He mentioned my poor timing in the BAC short as well so lets start there. The exact wording regarding BAC was this,
"BAC is certainly worth keeping a close eye on, this break of an 11 month trading range is very significant. A pop back above the former support would present a very interesting opportunity on the short side. "
So today BAC did something that we would hope it would do to get into a short there. If you are interested in the trade, I would probably suggest phasing into it a bit at a time as usual. Maybe 30% now, if it climbs a bit higher another 20% and then add the rest when we see the trade move in our direction which would be a break back below the level of support in the area of the $14.30's, especially if we saw a spike in intraday volume as it crossed below that level.
Typical measuring implications for a trade like this would equate to a move to roughly $8.00 and as it is a short on a security and not an ETF, you can use the profits as it moves in your favor to pyramid the position which is one way you can actually make more than 100% on a short, despite people's insistence that it is not possible to make more than 100% as the stock can only go to zero representing 100%. This is the exact opposite of averaging down which is NEVER a good idea unless you planned it that way BEFORE you entered the trade. As I have mentioned, this is one of the advantages of pure short positions on securities rather than using inverse ETFs, you just don't get the leverage the ETFs can provide.
The chart I provided last night shows that the stock appears to be under extreme distribution, that is likely what occurred during the 11 months of lateral movement (trading range) while the rest of the market rallied. However, I would be remiss if I did not warn you of another trick Wall Street loves to pull. They break a trading range down below support, suck in shorts and then bring it back above that broken support causing a short squeeze and the stock moves higher. In part, I suspect that is what happened today, thus the nice gain. The question is, "What happens now" and 3C indicates the stock is in trouble. Because the market still has some potential upside, BAC does as well, thus we scale into positions to get better placement, but also secure a position.
So the question for BAC is where is it going and the market and here is my interpretation of what I see thus far:
Nearly every intraday timeframe in BAC is positively divergent, this suggests that this bounce may be more than a one or two day event. If I was in charge of manipulating this stock and if I was the market maker (who gets paid on the bid/ask spread so the more volume, the more bacon you take home) my plan (the market needs to cooperate for this to happen or at least to make it easier to happen) would be to shoot for a breakout of the upper trend line at $19.86, really I'd shoot to cross $20 as people LOVE to put their orders in at whole numbers. Now that's a long way to go, but BAC did gain 4.62% (which is a little bit of underperformance relative to the market judging by its BETA of 2.57%; at that BETA BAC theoretically should have hit an 8 gain today) which is still respectable.
$16 could also do the trick, it's another whole number and would change the trend characterization from down to up on a short term basis as it would have made higher high. I think that is more reasonable at this time. So do we want to be heavily short BAC right now? No. But get our toes wet? Possibly, yes.
There's a slight negative 1 min 3C divergence which has nothing to do with BAC, because it is the same as we see in the SPY. Remember, the greatest gravitational pull on a stock will almost always be the market, the market's move will account for about 60% of an individual stock's move. Lesson there.... Spend more time analyzing the market then your stock picks. Then spend time analyzing the industry groups , finally .... pick a stock.
So this is the way I would play it, I would use my risk management and allow for a wide stop which means I take on fewer shares and only a 20-30% position size of my intended position. Then when the negative divergences start lining up (and if I don't update, just email me and I'll tell you), I'd start adding more. Finally when BAC or if BAC breaks below $14.45 level on volume, I add the rest of the position. That is part of risk management strategy.
So now for the market, today it was a bit touchy at the neckline as that was one possible target although as you know I felt the move would be higher and into the gap. The S&P 500 made it into that gap today and on expanding volume-good show! Overall the price/volume relationship was mixed from average to average but the two dominant ones were Price up and volume up and the second was price down and volume down. If I had to say who won, I'd go with Price Up and Volume Down but they were so close that I can't draw any insight from them except to say that this is an oversold bounce and it looks to have some steam still left in it. In fact I'm surprised, but things change fast. Lets look at the objective data.
The final red arrow at the end of the day suggests that we see some probable weakness in the a.m. If I was day trading or short term swing trading, I'd have taken my profit and look for weakness tomorrow to re-enter a long play.
This is a 10 min 4C-remember the longer timeframes always signify the bigger picture and this is where I start getting comfortable saying "this is an oversold bounce not a renewed rally that'll make new highs. A few points of interest, the first negative divergence at the first test of resistance that led to a downside reversal (far left). Then in blue in the middle, our positive divergence and call for the bounce. The next red arrow-the "sketchy area" that was a bit of a question earlier. Finally, from this a.m, to the close, 4C is moving down while the trend in price is up=negative divergence=smart money selling into demand. The last little blue arrow shows that there should be some more upside before this is over as we just saw in the last chart.
Bottom line, today was a strong day, a much needed bounce and an opportunity for institutional money to do what they do best, deceive and take other people's money. The temporary hold up at resistance (sketchy area) broke out to the upside as I suspected it would in my analysis last night. What happened here was shorts jumped in thinking this would be resistance and turn the market down. The accelerated uptrend after that is those shorts at a loss and they are covering, the higher price goes, the bigger their loss (we are talking about short term traders, this isn't anything we are concerned with). There will be some shorts still in there, the market moves higher, they will cover which will move the market higher-this is a mini "short squeeze" and exactly what I expected last night.
So if you are adding shorts, phase into them slowly, when we get real negative divergence and impending reversal, then we add more, when we break that red trendline drawn horizontally, we add the rest which should be another 50% or the last 50% of your intended short position. I still advocate keeping at least 25% cash on hand. For those of you who have been here a while and already built your short position, this is why we keep that 25% cash, to play the long bounce and make some extra money, it also allows you to hedge a bit if you are the nervous type. So you can do as you wish, but you may want to listen to the updates and that call "Go for it" when I see the timeframes all line up negative, that is reversal time.
Everything I said above applies to BAC at the moment, I'll let you know if it changes.
Real quick for those in AMPL, this is looking like a trade that has the potential to be a trender, which is unusual for a low priced stock like this, they usually have 2 day pops, however, through some Bollinger Bands on it and look how the volatility has dies down and the volume too, this is a typical precursor to the breakout. A word of warning, it's an obvious pattern, watch for intraday shakeouts below the triangle support around $1.45, they already did it once, they may do it gain because it adds the fuel to propel it higher and allows them a last chance grab at cheap shares, this is why I prefer a wider stop and try to never close a position intraday, only toward the close of trading. The first upside target would be $1.80-$1.85. If it trends, who knows, it could be a lot higher but this is a speculative trade, don't bet the farm on it and have a mental stop before you enter. Mine would be at $1.40 or a tiny bit below-$1.38? The daily chart on this one is very impressive.
As far as a pullback if you are intraday trading, the Q's look like they'll pullback the most or earliest. Again, when that positive divergence kicks in, QLD could make for a nice day trade or two day trade possibly.
As for the bigger picture, when/if the SPY moves into the gap toward $107.50, check in here and lets see what 3C is saying.
I want to mention something else you want to look at. The QQQQ trades differently then the NASDAQ 100, although it is meant to track it's one day returns, volume is different. Often you can get a feel for what traders are thinking by comparing the volume and performance of the index vs. the indexes ETF. For example, today the SP-500 traded up on volume, the SPY traded down on volume. It's not a huge thing, but it is a piece of the puzzle and we want to fit as many pieces as we can. Notice I ALWAYS use the ETF for 3C analysis, why? Because it gives better, faster, more reliable signals then do the underlying averages.
A Few trades to look at.
Peter Worden's TSV has XLNX (LONG) in a positive divergence, so does 3C. It traded up well today, tomorrow it is more likely than not that it will see upside follow through. You could jump in on the open, set a stop that is tight, perhaps below today's close and see if this thing breaks out above $27, if so, it should keep moving higher. PLEASE DO NOT neglect risk management, position sizing, stops, etc. It only takes one bad trade to do months worth of damage. Slow and steady wind the race, not swinging for the fences.
UNG (LONG) managed to hang on at the 50 day moving average, it also put in a very nice 1, 5, and 10 minute set of positive divergences. I personally would try that trade on the open, the 50 is obviously an important support level so a break of 2-3% below it would make for a reasonable stop, it would also coincide with support from a tweezer bottom on 6/29-6/30.
GGP (LONG) I'm pretty impressed with this one. The stop would be $12.19 so you must position size this for no more than a 1% loss as it doesn't have a lot of trading history. However, the technical pattern is a double bottom, volume is skewed but it is there and correct for the pattern. The target off a double bottom is approximately $18 which puts it into new highs/blue sky-no overhead resistance it could fly-like my rhyme? What textbooks teach you about double bottoms is pretty much wrong. The second test , now-a-days, is almost always a shakeout and it occurs right before the move starts. Yesterday it pulled the shakeout, today the move started. If you can manage the risk aspect I would look for an entry either off the open or on a slight pullback or mix it. You can also phase into it to reduce risk. Don't get greedy, slow and steady.
That's it for tonight. I want you to know when this thing breaks down in the SPY, I have been compiling a list of equity shorts that look fantastic, there's no point in giving them out yet as they are not ready for entry, but be prepared to get a list of 20_ stocks soon. Start looking at your market coverage, what industry groups you have covered and where you might want to add them, that will help you narrow down your potential trades on such a big list.
One last thought, do not buy into the "well diversified portfolio of 20+ stocks", it's a Wall Street scam to 1) create more commissions, more money on the bid/ask spread and to justify the use of so many stocks in a mutual fund as they are required by law to have at least 20 stocks. This pattern of "risk management" kills returns. I look at it like this, whenever I put money in the market, it is at risk, in any stock. The Housing backed products they sold were low risk right? Until they weren't anymore. So if I'm in, I'm in to win, not to "preserve wealth", not to make 7% a year, my goal is triple digit returns. You can't do that with a boatload of investments. Chew that over, if you have questions, let me know.
Watch fior the updates tomorrow, it could be very important.
