Tuesday, June 23, 2015

The Funnel Returns: $IBB and $XBI Survive


Where I Always Start


I spent the weekend refining my watch list by using my funnel method.  Healthcare ($XLV) and Technology ($XLK) are the leading sectors so that's where I focused all of my attention.  I started with over 200 growth stocks that showed great fundamentals and strong technicals but after applying my must haves,  I ended up with just 9 stocks worth a further review! 


In the middle of my funnel I eliminate stocks that have an impending earnings report or any sort of upcoming government action (like an FDA approval).  Given that all 9 stocks had a red flag, nothing made it through to the watch list and trade plan stage. 


Is My Process Too Strict?


If my stock selection process can't generate a single stock, you may think that it's just too strict.  You'd be right, my process is strict - but it's on purpose!  In a strong market, I typically only take 1 position at a time so I need that position to be a real rock star. If I can't find that A+ student I play a game of wait and see.  

According to IBD®, the market is in a Confirmed Uptrend but I'm still bearish. There are 12 distribution days and 2 additional stall days (I consider stalls to be distribution days too) so that is keeping me extra cautious.  One positive I'm seeing across $SPY, $QQQ, and $DJX is that all the three exponential moving averages (EMA) 8, 21 and 34 are all touching the 50 day simple moving average (SMA).  The last time this happened was on April 7th 2015 and the market took off for a 2% gain over the next 8 weeks. 

Still, I will wait for two days to get a confirmation.  For me, that confirmation would be $SPY pushing through major resistance at 213 and $QQQ passing its resistance of 111.  I also need to see volume 15% higher than what we had on Friday.


Consider Healthcare ETF's



Even though my process didn't produce a stock for me to take a position on, there are still ways to make money this week.  There are a number of stocks in Healthcare that are strong and showing growth.  Using a health care ETF is one way to participate in this leading sector. The ones I am considering are:

$IBB
$XBI

Vacation!


I'm in vacation mode right now, kicking off a trip to Europe for the next few weeks.  I'm still available if you have questions or comments though!

Happy Trading!

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