01-18-15 Trade Plan

Markets still remain stuck in a neutral chop period and negative on the year.  One thing I keep pointing out on the NASDAQ is the skipping rock potential if we were to break below the $100 level.  With each test of $100 we get a lower high and eventually if this continues that support gets too weak to hold price and it breaks through, like a rock skipping along the water.  What would invalidate that is breaking the previous high from 1/9 which would also put it positive on the year.  We will call this scenario A.

Bears best case is to hold price on the $100 level (below Thursday's high roughly), consolidate and build energy, then break support.  Energy is rarely built for bears in this market though nor has trading short done me any good in the past two years, which is why I'm still tip toeing around shorts when the signs appear.  I'd rather sell into strength with an intraday down trend below $100, even then the weekly trend is still well in tact and a full measured move down would still be a higher low on the weekly.  This is scenario B.  So those are the two scenarios for me, but for now I am still neutral on stocks.


I drew the measured move on the NASDAQ just to show it.  It's not a target or a call it's just perspective for scenario B.  You can see a full measured move is still a nice higher low for the weekly time frame.  That's about all I have to say about the indices so let's look at the list this week.

This is perspective for scenario A.  Take a look at the long list, the strongest best looking names are healthcare and if you have been paying attention all through last year healthcare is the group that comes out swinging first during the index rallies followed quickly by technology.  Even the smallest bounce in the index could trigger all these healthcare names to move higher, giving the index something to work with, triggering tech names, and all of a sudden we have leaders for a new leg up.  The cycle we saw all last year.  Again, I'm not predicting anything here just thinking out loud.

It reminds me of a trade I made last year in energy.  4/15/14 the S&P put in a huge hammer and the energy sector was looking great for a nice move up and all it would've taken for this to trigger was a small bounce in the S&P.  This was during the slaughter of the tech stocks.  It turned out to be a great trade in both the ETF and some energy stocks.  I'm not saying this will play out the same but the thought process and how the stocks are setup is reminiscent of that trade.

This is obviously the scenario I would rather see and the one we are used to.  But the potential for indices to break down quickly is still here and we should acknowledge that.  So far this year it's been all about low exposure and patience and I believe that will pay off when the right play comes along.  As always thanks for reading.  When markets present more clarity I will tweet it out

-Michael