Time for Care
The market is surprisingly strong in here, with no real signs of weakness. Still, the sentiment picture is very iffy, and I've noted that when the market is giving us tons of set ups, we want to be very careful. In fact, I'm going to go on record advising a hedge. More on this below.
DOW: The Dow is looking basically Bullish, but a pullback will take this one down.
S&P500: The Weekly Chart here is a bit iffy, to be sure, but only on a shorter-term basis.
S&P500: You can wee the support levels below on the S&P.
NDX: The Nasdaq is really looking like there might be some risk here.
QQQ: I'm going on record as advising a hedge in the Q's. Basically a short at the market, after the first 30 minutes of trading. Position size should be roughly equal to 50% of market exposure. Using margin to effect this hedge is OK. This may vary based upon individual portfolio needs and risk tolerances. You can pass entirely if you are comfortable with your stops.
RUT: The Russell is also getting into nosebleed territory.
HUI: The HUI looks like it could go crazy in here.
GSS: Gold Star had a major shake out and may have too many shorts. It's probably a great holding.
SMH: Semi's are strong, but the may need a pullback. Let's see if they give them to us.
IYR: Maybe we can get a bounce to get short.
SCH: No good pattern in Schwab and too much risk to chase.
STEI: Stewart Enterprises is not acting that well, but they may come back to this one.
AMCC: Applied Micro is moving for us.
NGEN: Nanogen was a bit weak, but I like the look of this pattern if we can move a bit higher.
NVTL: Novatel looks good. Snug your stop.
RTK: Rentech is interesting still. A Yo-Yo for now.
LOOK: LookSmart is building energy for the next move.
COMS: Let's pass on the 3Com. Too much risk.
PPH: I like this type of pattern. If the Pharms can move a bit higher, we might see some acceleration. I have solid holdings in the majors below current levels.
DOC: Digital Angel may have spent it's speculative potential for now.
CCRT: Compucredit looks good, but it really needs to move quickly.
Summary:
I don't want to come off as Bearish, exactly, but I note that this market is more overbought than I like to see, with more overdone sentiment. It just stands to reason to both stick to our game plan on the issues that we like, and hedge off any excess exposure to a market that needs to correct. My gut tells me that when the market gives us too many good ideas, it's time to make sure that we don't get bagged by a surprise pullback. By putting on a hedge (via a short in the Q's equal in value to 1/2 of our current market exposure), we give our best ideas a chance to work out, and if the market decides to correct, we stand to make money on our short sale. It's even possible that we could make money on both our longs and our short.
Be Well, and Trade Smarter Than the Average Bear!
Mark, Doug, and Holly
-The ChartSmarts Team
Current Positions:
Long GSS at 4.42, stop at 4.19
Long STEI at 7.39, stop at 6.49
Long AMCC at 3.45, stop at 3.22
Long NGEN at 4.01, stop at 3.79
Long NVTL at 20.95, move stop to 20.95
Long LOOK at 1.64, stop at 1.55
Long PPH at 69.9, stop at 68.7
Long CCRT at 23.56, stop at 21.98
Watch List:
SMH: Limit buy at 31.8, stop at 30.3
IYR: Limit short at 118.8, stop at 120.6
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*30 Minute Trading Rule:
In order to prevent whipsaws, we use a 30 minute trading rule. This means that, as a general rule, we are going to "sit on our hands" during the first 30 minutes of trading. Additionally, if after the first 30 minutes of trading the range of the stock pick is within the stop and buy/short boundaries presented, the trade recommendation is valid. If the stock's range is outside of the buy/short and stop boundry, the trade recommendation is VOID. E.g. if the recommendation is "Buy a print of 10.25, with a stop of 9.95," and the stop trades up to 10.50 during the first 30 minutes, we would pass on the trade. Similarly, if that stock were to trade down to 9.90 before 10:00, the trade would also be void.
There is no 30mn rule on limit orders, but if price gaps out of the buy/stop range the trade is void.
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