Good evening StockBandits!
Last week proved pivotal in favor of the bulls, who really didn’t even need to add to their existing technical (and psychological) edge. With a 2+ month uptrend already on their resume, the looming news of highly-anticipated November elections and the FOMC’s expected unveiling of the QE2 plan were potential market-movers. Toss into the mix the fact that key resistance at the spring highs had been met but not yet cleared for both the NAZ and DJIA, and the stage was set for something meaningful to happen.
No one could blame the bulls for booking profits after such an impressive, virtually nonstop run since the start of September, but instead they proved they’re still willing to put cash to work and press their advantage by taking the indexes to new 2-year highs. And while Thursday’s breakout was certainly a decisive one, the expected rest on Friday still saw a battle for a couple more points, perhaps just to remind everyone that the trend remains firmly up – both from a technical and a psychological standpoint.
Every dip has been bought since August, and while the momentum did slow recently, the trend was able to persist with rising channel patterns. Last week’s push to new highs provided an acceleration out of the top end of those uptrend channels, which is a display of strength not commonly seen.
So at this point we have a market which is still a bit extended, yet no signs of weakness. Just as despair is pervasive during downtrends and traders wonder whether stocks will again rise, euphoria and confidence come with prolonged uptrends and there’s a sense that stocks might not ever decline again. Of course, neither mindset is accurate, but as traders we must be careful just how eager we get to go against the grain. Personally, I want to trade with the trend for as long as it’s present, while becoming increasingly aware of the possibility of a pullback (or reversal) the more mature a trend becomes.
Currently we have no technical reason to worry that stocks will suddenly shift directions. Although anything is possible – and we have certainly seen some sharp reversals this year – it’s quite likely that once this uptrend does happen to tire out, it won’t lead to an immediate down-elevator type of move. The dip-buyers have been paid repeatedly, and they’re not likely to just walk away. We’ll likely need to see some failed bounces before we can truly embrace the short side, but again right now the trend is still up.
Heading into Monday there are some plays on my radar, but I’m also mindful of the fact that many stocks are simply not sitting in technical patterns with well-defined entries. Those will emerge, but patience is still an important part of trading effectively with the trend. As we allow the setups to come and resist the urge to chase extended (and in some cases parabolic) moves, we’ll have some cash on hand to put toward those setups which do exhibit the risk-reward profiles which keep our downside in check while allowing for some great moves. Last week we caught some of those, and I’m expecting to see plenty more soon.
As a reminder, for a few weeks I’ll be utilizing the written format of the Broadcast as we’re in the process of moving and therefore without the equipment I use for recording the nightly video. Once I have my new office set up, I do expect to be back to the usual video format. To those who prefer the video, thanks for your patience. To those who prefer this written format, I hope you are enjoying seeing more text! At any rate, it’s refreshing to me to be able to mix it up a bit. And of course, your input is always welcomed.
For tonight, my notes are on the charts below for index levels and potential trades I’m eyeing for Monday.
Please leave your comments and/or questions below if you have any, I always enjoy the interaction.
Swing Trading Candidates:
RRC has been recovering for a couple of months and finally looks like it could accelerate higher if it can clear resistance here. I’ll be going long this stock if and when it clears $39.60, ideally on increased volume, to start a new leg up after a few days of quiet consolidation. As with all swing trades, my stop and target levels for this one will be on the Hit List post here in the Hideout.
Day Trading Candidates:
These are the trades I’m eyeing for potential plays tomorrow. I will not be holding these overnight, and will wait for these levels to be crossed before entering trades.
Bullish Watch:
DRIV, IGTE, RHI, NTGR, BIDU, VHC, OAS, BIIB, UHS, RRC, BCSI, ACOM, CSC, CODE, GPC, ORLY, QLGC, NTES, CCE, GNK, CPO, LLL, LYB, UNH, ARCC, CAGC
Bearish Watch:
LZ, V, HAL, THRX, XRAY, EAT, ECL, LNCR, CRAY, HSIC, ADM, MELI, VCI
The Hit List contains stop and target levels for my swing trades.
