$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:

$FISV
$AYI
$MAS
$IDTI
$RCL
$CC
$LUV

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!