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.
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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
Last week the market suffered two days of professional selling which raised the question: are we due for a pull-back? Though to say. By keeping an eye on the market we can tell if it is time to hedge long positions or to add to our existing trades. Yesterday we gained almost 2% in lower volume.
Two weeks ago I closed my Visa trade because the breakout was working on low volume, a sign of weakness. In fact the stock sold off in the next few days and is trading now around $71, below its buy point.
Goldman Sachs hit a 52-week high of $188 last week and then reversed lower to close at $179.50, not a good sign. Volume was unimpressive however. Today GS is back around $183 and if the market doesn’t start a correction I will continue to be long GS calls for the time being.
CTRP briefly dipped below its buy point last week without a significant correction however. This week the stock is charging higher in healthy volume, a sign that institutions are fueling this breakout. Resistance area for CTRP is the May 2008 absolute high around $70. I expect CTRP to test that level in the coming weeks. It is still not too late to jump into this trade.
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Visa has broken out of a base a few days ago and it continues to trade well. The major problem of this breakout however is the lack of volume as the stock moves higher. In fact, V is trading below average volume lately. To me that could be a bad sign so I decided to close my position by selling my October $60 calls at $13.80. I still cashed a 10% return in just a few days however I am a little disappointed by this breakout as I was expecting something more.
Visa could continue to trade on the upside however caution is needed when there is no conviction during a breakout.
TechnicalTrader My recent trades breakout, sell, V, Visa, volume
The opportunity to safely jump onto the GS train is almost over. The stock is currently trading at $176.60 and it broke out of a seven weeks flat base yesterday at $170.94. The stock is not quite extended in price but you have to jump in right of way as any level above $179 is riskier. GS is trading up on monster volume this morning, up almost 300% from average. My call options are already showing a nice gain of $6.50, slightly more than a 20% gain in two days.
I see no reason to take profits at this level as it looks like Goldman Sachs can easily trade near the $200 level.
TechnicalTrader My recent trades $190 level, breakout, earnings report, flat base, Goldman Sachs, GS
The Red Hat trade I recommended is working. We are trading $0.80 above the buy point at $23.82 in almost double average volume. Currently the stock is only extended 3.5% from its buy point so there is still time to jump in. I will update the status of this trade but I won’t be hesitant to take profits if I see weakness in the stock or the overall market. Good luck.
TechnicalTrader My recent trades, Trading Ideas breakout, good trade, RHT
We experienced a little bit of churning in the market last friday because of fairly high trading volume combined with no significant price movement. I am not necessarily saying that this is good or bad, but it’s certainly worth keeping it in mind when trading in the weeks ahead. That said, I have a couple of stocks on my watch list that are approaching interesting levels.
The first one is BIDU:
As you can see from the graph, the stock behaved very well in the past few months and is now consolidating in a base which is now 6 weeks old. The resistance level is the late July high of $368.49 which is also the 52-weeks high for the stock. If BIDU breaks above that level in volume, then it is a buy for me.
The second stock I want to recommend watching is RHT:
Just like in BIDU, this stock is forming a flat base that dates back to the end of July with a 52-weeks high of $23.72. If RHT breaks above this level in good volume you can buy with a stop around $21.70.
TechnicalTrader Trading Ideas BIDU, breakout, Red Hat, RHT, stop loss, trade suggestion
Today I am going to show how to properly read price and volume signals and how to understand if a stock is being sold or bought by institutional investors.
Look at LFT chart below.
I have indicated with arrows 4 high-volume trading days with wild price action following Longtop Financial last earnings release. As you can see, at first it might appear that institutions were dumping the stock from 8-17 through 8-20. However, by paying a closer look at the price action of LFT, it is pretty easy to spot bullish reversals from the lows of the day in each one of those 4 trading sessions. That, combined with high volume, is telling me that institutions were heavily buying the stock as it dipped and touched its 50-day moving average.
LFT is now back to square one. The $28 level has been key support for quite some time now and it is also the pre-breakout level. With all the accumulation of the last few days and with a very good earnings report in the bag now, I expect LFT to move significantly higher in the next couple of months.
Of course if I am wrong, I will obey to my trading plan and cut losses short. Only the market can tell you what works and what doesn’t. I only limit myself to properly understand the facts by paying close attention to charts and overall market health. If the market goes down, 3 out of 4 stocks will follow the trend and you can be sure that growth stocks will fall much faster than large big cap names.
TechnicalTrader Trade School Accumulation, breakout, Distribution, support, UTA, volume
This week’s market action was the demonstration that any pull-back is being heavily bought. Too many institutions have missed a big part of the current rally which reached today a +51.7% from the March lows. What is happening is that any time there is a pull-back, big money investors are coming in and buying the dips.
This action allowed all the major idexes to set new highs for the year, with the S&P closing at 1,026, up 48 points from Monday’s lows.
I have always been skeptic of the correction started after Monday’s action, however I had to listen to what the market was telling me at the time. After today’s action (follow-through day of a new rally attempt) I can more safely suggest to buy this market because the odds are we go higher before we head south again.
Most leading stocks have held their test of the 10-week line after a breakout and that’s your second buying opportunity. Sometimes buying at the 10-week line support is more rewarding than buying a straight breakout off a base. In fact your buying range is between support and new high price.
Let’s make an example. LFT broke out of a base on 8/10, marked a new high at $32.94 and reversed lower all the way to $24.21 on Wednesday 8/19. While approaching the 10-week line, LFT showed increased institutional buying and closed the week at $28.05, up almost $4 from the lows just two days ago. On a weekly chart this price-action confirms institutional support and the stock is now again in buying range bewteen the 10-week line (around $26.50) and the previous high ($32.94). Of course you have to keep a close eye on the stock as it already failed once and it could do it again.
TechnicalTrader Market Direction, Trading Ideas breakout, bull market, institutional support, rally, S&P, support 10-week line