Tuesday, April 15, 2014

Little Good News for Bulls Despite Yesterday's Rally

The market finally managed to rally yesterday, unfortunately, volume was well below average, and early week rallies during corrections, and counter trend moves during holiday shortened weeks, tend to be bear traps. The rally attempt was more a result of an over extended market needing to digest its losses, and traders being gun shy after two days of volatile, above average volume selling, needing to take a break.

The Nasdaq officially traded in correction territory, down over eight percent, and is on the verge of undercutting its February lows at 3,968.19, marking the first time since this major leg of the bull market began at the end of 2012, the index undercut two previous lows after breaking out to new highs. The index is in the midst of potentially forming a bearish, broadening tops formation. The good news, there should be another multi month rally after this correction runs its course, to complete the pattern. For now, all the major indices look poised to test their two hundred day moving averages before attempting a serious rally.



Leading growth stocks bounced back along with the market, but quickly turned lower on any market weakness during the trading day. A few stocks are ready to rally further and a handful are managing to follow through to new highs. Unfortunately, the majority need at least a couple of weeks to digest recent volatility and losses, but remain within acceptable correction loss levels, and continue working on new consolidations.

Short ideas have been disappointing. While a few stocks have managed to break down in heavy volume and follow through, most squeeze back quickly with every rally attempt. Holding a short trade longer then a few days, is too risky. There are still setups tightening into moving averages and appear ready to roll over, confirming further weakness with yesterday's rally attempt.

Friday, most of the weekend, and even yesterday, turned out to be great days to take off and recharge after recent heavy, above average volume selling and volatility, especially with the warmer weather. Outside of day trading, most traders are better off in cash until the market tightens up into the next trend, most likely down, based on recent action.

TRADING IDEAS - SHORTS

Ocwen Financial (OCN), featured recently, rolled over at its fifty day moving average and broke down below its trend line in increasing volume, but failed to follow through, squeezing back to test the fifty day moving average and broken trend line over the  last four days. Look for the stocks to roll back over and test near fifty two week lows.




Rackspace Hosting (RAX), another recently featured stock, has been slowly rolling over, and is finally threatening to break fifty two week lows. Despite the market rally yesterday, the stock spent the entire day trading lower, displaying major relative weakness. Look for a high volume break of recent support around 30.75.


Thursday, April 10, 2014

Leading Growth Stocks Crushed Market Sets New Correction Lows Take Friday Off

The low volume rally attempt over last two days was suspicious, and the market confirmed that today, selling off over 2% in heavy, above average volume. The market opened slightly down, and sold off relentlessly for the entire trading day, barely able to catch its breathe. Clearly not the action bulls wanted to see.

Leading growth stocks were so weak, the bears couldn't even muster trapping the bulls, fake breaking out the few setups that were ready, during the little, early strength. Only a handful of leading growth stocks are still holding tight, with the rest in need of a few weeks to digest the heavy selling. At least, none are in bearish patterns, worrying us about a bear market, and continue within normal correction levels.

After today's carnage, tomorrow, Friday, is a good day to take off, and start a long weekend to digest the erratic trading action over the last three weeks. Don't worry about missing any trading activity. Clearing our minds is more valuable then a day of stressful, potentially profitable trading. Outside of a day trade, cash is an excellent position, shorts are a risky position, and longs are just suicidal in this market over the next few days. Seriously, take a long weekend to unwind, and come back next week ready to put together a battle plan for the next rally, after the correction. Prepare!!

Review recent blogs, leading stock analysis, and short ideas, for all our thoughts and trading ideas over the past few weeks.

Recent Blogs - Click to Read

Leading Stock Analysis - Click to Review

Short Ideas - Click to Review 

Wednesday, April 09, 2014

Rally Attempt Continues Volume Dries Up

The market followed through on yesterday's reversal, opening higher, and rallying for the remainder of the day. Closing up over one percent, and near the highs of the day.  Unfortunately, volume was lighter, and below average, throwing early suspicion on the rally attempt.

For the second day in a row, leading growth stocks outperformed in above average volume. Few have been able to break out to new highs, but many are attempting to break through, or bounce off moving averages. Some setups remain, but the risk is increasing of a shakeout, especially, if the market has another big up day.

Good chance short positions have been stopped out to protect profits or prevent from larger losses. Like leading growth stocks, few short idea setups have broken apart, most continue to consolidate within their potential setup zones.

Aggressive traders who entered long positions over the last two trading days, should have small profit cushions. With leading growth stocks making little progress, even after today's strong gains, traders should be on a short trigger to tighten stops, but also on the lookout for strength on shakeouts to add new positions. If volume begins to dry up as leading growth stocks bounce off moving average or increase with no meaningful appreciation (stalling), chances are, another shake out is brewing over the next week or two. Not enough evidence yet to force taking profits and moving to cash.


TRADING IDEAS

Energy XXI (EXXI) continue to try and roll over at the fifty day moving average. The stock continues to tighten into the fifty day moving average in lower volume. Look for a break down below the recent down trend line. The stock could drop over 25% to the next support level around $16.



Ocwen Financial (OCN) rolled over from the fifty day moving average the last few days as volume increases. The stock has paused, and shuffling sideways toward the fifty day moving average in lower volume. A reversal back down, could finally break the stock lower towards fifty two week lows.




Tuesday, April 08, 2014

Over Extended Market Attempting New Rally Too Early To Call

As the market bounced around in the morning, leading growth stocks managed to hold, consolidate sideways until the market started to rally firmly around 10:30 EST, and started breaking out of intra-day, day trading patterns, outperforming the market for the first time in over a week, in heavy, above average volume. Most of these stocks are setup or setting up in potential long, short term swing trading patterns, with a few potentially leading to bigger gains if the rally attempt gains steam. Oil stocks, Continental Resources (CLR) followed through on recent strength to new highs, while Concho Resources (CXO) and Silica Holdings (SLCA) are within striking distance.

Short ideas that have broken down and followed through, consolidated their recent gains, but, it would've been preferred that the shorts continued to follow through despite the market's rally attempt, to maintain a higher level of confidence in them. Coal stocks, Alpha Natural Resources (ANR) and Walter Energy (WLT) were the worst squeezed stocks on the short ideas list. Closing up over five percent, in heavy, above average volume.

Aggressive traders should have been initiating a long trade or two, while simultaneously tightening stops on any remaining short positions, just in case the rally attempt gains steam. If not, the initial risk is low, one to three percent, verse the potential profit of five to ten percent. Even during a weak rally attempt. 

Otherwise, more conservative investors would be better suited waiting another day or two to see if today's gains hold and follow through. There will be at least one or two shake outs with new setups along the way, if the rally attempt strengthens. 

Most setups are off or below moving averages, not near fifty two week highs, which is a sign that the rally attempt has a high probability of being choppy and short lived, and the market's recent history of changing trends on a dime, should keep traders defensive with new positions. Just remember, the earlier breakouts tend to be the easiest to hold, but not the only ones to go on to big gains, and trend changes, whether sudden or slow, are never mentally easy to navigate. The key is always for leading growth stocks to breakout, from short or long term consolidations, and hold above breakout levels during the first few shakeouts. If not, the likelihood of more downside increases dramatically, and traders would be forced to protect themselves from their long positions, and looking for new short trading ideas.

THE SETUPS

Cardtronics (CATM) rose 50% in just under five months after breaking out of a first stage cup and handle base, in August of 2013, on a positive reaction to an earning's report. The last four months have been spent consolidating those gains, and working on a double bottom base. Look for a breakout above the recent downtrend as the stock climbs up the right side of the double bottom base, or the mid point of the double bottom base, around $43.50. The overall structure and price volume action is very bullish.



NVR (NVR) was the only home builder that broke out and followed through during the last trade able rally. The stock broke out of a one year cup and handle base, in well above average volume, and advanced just short of 20% in a few days. Ever since, the stock has been forming a flat base, digesting those gains in lower volume, as the fifty day moving average catches up. Setting the stage for another run higher. Look for a breakout above the trend line or recent tight range.


Monday, April 07, 2014

Another Major Day of Selling Solidifies Correction

If Friday's high volume distribution was not clear enough, today's heavy volume selling nailed home that the rally is dead, and the market is back in correction. Outside of an early morning rally attempt, the market spent a second day in a row, selling off in heavy volume, and closing down over one percent.

Leading growth stocks, which managed to hold up well during the first wave of selling off the March 6th high, have started to break key moving averages in higher, above average volume, suffering a second major day of heavier selling. While the short term technical picture looks ugly, long term, leading growth stocks are still within acceptable correction levels, holding longer term trend lines and support levels, and several are still holding up well despite the broad based selling.

Short ideas resumed leading the market lower. Many managed to hold tight during the market's rally attempt over the previous few days, but have started to roll over in higher, above average volume on Friday. Recently discussed short ideas, Pier 1 Imports (PIR) and Ocwen Financial (OCN), rolled over at their fifty day moving averages and are following through to the downside. There are still a few stocks positioned to roll over, but the risk of a short squeeze increases as the market falls further below its moving averages.

Once again, all signs point to a deeper correction, but every time the market and leading growth stocks have looked this way, they have managed to settle down after a few days of heavy selling and setup the next leg higher. So now is not the time to go fishing yet. The next few rally attempts will tell us if leading growth stocks will setup up properly to lead higher, or end up in more bearish patterns like the head shoulders top, double top, punch bowl of death, etc., and roll over further. This process could take a few weeks to a few months, presenting several trading opportunities.

As discussed in recent blogs, when value leads growth, rally attempts tend to be choppier and short lived, so stops should have been tightened to protect from taking major losses on newly initiated positions and profits on existing positions. Long traders should have been stopped out on Friday, since almost not a single stock managed to hold above recent breakout points or support levels. Aggressive short traders had an initial opportunity on Friday to enter a position or two on the short side, and another opportunity today on the early morning rally attempt. Long traders should continue to track leading growth stocks resisting the downside pressure.

THE SETUPS

Rackspace Hosting (RAX) was one of the first stocks to breakout after the market bottomed in 2009. The stock ran up over 400% in just under four years, and has spent the last year and a half setting up a head shoulder top. Its recent attempts to test the fifty day moving average have stalled and come in lower volume. A breakdown below recent support levels could see the stock drop below $30, and possibly closer to the next support level around $25. Buyout rumors do continuously circulate around the stock, so shorting it is riskier, but each rumor has been met with selling after an initial gap up.


Resmed (RMD) has been forming a head and shoulder top for the better part of a year now. The stock has spent the last two months testing the fifty day moving average in lower volume. A breakdown below recent support, should see the stock trade down to at least the next support level around $40.



Thursday, April 03, 2014

One Day Makes A Big Difference Rally Attempt Under Pressure But Not Dead

The market tried to rally early, but started selling off around ten o'clock, barely stopping to squeeze, and closing near the lows of the day, in lower volume. A late day rally attempt and the lower volume, took some of the sting, out of the bite, but an already shaky foundation, doesn't need anymore weight on it so soon with poor price action. Tomorrow's Monthly Job's Report will most likely determine direction over the next few days, but be prepared for a potential shake out of this rally attempt and a reversal, otherwise the rally could be done as quickly as it started.




Leading growth stocks took the biggest hit, selling off significantly in higher volume. Many remain within their consolidations and above recent pivot points, but another bad day could lead to failing breakouts and short term consolidations breaking apart, requiring at least a few days to digest and set up again. Long term, leading growth stocks could still fall further without jeopardizing longer term trends. Several stocks did resist the selling pressure, Silica Holdings (SLCA), Lithia Motors (LAD), and Matador Resources (MTDR) added to recent gains, in higher volume.

Today is exactly the type of day traders did not want to see, so soon after a rally attempt. Market was weak, thankfully in lower volume, but barely, with a complete inability to sustain a bounce, and leading growth stocks lagged all day, unable to muster any strength to resist the selling pressure. Traders should be getting stopped out of newer long positions and tightening stops on existing, well behaving positions to protect profits, moving away from or to lower margin levels. Be prepared to buy back, this has all the characteristics of a potential shake out. Most leading growth stocks continue unbroken, and are still in fairly tight recent consolidations ahead of tomorrow's Monthly Job's Report. We should have a better idea of trend, by noon tomorrow, hopefully. Review the trading ideas below and our short ideas list for more short setups and leading growth stock analysis for more long setups.

TRADING IDEAS

Pier 1 Import (PIR) has been lagging the market all year. The stock has been consolidating into the fifty day moving average, in low volume, and slowly rolling over the last few days despite the market rally. A failed rally attempt would bring heavier selling into the stock, potentially trading down to around $16, the next major level of support.




Ocwen Financial (OCN) has been one of bull markets biggest winners, but has acted poorly since breaking down from a head and shoulder pattern at the beginning of the year. The stock has recently paused to digest those losses, pulling back to the fifty moving average in below average volume. The stock has failed to participate in the current rally attempt and looks ready to roll back over to fifty two week lows.



PS: Comments always welcome, even if they disagree. :o)


Wednesday, April 02, 2014

Market and Leading Growth Stocks Digest Two Day Surge in Lower Volume Further Upside Remains

After a two day, higher volume surge, the market opened flat and traded flat, with a slight downward bias, closing modestly higher after a late day rally materialized. Volume came in lower and below average, exactly the type of action traders are looking for to confirm the rally attempt remains healthy. The market still needs to pass the test and continue rallying strongly over the next day or two.



Leading growth stocks continued to follow through on recent breakouts, but many spent the day lagging the general market, digesting recent gains in lower volume. Setups continue to develop and are ready to breakout and follow through. There has been little to no negative action since the market bottomed, March 27th. GasLog (GLOG), Silica Holdings (SLCA), and Concho Resources (CXO) continued to follow through on recent gains, and Lithia Motors (LAD) broke out of a double bottom with a handle base, volume was lower then expected for a strong breakout.


Today's action further confirmed the rally's health. After surging for two days, the market and leading growth stock paused in lower volume and setup the next round of potential breakouts. Another quick shakeout can be expected before the Monthly Job's Report on Friday, but traders should be accumulating long positions, and ready to initiate new positions, on short shallow pullbacks on any given day.


TRADING IDEAS


Tesla Motors (TSLA) broke out of third stage, cup shaped base in heavy volume and advanced over forty percent in under a month. The stock has since been pulling back to the fifty day moving average in lower volume, setting up a potential final climax run. A breakout above the recent down trend line should launch the stock higher.





Air Lease (AL), discussed several times in past blogs, continues to setup a flat base pullback to the twenty day moving average. A breakout above thirty eight dollars, should advance the stock another ten to twenty percent.




Tuesday, April 01, 2014

Market and Leading Growth Stocks Surge Over 1% in Higher Volume Confirming Rally Attempt

For the second day in a row, the Nasdaq gapped and closed up over one percent in higher volume, while the Standard and Poor's 500 and New York Stock Exchange closed at new all time highs, further confirming the recent rally attempt.

Leading growth stocks out performed for the second straight day, following through to fifty two week highs and bouncing off major moving averages in higher volume. New setups develop daily and intra day market shake outs have had little effect and are over come by the close with ease, closing at the highs of the day. ARM Holdings (ARMH) and US Silica Holdings (SLCA) followed through on yesterday's breakouts, and Zulily Inc (ZU), YY (YY), and Taser International (TASR) bounced off their fifty day moving averages.

The past two days have left no doubt that the market rally attempt is for real,  leading growth stocks are breaking out, bouncing off major moving averages, following through in above average volume, and holding firm during any shakeout attempts. Traders should be out of all short positions and accumulating long positions, especially during intra-day shakeout attempts.

TRADING IDEAS

Insys Therapeutics (INSY) more then doubled in price, in less then two months, after bouncing off the fifty day moving average at the beginning of the year. The stock has spent the past five week consolidating into the fifty day moving average in lower volume. A breakout attempt above the recent down trend could propel the stock back to fifty two week highs.



Taser International (TASR) more then tripled in price since breaking out of a first stage, cup and handle base in October 2012. The stock has spend the last six months consolidating sideways, forming a flat base pullback to the fifty day moving average, on top of another flat base. Today, the stock bounced off the fifty day moving average and pullback to the down trend line the stock broke above March 25th in heavy volume, and still within a buy able range.



Monday, March 31, 2014

NYSE A/D Line and Volume Confirm Market Rally Leading Growth Stocks Breaking Out

After shuffling sideways over the last two weeks, the market moved within striking distance of all time highs, surging around one percent in higher volume, closing near the highs of the day. Confirming the move was the the NYSE advance decline line leading into new highs and falling volatility. Throwing some cold water on the rally attempt, value is outperforming growth. While value can lead rallies, they tend to be choppier, shorter in length, and an indication of a nearing top, but can be profitable and cannot be ignored.




Leading growth stocks held up well during the recent distribution. While many broke below their fifty day moving averages, in above average volume, none did so in volume that signaled a run for the exits. Most of the action has been orderly, within expected correction levels, and recently tightening. Many still need another week or two to firm up, but some are starting to breakout and bounce off moving averages, in above average volume. US Silica Holdings (SLCA), Smith and Wesson Holdings (SWHC), and ARM Holdings (ARMH) broke out of cup and handle bases, and Hollysys Automation Tech (HOLI) and Chicago Bridge and Iron (CBI) broke out to new highs after bouncing off their fifty and twenty day moving averages, respectively. Now they need to hold and follow through.

Short idea setups turned out to be bear traps, leading to losses. Most breakdowns are failing, and the few managing to follow through, have not followed through enough to make up for the failing breakdowns. This type of action is generally indicative of a potential trend change or consolidation. A few are still setup and should be watched in case the correction resumes.

The combination of developing setups in leading growth stocks, markets inability to sell off in increased volume, and a leading NYSE advance/decline line, has increased the probability of successful short term rally attempt. Traders should be protecting profits and limiting losses on short positions, while initiating new long positions. If this rally attempt is real, recent breakouts must hold while new breakouts join the party, especially through shake outs over the next week or two, with each shakeout presenting a new group of trading opportunities. 

The markets have changed trends quickly over the last 15 months, making the hardest things a trader has to do, be patient and flexible, at the same time, much harder.

TRADING IDEAS

Air Lease (AL) continues to consolidate along the twenty day moving average and recent three week tight pattern after a February breakout out of a flat base on top of a cup and handle base, in above average volume. A breakout above recent highs around thirty eight, could propel the stock for at least another ten to twenty percent. The relative strength line is already leading into new highs, a positive sign.




New Oriental Education and Tech (EDU) is still in the process of forming a double bottom base. Last weeks shakeout near the bottom, should have shaken out the remaining weak holders. A breakout above the recent consolidation around thirty dollars or mid point around thirty four dollars, should launch the stock into all time highs, and above an almost three year consolidation. The current double bottom base is the tightest, best positioned to breakout, and the relative strength line has manged to rise while the stock has consolidated the last two weeks.




Sunday, March 30, 2014

Trading Idea: Lithia Motors (LAD) Double Bottom and Handle

Lithia Motors (LAD) has just about tripled since the end of 2011. The stock has spent the last six months building a double bottom base, and the last three weeks pulling back in lighter volume, forming a handle. A breakout above the handle high of $68.56, should launch the stock on another run into fifty two week highs. The consolidation is a late stage base, so traders should treat the stock as a trading position.