Market Thoughts and 3/16 Watch List

Good evening Bulls.

Very chopping trading day, to say the least. So, what’s going on and how do we, as short term traders, handle it?  That’s up for debate, but here is my take on the state of the market, what I plan to do next, and a few new stock additions to my watch list.

First, if you’re not looking at the overall market on a regular basis, then you’re leaving out a statistically crucial element in determining your trading strategy.  The big picture can help direct such decisions as: what percentage of my portfolio should I leave in cash?  How risky should I be today (penny scalps with high volatility vs stronger companies will less intraday swings)?  What industries should I be looking at? etc.

These questions (and many others) are vital to keeping your risks minimized while maximizing profit potential.  Everyone has different approaches and risk management techniques – experiment and test various strategies before ever tossing a dollar into the a trade.  Take your time and you’ll discover your risk tolerance, time you can dedicate to trading, and what types of trades are the most profitable for you.  I, for example, don’t usually know much about companies (fundamentals).  I’m a chartist – I’m looking for technical setups and play accordingly – BUT, I have the time to do it.  If you’re more of a swing trader or don’t mind holding stocks for a longer period of time, the fundamentals should be taken into consideration.

Ok, enough of that, let’s look at what’s going on in the markets right now.

Take a look at the SPY daily chart.  Simply put, it is overbought in the short term – RSI14 is toppy, Volume interest in the upside price move has decreased and MACD is starting to look downwards.  The market could go anywhere, but the odds are leaning towards a pullback. 

Now what do I do? 

First, just because the market looks top heavy, doesn’t mean I go out and short everything in site. This move up, though slow and lethargic, could last a while – we don’t know for sure.  You gotta play what the market gives you.  However, it pays to prepare and don’t fight the odds.

So the market is toppy on decreasing volume.  In anticipation of a move back down, I’ll always limit me exposure – to me exposure means holding too many long positions and not enough cash.  Right now, I’m at 70% cash.  That’s a comfortable range for me when there is an increasing probability that the market will pull back in the near term.

Secondly, I shorten how long I hold a trade and I keep the stops tight.  Often times in choppy markets like this, you’ll get a strong move in a speculative play just to see it give it all back by later in the day.

Also, I reduce the number of highly speculative trades (penny stocks, etc) and instead look for better companies with established trends on the daily charts (like channels, triangle breakouts, etc).  AHT is a great example of this (mentioned it last week, as well).    Want to reduce your risk? Find stocks that are in a general bull move, like AHT, and look at how they perform when the market is down.. Do they fall significantly or do they just pull back a little bit (strength)?

Don’t forget about the bear – if the day is in fact going bearish on heavy volume and the market appears to be reversing, it doesn’t hurt to scale out of your longs, go cash heavy, and look for short opportunities in sectors that have run up lately and are overbought.  If you’re not comfortable shorting, just go cash heavy and watch for support or sectors with strength.  You could also use this time to find quality companies (fundamentals) that have pulled back – value shopping.

Create a plan, set goals, and keep yourself in the game.

New long scalp/swing opportunities for tomorrow:

CBB – ascending wedge now testing resistance at 3.24 – A swing is possible if we get above 3.25. Volume has bee strong lately.

HEAT – I’m really starting to like this one.  First, on the daily, we have a nice triangle setting up here – I’m a fan of a move above if it’s supported with volume and RSI14 above 50. First target, 14.5.  There is an overall decrease in volume – classic triangle setup. Watching for a move.  Also, check out the weekly chart and you’ll see a bearish pennant.  In other words, I wouldn’t enter this stock UNTIL it gets out of daily triangle. 

SMMX – little bull flag forming here on the daily with resistance at 4.60ish.  Nice volume moving into this stock, so watch for move above the 4.60 range and keep a tight stop if you trade it.  I’ll mention in Boom Factory if I go long.  I do like the tight bollinger bands, so it could move.

ACLS coiling down on decreasing volume.  Look for a move above 1.73.  Heavy resistance at 1.80, but the doors could open after that.  Worth watching – RSI14 needs to stay above 50.

LSI – another consolidation triangle.  I’m interested above SMA50.  I’ll look for volume and a push to open the bollinger bands before entering.

See you all in the Boom Factory. 



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