The market has been shaking off bad news, and continues to push higher. Thus, I am shifting gears a bit here. I am taking some long positions, and will add short hedges should we roll over. Note that the same arguments against the strength of this market were also made in early February–namely volume. If you decided not to play back then because of the weak volume, then you missed out on a very big move until mid April. Price is what pays. I am not saying that we will assuredly see another move like that, but it is a possibility. In sum, I believe the health of the market has improved, and I am willing to come back in with a strategy that allows for hedging.

(All buy orders time stamped inside The PPT)

LONG:

1/2 sized positions in $LULU $CRM $IAG

full position in $APKT

TOTAL PORTFOLIO:

EQUITIES: 20%

CASH: 80%

NOTE: These are trading ideas only. If you choose to follow me, please use stop losses to mitigate your downside risk (I prefer a trailing 7-8% stop).

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Unless you have been able to pinpoint the short term machinations of this market recently, you have likely been chopped up and mugged by commission fees and intraday whipsaws. With the bulls on the verge of putting together a three day winning streak, the temptation is to put on some longs, right here right now. However, the S&P 500 is struggling just below its 200 day moving average, and we are short term very overbought (see The PPT).

As I am writing this, I see that we are giving back a fair share of the gains today. Frankly, it would be healthy for this market to digest the move of the past few days. So long as we see an orderly pullback here, with no signs of heavy distribution rolling us over, I will take long positions in some of the setups and names that I listed last evening.  Again, I am looking for a time frame of at least 3-4 days. Thus far during this correction, that time frame has seemed Buffett-esque, given the intraday moves we have seen.

Remember, the broad market is still unhealthy from an intermediate term perspective, so having some extra patience here is prudent. Should things get ugly again, we will have lost nothing.

At the very top of my long scans are: $CRM $MDAS $LULU $KOG $DECK $RBCN–ONLY on a pullback for that last one.

NOTE: My tell, $FCX, is at a huge crossroads right now. The $66 level is huge, as it was previous support, and is now in danger of becoming resistance. Watch this closely, as it is up against both the resistance and support trend lines.

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I cannot stress enough the importance of keeping an open mind in the current market environment. Stubbornly sticking to a thesis will guarantee you one thing: You will miss out on some great opportunities. There are strong arguments to be made for both bulls and bears at this point. Let’s take the 200 day moving average on the S&P 500, for example. Bears will claim that since breaking down through it on heavy volume, we have been chopping around below it for quite some time, and that our next move is lower from here. Bulls will claim that the 200 day is still rising, and that during the 2003-2007 bull run, every time we dipped below the inclining 200 day m.a., it turned out to be a terrific buying opportunity.

Regardless of what your gut tells you, there is no excuse for not being prepared. Should we sell off again and make new lows, I have no problem keeping a high level of cash and dabbling in some inverse ETFs. If the bulls regain the initiative, however, I want to know exactly where to look. Having a watchlist of stocks that have performed brilliantly throughout this correction is essential.

Below, you will find my top long ideas for the upcoming week. Assuming a healthier market, I will be monitoring these names closely for a long entry. Feel free to pick and choose whichever setups best fit your style. I urge you to use stop losses (I prefer a trailing stop of 7-8%, on average) in order to mitigate your downside risk. Please note that these are merely trading ideas only.

In addition to the ten charts below, I am also monitoring: $CRM $VMW $DECK $APKT $LULU $NFLX $MDAS $NTAP $FFIV $CSTR $CRUS $ARUN $DLTR $DTV $UTLA.

I hope you find these helpful.

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[youtube:http://www.youtube.com/watch?v=b0JtdKrDuz0&feature=related 450 300]

The Nasdaq Composite closed just ever so slightly back above its 200 day moving average on Friday. While some of the index’s perceived “untouchables,” such as $AAPL and $AMZN, may be vulnerable here, there have indeed been many stocks in the Nasdaq that have held up remarkably well in this downturn, such as $CSTR, $FFIV and $RBCN. The updated and annotated daily chart of the index, seen below, illustrates the crucial levels of overhead resistance suddenly at the forefront.

Looking forward, I see a few possible scenarios, seen below. I have denoted my scenarios with the light blue lines. Note that some of them may seem to overlap in certain aspects. Feel free to chime in with your own scenarios as well.

The bottom line is that the bulls have a lot of hard work ahead of them, if they are going to put together anything more than a dead cat bounce. However, keeping an open mind is crucial, so as to not let your bias prevent you from taking advantage of opportunities.

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After yesterday’s melt up, today we are well on our way to putting in a low volume, summer Friday doji day of indecision. As I noted last night, we are just below the 20 day moving average on the S&P 500, which is sloping down through 1087. We have not closed above the 20 day moving average since May 3rd of this year. Moreover, we have not so much as tagged it since around that time as well. So far today, we have slightly gone over it at 1088. A close and subsequent hold above the 20 day would encourage me to go long.

For the rest of today, I will likely stay in my 100% cash position.  Many of my readers are in heavy cash as well, judging from the comments I receive. However, that is not an excuse for us to turn off our screens. There are, indeed, stocks setting up in both directions.

Some stocks that are above all major moving averages, and have held up very well on the long side are:

$RBCN, $CROX, $AKAM, $VMW, $CRM, $NTAP, $LULU, $SAPE, $MDAS, $PTV, $HAIN, $HNT and $SWKS.

Keep in mind that if the broad indices roll over early next week, then these long setups will have been for naught, as at least seven out of ten stocks move in concert with the broad market. So long as we remain below a declining 20 day moving average, it remains difficult for me to see the proper risk/reward in putting on longs.

As far as the short side is concerned, I will be looking for inverse ETFs if the opportunity presents itself.  A rejection of the 20 day moving average on the S&P on strong volume next week will likely take us to new lows. Thus, now is the time to be exceptionally prepared for whichever direction Mr. Market chooses to go next week.

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Just a quick reminder to keep an open mind in the face of this kind of market.  It is not just these violent day to day swings, but rather the hour to hour and minute to minute ones that illicit raw emotions out of traders.  If you are sitting on a very high level of cash, as I am, one of the tendencies is to want the market to go down a lot more in order to pick up cheap bargains.

Resist the urge to become overly bearish. At any point, the big money can come in to this market and stabilize it. If you are blinded by your pessimism, you will miss out on some great opportunities.  Judging from today’s sharp gap up, though, we are not quite there yet. While breadth is good, volume is light.  The past few rally attempts have completely fallen apart into the closing bell, and have frustrated a great many of bulls in doing so.

It would be a real positive to see volume pick up into the closing bell, and to see us go out near the highs of the day.  However, as a swing trader, I would not be betting money on that happening, just yet.

NOTE: Make sure to check out the latest genius of The PPT, The Blueprint, created by the Ragin Cajun. The Blueprint is quantitative analysis at its most convenient. You can filter your search for stocks trading at less than book value, and ones that are being bought up by Goldman Sachs, for example. Unparalleled, indeud.

[youtube:http://www.youtube.com/watch?v=Pg8hgYHQov0&feature=related 450 300]

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