my scans, “Stocks closing up on rising volume by 5% or better” and Group 5 will be a scan that looks for stocks between $5 and $20 and have a BETA in the top 10% of the market. I'll also weed-out stocks trading less than 200,000 shares a day. These are stocks that have the highest probability of making large gains.
While I'm not going to go through my analysis for every stock, I do want you to learn, not just get stock picks. So I looked at Groups #5 “High Beta-Scan”. I took out of the watchlist anything that traded less than 200k shares Friday. I sorted the remaining 215 stocks by Beta and the top of my list was VNDA with a BETA of 7.45, which means typically or historically might be more accurate, if the broad market measured by the SP-500 were to advance 1%, VNDA would advance 7.45%. It has a high relative price movement. I looked at the chart, it traded over 600k shares on Friday-and not on big volume, more like average. It also saw a capitulation-like event on April 29th on a huge gap down and closed down 8.84% that day on volume of 3,137,100, about a 6x volume surge. This tells me that most weak hands have been shaken out of this stock. On May 5th a huge hammer created a second shakeout as it violated all nearby support, remaining holders are in there and prickly. The gap down on Friday re-tested the low but stayed above the low by about 2%, which is a successful retest, I don't think it needed to be shaken out anymore like the rest of the market considering recent events.....
I'm going out to dinner real quick, I'll be back with the rest of tonight's analysis and ideas, but there's something to chew on....
Ok, so Here's our charts of VNDA (click the chart for a larger view to read the notes)
Here are the support levels and capitulation I mentioned.
My Trend Channel I use for objective stops also identifies reversals in trends based on a stock's recent behavior
Long-term 1-day 3C chows accumulation at the retest of the May low
The 60 min 3C chart shows confirmation of the successful retest and accumulation
More confirmation on the 15 min chart with a different version of 3C
This one minute chart shows how reliable divergences are in calling reversals, you can see the distribution at the top in red leading to a downside move and in green accumulation that has started an upside move. Based on this chart I'd guess VNDA will show strength right our of the gate Monday so if you are interested, you may want to get in at the open with a market order.
So there's some of what I look at. VNDA seems to be a pretty nice setup, but you need to move quickly and take the early market price. You may want to scale into the position as we often do, you may pick up some shares at better levels, but there should also be a point in which the position is filled out as the trade moves in your favor. Off the top of my head, I might call that level $8.01, but be prepared for an intraday attempt to shakeout buyers at the whole number. Personally if that were to happen, based upon the evidence, I would hold through that sake out as it may add more fuel to the fire when the stock advances again above $8.00 on a mini short squeeze
The 3C charts for the market are suggesting morning weakness, that may be the time to purchase. However, do not let it close lower on you without exiting the position, at least partially.
The rest of the trades will be posted on the spread sheet, just click the link on the right of the post called "May List" There are more ETF ideas on the list below that at the very bottom of the spreadsheet.
*NOTE-REMEMBER, ALL LIMIT ORDERS ARE ON AN INTRADAY BASIS, ALL STOPS ARE ON A CLOSING BASIS.
THE OUTLOOK FOR TOMORROW BY THE CHARTS:
HERE'S THE DIA 10 MIN 3C CHART, THERE IS A BIT OF A TWIGHLIGHT ZONE BETWEEN THE 5 MIN AND 10 MIN CHARTS AS THE 1-5 ARE USUALLY MARKET MAKERS/SPECIALISTS, POSITIONING AND THE 10MIN IS THE SHORTEST TIMEFRAME TO SEE INSTITUTIONAL ACTIVITY. THEREFORE WE COULD HAVE ALL POSITIVE CHARTS AND A CLOSE LOWER ON A DAY LIKE MONDAY, BUT ULTIMATELY WITH IN A DAY OR TWO, WE GET THE MOVE HIGHER. I DON'T SEE THAT AS BEING AN ISSUE TOMORROW FOR SEVERAL REASONS, ONE MONDAYS TEND TO REPEAT FRIDAYS AND TWO, TO SELL THEIR ACCUMULATED INVENTORY, THEY NEED THIS RALLY TO LLOK VERY REAL, VERY CONVINCING AFTER THE BEAT DOWN THE MARKET TOOK OVER THE LAST 6 OR 7 DAYS AND BEFORE THAT. I SUSPECT THE CHANGE IN CHARACTER I MENTIONED AND DISPLAYED CHARTS OF THAT OCCURED LAST WEEK HAS SOMETHING TO DO WITH SOME IMPENDING ANNOUNCEMENT ABOUT THE 5-MIN CIRCUIT BREAKER NEWS, I FEEL SOMETHING NEWS WORTHY IS COMING SOON THAT WILL ENCOURAGE THE BULLS, BUT THEY (THE NEWSMAKERS) KNOW SOMETHING THE REST OF US DON'T AND THAT IS WHY THERE'S A NEED FOR THE CIRCUIT BREAKERS. REMEMBER, WE VIEW THIS BOUNCE AS A TACTICAL PLAY ONLY AND OUR STRATEGIC OUTLOOK IS SOLIDLY BEARISH. IN FACT WE INTEND TO USE THIS BOUNCE TO FIRM UP OUR POSITION SHORTS. BE CAREFUL NOT TO FALL INTO THE NEWS TRAP-WHATEVER IT IS, WHATEVER THIS RALLY BRINGS, WILL BE CONVINCING!
For our new members, we have a lot recently, please, please, please-read everything on Trade-guild.net regarding risk management, "Position sizing", "The 2% Rule/Video" etc. You NEVER want to take more then a 2% loss on any position and if you trade multiple positions you want to divide them up so that any losses do not exceed 2%. Don't make your initial stops too tight, don't move your stop away from the winning trade in a losing situation and don't hesitate to execute the stop on a CLOSING BASIS. Also, I never out more than 15% of my portfolio in any one position and often less-that's the only way to protect against gaps. Keep your risk management solid and you will make money, falter even once and you could lose a lot. Always RISK MANAGEMENT FIRST, ALWAYS!
HAVE A GREAT WEEK
So there's some of what I look at. VNDA seems to be a pretty nice setup, but you need to move quickly and take the early market price. You may want to scale into the position as we often do, you may pick up some shares at better levels, but there should also be a point in which the position is filled out as the trade moves in your favor. Off the top of my head, I might call that level $8.01, but be prepared for an intraday attempt to shakeout buyers at the whole number. Personally if that were to happen, based upon the evidence, I would hold through that sake out as it may add more fuel to the fire when the stock advances again above $8.00 on a mini short squeeze
The 3C charts for the market are suggesting morning weakness, that may be the time to purchase. However, do not let it close lower on you without exiting the position, at least partially.
The rest of the trades will be posted on the spread sheet, just click the link on the right of the post called "May List" There are more ETF ideas on the list below that at the very bottom of the spreadsheet.
*NOTE-REMEMBER, ALL LIMIT ORDERS ARE ON AN INTRADAY BASIS, ALL STOPS ARE ON A CLOSING BASIS.
THE OUTLOOK FOR TOMORROW BY THE CHARTS:
HERE THE SPY 1 MIN IS SHOWING WHAT APPEARS TO BE EARLY WEAKNESS, MAYBE AN ATTEMPTED SHAKEOUT THROUGH A GAP LOWER, BUT....
THE 5 MIN 3C CHART CLEARLY SHOWS STRENGTH, SO I'D THINK ANY EARLY WEAKNESS SHOULD REBOUND FAIRLY QUICKLY
HERE'S THE DIA 10 MIN 3C CHART, THERE IS A BIT OF A TWIGHLIGHT ZONE BETWEEN THE 5 MIN AND 10 MIN CHARTS AS THE 1-5 ARE USUALLY MARKET MAKERS/SPECIALISTS, POSITIONING AND THE 10MIN IS THE SHORTEST TIMEFRAME TO SEE INSTITUTIONAL ACTIVITY. THEREFORE WE COULD HAVE ALL POSITIVE CHARTS AND A CLOSE LOWER ON A DAY LIKE MONDAY, BUT ULTIMATELY WITH IN A DAY OR TWO, WE GET THE MOVE HIGHER. I DON'T SEE THAT AS BEING AN ISSUE TOMORROW FOR SEVERAL REASONS, ONE MONDAYS TEND TO REPEAT FRIDAYS AND TWO, TO SELL THEIR ACCUMULATED INVENTORY, THEY NEED THIS RALLY TO LLOK VERY REAL, VERY CONVINCING AFTER THE BEAT DOWN THE MARKET TOOK OVER THE LAST 6 OR 7 DAYS AND BEFORE THAT. I SUSPECT THE CHANGE IN CHARACTER I MENTIONED AND DISPLAYED CHARTS OF THAT OCCURED LAST WEEK HAS SOMETHING TO DO WITH SOME IMPENDING ANNOUNCEMENT ABOUT THE 5-MIN CIRCUIT BREAKER NEWS, I FEEL SOMETHING NEWS WORTHY IS COMING SOON THAT WILL ENCOURAGE THE BULLS, BUT THEY (THE NEWSMAKERS) KNOW SOMETHING THE REST OF US DON'T AND THAT IS WHY THERE'S A NEED FOR THE CIRCUIT BREAKERS. REMEMBER, WE VIEW THIS BOUNCE AS A TACTICAL PLAY ONLY AND OUR STRATEGIC OUTLOOK IS SOLIDLY BEARISH. IN FACT WE INTEND TO USE THIS BOUNCE TO FIRM UP OUR POSITION SHORTS. BE CAREFUL NOT TO FALL INTO THE NEWS TRAP-WHATEVER IT IS, WHATEVER THIS RALLY BRINGS, WILL BE CONVINCING!
For our new members, we have a lot recently, please, please, please-read everything on Trade-guild.net regarding risk management, "Position sizing", "The 2% Rule/Video" etc. You NEVER want to take more then a 2% loss on any position and if you trade multiple positions you want to divide them up so that any losses do not exceed 2%. Don't make your initial stops too tight, don't move your stop away from the winning trade in a losing situation and don't hesitate to execute the stop on a CLOSING BASIS. Also, I never out more than 15% of my portfolio in any one position and often less-that's the only way to protect against gaps. Keep your risk management solid and you will make money, falter even once and you could lose a lot. Always RISK MANAGEMENT FIRST, ALWAYS!
HAVE A GREAT WEEK
