Sunday, August 14, 2016

All 3 Major Indexes Hit All Time High


In the past 4 weeks I have been approached by a lot of my followers on tweeter, linkdin, subscribers to my weekly blog and students in my mentoring program.  They indicated to me that that they missed the clues on July 1st when IBD  (Investors Business Daily)  called  "Market in Confirmed Uptrend"  Most traders were stunned by June 27th when the $SPY had dropped -5% within 2 days in trading volume 300% above average daily volume.  All the 3 indexes that I monitor - $DJX, $QQQ and $SPY - were trading below 200 day sma  (simple moving average)  We had distribution days where the institutions were taking their profits and taking risk off the market.  We were all concerned about the effects of Brexit at that time of course.  Most retail traders were in a very defensive posture. Disciplined traders ought to have been in CASH at that time and lot of my followers just did that.

Most of us were preparing for the July 4th long weekend when the market had tumbled on Monday June 27th.  All the 3 indexes surged the next 3 days after that and gapped up for 4 sessions in a row. This was a very powerful move in the market.  Every trader should have had a ready Watch List of stocks to trade when this occurs.   Most growth stocks will make their initial move as soon as the market exhibits strength.  Institutions were taking large positions after having harvested their profits earlier.  It takes them several weeks to accumulate their full positions.  Retail traders are nimble and one should have just followed what the trend was indicating and the trend was very bullish and very strong.  Institutions were signaling to us that they were ready to commit major $ to stocks.  


Will Market Continue Trending Higher ?


This weekend I did a thorough analyses of the market to see where we have been in the past and where are we likely to be headed in the near term.  Market is all about human behaviour and quite often the past performance of the market gives us clues as to what the future might look like.  Currently  $XLK (Technology) has been the leading sector since the June 27th lows (+13.71%)  I did a study on $QQQ index and here is what I noticed:

  • $QQQ surged 15% in 6 wks from Oct  2014 Low
  • $QQQ surged 15% in 6 wks from Sept 2015 Low
  • $QQQ surged 15% in 6 wks from Feb  2016 Low
  • $QQQ surged 15% in 6 wks from June 2016 Low

Does History Repeat?

After such a move, the market trended sideways to digest the gains and eventually retraced back down to the 50 day sma.   Could this happen again?  Time will tell.  I would however trade the trend and the trend is bullish right now.  Market just doesn't go up forever.  Even in a bullish trend, there is a counter trend and stocks do retrace.  Disciplined traders ought to have trailing stops on their winning positions and cut the losses short as soon as it meets the predefined loss exit conditions. 


Stocks on My Watch List


Currently there are quite a few stocks that are leaders in the market but they have earnings due in the next 2 weeks.  It is best to avoid them since earnings surprise could be a positive or a negative for the stock performance.  It is a risk that one should avoid.  We also have major retailers like $TJX, $ROST, $DKS, $TGT, $WMT, $LOW, $HD, $FL, $LB, $GPS reporting earnings this week.  Most brick and mortar retailers have not done well during back to school season although $M, $JWN and $JCP surprised us and they surged after the earnings report.  These retail stocks will influence the market this coming week.  They are a component of Consumer Discretionary Sector ($XLY) which has been up +9.67% since the June 27th Lows and is one of the 4 leading sector.  

Following are the stocks I have on my watch list:

  1. $AMZN
  2. $GOOGL
  3. $LMT
  4. $FB
  5. $EW
  6. $AYI
  7. $BABA
These stocks are fundamentally very sound and they are showing technical strength.  They are accumulated by the institutions in the last 30 days.  Once again, I prefer to focus only on those stocks that exhibit RS ratings above 90

Mentoring Service


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investorspotlight@gmail.com

We just have a few spots left for August.  Reserve them before they are gone.


Happy Trading!

Amin


 






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