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chessNwine

Full-time stock trader. Follow me here and on 12631

Setups for Week of 08/02-08/06

Going into the first week of August, I am more apt to play stocks that have pulled back to what should be fresh support zones, as opposed to chasing breakout plays. Nonetheless, if the broad market makes another higher low at the 1100 level on the S&P 500, then breakout plays should work very well. The following charts represent my top trading ideas for the upcoming week. They are all long setups, as it appears that the short trade has gotten long in the tooth, for the time being. With that said, if we lose that 1090-1100 area early this week, I can assure you that most of these plays will be rendered broken. Thus, there would be nothing wrong with taking a step back and getting a feel for the action tomorrow.

Feel free to pick and choose whichever setups best fit your style. Please keep in mind that these are trading ideas only. I urge you to use stop losses in order to mitigate your downside risk–I prefer a trailing 7-8% stop loss.

I hope you find these ideas helpful.

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Sunday Self-Scouting

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Many traders often cause self-inflicted wounds to their portfolios, by way of letting their past mistakes haunt them. They constantly think in terms of what-if’s, and woulda-coulda-shoulda’s. They daydream something like, “If only I had gone all-in long on $GOOG when it first had its IPO, I would be sitting pretty right about now.” Indeed, as the old axiom goes, hindsight vision is 20/20.

By its very nature, trading the market attracts ultra competitive types, who are their own harshest critics.¬†While genuinely caring and taking pride in your work are great qualities to have, you absolutely must have the ability to shake off your losses and move forward to the next trade with a clear head. Although you may subconsciously feel better for beating yourself up for making a bad decision (by showing your inner self that you truly care), Mr. Market is not going to give you any consolation prizes, nor an “A” for effort in class participation.

With that in mind, I try to be forward looking. Whatever does not kill you…well you know the rest of those cliches, but they do ring true. The distinction I would like to make is between foolishly beating yourself up for not going all-in on a stock that went up 10,000%, versus doing some constructive self-evalution of your analysis from time to time. In American football, self-scouting is a crucial aspect of preparing for the next game, as teams spend so much time studying their opponents that sometimes they forget to see if their own schemes have become fundamentally unsound. Similarly, traders spend so much time looking outwards at sentiment of other traders, charts, data, etc., that they often miss out on some self-scouting opportunities that could truly increase their profits.

Below, you will find me reflecting on some of the ideas and theses that I have discussed in the past few weeks. If nothing else, I am following up on them, so as to not leave you twisting in the wind and hanging out to dry, like so many other financial writers do.

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THE BAD

I was wrong to say that $GLD was not a short in late June of this year. Although I never took a position in the yellow metal, and I have been cautious on the miners, I put my readers on the wrong track by saying that shorting gold was foolish. In retrospect, I should have seen that the upside momentum in gold was waning, and I should have also been more open-minded to the idea of shorting what turned out to be a crowded trade, in the face of panic in Europe.

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I was also incorrect in assuming that just because a chart is putting in a bottoming formation, then it is safe to trade. I made this error with $GMXR a while back. I eventually got stopped out for a loss, and I deserved to lose every penny on the trade, for my hubris. I still like the prospect of the stock putting in a broad base of a bottom here in the $6 zone, but bottoming formations are often sloppy and cause great frustration amongst both bulls and bears.

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THE GOOD

I took some handsome profits on my $ARUN trade within the past few weeks. I noted when I sold out of it that I thought the doji indecisive candles, after the sharp run up that the stock had, were likely warning signs. Although I may very well look to reenter this stock in the near future, it turns out my short term call and analysis were correct.

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I was also correct in turning bullish on the Euro/Dollar as early as late June. While many traders were trying to short the Euro back then, I noted the bottoming formation that the stock had formed. Unlike $GMXR, this bottom was more pronounced, in the form of an inverted head and shoulders pattern, and had also held its breakout. I still believe that 1.32 is a realistic target here.

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I was also correct to point out the bullish divergences in late June, as neither the trannies nor the small caps had broken below their February lows, while many traders–not to mention the financial news media–noted how bearish it was that the S&P 500 had done so.

I could go on with a much more extensive list, but I would risk turning this post into a novel. Hopefully every now and then you can take a slice of your weekend and do some honest, constructive self-scouting.

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A Kudlow Odyssey

The market is still deciding whether it wants to consolidate or breakdown here. The battle of 1100 continues, and is proving profoundly futile to try and trade until it resolves in either direction.Therefore, a better use of time is to take a sneak peak into the future, with your good friend and great American, Larry Kudlow of CNBC, as your guide.

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Jittery Indecision

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MARKET WRAP UP 07/29/10

Both the morning gap higher and the midday selloff were faded today, as the S&P 500 wound up closing down 0.42% to 1101. The past three days have been an exercise in futility for most swing traders, as the market is in the process of consolidating before making its next big move. The mixed picture of positives and negatives for the both the bull and bear cases has been reason enough to take a pass on trying to be a hero and aggressively position oneself in directional bets.

As the updated and annotated daily chart of the S&P 500 illustrates below, despite the wide price range we had today, the market closed near the middle of it, indicating just how indecisive market players are.

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The other key indices and sectors, however, continue to give the bulls the edge with their relative strength to the S&P. The updated and annotated daily charts of the Nasdaq Composite Index, Russell 2000, Dow Jones Transportation Average, and the emerging market ETF all indicate as much, seen below.

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Periods like these can be extraordinarily frustrating for traders, as they struggle with the idea of patiently sitting in heavy cash, waiting for better market conditions. For all I know, circumstances can change as early as tomorrow, which is all the more reason why it is important to perform nightly scans on various stocks and sectors. Indeed, many charts are looking remarkably better than they did a few weeks ago. However, nothing is guaranteed by Mr. Market, especially when it comes to traders complacently assuming that we have started a new trend higher.

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TOTAL PORTFOLIO:

EQUITIES: 22%

  • LONG: 22%¬†($BX $SAPE $POWR $JMBA)

CASH: 78%

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Intel Taking it to the Limit

[youtube:http://www.youtube.com/watch?v=xVaFC4M8xMU 450 300] _____________________

The bulls sure have been pushing the limits of support this summer. Just when charts seemed like they were getting more constructive, we would have another leg down and blow out tons of stop losses. Note how this price action contrasts to the unfilled gaps that we saw during the sharp rally off of the March 2009 bottom. It can be argued that the current market action is healthier, in terms of all of the backing and filling.

Regardless of your opinion on the matter, $INTC illustrates the point about pushing the limits of support. The stock broke out of a multi-month falling wedge after its blowout earnings report. It then flattened out in a tight and seemingly bullish manner. Today, the giant chip maker is off over 2%, and the stock is simultaneously testing the convergence of the 20, 50 and 200 day moving averages. So, consider Intel on my list of key tells, given how the chart sets up, not to mention the size and significance of the firm’s operations. If we see the bulls rush in and provide a strong bid at this key support zone, then I will be able to buy with more confidence across the board.

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The Elites

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I go through many charts every single night. In a trending market, I am apt to find so many attractive setups that I usually have several different lists of scans, ranked by quality. Although we have not had the pleasure of operating in a trending market since I have had my own tab on iBC, we may indeed be on the verge of seeing one now. I have fondly named my very top tier of scans, “The Elites.”

What am I looking for? Quite simply, in a trending market I want the silky smooth leaders. I am not looking for laggards to snap back from oversold conditions. Sure, the Ragin’ Cajun and I are always looking for ascending triangles, bull flags, BTFO setups etc.. However, what I want above all else are stocks “flying the friendly skies.”

What I mean by that is I want to be in those stocks which are operating above all of their major moving averages on their daily charts. Moreover, they should have no big menacing selling volume. I would also like to see all of the major moving averages lined up in temporal order (20 above the 50, 50 above the 100, etc.) with all of them sloping up as well. The analogy is to an airplane flying above the clouds at 30,000 feet, with only occasional light turbulence as the plane swoops down and touches the 20 or 50 day moving average “clouds.”

If the broad market makes another higher low in the coming days, below are the charts of my “elites,” that I am eyeing for long swing trades. I am not going to give my usual annotations, so as to keep things very simple.

You are looking for three prongs to be satisfied:

  1. Price is above all of the major moving averages;
  2. The volume pattern is bullish–look at the size and quantity of green versus red volume bars;
  3. The moving averages are inclining and not too entangled with each other.

Once that three pronged test is satisfied, you will look for an entry as the stock comes in to touch the benign clouds (the 20 day moving average, or thereabout), so long as the selling volume is not heavy. You do not want to chase these stocks after they have moved higher four or five days in a row. Take a step back and think about this strategy. What you are doing is waiting to find yourself in a trending market higher, and then you are buying the leading stocks on light pullbacks.

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