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MARKET GAUGE- Confirmed Uptrend (1/4/19)
WEEKLY QUOTE-“One useful fact to remember is that the most important indications are made in the early stages of a broad move. Nine times out of ten, the leaders of the advance are the stocks that make new highs ahead of the market averages.” –Gerald Loeb
OVERVIEW: The most recent market action is a great example of why it is important to try and interpret the action of stocks and indices and not try to predict what may happen next. There is a fine line between watching the market action and being prepared to act in a timely manner when the landscape may be changing, and trying to be well out in front of the crowd with a firm line in the sand, and worse yet, stubbornly sticking to those projections when wrong. Those who have expected the markets to get turned back at the 50 day moving average have been disappointed, those who placed bets that the S&P 500 would get immediately turned away at the 2700 level, have been equally disappointed to this point. And while the current rally may get turned back as it now approaches longer term resistance levels, I for one will not make a prediction in that regard. Our follow thru day signal has worked well to this point, and leading stocks also continue to act well. We have also seem the list of leading stocks broaden somewhat recently, as more non- defensive industry groups have joined in the rally. Furthermore, we have seen little in the way of distribution in the indices since our confirmed uptrend got underway just after the start of the year. That said, traders should never get comfortable, or overconfident, as the tide can always shift quickly without fair warning. So, stay disciplined, honor all stops and never chase extended stocks.
INDUSTRY GROUP CHECK- Last week we took a look at the Semiconductor-Fabless Group, which had run its way quickly up the IBD industry group rankings and still sits strongly at #6 this week out of the 197 groups tracked. This week we take a look at another industry group that has made a big push over the last six weeks and that is the Electronic- Scientific/Measuring Equipment group. This fairly small industry group comprised of 18 stocks have made quite the accent running up over 27% since they bottomed on 12/24/18 putting it firmly in new high territory. The top stocks to watch in this group are KEYS, MTD, VPG, NOVT, BRKR, CGNX and CAMT. Here is the chart courtesy of IBD and MarketSmith.
MAJOR INDEX CHARTS- Here is our weekly look at the major index charts as we head into trading on Tuesday.
That’s all for today. We will see premium members tomorrow with our Weekend Trading Review. Have a great Saturday!
Shenandoah Telecom (SHEN) is continuing is breakout quest today from a cup and handle base, but volume will need to pick up to legitimize any successful breakout. Volume run rate is currently just below average levels, but can pick up quickly. Keep this one high on your watchlist.
Biotech firm Vericel (VCEL) continued its breakout attempt it began on Tuesday with a nice gain today which saw shares close well above the pivot point ($18.65) of a cup and handle base pattern that it began to carve out in December of 2018. Sales growth has picked up over the last several quarters, but has been a bit spotty, and although the company is not yet profitable, it has improved earnings over the last couple years and fund sponsorship has picked up as well. Young, unprofitable biotech companies always present added risk, and normally do not carry all the fundamental attributes that most CANSLIM candidates possess, so traders should lower their risk profile when trading these names.
Shenandoah Communications (SHEN) is a strong stock in a hot Telecom-Services/Wireless industry group ranked #9 on the IBD group leaderboard and the stock is approaching breakout territory from a cup and handle pattern. Earnings have grown by triple digits over the last four quarters, although sales growth has been slim over that period holding in low single digits. Relative Strength sits at a health 95 rating. The company is estimated to grow earnings 254% for 2018 and another 45% in 2019. The pivot point is the high of the handle area at $49.75.
MARKET GAUGE- Confirmed Uptrend (1/4)
WEEKLY QUOTE- “The elements of good trading are: (1) Cutting Losses, (2) Cutting Losses, (3) Cutting Losses. If you can follow these three rules you may have a chance”- Ed Seykota
OVERVIEW- Our confirmed uptrend has worked well to this point, but the indices have run into some areas of congestion and possible resistance. We would repeat however, that as important as it is to monitor the major indices daily looking for signs of trouble, mainly thru mounting distribution days, we can not get to involved here that we lose focus of how individual leading stocks are acting. Although the leadership has been just a bit narrow to this point, we are seeing a few more growth oriented industry groups start to rise up the leaderboard which is a positive sign. At the same time we have seen just enough breakout attempts reverse and fail that we must stay on our toes and not get too far out over our skis at this point. Many Software groups continue to act well, but one group that has moved up the leaderboard quickly over the last few weeks is the Electronic-Semiconductor/Fabless group. This was a big leading group in 2016-2017, before leveling out in early 2018 and eventually going into correction mode. The group looks like it may have bottomed in late December and is now working up the right side of a new base as it races its way up from #57 six weeks ago, and #42 three weeks ago, up to #5 this week on the IBD industry group leaderboard, so perhaps this is an area to watch closely going forward.
It was a good sign to see the major indices fight off the early selling during Fridays session and finish pretty much at the highs of the day and in positive territory. As usual, the market landscape is painted in various shades of gray and there are still a slew of earnings reports to deal with as well as the all the current geopolitical risks. So, we continue working diligently one day at time being especially careful to not get embroiled in the prediction game, but continue to track the indices daily, monitor the action of the leading stocks, as well as the action of the stocks in our portfolio, as they are always the ultimate barometer for our trading. Now let’s take our weekend run thru the index charts.
Members were alerted to the opportunity brought forth by the breakout in Keysight Technologies (KEYS) back on 1/24. The stock is up over 8% since then and closing in on our first target. The stock is a part of the Electronic-Scientific/Measuring group which is currently ranked #19 out of 197 groups on the IBD industry group leaderboard. It has posted three straight quarters of impressive sales and earnings growth and has seen a 40% increase in fund ownership overt that time. Its Relative Strength line continues to make new highs and currently sits at a reading of 97.
HZNP- The stock resides in the Medical-Ethical Drugs group which has dropped down the list a bit lately, but still sits at a fairly respectable #48 out of 197 industry groups in six month performance. Horizon’s earnings over the last several years have been up and down, but they have posted two consecutive quarters of sales and earnings growth and the stock has the #1 Composite rating out of the 41 stocks in its group. After gapping up out of a consolidation pattern after their latest earnings report in November, the stock quickly went into another basing pattern. The stock broke out above the pivot point of this new cup and handle base and the break above $22.66 on qualifying volume Tuesday completed this pattern. Relative Strength has picked up again over the last several sessions and now sits at a reading of 97. Fund ownership has also increased over the last several quarters. The company is slated to report earnings on 2/27. Here is a look at the chart.
MARKET GAUGE~ Confirmed Uptrend (1/4)
WEEKLY QUOTE~ “In any sector, trade the leading stocks, the ones showing the strongest trends.” – Jesse Livermore
OVERVIEW~ We are now five weeks into our new confirmed rally and we still see very little signs of distribution since the advance begun. The Nasdaq Composite and Russell 2000 have finished higher for six straight weeks, while the S&P 500 has nailed down gains for five of the last six weeks. New leading stocks and industry groups are slowly starting to surface lending some validity to the new uptrend, but things are still far from perfect. Traders need to be open minded to the fact that indices have now traded right into area of congestion and resistance on the charts and are far from making new highs. Perhaps some consolidation or pullback is in the cards soon, but we never want to get too far out in front and try to predict the next move. Trades should continue to monitor the action in the indices day to day looking for signs of trouble in the way of mounting distribution days, but more importantly should focus on the behavior of the new leading stocks that have sprung to the surface as they may tell us the most about how this current rally will continue to unfold. And as always, traders should look to the behavior of their individual open positions as they are always the ultimate barometer for your trading. If this new uptrend in the markets has taught us anything, it is the importance of focusing on the leading industry groups and those stocks within. We have been pointing to the strength in Software stocks for several weeks now and many of those continue to act well and breaking out of bases to new highs. If we take a look at the chart of the Software/Spec Enterprise group we can see that while the S&P 500 was still heading south, the Relative Strength of this group has already bottomed out and started to head higher. This action should have put the stocks in this group near the top of your list of possible new long candidates once the market followed thru. On Friday this group broke out of a consolidation area and surged higher as several individual stocks here broke to new highs this week. Similar action had been seen in the Commercial Services/Advertising group and some Telecom groups.
Traders who have made some worthwhile gains should continue to lock in partial profits while moving their stops up to at least breakeven should the currently rally rollover and turn south. Furthermore, resists chasing stocks that are extended and focus any new buys on stocks emerging from proper bases on increasing trading volume, and as always cut losses quickly on trades that do not go as anticipated. Capital preservation is job one, and that rule never changes. Now let’s take our weekend run thru the indices using the bar charts this time as we heads into the first full trading week of February. (Note: TC 2000 has not yet updated Friday volume figures).
That’s all for now. I will talk to premium members Sunday afternoon with the Weekend Trading Review. Not a member? Join now for a free 30 day trial at http://www.ttptrading.com