Chess Moves

After a selloff this morning, the $SPX closed impressively today to finish up 0.23% at 1208.  Although we did not move over 1210, I still found today’s action bullish enough to go long $GLW into the closing bell.  I also made another trading video concerning the $GLW chart pattern, which you can view here. However, I still have a very healthy cash position due to the fact that it is earnings season and we are in a short term neutral consolidating range right now.  A sustained move above 1210 tomorrow could easily change that. As the chart below shows, we had another successful test of the 20 day moving average today around 1190.

Despite the many interesting individual setups that I am seeing, it is crucial to be cognizant of the broad market direction.  When in a neutral range, many traders often lose a lot of money incorrectly predicting the next big move.  I believe the better risk/reward strategy is to let the market choose its direction first before making bold bets either way.  As I have said before, at least seven out of ten stocks move in concert with the broad market, which is a big reason why I have been posting an updated chart of the $SPX for you on a daily basis.

As I mentioned in my wrap up last evening, the 1200 level on the $SPX remains a key psychological price point for the broad market.  So far today, we gapped down to 1190 this morning, only to catch a bid that has us currently up to around 1205.  This market can best be described as being in a short term neutral state.  Thus, I am resisting the urge to make bold bets either way.  I did sell out of my $DPZ today because the stock started to drift a little too much on me.

With a 60% cash position, I will simply let things develop from here, as I am reticent to put on any further longs below 1210.  I do like some long setups such as $GLW, $LZB, $FST, $PETS and $DKS, but the broad market dictates the direction for at least seven out of ten stocks on average, and to disregard that would be reckless.

Despite the conventional wisdom amongst traders that a correction to the most recent rally is a foregone conclusion, this market has consistently been a tough nut to crack for the bears.   In particular, today’s session had all the makings of a huge “sell the news” reaction to $AAPL‘s earnings yesterday, yet the broad indices rallied back from the red to finish nearly even, as the $SPX closed down 0.10% at 1205. Indeed, we may be in a topping process, but the longer we consolidate above 1200, the more likely it is that the bulls will regroup and take us to new highs. Keep in mind, as the chart below illustrates, that we have already had a successful test of the 20 day moving average.

Psychologically, finishing comfortably above the 1200 level was a big plus for this market today.  I would use that round number as a good “tell” as to which direction we go from here. If we drop below there tomorrow, then I am looking for another test of the 20 day moving average. If, on the other hand, we can move above 1210, then I believe the bulls will have seized control yet again for another move higher.  Note also that a big down day tomorrow will cause the market to break down below the pink trend line in my chart of the rally since February.  So, we really are at a critical point in terms of the short and intermediate term direction of the market.

As for my individual trades, I had some nice gains in $EPAY, $DPZ, as well as two new additions to my portfolio: $AES and $COCO.  As stated in my trading video last night, I took a decent sized chunk of profits out of the 7% move in $EPAY.  I still have a large cash position and will likely continue to do so until we get through the heart of earnings season.  If we do break down tomorrow, I will buy the ultra short materials ETF, $SMN, due to the absolute and relative weakness in that sector over the past week or two.

As I said I would in my $EPAY video last evening, I took 60% of my position off of the table today into the great strength the stock is showing. If the stock pulls back and retests the break out point, I will look to buy back those shares. Congrats to anyone who played along with me on that one.

I also bought a position in $COCO. I like the chart on this one a lot, and the education sector has been doing well.

Earlier this morning, I also bought a position in $AES, piggybacking The Fly.

Trading Video–$EPAY

I hope you guys find it worthwhile. I am not trying to pump $EPAY (although I am long and I do like it here), so much as talk you through my thinking on ascending triangles and pennant formations in general.

UPDATE: What the $AAPL bulls are thinking tonight…

UPDATE  #2: I am encouraged by the overall market action. I would like to see us move above 1210 tomorrow on the $SPX for me to really consider using my large cash position on the long side.  I really like The Fly’s $AES buy today, and  I believe that stock could have a nice run above the 50 day m.a..  Of course, if we fall below 1200 on a “sell the news” type of day, then I will look for swing trades on the short side–going long $SMN being at the top of my list because the $XLB materials have looked weak.