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Weekly Trading Setups

Good Eats Disguised in a Consolidating Market

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For all of the talk that a correction or even a market top is a foregone conclusion, the S&P 500 remains stuck in a tight 1340-1350 range on a closing basis. As I noted on my market recap, I actually had more of my longs finish in the green than in the red today. That said, despite Wednesday afternoon’s reversal of fortune for not just Apple bulls, but broad market bulls, the casual dining space showed some notable strength. Accordingly, I am looking at this group for long ideas on strength, going forward.

Also note that P.F. Chang’s China Bistro and Red Robin Gourmet Burgers report earnings tomorrow morning, which may or may not see some of the names below moving in sympathy.

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The Allure of the East

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Despite an absurd amount of traders infatuated with Apple today, the semiconductors are a notable area of strength. As I noted in my previous post, China may have just seen a false breakdown, and we know from major failed moves usually come aggressive moves in the other direction. Taiwan Semiconductor would appear to be a huge beneficiary of such a turn of events, as you can see the solid chart below. Also note the semis as a whole, via the Philadelphia Semiconductor Index, have been outperforming today. My friend @OptionRadar on Twitter has been all over these names of late. Keep them on watch.

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Reacting to the Reaction of a Bad Event

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After Allergan (AGN) reported earnings on February 2nd, the stock saw a high volume sell-off from what was a promising technical setup. Prior to the earnings report, Allergan has been a notable outperformer for quite some time. As an example, the stock was hitting all-time highs back in October 2011, while many issues where simply trying to stem the tide in the wake of the S&P 500 hitting yearly lows.

Since “the event” on February 2nd, Allergan has recovered nicely. I often note that it is not the actual news, data, or earnings that matter so much as how the market reacts. To be even more precise, the reaction by the market to the initial reaction can often be even more significant. Here, Allergan saw an initial bounce back up to the key $89/$90 level, and has since based out for a few days. This level is the last line in the sand in terms of resistance, as the stock is flirting with all-time highs yet again.

After the initial sharp move to $89 back in October, AGN has taken the time to adequately come to terms at this level to contend for a major breakout. The fact that Allergan is knocking on the door even after a vicious earnings sell-off should tell you how strong the stock truly is.

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Stock Trading Ideas, Explanations, and Thoughts on Macro

I have no clue what kind of effect, if any, the Moody’s news or any other tidbit out of Europe will have on stocks. What I do know is that I continue to find quality chart setups during my nightly scans. In addition,my current holdings are working pretty well inside 12631. Until that changes, I am operating under the assumption that stock picker’s can thrive in this type of market. I suspect macro traders will grow increasingly frustrated with correlations and analogs becoming untangled.

At any rate, here are five ideas for tomorrow.

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The Nicki Minaj of Stocks

Airline stocks are usually held in the type of contempt by traders that many view Nicki Minaj’s shtick, including her unwatchable performance at the Grammy’s last night. However, the airline stocks have technically improved as a whole of late, and most are actually bull-flagging right now. Delta is a pretty good example of what I am referring to. Note the benign consolidation after the stock’s recent advance, as volume has tapered off. I am looking for a move back up through $11.50 with an uptick in buy volume to get involved.

Keep the sector on watch as a whole.

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