04-13-14 Trade Plan

Seems things are always exciting when the bears are in control.. and they are for now.  For the first time since we were in rally mode off the Feb lows, we have a trend defined by swing highs and lows.  The trend is down for now, especially in the leadership indices like the NASDAQ and Russell 2000.  From a portfolio perspective I am staying away from this kind of market until we see buyers are back in control.  It is also important to know what you want to be buying if the buyers do take back control and for now it is still the energy stocks as my number 1 target, then staples after that (if that isn't enough for you then utilities are strong as well).  We don't know how much more selling is going to come through the market so we just have to be patient about buying the stronger sectors.  For strong sectors to really perform we need the S&P backing them up with at least small, consistent rallies.  Since most of the sectors are just breaking down right now I won't list out of a bunch of stocks at the end like I usually do.


I am much more interested in trading across asset classes right now rather than have a portfolio full of US equities.  I say that because money is going to be moving around and it is currently moving around.  People managing billions are not going to cash because inflation will eat them alive.  Emerging markets are showing signs of strength as well as bonds, gold, oil, natural gas, yen & euros.  Those asset classes right there will have me busy enough for possibly the next few weeks along with some select stocks (or just the indices) that show great short term opportunities whether long or short.  The point I'm trying to make is the portfolio full of US equities isn't the best place to be right now.  Your focus is a valuable resource in trading, so allocate it wisely.


Basically all 9 of these asset classes are looking like they are best traded to the long side.  My favorites are the bonds, oil, & Brazil.  I want to see Brazil hold positive YTD on any pullback it sees if it does pull back.  Gold & China still have a little work to do, and I think the Yen is working on a great squeeze to the upside.  I want to see the 50 day avg on China to continue turning upside with the pattern of higher highs and lows continuing to print.  I didn't have room for the chart but I also like $EWT (Taiwan) for some more upside.  Nat gas is still holding up really strong so more upside wouldn't surprise me and same with Euros.  Remember my analysis can always be found on the education page and it is really quite simple.  Watch 50 day average direction & if price above/below, watch swing highs/lows using multiple time frames and trade with the trend.

Percent of stocks above 50 day average is a great short term indicator for the market and usually it bounces up once we get a low reading.  What would really indicate a change in market conditions on this indicator is if we get a low reading and hold it there similarly to how we would continuously get high readings and hold it there.  That would be telling us that most of the stocks are down trending.  So that is something I will be paying attention to for the equity markets.

That's all I got this week, so thanks for reading & I hope none of you got hurt throughout this correction and if you did hopefully your risk management and position sizing made it a minimal draw down in order to fight another day.  All the analysis I give you here every weekend is absolutely worthless if there are no risk management and position sizing principles founded behind every single decision you make.  Hopefully you understand how important that is for the long term success.  I know how tempting it is to put on a trade leveraged up 5x in anticipation of becoming rich when you are newer to this business but I promise that is how you blow up and end up with no chips.  Using 5x leverage on one trade with no chips won't make you any money.

Trade well,
-Michael