I wanted to talk about my process just a bit this weekend since I know you all want to smack me when you see the same old boring weekly review every week without anything new (I'll work on that :D). Last week I talked about the importance of the 50 day avg and the many different ways I will be using it (relative strength, absolute strength, uptrend/downtrend slope). This week I am just going to touch on the 10 day average and sector analysis as two more crucial parts to my process. Sector analysis is something I never really cared about since I have been a primary day trader for most of my trading career, but now that I am holding positions for more a week or so, it is becoming more important that I follow it. A long setup in a sector that is being bid up at the time or has been a hot sector for a while has a much higher probability of breaking out and continuing for a while as opposed to a long setup in a sector that is dead. This is also where the 10 & 50 day averages become important for gauging the relative strength to each other. Look at these two charts: XLV vs. XLF. Looking at the slope of the 50 day you can see which sector has the higher odds of being bid up, as well as time spent above the 50 day. Also take note if the 10 day avg is above or below the 50 day, which way is it trending, if it is acting as support/resistance, and is price closing above or below it. These are all things I am considering when looking at entering a trade. The cool thing about the 50 day is when I switch the chart to a 65 minute chart from a daily chart, the 50 day represents the 10 day average (on the daily chart) very closely. With that said we can get into the regularly scheduled review.
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The S&P had a very good week as I already had touched on. If you aren't listening to any of the noise, you would look at this chart and see a very strong technically healthy market. That is what I see. I see higher highs and higher lows in an uninterrupted uptrend. The low put in at $184.50 is what we need to be watching for that trend to continue as well as the up trending 10 day avg. If that low breaks then we watch for a lower high and reassess the trend at that point. This has nothing to do with any analysis but look at this massive volume that happened in 5 minutes on Friday: Huge Volume Chart. Bonds are still making higher highs and higher lows just like the S&P. There is a weekly 50 day avg coming down on top of the price that I would be watching. I would be watching Friday's low to hold for the immediate uptrend to be in place. The gold market is also still in an uptrend, but like bonds it has a weekly 50 day avg coming down on top of price action that I would be watching. The immediate term uptrend needs the low put in on the 19th at $126 to hold otherwise it is a lower low.
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The percent of stocks above 200 SMA is really trying to break out here, above 75% at a minimum is a good thing. The only thing concerning here is the VIX divergence from the SPY. This tells me people are a lot more nervous holding at these levels than they were the last time we were up here. I guess this is to be expected with all the chaos going on overseas but it could have an impact on the market IF any kind of sell off gets going.
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Twenty-nine charts on watch this week. Some are potential breakouts, some are just trending (higher high/higher low), some are pure momentum or the anticipation of momentum. I tried to illustrate on the charts what I was looking for so I don't have to go through each symbol. Once again a lot of long setups I know, but the market is bullish.
In other news, I passed 1,000 followers on Friday so thank you all for that. I also thank you all for coming here and reading my posts every weekend. I usually get these out on Friday afternoons but I have been making the mistake of having a life outside of the markets recently :D.
If you want updates to these symbols or new setups as they come along you can follow me on StockTwits or Twitter @M5amhan. If you have any question about anything please use the comments below.
Trade well,
-Michael
