07-27-14 Trade Plan

We are still moving in an uptrend with tech leading the way.  NASDAQ is the strongest part of the market and the Russell is the weakest.  The Russell hasn't been in an uptrend for about a month now while the other indices continue making new highs.  That isn't a problem if you are trading the NASDAQ and it's components though.  We just finished the 10th week of this huge move, straight up I might add with stock setups playing out the whole way up.  Over the past two weeks or so we have been seeing less setups playing out and more stocks failing, which isn't an assumption on anything just something to note.  As long as that 130 minute supporting trend with higher highs and lows is in place on the S&P and NASDAQ, I will continue to open every blog post with "we are in an uptrend" and trade accordingly.


A few things I want to point out about the S&P though.  It is moving in an upward channel which is creating an ongoing RSI divergence that is technically still in play since it hasn't failed yet.  Also these upward channels tend to break lower when they end since it takes an incredible amount of strength to break higher out of these especially in this example.  So if the bears did want to make a move, they have that to back them up and attract more sellers (whether they be shorts or profit takers).  This doesn't mean a crash is the next step and it definitely doesn't mean this is a top, we need to stay logical and objective here.  Remember break even on the year is right below $185, or 6.5% from Fridays close so plenty of cushion.  Just to be clear, for any of those warning signs to matter selling has to take place first then you remember the back up that bears have right now.  The NASDAQ is now alone in it's extreme bullishness (and just finished a four day 15 minute trend) and the Russell would likely get clobbered if we saw some index selling from here since it is already in a downtrend and negative on the year.

With all that said I still need trends to act on so there won't be wide spread short side trading until there are down trends (130m/65m supporting) in at least two of the indices, and we already have one.  And any long side trading (if any is done) is going to be done in the NASDAQ, associated sectors, and it's components.  This is why the S&P is taking on importance right now.  If it continues higher, then it will continue to confirm the NASDAQ and trigger more stocks.  If it breaks lower, it will confirm the Russell and break more stocks.  So that is just something to think about.

Here is the watch list I put together for next week.  Like I said, not the best setups we have seen during this large move in the indices but it is what it is.  Whatever you end up doing, make sure to practice risk management and be smart about it.  Thanks for reading & see you Monday.



Trade well,
-Michael