05-04-14 Trade Plan

This week the market threw out a bunch of mixed signals, which is normal for range bound trading.  I was willing to give the market the benefit of the doubt that it could make a move to all time highs but every time it got there it was met with strong sellers which reinforces the idea that we are just in a range.  The market no longer deserves the benefit of the doubt on my time frame and I need to see price close above $189 with some conviction to get interested on the long side.   What we did see this week though was the QQQ and IWM leading to the upside when there was upside action, and I know buyers are looking above that 50 day on the QQQ and liking that potential move up to $91 and it would also bring the pain to the shorts so I'll be paying attention to that probably more so than SPY getting through 189.  Any downside is already implied, sellers don't have anything to prove.. buyers do.  So if buyers can't put their foot down selling will take place, and honestly the risk/reward to the short side is in the SPY and DIA, not the usual selling suspects as of late QQQ and IWM which have the risk reward to the long side.  A very split market and we will just have to see how things play out.


XLB - Still holding up relatively well, tightening range, positive YTD.  Breakout above 48, break down below 46.5 aggressively and 46 conservatively.
XLE - Seeing some distribution candles defending 94.5 (likely selling 95 calls).  Short term break down would just be a pullback in the uptrend.  Break down level 92.5, breakout level 94.5 but one that I would not buy.
XLF - Friday's candle is very weak and provides a clear level that sellers will be defending.  Bouncing around YTD breakeven level and still in a pattern of lower highs and lows.  MACD also below 0 and RSI finding resistance at 50 level (bearish)
XLI - In a range similar to SPY and being distributed near the top of that range similar to SPY.  Still positive YTD but could easily lose that as profits are taken into the 53 level.  Break down level 52; breakout level new highs.
XLK - Very tight range over the past few months, more so than other indices.  Break out would have to be new highs and break down could be going negative YTD.
XLP - Still bullish.  Absolutely nothing wrong here.  One thing to note is this has been a safety trade along with utilities and the utilities are starting to break down, so keep that correlation in mind but trade the price on this one, no invalidation yet.
XLU - Like I just said starting to sell off on high volume, also note the volume build up leading up to Friday's sell off.. this tells me more activity is coming into the utilities and it is too early to tell if it is good or bad activity.  Uptrend is still in tact though, support at 42  then 41.5
XLV - Had expectations in this sector that were not met this week.  Breakout level is 58.5 and is one that I would like to see happen and participate in since there is a real potential to move up to 60 and bring all the sector stocks with it including IBB.  Breakdown and invalidation of setup would be below 57.
XLY - Flat 50 day.. above 65 would clear both breakout level of 64.8 and 50 day avg.  Break down level would be below Monday's pivot low around 62.5 and sellers would need some serious juice to get through that in my opinion.

This internal that I follow is still showing underlying weakness in the market.  It is showing that only about 50-60% of stocks are above their 50 day averages and it couldn't even take out the high from last week's review.  So I remain on the cautious side of the market but also flexible as per the levels I gave.  Any updates or changes that take place throughout the week will be tweeted out as always on my handle @M5amhan.

I gave break out and break down levels because this is just a split market right now, no idea which way we are heading but I can continue to follow my process of finding a sector or two that is hot in terms of a lot of activity, finds the stocks driving that activity, and trade the life out of them using low risk entry points and good trade management.  Finding the right setups in individual stocks starts with finding the right sector(s) to be trading in, which is why I am putting the emphasis of these weekly posts on the sector analysis side.  I can tweet out stocks I like once the action is taking place in the sector, which is what I do.  I am also doing a lot of studying in terms of options, specifically using them for risk management.  I have never used them this way or even learned about them like this, it has always been a directional game for me and that is all I have ever learned or been taught.  Using them for risk management (meaning with stock positions) has a ton of benefits that would fit in perfectly with my process so I have decided to put a lot of time into this.

Trade well,
-Michael