After a couple of months of not writing on this board, I am back with some considerations about the health of the market. Clearly the last 10 days have shown a pretty negative price/action. The market is in a correction right now. Up days have shown no volume and down days pointed at heavy institutional selling. But a correction in the last part of January is anything but a surprise.
The last two weeks in Decmebr and the first two in January are usually good for the market and then there is a small correction. So far we have corrected 80 points on the S&P as of the lows of January 29th. Yesterday has been an up day without volume but today is shaping to be the best day in two weeks: we are moving up and turnover is higher as well.
If the day doesn’t turn upside down, this could be the beginning of a new rally. Too soon to say for sure, but price/action is what counts the most.
TechnicalTrader Market Direction correction, January
Here we are, October 25th with two weeks of earnings reports in the bag. Many better than expected. 62% of companies are beating not only on EPS but on Revenue as well. Beating on EPS estimates can be done on cost cutting, but beating on revenue reflects an increase in business volume.
Even with all these good news the market traded in a range all of last week. We have not been able to pass S&P 1,100 and we are dancing around the DOW 10,000 level. Best of breed stocks have outperformed the market, a very good sign. By looking at price and volume charts of the major indices, it is possible to notice several days of institutional selling in recent weeks. Some of them however have occurred after a holiday, on option expiration day or were simply caused by monster volume in a few key stocks after the release of their earnings (look at Friday sell-off on the Nasdaq with high volume mainly due to MSFT). My point is that institutions are selling less than it appears.
We are now pretty confident that many businesses are doing well and the market always looks 6 months ahead. Money managers will buy any dip in the stock market and I would be shocked to see any correction larger than 5%. My advise is to continue to be long. On a technical side, if we break S&P 1,100 we go to 1,150 in no time.
LFT continues to outperform the market and this week showed some pretty good accumulation.
This week closing price was the highest in a year. LFT is only 6.5% below its 52-week high and I expect this stock to break-out ahead of its earning release on November 16%.
TechnicalTrader Market Direction breakout, GS, LFT, S&P 1100
Earnings from many benchmark companies are coming in better than expected. Tonight Apple and Texas Instruments reported numbers well above expectations, setting-up the major indices for a rally tomorrow. This market is moving higher even though volume is a little bit on the light side, a warning sign. However, I wouldn’t dare fighting the tape as it looks like we could easily move 5% or 6% higher from here. If money managers start chasing the market, we could go straight up as there is no much time left in the calendar year.
I am continuing to hold GS calls. The stock was neck to neck with AAPL in the race to the $200 mark. AAPL set a new all-time high in after-hours trading today above $204. I can see GS continuing to trade to the upside after reporting great earnings last week.
LFT is maintaining the $30 level. There is no much resistance left in the stock as the $32.94 high set a few months ago is the last target to reach. If the market continues to move higher, LFT will almost certainly take out that level. I am planning on holding my position until then and if I see a breakout above $33.04 in healthy volume I will hold even a little longer.
TechnicalTrader Market Direction aapl, breakout, celg, GS, LFT, texas instruments
The price/action of the last few days has been very positive. With the DOW Jones hitting a new high above 10,000 the market resumed its confirmed uptrend. Many important earning reports were better than expected with good improvements on both top and bottom line. We did see a little bit of “sell the news” type of reaction especially in names like INTC and GS.
Because of this picture, I started 3 new positions this week. A speculative one on Celgene, ticker CELG. They are set to report earnings next thursday. I am playing this event with out-of-the-money November $60 calls which already increased in value due to a small move up in the stock since I bought them.
I also initiated a new position in GS when the stock dipped to the $184 level which has acted as decent support over the last few days. With the numbers that Goldman reported I am looking at a price target of $200. The “sell the news” price/action is a great opportunity to establish a new position in GS.
Lastly, I established an aggressive position in LFT, Longtop Financial. This stock is working on a base-on-base price pattern. On Wednesday the stock moved up $1.61 in heavy volume and kept most of its gains in the next two sessions with yesterday decline happening in very low volume, a sign that institutions are holding onto the stock. If LFT shows more signs of accumulation next week, there is a very good chance that the stock can pass the $32.94 high set on the last attempted breakout on 8/10 which later failed. Bottom line, buy LFT above $30 if the stock gains in good volume and look for a breakout above the $33.04 level.
TechnicalTrader My recent trades, Trading Ideas celg, celgene, Goldman Sachs, GS, intc, LFT, longtop financial
I am not liking TSRA price/action this morning so I decided to close my position and sell my November $25 calls for a 17% profit. The stock reversed from a 52-week high and is currently trading down 1.5% on high volume. This is not a good sign. Sometimes it is better to protect profits at the very first signs of weakness. If INTC doesn’t report extraordinary earnings tomorrow, TSRA could very well tank. If that happens, a second buying opportunity might arise when TSRA retreats to the 10-week line. Look for institutional support before pulling the trigger however.
TechnicalTrader My recent trades intc, loss, profit, reversal, tsra
The TSRA trade I recommended on October 8th is currently working. On Friday TSRA advanced 3.8% in 62% higher volume, a sign of continued institutional support. It also marked a new 52-week high @ $31.63.
My November $25 calls are already showing a 20% return as of today. If the market continues to trend higher, TSRA should follow. On Tuesday Intel reports earnings and that could affect the price of TSRA as well.
I expect this stock to move another 5 or 6%higher before possibly pulling back to the 10-week line. Continue to stay long as the market conditions continue to improve.
TechnicalTrader My recent trades call options, market health, profit, tsra
Tessera Technologies designs smart/micro optics and chip-scale, multi-chip, and wafer-level packages for semiconductor manufacturers.
The stock, ticker TSRA broke out of a consolidation yesterday with a buy point of $29.35. TSRA is currently 2% extended in price but it is still in safe buying range. Volume on the breakout has been impressive, a sign that large institutions are buying shares.
Today I initiated an aggressive position with deep-in-the-money November $25 calls. We shall see if this breakout continues to work.
TechnicalTrader My recent trades, Trading Ideas breakout, call options, profit, tessera technologies, tsra
Today I decided to close two trades that I set up a few weeks ago.
The first one was the Goldman Sachs trade played with deep-in-the-money calls. $140 October calls were bought at $31 each and sold today slightly above $50. I decided to close this trade simply because a 65% return in 3 weeks is very good and I don’t want to risk it going into earning season. The stock however is behaving amazingly well and there is no technical reason to sell GS even at this level. In fact, if GS drops down to the 10-week line, I will be the first one to buy it again.
The second trade I closed is the CTRP trade. This stock too was played with deep-in-the-money October $50 calls. I cashed in a 20% return. In this case the stock is struggling a little bit at the $60 level and I didn’t feel comfortable holding it anymore given the fairly weak price-action.
Tomorrow I am going to be looking for the next buy candidates so stay posted for another great recommendation.
TechnicalTrader My recent trades buy recommendation, ctrp, GS, huge profit
A market correction becomes obvious when leaders start to break down. It is very normal to see stocks of bad companies taking huge hits when the market corrects; good stocks however tend to be more resilient and ultimately they are the ones that can keep an uptrend going. Look at Apple and Goldman Sachs for example. In a very bad tape this week where the S&P closed down 20 points or almost 2%, AAPL managed to log in a gain of $2.50 and GS managed to close pretty much unchanged at +$0.11. These are some of the leaders of this market. When they roll over, everything else follows.
Today’s action was pretty encouraging. We declined on lower volume and we also bounced back from the key support level @ the 50-day moving average. My point is that considering that market leaders are acting well, key technical support levels are holding and selling pressure does not point towards heavy institutional selling, I believe that this uptrend has still legs and it could resume as early as next week.
As always, I can only make a prediction based upon facts, therefore if the market starts behaving differently than what I believe, I shall be the first to change my strategy.
Have a good weekend everyone and best of luck with your trading.
TechnicalTrader Market Direction, Trading Ideas aapl, correction, correction 50 day moving average, gs. leaders, key supoort level
The market is behaving poorly lately. We declined 6 times out of the last 7 trading sessions. What do we make of such action?
Let’s start with the facts: if we observe the price/volume action of the last two weeks, we can clearly see at least some institutional selling in the market. Some leaders have been outperforming the major indices however when the market goes down, 75% of stocks will follow. The current uptrend is therefore under pressure. Technically speaking the market made a bearish reversal on 9/23 and the only up day in the last few trading sessions occurred in very soft volume. Now we are quickly approaching the 50-day moving average and also a key area of support around 1,020 in the S&P. If we hold, there is a good chance of a bounce; if we go through, I would recommend to close most of your positions as we can easily drop to 1,000.
Currently, I haven’t taken any action. I am really waiting to see what happens tomorrow. I would be encouraged to see signs of institutional buying in the case we trade to the upside. No buying conviction would be reason to sell into strength.
My current position in GS is still well in the green. GS has been trading very well lately but today was a bad day for the stock even if volume on the downside was contained. Technically speaking GS reversed from $188 to below $180, rallied back to around $186 and today dropped again below $180. It is now $0.51 below last’s week closing price. It looks like a mini double top pattern at this point and if GS closes below the recent low of $177.70 I am out of this trade.
Also CTRP has been trading well in this last market correction and it is only slightly below last’s week closing price at $57.17. Today’s decline came in volume 40% below average, a sign that the stock was only being sold by retail investors. When institutions are not dumping a stock, there might be a much greater upside potential if the market starts trending higher.
Summing up both of my holdings are outperforming the market this week but any sign of further weakness is a good reason to cash out.
TechnicalTrader Market Direction correction, ctrp, Goldman Sachs, GS, october, support