Momentum Stocks

Last night's post Dow Closes Red for 2014, SPX Makes it Back to VWAP had a Breadth chart, it's a Worden T2 series chart which uses the NYSE stocks to gauge breadth. I love breadth charts because they don't lie, there's no interpretation (except forward looking), they give you the facts as they are.

This chart's ticker is T2112 and this is what it looked like as of last night....

There are 3 categories in this form of breadth chart that Worden tracks with their T2 indicators as that's what this is, a breadth indicator; they are the #1) Percentage of All NYSE stocks trading above their 40-day moving average #2) Percentage of All NYSE stocks trading One Standard Deviation above their 40-day moving average and #3) Percentage of All NYSE stocks trading Two Standard Deviations above their 40-day moving average.

The last one, #3 are typically momentum stocks like PCLN, NFLX, TSLA, etc. These stocks are the ones featured in the chart above, they were trading at 30% in March, that's down from their typical 42% and as of last night, there were only 10% trading 2 SD's above their 40-day moving average, what this tells us is that momentum stocks have taken it on the chin very hard over the last two months.

It's only natural that these stocks are the ones to lead a bounce, the kind we are looking at in today's data as posted earlier, EOD Market Update.

So, if we are to look at any hitch-hiking longs, the obvious place to look would be among momentum stocks that have been beaten down. I may post some more, but taking a look around at some of the usual suspects, I have found some 3C signals that are outperforming the broad market averages, thus rather than trade something like SPY long on a hitch-hicking long, I may prefer a momentum stock.

Here are a few examples and if we get a decent pullback that looks like a high probability, low risk entry, then these might be some of our best options.

 AMZN has been on my radar, I've been watching it the last several days and I'm starting to like what I see for a short duration long trade that follows a market bounce as it seems we are setting up for, likely with USD/JPY leading the way once again and taking what would likely be a last shot at $102. This 15 min chart of AMZN with a positive divegrence shows much better relative underlying strength than the broad market which are largely at 5 min positive divergences.

AMZN's intraday chart looks similar to the 3 min charts of the market averages posted in the  EOD Market Update , suggesting a near term pullback that can serve two purposes, 1) allow us a better entry at lower risk and 2) allow final confirmation that a pullback was accumulated as this would give us very high probabilities that we are very near the bounce I have been talking about.

Since the market has the most directional influence on any given stock (about 2/3rds of a stock's direction is determined by the overall direction of the market) followed second by Industry group performance, a pullback in the market would most likely cause a pullback in any of the following equities, giving us some good choices.


FB has a nice looking 15 min chart that is out-performing the broad market's underlying (3C) trends.

FB 3 min, is not even really in much need of a pullback so this would be on the list, as any pullback would just make the position more favorable.

 PCLN 5 min probably wouldn't be my first choice, but I wanted to show it as it is among the group of momentum stocks.

SCTY I looked at pretty closely today and it too would be a candidate.

I'll likely go through my momo watchlist and pull some other names out that may be interesting,  however don't forget that these are for short duration, "Hitch-hiking" (meaning to follow the market or draft it) trades.