Has The Storm Passed?
After the pain and volatility at the end of March, it was great to see a positive trend in the market last week. The three major indices that I track every day ($SPY $QQQ and $DJX) showed some positive price movements in a very tight and disciplined way. The 8 day, 21day, and 34 day exponential moving averages (EMA) have been kissing each other since early last Monday. All of these three EMA’s have merged and are slowly but methodically moving up. The last piece of the puzzle is volume from the institutions. To propel these indices through a major resistance ceiling, it's going to take an influx in volume from the big dogs. If $SPY, $QQQ and $DJX continue on the path from last week and institutions come in huge volume, it will be time to establish bullish stock positions. This is why it's important to close out a losing position and harvest profits on your winners. If you're trading like me then you've kept your powder dry for the last 2 weeks and have capital available for this opportunity.
Use Institutions To Your Advantage!
I often mention that traders and investors alike should always pay close attention to the behavior of institutions. There are many reasons to do this but here are just a few
- Institutions hedge their positions and control tremendous resources
- Their success depends on them being right so they use their resources to gather up the best minds and data available
- Given the size of the positions they take, it's hard for them to hide the moves they make. There will always be a trail of bread crumbs even on their most subtle moves.
- They will rotate in and out of the different ETF sectors and you can actually detect this behavior on charts, if you know what to look for.
As a growth stock trader, everything I listed above has an impact on my trade planning so I like I take my lead from institutions. In particular, I work in the sectors they're focused on so that I can keep the odds in my favor.
Which Sectors Are Up?
With that being said, institutions seem to be focused on Health Care ($XLV) and Consumer Discretionary ($XLY) right now. I am only looking at stocks which are trading close to their 8 day EMA. Earnings are also a variable I like to remove from the equation so I eliminate stocks that have their earnings reports due in the next couple of weeks. Here are 3 stocks that meet my strict criteria:
$MNK
$PANW
$CCL
My low risk approach means that I am looking for the $SPY to punch through major ceiling of 213, with QQQ punching through 109. It is best if these resistance lines make their move in high volume. I'm waiting to make a move until the market presents itself with these conditions!
Happy trading!
Amin
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