02-01-15 Trade Plan

After this week's price action I think it's safe to say that the sentiment of the last post was a bit premature.  That's fine as long as no one is digging in their heels and letting losers just hang out in the portfolio.  Take the stops and move on.  This is also why I always take what I call starter positions when I am first getting into trades (especially long side) because typically if a position is going to lose trend it does it on my first entry and I want that out of my portfolio with low exposure to it.  As a trend builds so does my position size so long as it falls within my risk parameters with my trailing stops.

So let's have a look at what happened.  First the SPY could not get positive on the year as break even acted as resistance once again.  Then Tuesday the NASDAQ gapped down back below the break even.  At this point all indices were negative on the year with no intraday trends, this is where we remain now.  The mistake I made was not waiting for a better low above break even to develop for a trend to come out of this chop period.


With all that said we can look at where we are.  The NASDAQ created an intraday supply area below break even that bears held all week.  The skipping rock theory is still on the table here and now bears have a much better area to hold under if they want to break support, which is that supply area combined with break even right above it.  We are also still in the same position where a measured move would be a higher low on the weekly.  A real break of that support would be an intraday lower high below $100, then we can look for intraday downtrends in the indices.

Bulls no longer have the benefit of the doubt in the short term, they would need to have some kind of real trend above break even on at least two indices with stocks in good shape.  So until either of these scenarios can move forward it is still a chop situation.

For new readers, during times when sellers have control (which has not been often) I like to use the increasing volatility in my favor.  Option positions become more of my portfolio and I use ETFs a lot more and do shorter term trading.  So if the bears do break that support and get a trend going that's how I will be playing it.  The weakest most volatile stocks I'll be trading in along with the ETFs.  Again short term, meaning quick 1-5 day trades playing volatility spikes with directional bias.

The long list is mostly these large gap up stocks.  A trade that works really well when bulls are in control is the gap up continuation.  Something triggers a huge gap up and the low of that gap holds and continues to make a nice trend sometimes for a long time.  So those are what I'm watching in the long list for the most part.  Some of these may play out even without the market backing it up but I just don't like tip toeing around bears or choppy markets to try and ride some of these.  I like clear environments.

The short list and ETFs are there for what I just explained.  The non correlated ETFs like GLD, TLT, GDX, UUP, even USO are fair game for swing trading as usual.  I actually like gold and gold miners as a potential fresh setup.  Watch the lows.  Thank you all for reading

-Michael