875 (867-877 Range) in Focus / More Cheapie Plays / Moving Averages

First, RC and I made a video. It is on his blog. They are all high probability breakout and/or continuation plays.

875 continues to be in focus (as is the 867-877 range). The market needs to break from this holding pattern quickly to meet resistance at 888. Frankly, if we continue to flag in this range, then it is bullish. If we breakout, it is obviously bullish. Even a breach of 860 leaves the uptrend still intact. There will need to be a major breakdown or a huge exhaustion gap in order me to go short at this point.

As you know, I already own CBB, CNXT, COIN, CPE, IO, THC, and WRES. I have a few other cheapies in my sights: EMKR, NXG, XTEX, GSIG. I made north of 50% last month playing only $1-3 stocks. In addition, there are a lot of oil/gas earnings plays that should breakout, including CHK and FST. I’ve said it many times before and I’ll say it again: be selective in your picks. Don’t pick random stocks and definitely don’t pick anything just because I’m buying something, despite the fact that I’m banking some serious coin.

I received hundreds of questions/e-mails over the past few weeks on a variety of topics. I think I’m going to cover moving averages. The main question was, “what MA’s do you use?”. That’s simple. I layer all of my long charts with the 15, 20, 50, 100, and 200-day MAs. For shorts, I add the 5 and 10 as well. The MA’s for the long-term are the 200-day (primary) and the 100-day (secondary). The intermediate-term MA is the 50-day. Short-term MA’s are the 15 and 20-day, and the most important for swing trading.

The most ideal situation is when the 15 and 20-day both provide underlying support. What’s even better is if the 50 and 100-day MA’s also provide underlying support. Right now, in the majority of stocks, the 200-day acts as an initial price target for exit. The 200-day MA is the strongest MA out of the ones mentioned. It defines the long-term trend. The COMP is the only MA that is testing the underbelly of the 200-day. Interestingly, the QQQQ is resting above it. Technically, if something is above the 200-day, it is in bullish territory, so keep an eye on tech.

The MA’s also gets rid of headaches and panic attacks. If you know where one of these significant MA’s are located, then you know there will be a bounce, at a minimum (in most cases). Conversely, if a stock is approaching a major MA, you know there will likely be a pullback or failure. Besides price, volume, and the basic chart patterns, I’ve relied primarily on the moving averages to make my trading decisions. I let the MA’s make the call. Stop panicking and impulse trading for no good reason. Let the charts make the decision for you.

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We formed a shooting star as a result of the pullback, which indicates that further distribution may be necessary. The 875 level on the SPX continues to act as a “magnet” if and when prices fall too low or rise too high from this level. This battle is and will continue to be a multi-day battle. For those that freak out during the day having no clue what’s going on, then you need to keep the following charts in mind:

The 60-day chart clearly shows a sustained uptrend, but pay more attention to the 10-day chart. You should be doing this every night on your own, but I have added some extra space for a “blank day” so you can imagine where the support/resistance levels will lead. As you can see, we are still within this 2-week channel. Besides 875, there is intense struggle between 868-878. Collectively, let’s call this area the demilitarized zone (DMZ).

As for individual positions, continue to remain selective with only the very best setups, just in case the market chooses to go against your expectations. Almost everything on my watch list has to be confirmed intra-day, many times minutes before a breakout. Trades have been and will continue to be posted in the comments section and/or PPT, twitter, etc.

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DBA is exibiting strength over a multi-month consolidation. Note symmetrical triangle breakout:

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WHO raised their alert level to phase 5. I expect it to be raised to 6 in a matter of days. Remember the avian flu outbreak? The highest WHO alert on that was 3. Even though Americans are recovering, it is the virus geometric rate of infection and possible mutation into a second strain that worries me. A vaccine will not be made available for months. Take proactive measures to isolate yourself from anyone showing symptoms. That’s right, no hugging or kissing, sorry.

As for the market, it went higher as predicted. Any sized pop will bring the market over 875. This level on the SPX is absolutely critical. It is the largest and most powerful resistance level that is preventing possible movement up to the 200-day MA. Nonetheless, the fact that we’ve been testing it for several weeks shows me that the market still wants to go higher. We may be forming an ascending triangle off of this range. 875 is the tell. I personally expect some sort of consolidation after a 2%+ move.

A look at the RUT and COMP also suggests that we move higher. Out of the DJIA, SPX, COMP, and RUT, the latter two show the best promise. Is it no wonder that all my longs are small caps? If you’re in tech stocks, then you’re winning big. Concentration should be placed on small caps and tech. If you are looking to go short, the airlines formed a breakaway gap on Monday. This viral strain will spread quickly, and it will hurt the industry. CAL and DAL are possible prime swing short candidates.

Despite my near apocalytic first paragraph, I am long many $1-3 stocks. I have a 8% FAZ position as well as a 22% cash position. The FAZ is there to serve as my portfolio’s insurnace policy. Long holdings include FEED, FIG, CBB, WRES, THC, IO, and CAR. I am looking at QTM, PKD, and HERO as long candidates, among others on my list.

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GDP comes out at 8:30AM EST. The consensus is -5%, with a range of -6.2% to -3.5%. The previous reading was -6.3%. Obviously, there will be movement.

It is also Fed day today, meaning, you better quit fooling around by 2:15PM and get back into your seat. I usually like to run errands and other misc. tasks all morning, you know, the ones that have been neglected for weeks (fill in the blank). Everyone expects no change in the current rate, and I expect most of the movement will occur based on the FOMC’s statement. I am hoping that the GDP/FOMC announcements will be the catalyst in breaking us out of this range.

The action in the past few days is telling me that the market wants to go higher. We formed a doji on low volume yesterday (as part of a small 2-day bull flag), indicating consolidation and a likely halt to the distribution. Currently, the market has both the 15- and 20-day MA’s as short-term support. To me, those two MA’s matter the most in my swing trading. They matter, here and now, for the SPX.

I was also given a link to FMyLife.com by my good friend, Steve. If you need a laugh, this is a great one and it gets your mind off of the swine flu headlines. Here are some random entries:

Today, I decided to be the sober housemate for the first time in a while. I drove my drunk friends to the bar and back and even bought them pizza before they passed out in the living room. I get repaid by catching my wasted housemate in my room peeing all over my floor, bed, and nightstand.

Today, I went up to a secluded mountain my boyfriend took me to for our first date. As I saw another couple hooking up in the bushes, I phoned my boyfriend to tell him someone found our secret spot. His Bob Marley ringtone started playing from the bush.

Today, I walked into the ladies restroom and was shocked to see the guy I’ve had a huge crush on for two years. Peeing. In the sink.

Today, I was hanging out with my boyfriend when we started messing around. Things were getting really hot when he gets a call from his best friend whose grandfather had just died. As they were talking and I heard her crying, he unzips his pants and mouths, “She won’t know.“

Today, my boyfriend thought it would be sexy to throw me against the wall and kiss me like they do in the movies. Being all aggressive and smooth, he grabs my shirt and pushes me. He pushed a little too hard and my head was thrown back into the wall. I was knocked out for ten minutes.

Today, I ran into a girl I used to go to school with. We went out for dinner to catch up, and we ended up at my house, watching movies and cuddling. This fantastic and spontaneous date was concluded with several kisses. I dropped her off at her car and drove off. I forgot to get her number.

Today, an ant bit my penis. That was the first ‘mouth’ to ever touch it.

Today, I got kicked in the face at a soccer game. Everybody clapped.

Etc.

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It appears that the swine flu cannot be contained. It’s spread out in different geographical regions in the US. The incubation period is one day, and a lot can happen in that one day. The number of cases should increase dramatically as more people report it. Since there are no deaths, it seems like the strain is non-lethal to Americans, however, the sample is too small. We need a larger sample size, it is inevitable. Don’t make contact with anyone that looks sick (coughing, sneezing, congested, tired, aching, etc.)

The entire day’s action was fine, except for the last hours. There was mass confusion and indecision. There were irregular spikes up and down. This itself is not bullish at all. Let’s call it a flag within a flag…within another flag:

Now depending on the time frame, the market trend can be either bullish or bearish. Both longs and shorts can be right within a neutral flag (first flag), as long as their time frame is correct. If you went long at the bottom, then we’re still in an uptrend. If you are short, you can catch the pullback, and possibly more if we break down. It all depends on your entry & exit, which is determined by your targets, time frame, and other factors.

If you look on the 10-day chart, the 2nd flag is marked in green (diagonal). Support is at approx. 846 and resistance is at 875, which coincides with many of resistance levels. The third flag, marked in sky blue on the 5-day chart, can be seen forming over the past 2 days.

This is why suggested the past few days for both longs and shorts to hedge with something. Either that, or this neutral range will hit your stress points. These ranges will cause you to make bad decisions. For swing traders, this range is especially deadly. I’ve seen these traders impulse buy and sell like there’s no tomorrow. For day traders, just stick to what you do best.

I’ll give my $1-3 picks later, if I don’t forget.

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