Learn the Discipline

The Model Portfolio opened three new positions on Tuesday and Wednesday in X, DECK and ESI. None of the existing positions were stopped out this week and all 10 open positions are profitable.

The portfolio is about $22,000 of the $152,000 portfolio in stocks and the balance is in cash.

As stated last week, now that the market has changed to a more neutral intermediate term trend from from down and we will use a pullback opportunity to a higher low to become more invested.

With the bearish harami in the indices and many stocks on Friday, this week might present the opportunity to do just that.


(click on image to enlarge)

Futures Are Higher Before the Open

SPX is breaking to new highs hitting 832 as it continues the current trend up since the March 6 low. Stay with the trend until the end...


BMO - ES +10 and NQ +20 future are trading higher with a little more than an hour to go before the cash markets open. If the cash markets open higher, watch if the they break Wednesday's highs for indication that the short term up trend is likely to continue. On the downside the key short term support is still the S1 level of Monday's large white candle.

We'll have Great Questions, Great Answers this morning so check back...


At the Open on Thursday
SPY – hanging man, buyers at 50 DMA
MS – hanging man above 200 DMA
ESS – doji on 30 DMA
GS – hanging man at 200 DMA
SNDA – large white candle, +5.29%
OSG – bull flag
CTSH – bull flag
LEAP – bearish engulfing above 200 DMA
X – spinning top after reaching $25.08 double bottom price target
DLB – bull flag at 200 DMA
CRM – hammer, bull flag
AMED – double bottom, bullish divergence stochastic

Great Questions, Great Answers (email us at chartsignals@yahoo.com with your technical market questions)

Eric asks…
Seems like the price action today (Wed March 25) is a cautious one, knee-jerk short covering and then a leg in back to the short market. Also seems like everyone is waiting for tomorrow’s big GDP day.

As we come closer to the end of the quarter, what should I expect with this quacky market? If it were totally bearish, I’d expect the fundies to dump some bad performing stocks. And if this now seen as a slightly bullish market, I would expect some end of the quarter buying in some of the good names.

In either case I expect some selling to start on Wed of next week. Need some sanity in this insane world…sanity check please. Am I getting close or totally off base?

Dave answers…
Wednesday’s action I’m sure included both shorting and short covering…however if one really studies the short data that is released every two weeks it should be clear that short activity was likely a small minority of total activity. It is much more likely real cash buyers and sellers created the majority of the buy and sell transactions on Wednesday. Since the DJIA volume increased to 454.1 million shares up from 379.5 million shares on Tuesday, it is clear that not everyone was waiting for Thursday…someone may be, but not everyone.

While it is true that the market has been more volatile during the past twelve months than it was during the prior four years due in large measure to the economic and financial challenges in America and the world, this market does not appear quacky to me, but rather it seems is quite similar to past bear market lows in 1974, 1987 and 2002 – 2003. Panic selling seems to have pushed this market to oversold lows and as financial and economic data has been released over the past two and a half weeks, showing that economic estimates had become excessively pessimistic and inaccurate, that cash laden investment firms have been taking advantage of extremely low stock valuations to buy.

In 32 years I have never heard a financial professional use the term “fundies” so I’m guessing you mean mutual funds, if so, it seems that they have been “dumping” for 18 months and likely completed the majority of their “dumping” by March 6. While funds are always buying and selling and some “window dressing” always occurs at the end of a calendar quarter, I would expect this to be a minor factor after 18 months of aggressive selling.

If by good names you mean stocks that are in up trends, it seems that mutual funds are not waiting for the end of the quarter but actually became aggressive in their buying beginning on March 10.

I like your confidence in picking next Wednesday as the day selling will start. From my view I think sellers were in control last Thursday, Friday, Tuesday and part of Wednesday (yesterday), but that on balance buyers have been in control for two and a half weeks.

While it would be presumptuous for me to pretend that I can tell you or anyone else, what day sellers will overwhelm buyers and this market will pull back, I do know that when sellers do take control, prices will break support and then fall to a lower support level where buyers will take control back from the sellers. I know what that looks like on a stock chart and I am prepared for that every single day. I hope you and every reader of Chartsignals will be too!

Aloha

Learn the Discipline

Learn the Discipline
Week Seven Summary

(click image to enlarge)


All positions closed or stopped out this week are trading at or below their exit price except AMZN which rallied after being stopped out.

We have been rather conservative in our risk exposure over the past several weeks because the market broke support and was down trending. During this time that approach paid off by outperforming the negative return of the SPX as we mentioned last week. If the market forms a higher low in its current pull back from Thursday's high, that is the point we will become more aggressive in getting the Model Portfolio more fully invested.

Remember, we want to think like a Master Chess Player thinking several moves in advance.

Looks Like a Key Reversal Day...

I know you are busy…in fact when I was first asked to start a blog by those who listened to me once a week but wanted to know what I was thinking every day, I delayed for a whole year, because I was busy too and I knew it would take time to put what I see and think each day into writing…and I knew it was my personal time that I would be using…I finally took the plunge a year ago and I think it has been a good experience for you and me…

I would like to make some enhancements for your benefit to the blog, both in what I share and how I share it…but before I do, I am asking for your insight as a regular reader of this blog…I know you are busy and that it is easy to think someone else will give their input, so Dave won’t need mine (apparently they are thinking the same thing you are)…actually several already have and I am very appreciative to those who have taken the time out of their busy day to give me feedback…their insights are very helpful…however, the feedback I have received is not yet a valid sample size…what that means to the non-statistical types is that if I take their insight and add it to mine, it is essentially still guessing at what most of you find useful on Chartsignals…Sooooo…I’m asking you…yes, You…

Will you please take just a moment now to email me at chartsignals@yahoo.com and tell me: What information in Chartsignals do you find useful right now?

The benefit of taking a moment is that I won’t delete something that is useful to you and I will delete information that is not that useful…and Chartsignals will become a more effective and efficiently delivered source of what I see and what I’m thinking every day…I do appreciate everyone that is willing to help me help you…Dave


DJIA - 7.01, -0.10%
SP500 - 2.66, -0.35%
NASDAQ Comp. - 27.48, -1.92%
Russell 2000 - 6.73, -1.71%

Exchange NYSE NASD
Advancing 2,198 1,207
Declining 1,590 1,552

Oil $47.35 +$1.10
Gold $922.00 -$8.10
SOX 212.16 -7.95
VIX 43.74 +1.38

The VIX moved up and did confirm the move down in the SPX on Monday.


Strongest Sectors: XLU +2.71%...XLB +1.57%...XLP +1.56%
Weakest Sectors: XLY -2.36%...XLF -1.95%...XLV -1.08%

Sector Watch
Up Trending:
Sideways: XLE, XLY, XLV, XLK
Down Trending: XLF, XLP, XLI, XLB, XLU


Stocks rose in early trading Monday only to reverse and move lower by the afternoon. The financial sector which had been the leading sector ETF early Monday fell to the next to the weakest sector by the end of the day. .

Technically, the indices had a key reversal day with stock prices opening and moving higher only to have sellers push prices down to close near their low of the day. For many stocks Monday is the high day of the recent support bounce and a break below the low of the high day on Tuesday would represent a bearish entry signal and an exit signal on short term bullish trades. Some stocks broke the low of the high day today.

The Financial Sector XLF fell -1.95%. Leading financial stocks which gained 1%+ included MET, ZION, AFL, KEY, STT, PRU and USB. Remember that all of these stocks are in intermediate term down trends.


Learn the Discipline
We closed positions in FAS at 5.11, UYG at 2.33 and stopped out on AMZN at 66.74. All three trades were profitable.


Index Commentary
The DJIA formed a tombstone doji right at its 50% Fib retracement (Feb 9) and at its 30 DMA. This is also the high day. Watch for a potential break of the low of the high day.
The SPX formed a shooting star ath the 30 DMA and the 50% Fib Retracements (Feb 9). Today is the high day in the counter trend. Watch for a potential break of the low of the high day on Tuesday.
The Nasdaq formed a bearish engulfing which confirmed Friday’s hanging man at its 50% Fib retracement (Feb 9) and its 30 DMA. Today is also the high day in this counter trend move. A bearish engulfing requires no confirmation.
The RUT formed a bearish engulfing that confirmed Friday’s hanging man at its 38.2% Fib retracement (Feb 8) and just above its 20 DMA. This is also the high day. A bearish engulfing requires no confirmation.


At the Open on Tuesday
Counter Trend Up in a Down Trend
SPY – bearish harami at 30 DMA in bear flag
BA – shooting star above 20 DMA in bear flag
WHR – black spinning top at 30 DMA in bear flag
BDK – shooting star at 30 DMA in bear flag
DE – shooting star at 30 DMA in bear flag
WYNN – bearish engulfing at 20 DMA in bear flag
ADS – shooting star/bearish harami at 30 DMA in bear flag
DECK – bearish engulfing at 20 DMA in bear flag
VNO – evening star at 30 DMA in bear flag
SPG – evening star at 30 DMA in bear flag
FWLT – shooting star confirms shooting star at 30 DMA in bear flag


Stocks to Watch on Tuesday
Leading Stocks:
Holding Above 30 DMA
BIDU, CLB, BKC, NFLX, DLTR, HANS, ICE, ALGT, MOS, DLB, JEC, PWR, VPRT, AMZN, MON, AAPL, CTSH, FLS, JOYG, AMX, APEI, AXYS, BAP, CAM, GMCR, GPRO, JCOM, JOSB, MUR, PCLN, PETS, WMT
Moving Above 30 DMA = 2
ATW, GR
Moving Below 30 DMA = 4
FSLR, MYGN, SYNA, SNHY
Staying Below 30 DMA
EBAY, GME, SLGN, WRC, CPLA, ESRX, GES, PSYS, CHL, DECK, GILD, MHS, TDG, SPWRA, AMED, BIIB, GXDX, PCP, RBN, DV, ESI, VAR, WCG, BLUD, JW.A, MUR, ORCL, RCI, SWN, HLF, STRA, PCR, RIMM, BDX, BYI, PPD, ACN, NIHD, K, NTLS, HDB, CBST, SNA, AFAM, MCD, EZPW, WAB, FAS, UYG


Monday’s Action (=> +$0.70 or -$0.70)
Moving Up: MON, PCLN, CNX, AGU

Moving Down: STRA, BIDU, FSLR, GS, MA, SOHU, MS, SINA, PNRA, AEM, ANR, NDAQ, AFAM, NEM, HANS, ONXX, BRCM, POT, MOS

Intermediate Term Market Trend: Neutral – Nasdaq; Down – DJIA, SPX, RUT
Short Term Market Trend: Up

Learn the Discipline

Week Six Summary:

Approximately $30,000 of the $152,000 model portfolio is currently invested. After six weeks the portfolio is down approximately 1% compared with the SPX which is down over 8% in the same time period. As we stated six weeks ago, the model portfolio is essentially a stock only portfolio at this time and intended to be primarily an intermediate term strategy.

There is a difference between making individual trades and managing a portfolio and our objective is to reinforce some portfolio concepts that will make large differences over time. As we get a valid sample size of trades we will become more explicit in our explanations. So stay tuned and you will become plesantly surprised over the next few months as the portfolio unfolds.