Jan

29

Investing Systems Research Lab Blog for Week of January 31st, 2011

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Did you read what I said last week? If not then scroll down and glance it over real quick.

I mentioned “getting defensive”, and took a somewhat cautious approach going into last week.

I even went out on a limb and suggested that the S&P had a date with the 20-day moving average, which looked silly early in the week, but pull up a chart and see where it closed.

On a day to day basis the volatility has picked up considerably and many stocks will likely trade in a much wider range for the time being. I said something about “choppy waters” and I still expect rough seas going into this week.

We are in a “news driven” environment now and you have to be careful. between geopolitical events and the thick of earnings season, there will be lots of opportunities and pitfalls.

We went from a new high on Thursday to a close below the 20-day moving average on Friday. In keeping with last weeks theme, I suggest being very cautious going forward and let the dust settle a bit.

The bullet point list of suggestions for trading this environment still apply. However as a speculator I will still take hit and run trades as they present themselves. The good news is that it takes a market correction to set us up for new opportunities. The bad news is that the majority of charts are “busted” and it will take time to repair the damage. Remember we want to take entries coming off narrow-range days and from consolidation patterns. Stay away from big red candles and let things settle out.

Patience is the key right now. Once we get through the choppy seas, it wouldn’t surprise me to see a ton of good set-ups emerge and if the news doesn’t turn out to be as bad as it seems, we have not seen the high of this cycle.

Then again, in the back of my mind I am always prepared for all hell to break loose, where the market goes into another “liquidation environment”. In that case we will be watching the leveraged inverse ETF’s closely for trades.

Here are a few charts that look interesting right now, but I plan to take a wait and see approach going into next week.

We should have a lot more ideas once we see how the market trades in the first few days of the week.

Join us Monday morning at the opening bell for the Live broadcast as we watch the events unfold. I’m sure it will be an exciting week!

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Jan

22

Investing Systems Research Lab Blog for Week of January 24th, 2011

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“There’s a time to go long, a time to go short, and a time to go fishing”. Too bad it’s so cold out.

Last week was the inflection point in the market we have been expecting. The environment just changed again and it’s time to re-evaluate your strategy going forward.

It’s been 7 weeks since the S&P tested the 20-day moving average and I’m fairly confident it will touch it within the next two weeks. The market is tired and needs to rest.

A few weeks into earnings season we are seeing significant deterioration in the market leaders and it seems like a minefield if you hold the wrong stock through earnings. For the time being I plan to trade defensively. I will be much more selective, trade less often and reduce overnight positions.

I will sit more days out and be quicker to take profits.

I will try to keep overnight exposure in my trading account to less than 1/2.

I will focus on trading lower priced stocks that can move a quarter to fifty cents intra-day. Get in, get out, don’t hold overnight.

I will exercise extreme patience because I see “broken charts” everywhere and I know it’s going to take a couple weeks for many of them to “form a base”.

I will not try to catch any “falling knives”. Unless of course it’s for a quick scalp.

I will try not to trade after “long-range” days, I will wait for narrow-range bases to form.

I will set tighter stops and trade almost with the expectation of getting stopped-out. That’s fine…that’s defense.

If I don’t see a reasonable stop/exit, I won’t try and be a hero.

I will trade with smaller position size and be less aggressive.

I’ve been doing this long enough to know that you have to adapt to changing conditions. The market has been “smooth sailing” since December 1st, now the waters are getting choppy. It’s it all part of the ebb and flow of the market.

I will say this though. I don’t think it’s time to short…yet. Shortly? perhaps. During any transition period you have to go by what the charts are showing and adapt quickly. Remember I said months ago here that I wouldn’t short as long as the indexes were above the 20-day moving average? . We aren’t there yet.

As you know, I constantly look through stock charts and probably review 500 a day and thousands on the weekend. I can tell you it’s not a pretty picture out there if you like “well behaved” charts. The price action turned ‘erratic” last week and most stocks and all the indexes had a “range expansion”. We have been expecting this for some time, and last weeks price action confirms it.

Regardless of the environment, it’s a market of stocks.

Here are some charts that I find interesting at the moment. The first one is the IWM (Russell 2000) which I watch closely as it’s price action tends to reflect individual stocks.

SRX was one of the picks Friday from a scan in the Research Lab. It’s extremely volatile, but I see a lot of potential based on preliminary research. Perhaps it needs to rest for a bit, but I’ll be watching for a break to new highs.

I’m confident we will be able to find good Trade Plans in the coming weeks, but please understand that we want to be as selective as possible. So bear with us as we proceed with caution.

Honestly, as I mentioned above, I think it’s risky to hold a stock overnight because you can not control where it will open the next day. Could it be that daytrading is conservative and holding overnight is speculating? Over the next few weeks perhaps, but not over the long-run of course. Swing trading is about letting the good setups come to you with the idea you will catch the next “cycle up”, holding for a few days to a few weeks. In order to do that we must have a good base on the chart to work with.

If you are positioned right, next week will be exciting. Nothing like a healthy pullback and a spike in day to day volatility in stocks to shake things up.

Some people don’t like to sail in choppy waters. There’s nothing wrong with that. Remember, it’s probably time to go fishing anyway.

Join us live Monday morning at the market open in the Research Lab as we evaluate the stocks from our scans in real-time.

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