Yesterday trading presented good opportunity to execute and hold solid trade ideas throughout the morning session. While the markets price action was not a screaming long it did support good long trade ideas once it hit monthly highs. The financials in particular showed good strength in the markets yesterday, which was led by Goldman Sach (GS) making new monthly highs and JP Morgan JPM) hitting new 52 week highs (however brief). I also notice strength in the insurance part of the financial sector (which is also continuing in today’s trading) with HIG and PRU with both stocks testing yearly highs.
Looking at JPM price action from yesterday we can see some points of entry that emerged from solid scenario development. As you can see on the daily and hourly charts the stock was a solid long, above all moving averages with a solid bias to the upside. Coming strong right out of the open within the first 5 min closing above yesterdays range, this was the first entry you could have executed. While this is an aggressive entry it was justified because of the strength in the higher time frames.
Now the second entry (which is the entry most traders probably identified) was near the 15 min ORB. Looking at the charts we get a nice ten minute pause with a great risk/reward (with a close below 47.50 as your out). The key to the success of this trade was holding it through the markets pullback. If you setup and stuck with the proper rick parameters you would have no reason to get out of the trade, if you would look at the 15min chart we can see that price action did not create a lower low all morning.
Looking at the daily and hourly chart for today’s price action we see a low volume pause, an inside day continuing from yesterday afternoon sideway action. From this information we can anticipate a continuation to the long side in the upcoming days with price action making new highs. We do have some resistance on the weekly charts around the 48.20 level so I would not get aggressive until we and comfortably hold above this level.
Today the markets continued it move higher in a relatively lack luster way compared to Fridays action when the turmoil in Egypt soften with Hosni Mubarak stepping down as president. The strong buying in the markets continues as two of the major three indexes make new 52 week highs. The Dow Jones Industrial Average (DJI) was the index today that did not make new highs with the SPY and NASADQ, which could have prompted a sell divergence in the markets, but was not realized in today’s price action. Showing continued strength in the markets.
The energy sector performed very well today as many of the Keystone Trading Groups components watched in the XLE (energy ETF) made 52-week highs. Exxon-Mobil (XOM) had an explosive day right out of the morning trading and continued to push higher throughout the day on strong volume. While smart trading cautioned traders to be less aggressive until we broke the $84.00 two week resistance level, once above price action continued higher another dollar with little resistance. Valero Energy (VLO) was another stock that had a strong morning and once above Fridays highs took off another .75 cents in the longs flavor.
Another stock that looks interesting and shows promise for a continued move higher is Baker Hughes (BHI). While the stock did not breakout like some of its counterparts today, this two week low volume pause looks ripe for the stock to push higher in a big way. It looks similar to XOM on the daily charts. As XOM had an huge move in the beginning of the month followed by two week low volume pause that resulted in an explosive move higher in today’s price action. I will be looking BHI and other components in this sector to continue higher in the upcoming weeks.
This morning trading was a bit difficult as we had a big sell off during yesterdays closed, which cause this morning price action (while relatively strong) to present difficult opportunities due to the lack of follow through broad base (and lack of ability to get out of yesterdays trading range) for both long and short trading ideas. I’m betting most traders who were able to book profits, did so into momentum and were very diligent in determining risk-only trade compare to trade ideas that had good probability for follow through.
Another element that created a difficult trading environment was the internals not presenting a strong bias in either direction. Even though the VIX did trade lower(bullish) most of the morning it didn’t translate to increased follow through as the morning session continued forward.
The afternoon provide good opportunity to the short side as the Euro continued to break down taking the SPY with it. While the euro and the markets did sell off you had to be in the right stocks at the right time to take advantage to the move lower. Being prepared to short already weak stocks presented the best opportunity for follow through in this stock specific market.
Looking forward it is extremely important to have trade ideas for both side of the market and imperative that you focus your attention on the best stocks that have the highest probability for follow through and good risk/reward that warrant taking the trade. It is easy to get chopped to pieces in this market as the moves are not broad base but very sector and stock specific.
Today’s markets seemed like a case of deja-vu from Tuesdays price action as we open near 52 week highs and sold off for the remainder of the morning, finding some support at yesterday highs. And similar to Tuesday trading it was difficult to initiate long with a high probability of follow through but we could not short aggressively because of the overall strength in the markets.
In the afternoon we were able to hold support at Wednesday’s high and started to make a run back to test session highs near the 124.00 level. Which provide some interesting long opportunities in stock that have been strong throughout day, such as BBT, MET and COST (from Keystone stock list).
As far as trading goes the VIX did present good clues as to markets direction. As the VIX gaped lower on the open (coinciding with the market opening at its highs) we subsequently pushed higher, but could not continue lower as the VIX tested and held its first 15 min support area giving legs to the continued uptrend (bearish) through out the the morning session.
As we look at the afternoon session the VIX had the same type of move, just on the long side. As the afternoon continued the VIX formed lower and lower swing highs giving way to the afternoon rally. Even though the SPY and the VIX opened and closed near the same level, paying attention to the directional movement of the VIX could have resulted in taking advantage of some intra-day movement in this very stock specific market.
A few things I did notice in the markets today was the relative strength in the financial sector and weaker price action from the technology (specifically semi-conductors SMH) and the energy sector, which could be the beginning of leading sector rotation (but we need more time to see if this is the case). If the financials with tech and energy could start to push higher consistently I think we will have no problem getting above the 124.00 resistance we have in the SPY.
Trading this morning was difficult as the SPY gaped higher above yesterdays trading range make new 52-week highs around the 124.00 level. While the longs have been the better trade over that past few weeks in this strengthening market, it was important to be patient during the open and wait for the proper signal to execute trade ideas during the first pullbacks, due to the near one hundred point gap higher at the open. Unfortunately as the morning pushed forward the markets continued to push lower making it harder to justify longs and to distinguished between risk only trade and trade that actually had a high probability for follow through.
On the flip side while long were not working out it was difficult to load up on shorts due to the recent strength in the market during this past few weeks. While it was prudent to wait for conformation on short ideas this could have resulted in missed entries and difficulties managing shorts.
In the afternoon trading we started to make a move to the highs of the day but could not hold the rally as we sold off hard into the close breaking lunch time lows and closing inside yesterdays trading range. In the markets today we did not see performance from the energy or technology sector which has been pushing the market higher. Both the oil service (OIH) and the semi-conductors (SMH) and its components has unenthusiastic performance in today’s trading.
A few trade ideas that worked out well for Keystone traders today was a short in United Airline (UAL). A short below yesterday lows was the entry area as we were below the 15 min ORB and below the 50 sma on the daily charts, which provided momentum as the stock pushed lower. The stock traded a dollar-plus below the entry area (shown in the charts below). The price action also provide a great exit signal in form of exhaustion on the five minute chart with the huge increase in volume near the 25.50 October support area. This increase in volume was a perfect clue to tighten stop or get out of the short position altogether.
The SPY had a strong buying yesterday as we broke above two week trading range, closing above the daily 20 sma resistance level. Good economic data out of the U.S. with the FED Beige Book reporting improvements in the manufacturing sector and good global economic data help support the market rally. If SPY price action can hold above 20 sma and not fall back into trading range the next move is to test the November highs of 122.95.
The technology sector did well in relation to the semi-conductor space as many of the major components of the SMH had strong buying during the open. ALTR presented a good momentum long in the morning trading coming off a pullback on the daily charts. The price action gapped above yesterday’s highs and immediately continuing higher on good volume, with the 15 min chart creating higher high into the lunch time period.
Commodities moved higher with the Euro bouncing off its daily 200 sma sending the dollar lower. This resulted in the oil and oil service sector to continue higher with BHI, HAL, and SLB making new monthly highs and XOM trading back above it 20 sma n the daily charts.
With the markets trading sideways yesterday between the 20 and 50 sma on the daily charts follow through is limited until price action can break through support or resistance level. Looking at the hourly chart we can see intra-day there are a lot of support and resistance levels that need to factored in trading decision and game plan.
With this being said, it is very important to focus your game plan on the best sectors and stocks to achieve the highest probability for follow through. Having strong trade ideas long and short will give you great flexibility to take advantage of opportunity in the choppy market.
Yesterday the majority of Keystone traders made money on the short side as the SPY pushed lower during early morning trading which was supported by a rising VIX and weak tick reading, but continued sideways into the lunch hours. The afternoon trading provide a good opportunity as the SPY pushed higher. The Euro was able to break out of it small trading range which provide a nice long opportunity in commodity stocks, which was supported by the rally in the markets.