Monday, November 23, 2015

The $DOW Stalls - Yet $QQQ Is Up 10% YTD

The $DOW Stalls - Yet $QQQ Is Up 10% YTD

We are at the same level now on the $DOW as we were on Dec 31 2014.  However, $QQQ is up by a whopping10% but the $SPY is up a mere 2%.  This is an indication to me that we are nearing the end of the 7 year bull cycle that started in March of 2009.  The last several months have been driven by the Technology, Health Care and Consumer discretionary segments of the market.  All of the stimulus from the central banks of US, Japan, Euro Zone and China has no effect on the earnings or sales of publicly traded companies.

We are nearing the end of third quarter earnings season.  The retail sector as well restaurants have done very poorly in the third quarter.  Energy and the Industrial sectors are still the worst performers year to date.  There are, however, opportunities to invest and trade stocks that are in the Technology and Consumer discretionary sectors.

A Traditionally Bullish Week

Traditionally, the week of Thanksgiving starts a bullish run in the market.  This is a short week too so the market could just keep the momentum from last week and take off on Monday morning.  Thanksgiving week momentum usually keeps the pace for the following six weeks until the end of the year.  Last week, all the three major indices, $SPY, $DJX and $QQQ lead the market with a +3.5 %.  Last year November was the best month of the year too.  Since $QQQ index is the leading performer year to date and last month it did +11.37%, it is best to look for stocks in the Technology sector.  Also Consumer discretionary is the leading sector in the market and with $ being the strongest currency in the world, it is better to be looking at stocks that are more US centric to avoid the currency headwinds.

Stocks on My List

Although we are heading into historically the bullish time of the year, I am also cognizant of the fact that we have 12 distribution days between the $NASDAQ and $SPY.  Most of these distribution days have occurred in the month of November.  Institutions took their profits during those distribution days and last week they started investing heavily into some select names.  I have developed trading plans for the following stocks:

  • $LNKD
  • $ORLY
  • $MAS
  • $STZ
  • $CRM
  • $LUV

Some of these stocks have passed their ideal buy points so I would monitor them on Monday to see if some of them retrace to their buy point for my ideal entry.  I also have a secondary list of stocks that have a bullish set up for a low risk option trade. They are:

  • $FISV
  • $AMZN
  • $DIS
  • $HD
  • $FB
  • $ATVI
  • $RAI
  • $V
  • $TRV

If some of these names look familiar to you then you have obviously been reading my blog.  I have brought these stocks to the attention of my readers in the last couple of weeks.  These are stocks that have good fundamentals and technicals.  They are big cap stocks that trade over $100 million daily and not subject to high volatility like the thin stocks would be.  They also are very liquid with a tight bid/ask spread with options.  It is not a bad idea to take small positions in several stocks to take advantage of the bullish sentiments during this week. 

Have a Happy Thanksgiving and enjoy the turkey dinner with the family.

Happy Trading!

Monday, November 16, 2015

The Bulls Are Out of Breath

The Bulls Are Out of Breath

The market had a great bullish run of +10% in $SPY in six weeks since the September lows.  Last week the bulls were exhibiting signs of exhaustion and were running out of breath in their advance to punch through the ceiling of 213.34 in $SPY from mid June.  Institutions came in droves beginning of the week on Monday and by Wednesday, they had started getting rid of all retail and technology related stocks with increasing volume.

The $SPY dropped by 3% in the last 3 days of trading.  Leading sectors $XLY and $XLK that had been doing so well for the last 5 months, dropped by 5% within just a few sessions. Currently they are all trading below the 34 day ema.  It took the market several weeks to gain 10% only to lose more than a third of that gain within a week.  None of the sectors were spared last week because there are signs of lack of global demand.  Oil has begun to slide down to $40 a barrel and other commodities like copper, silver, gold and other metals use in the industrial sector are reaching their all time lows.

Conserve your portfolio

This is the time to be very defensive with your portfolio and to stay disciplined.  Cut your losses with any position that hits your loss target. Retail apparel stores really took it on the chin last week with some stores like $M, $TIF, $JWN and $DDS dropping by 15% to 18% with disappointing earnings and outlook.  Other retail related firms like $ULTA and $NKE dropped by 10%.  The retail apparel sector depend on increasing sales and earnings from back to school season to buy their merchandize for holiday sales.  They make 40% of their yearly profits in the last 6 weeks of the year.  Their disappointing sales and profits in the third quarter means that they will have less capital at their disposal to fill their stores with merchandize for holiday sales.  Outlook for the retail sector is not good and as such it is best to cut your losses and conserve your capital for the next opportunity in other leading sector.

Some of us are still licking our wounds from the deep correction we had on August 24th.  We do not want to be in that position ever again.  The market has repeatedly dropped down from 8 day ema to 34 day ema in as little as 3 to 5 sessions during minor correction of 5% to 10%.  Hoping that the position you have will recoup the losses and come back in the next couple of sessions is not a good strategy.  If the position has met its loss target than it is time to pull the plug on the position before a minor loss turns into a major one.

Positions Closed out for a Loss

The first week of November was the sixth week of the rally and the market was making rapid advances to all time highs of June on $SPY.  Last year in mid October, the market took off for the following 6 weeks in a similar manner only to take a breather by end of November.  The market moved sideways for the following several weeks after that.  I have held losing positions in the past that met their loss target for a session or two, only to have that minor loss turn into a major one.  Last Friday I closed out my debit spread option position on $ORLY for a loss because the stock dropped to the loss threshold on my trade plan for that position.   I closed out my November credit spread option position on $NKE for a loss too.  I could have waited 5 more sessions for the option to expire but there is the inherent risk of the stock going even further below my loss target which loses me even more money.

Stocks on the Horizon

Currently we have 11 distribution days (days of heavy institutional selling volume) and most of them have occurred in the last two weeks - which is very concerning to me.  This is not the time to put out a lot of cash for new bullish positions. Asian markets of Japan (-1%) and Hong Kong (-1.5%) are down as of 9.30 pm Sunday evening as I am preparing this post.   Some of the stocks that have still maintained their momentum are:

  • $MCD
  • $DIS
  • $FISV
  • $LUV
  • $AMZN
  • $CBOE
  • $NVDA
  • $LNKD
  • $GOOGL
  • $NTES

I will focus virtual trades Monday morning on some of these stocks and stay on the sidelines for now.  I will observe the actions of institutions this week for clues as to the sectors and stocks that they are deploying their capital. 

Happy Trading!

Monday, November 9, 2015

Manage Your Profits - $FB $ORLY $LNKD $LUV $AMZN $ULTA $SBUX $STZ $PSX

Manage Your Profits

The reason every trader gets involved in the market is to make profits!  As traders, we identify the right stocks and the right entry points for trades but many retail traders skip the critical step of creating a trade plan that includes a profit target before pulling the trigger.  The consequence of that oversight is that those traders will sit around watching their screen or smartphone trying to determine their exit point in real time.  Not only is that incredibly risky, it's a massive waste of time and energy!

I always encourage my students, followers, and colleagues to create a trade plan with all 3 possible exits:

  1. Profit - If you commit to a profit exit, you're free to use those profits to place more trades and increase the size of your portfolio
  2. Loss - Conserve capital when a trade goes against you
  3. Timing- When a growth stock moves sideways and misses its breakout, your money is tied up and doing nothing for you

Quick example, I recently placed an option trade on $PAYX on Oct 26th. The trade plan included a profit target of 100% and my window of opportunity was 2 weeks in order to avoid the option expiration on November 20th.  Everything went according to plan and I hit my profit target of 100%!

So now that I've accrued those profits, it's time to harvest and re-invest them into the next trade.  My trading style, is to keep things moving along - almost in an "assembly line" fashion.  

My Capital Is My Inventory

I like to treat my capital the same way a retail business would treat their inventory.  I want that inventory to move, and if it doesn't - I replace it with fresh new inventory.  On Thursday November 5th, while I was out running errands, the trade met my profit target and the sell order was executed automatically.  Thanks to the style of trading I use, I wasn't eating up time in front of my computer or iPhone to monitor and micromanage that position. 

It is always best to automate a trade with contingency orders to close out the trade for profit.  This is a really critical step if you're going to save time and boost the efficiency of your trading routine.  When I talk to other retail trades, they often tell me that they just don't have time to sit down and create a trade plan.  However, they'll go on and on about how they've spend countless hours watching the daily for their position tick by tick.  My question to them is, are you tracking that time spent?  Wouldn't that time be better spent creating a trade plan?  I certainly think so!

Stocks on My Watch List

Currently the best performing sectors since the follow through day on October 2nd are $XLK, $XLY and $XLF.  Stocks in these sectors account for most of the gains in the market over the last 5 weeks.  Low risk stocks that offer us an opportunity this week are:

  • $FB
  • $ORLY
  • $LNKD
  • $LUV
  • $AMZN
  • $ULTA
  • $SBUX
  • $STZ
  • $PSX

The bulls are still in charge.  The market has made a +10% move over the last 5 weeks. For the past 4 sessions, the market has moved sideways. This is to be expected, institutions need to digest their profits and re-orient for their next positions. You should expect the market to consolidate some this week and watch for stocks to retrace to their buy point. 

Happy Trading!

Monday, November 2, 2015

$XLB and $XLP Show Me That It's Time to Celebrate - Plus My Short List: $FISV $AYI $MAS $IDTI $RCL $CC $LUV

We May Have Turned a Corner

October was the most profitable month in the market for 2015 which is welcome news.  Most of us are still licking our wounds from August so this time of performance is a nice change of pace.  Here's a break down of the performance in the 3 indexes I pay the most attention to.

  • $SPY +8.50%
  • $DJX +8.47%
  • $QQQ + 11.37%

Here are some other reasons to celebrate:

  1. All 3 indexes are trading over their 200 day DMA
  2. $XLB appears to be back
  3. $XLP has passed its highs from August

These are outstanding results.  Traditionally October is a very volatile month.  Last year the market made a down move of 8% the first two weeks of October only to rebound up for 8% the last two weeks of the month.  If the current momentum keeps up than we are poised to surpass the all time highs that we attained for $SPY in May and $QQQ in July.

November is traditionally one of the best months of the year.  Last year, the month of November was better than October.  At this rate I am inclined to open up a bottle of champagne and cheer on the bulls for taking the controls.  Before I do that, lets decipher the market and identify the leaders in the market.

Market Drivers

There are just a handful of stocks that are responsible for the volume and uptrend in October.  Institutions have accumulated hoards of cash from harvesting profits from the Bio-techs and Healthcare Sectors and are now investing in Big Cap stocks.  These are the stocks that trade $200 million to over $1 billion a day.  Stocks such as $AMZN, $MSFT, $GOOGL, $AAPL, $FB, $CSCO are the GENERALS in the market because of their big cap status.  Some of these stocks have gone up by 10% ($AAPL) and others as high as 18% ($MSFT) to 20% ($AMZN) In order to have a sustained rally, we need the SOLDIERS to participate.  These are the second tier and third tier stocks that trade less than $200 million daily.

As a retail trader, one has to follow the lead of the institutions because they are ultimately the ones that decide the direction and momentum of the market.  Over 70% of the daily trading volume in the market is accounted for by the participation of the institutions (hedge funds, mutual funds and pension funds).  They have begun to deploy their cash in beaten down sector such as $XLB (materials).  This was the best performing sector in October and it rallied 9.67%.  Stocks such as $PPG in the material sector has rallied 19% in the same period.

My Short List

I have a list of stocks that trade between $100 million to $200 million daily that have made it through my funnel method of stock selection.  These are the SOLDIERS that are poised to participate in the rally because institutions have begun to pour monies into them as well.  We still have numerous companies reporting their earnings in the next two weeks so I have eliminated them from my list.  It is too risky to be holding on to the Stock or Options through earnings.  Some of the stocks that are on my watch list are:


For those of you that are following my 4 Option trades that I had posted last week, I would like to make you all aware that $ORLY November 270/280 Call Debit Spread was closed out on Wednesday for a 110% profit in 10 days.  It was closed out just the day before earnings were reported and it met my target for the stock to be at $262.70.  This was all written in my trade plan and I just executed it accordingly.

Happy Trading!


Do not take a position unless you are prepared to sustain a TOTAL LOSS. Your loss could include the money you invested as well as commissions and transaction charges.

The Information I provide is for education and informational purposes only. The Information provided is not intended to be and does not constitute financial advice, investment advice, trading advice or any other advice. The Information provided is general in nature and is not specific to you or anyone else.