SPY is near resistance levels and could provide another short entry, though resistance is weaker now since it is the third hit. TSLA short setup. NFLX was pullback short setup today, and can enter tomorrow if candle holds. JAKK, UA, CODE still near entry levels. Waiting for pullback in CDNS, ACT, WIN, ALXN and market leader Z. India and Oil remain hot, but need pullbacks.
Note: Next week I will start preparing short webcasts or writings that hit the main concepts of my trading philosophy. I have been getting lots of questions on accumulation and distribution patterns, setting stops and targets and building watchlists, so those will be the first concepts I tackle.
Key Pivot Levels: 190.42: new high resistance 186.74: 50 day moving average 181.31: recent low 181-184: plenty of buying in this range.
Under the Hood:
SPY is bouncing right into resistance. Those still holding the long 50 dma bounce trade had a good place to at least take partial profits. If looking to re-enter a short position here, keep in mind this is the third attempt at breaking resistance. The more attempts a resistance level, the weaker it gets. This leads to lower probability of success. This can be combated by giving yourself a reward to risk ratio of at least 3:1.
Bearish signs still exist. The overall volume pattern is negative showing distribution, RSI still shows a negative divergence and the bearish evening doji star pattern is still valid.
Bearish Evening Doji Star pattern provide short opportunity at resistance levels.
Trading Game Plan:
Continue to hold remainder of SPY short positions (if you get stopped out, already locked in initial profit). If holding SPY long via the bounce trade and haven’t already exited, move stops up and “let it ride” (a separate trade of SPYon different time frame). If you missed out on the SPY short the first time, we are near an opportunity again. Note that the more times resistance is hit, the weaker it gets. This trade is not as strong as the first short. Continue to look for pullbacks to support in focus list stocks. Right now I am content to use SPY or leverged ETFs as my main short vehicle, since no major negative trends have emerged (though I have included TSLA and NFLX as short setups). If the 50 dma breaks, I will start adding short setups to my watchlist .
The Focus List
Here we find actionable setups culled from “the watchlist” for the coming trading day.
Yesterday’s focus list new addition is already near a good entry level for a short position. Converging trend line and moving average support loom just above as resistance, and the stochastic indicator is at extreme overbought levels. There are a few concerns relating to the market. If SPY breaks out, TSLA is likely to also, especially considering that beaten down leaders are starting to come back.
An entry in the $205-208 range, with a target near the lows at $180 and stop at $215 gives us approximately 3:1 reward to risk ratio.
I sent out an email alert about NFLX today. While NFLX is on our long watchlist, it is extremely overbought with a stochastic at 96. Earlier today the candle that was forming caught my eye since it was forming a candle similar to the bearish engulfing pattern we saw in SPY last week. The alert noted that it was a short at the close if the stock did not close near the highs. It printed the candle we were looking for and I went short at the end of the day.
Note that this is still a stock on the long watchlist. We want to buy a pullback either at the bottom of yesterday’s bar or near the 50 day ma. In the meantime, we can play a pullback as a short. My stop is in the $401-402 range with a target at $370. this gives me 2:1 reward to risk ratio.
JAKK bounced strong today, gaining another 2.5%. It still can be entered on pullbacks.
UA bounced nicely today. Entries can still be made on weakness. Target is still in the $50-52 range.
CDNS was strong today. We will be watching for a pullback.
CODE did little today, and still remains near entry level.
Three stocks of note from the Watchlist today: ACT, ALXN and WIN. They all are forming patterns putting them close to the focus list. http://finviz.com/screener.ashx?v=211&t=ACT,WIN,ALXN&ta=0
These are stocks that I always watch, though they might not be in my tradeable watchlist, nor are they actually always leading the market (TSLA and NFLX certainly haven’t in recent months).
We have already talked about TSLA and NFLX. Z broke out to new highs. The rest did little today, and yesterday’s thoughts still apply.
Z looks good as a low risk pullback entry. I would place a stop around $109. An entry at $111-112 would require a target at $115-117 for a 2:1 risk ratio.
Sector and International ETFs
This list of “watchlist” ETFs is used a number of ways. Most are market leading ETFs that I use to find watchlist stocks using a “top down” approach. You’ll notice in my watchlist that a number of stocks come from healthcare. materials and energy, sectors that are represented here. I also trade ETFs that have good setups. Finally, following sector ETFs can give you an idea of where money is flowing and an overall gauge of the market. I carefully watch the 5 and 30 day price trends versus the market. This gives me an idea of where money was and is flowing.
Not much has changed here. It’s still all about India and OIL/USO. We need pullbacks for both.
We had talked about the up move in UNG and how it was showing some strong 5 day money flow, but was hitting resistance. Today’s pullback off the ma was textbook.
Still holding a half position in SPY short after taking profits. Holding longs CODE, UA and GDP. Added NFLX short position today.
When watching volume, the actual volume number of a specific day is not important. We are more concerned with the overall volume pattern, and whether it is showing accumulation or distribution.
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