Equity markets had a decent week with the Russell starting out on a nice move higher into the $125 resistance area. NASDAQ moving slightly higher into the previous daily high, and the S&P making new all time highs. The two sided market conditions have not gone anywhere. Everyday my stock list was half red and half green (watch list as well) and that's not the same market conditions that buyers used to create for the huge moves higher. It tells me that even with the bull moves we made this week, the market is still trading in the same conditions we have been for 6 months now. And in these conditions, you can't just ignore the fact that all we've done is made a move higher into resistance levels in the NASDAQ and on the Russell.
With that said buyers are still in control of the indices and have levels to defend if necessary. Looking at this
65m chart of the NASDAQ the $109.5ish area needs to hold for this move to stay in tact or even better a swing low above that area.
The Russell needs to defend the breakout area/demand zone created at the $123.5 area. And the S&P to hold above the all time high break out level ($212.5ish) which isn't giving it much room, but my focus is on the NASDAQ and Russell. The weekly charts are looking good but that doesn't mean that market conditions haven't changed.
I've broken the watch list up into two lists, long and short. Right now there are about 20 names in each and I'll be looking to take the good risk/reward trades with the trend in the respective directions, as well as filter through price action which names stay and go as usual. A two sided market calls for two sided trading and that's something I haven't been doing much of due to what was working so well in 2013 and 2014. I took a step back this week and had a look at what I was doing, back tested what has been working this year, and decided to make some changes in the way I was tracking setups. Mainly just breaking the watch list into two separate parts and having a balanced long and short watch list. Two worlds I guess you could say. I have been putting all my focus on long side trades because that's the only place high probability trades were happening, but now shorts have raised their probability of success through new market conditions. I'd be digging in my heels if I kept that up and doing myself a disservice by missing out on half the picture. If we go back to mega bull mode then I know what to do and am prepared with my long side trades. But expecting that to happen from the conditions we are currently in is making predictions. Even a slow grind higher like we did this week was two sided under the surface, and provided opportunity in both directions.
Some fresh long setups from the list: CRM (>$72.5), DE (>gap low), EBAY (>$58.5), FB (>$80), EXPE (>gap low), RAD (>$8.2), VLO (>$60). Gap up continuations only valid if gap lows can hold.
Fresh shorts: BIIB (<$400), CMG (<$640), FSLR (<$55), ORCL (<$45), SPLS (<$16), YHOO (<$44)
In summary; longs and shorts are both working so only focusing on longs may be missing out on half of what's going on, look for good risk/reward in the trend, and don't ignore the change in market conditions. Thanks for reading and enjoy the 3 day weekend.
-Michael
