Couple of programming notes before we get started with the weekly recap. I spent some of my thanksgiving break putting on a new look for the blog using a new theme to brighten things up going into the new year. I also recorded a new video showing off the details of my latest NinjaTrader Risk Management Software so I encourage you to take a look at that if you are a NinjaTrader user. And I am still looking for a few people to help test the product, so if that interests you please contact me here or on twitter.
$SPY looking back on this holiday shortened week not a whole lot happened in the indices thanks to Friday’s final 30 minute candle which was a sell bar that gave back 70% of the weekly gains. On the other hand if you had exposure to individual stocks this past week, namely the high betas, this weeks action painted an entirely different picture. We saw money rotate into this sector and drive breakouts in many of the highly watched names of 2013, validating the analysis I put out in lasts recap why I gave the bulls a second chance. For the indices, it certainly seems like the week to week leadership is taking their turns and much of the “chase” money is rotating around looking for bargains to squeeze into the EOY. I tend to believe the high betas might cool a bit here after most of these names had a straight 5 day run up but I still believe they could make a second leg higher towards the last week or two of the year, and of course the path of least resistance remains higher.
Before I begin this weeks recap I want to make an update that I have just about finished coding a new automated strategy for the NinjaTrader platform thats purpose is to act as a safety net for the discretionary trader. It will automatically close losing positions that have gone too far against you and monitor your overall account against drawdowns. Take a look at this page if you are interested in reading more information. I will also be looking for a couple of people interested in testing this out for me on their own platforms in the coming weeks, so please e-mail or tweet me if this is something you would like to try out. Now onto the recap:
$SPY got off to a turbulent start this past week as bears paraded their way across a number of sectors, namely high beta land which seemed to lead the way down Monday, Tuesday, and for the better part of Wednesday before seeing a reversal gap higher on thursday and follow through into Friday. The $SPY index was actually able to reverse all of Monday-Wednesdays sell off and end the week higher by the close on Friday, meanwhile only 1 stock that I track in the high betas was able to do the same. You can thank the $XLF for the SPYs reversal as it really flexed its muscles as the emerging leading sector into year end. As I mentioned last week I was long $FB $AAPL and $GOOG in my swing account over the weekend and I was stopped in each one at some point during Mondays sell off.
$SPY last week I wrote about cracks beneath the market surface and I talked about the $SPY caught within a range between 175 to 177.50 and to stay cautious until we saw a confirmed break one way or the other. The market tipped its hand on Wednesday of this week attempting for an upside breakout and then confirmed it on Thursday as we saw follow through buying to the upside above previous all time highs. The cracks quickly repaired themselves as names we were cautious on such as $FB $AMZN $GOOG saw upside reversals all around. Being cautious was the overall recommendation for the past two weeks (and for good reason) but given Wednesday and Thursdays action this was a time to switch gears and get involved to the long side for upside continuation. This breakout looks great so far as we trend higher within this bullish channel with broad participation from key sectors such as the $XLF and $XLK. I don’t think its too late to get on board as there are still plenty of setups that are not yet extended. But as always be mindful of where we have come from and where we are now and always manage your trade risk.
$SPY the first full week of November started with some warning shots to the overly complacent bulls who enjoyed a relatively effortless drift higher throughout the month of October. Last week in my recap, sluggish leaders and what to look for into year end, I noted the YTD leaders were showing signs of sloppy price action and that we should be on watch for further weakness going forward. They held it together for the beginning of the week until Thursday where we saw a broad based market sell off with high beta tech leading the way down. Friday was certainly impressive as we recovered virtually all of those gains in the indices despite many key individual names lagging and remaining weak. Impressive but concerning. The market is signaling the importance of these price levels and the message it is sending is to tighten up your long exposure and get MORE selective in your holdings. $TSLA, $FB, $AMZN, $GOOG are just some of the names that saw mini bear raids this week that did not recover their losses by week end like the indices. Huge problem? No, but little by little these are how cracks form in the markets and before you know it we could see another 1.5% down day followed by more selling rather than a reversal. I am not turning into a bear, rather just calling the shots as I see price action develop. We are in a range here from 175 to 177.50 within the context of an uptrend so the key is to not get chopped up while we remain within this range. Get selective, buy low, sell high, manage risk.
$SPY we saw our first back to back two consecutive red days in the SPY on wednesday and thursday of this week since october 8th, 17 trading days ago. This finally created a slight pause in price advancement in what otherwise was a very bullish October month. I drew fibs on the recent impulse leg higher and you can see the lows from this past week were right at the 61.8% retracement at 175.30ish. If you are a bear in this market I think you got two things to hang your hat on this week. First is just the general price action and slight pullback we got in the indices. These are minor signs that really have not done any technical damage but are still signals that could potentially lead to further short term weakness. Secondly and slightly more important is the abundance of sloppy price action in individual names, particularly the YTD leaders in this market. The price action in Netflix, Tesla, Facebook, even Apple recently are just hints that we need to keep our eyes open going forward to be sure more weakness does not ramp up in these important names. Now taking the other side, the bull case is certainly the one that is much stronger right now. There has been virtually no technical damage done, the leaders are merely experiencing “sloppy” price action, and really the cause is mostly attributed to their individual earnings reports which naturally elevates volatility. The bottom line, overall I remain bullish but I am watching the leaders closely this coming weak for any further signs of weakness. I took on a little long exposure on Friday looking for these lows to hold going into next week.
$SPY so last week in my post why the market is ready to leave you behind I outlined a few reasons why we could see a melt up into year end and why that scenario carries reasonable probability of following through. After a powerful two week V shaped rally in the markets we closed week #3 again at new all time highs. Few notes to make here as we close again at highs. Sentiment, however you decide to measure it is always something to be conscious of whenever you are deciding to put your money at work for longer than a day trade. And because of that I am always interested in trying to figure out what is considered “consensus” when looking ahead in individual stocks and the indices alike. The point being, if everyone starts adopting the year end melt up thesis and are positioned accordingly, well then who exactly is going to be the driver of higher prices if the “majority” of traders are already long and expecting higher prices? I do not want to tangent out on this topic too much within the context of this post so the point is, while I do still believe the year end melt up thesis is well in tact, we should stay very aware of the overall sentiment of other market participants. You want to see people hate the rally, you want to see them complain on “how we got here” and you want to see people fighting the move. We had one red day on Tuesday and that was reversed the very next day by the bulls which then saw continuation into the end of the week. The action back to the highs was in a very grind-like fashion with lots of overlapping candles. It’s possible we are carving out a range here at the highs and it wouldn’t surprise me at all to see more digestion and even downside action before more continuation to the upside. I am not a perma-bull by any means, just calling it as I see it while maintaining an open mind and flexibility.
$SPY what amazing continuation to new all time highs this week in the S&P500. The past two weeks price action really goes to show you how fast you need to react so you are not caught flat footed without a plan. If you were not ready to step up, change gears and get long some names then you could very easily find yourself left in the dust still thinking about the government shutdown, the debt deal, and continued doom in the markets. After we had that breakaway gap back on the 10th you were forced to jump in, pay up, or be left behind. Sure it’s easy to say that now in hindsight but this is why it is so important to have a plan and remain objective because this was an uneasy move to catch if you weren’t already in a buy the dip mindset waiting for reversal signals as we probed lows.
Looking ahead to next week, we covered a lot of ground real fast in these two weeks and now that we have pushed new all time highs it is possible we see a pause and retracement in price or time as some of these short term overbought signals work themselves off. But the speed and magnitude of this recent move has me believing a lot of investors were offsides here and are probably still not involved heavily to the long side. If that truly is the case then the market will not make it easy to get back on board which is why it is very probable we see a continued melt up and epic year end chase. Are you a believer, or do you think this is one final bear squeeze higher before rolling over?
Letting a winning trade ride is difficult.
How many times have you had green trades swallowed up by the markets and evaporate in front of your eyes, stop you out at break-even, or even worse, turn into losers. It is no surprise holding onto a winning trade is one of the most difficult skills for a trader to develop.
When you fully embrace the uncertainty of trading and accept the fact we are right in our ideas about half of the time (depending on your system), you become conditioned to appreciate profits and want to lock them in–FAST. Sometimes taking profits fast is a good thing, other times it’s not. Knowing when there is “more” in a trade is an important skill to develop. Knowing how to sit and wait in a trade that has “more” is a second equally important skill to work on.
$SPY what an incredible week in the markets. I have expanded out the timeframe on all my charts to hourly this week to get a better idea of where we came from and where we are now. The circus in Washington was a key factor in this near 3 week decline and it was equally responsible for the 2 day ripper we witnessed Thursday and into Friday. Combine market sensitive headlines with technically oversold markets and relatively negative sentiment and you have the recipe for a near 3% rip in the S&P500 from Wednesday lows to Friday highs. Price finished Friday right at the 61.8 retracement from the 9/17 highs which also coincides with the market highs from August making roughly SPY 170 a very logical place for the market to find resistance. Hopefully the title of this post is not taken literally however you will notice many stocks this week found price stalling right at their 61.8 retrace from their impulse legs lower. A move of this size and speed has me believing this is more than your average bear squeeze so going forward we need to watch the commitment to this bounce by measuring how much (if any) of these recent gains we give back going into next week. I would consider an orderly retracement that forms a higher low very constructive but on that same note I do not want to price slam down lower next week in bear market panic type fashion.
$SPY lots of noise this week but after everything was said and done we ended just about where we closed last Friday at 168.94. We got slammed coming in on Monday after the government shutdown but we quickly bounced higher testing the midpoint of last weeks range before rolling back over a second time. On Thursday we saw a breach of Mondays lows but the bears couldn’t keep up with the pressure and we saw another snap back higher begin to take place. We ended the week near the highs and we have a nice double bottom in place that could confirm above 169.50. It is a very tricky environment given all of the macro headlines the market can use to push price around as it pleases and not to mention we are at a key inflection point which is attracting more and more eyes to the indices. More eyes means a pick up in volatility, choppy trading, and typically lots of false breakouts or breakdowns. 167 to 169 is your range here but at this point I tend to think it will not be as straightforward as jumping on board a breakout level and riding away to profits. As I mentioned, the more eyes on a market the more trickery and deception that gets lathered on. I DO tend to lean to a resolve to the upside after all is said and done but for all I know it could be another 2 weeks of churning money within a range before a real direction develops. Oh and lets not forget earnings season right around the corner, October is going to be a wild one.