On Friday all the indices finally got their act together on the same day and rebounded nicely on the heels of Thursdays sell-off and that’s good news. However, we saw volume across the board decrease which leaves us in a neutral mode. A solid follow through on increasing volume, especially by the NASDAQ, would perhaps renew our bullish posture.
Our job as a trader is not to be a cheerleader and create bullish our bearish bias, but to read the market tea leaves best we can to put us in the best position to profit and protect us from the possibility of debilitating draw downs. With that, we will take a look at the charts of the NASDAQ 100, S&P, NASDAQ Composite as well as the Russell 2000 before reviewing our individual trading positions.
RUSSELL 2000 (IWM)- This small cap index has traded sideway now for seven months. As we can see on the chart below the index has made five runs at breaking through the ceiling of the consolidation only to fail. In a theme that you will see develop as you read through this article, it has racked up five distribution days (Institutional Selling) in the last 16 trading sessions. This is not the kind of action you want to see in the tail end of consolidations as they can often lead to base failures with the stock or index subsequently selling off. We must also consider that markets can often go out of their way to keep the majority off balance. The possibility does exist that the sell-off that occurred just last Thursday may have been the ultimate fake out before a breakout. Keep in mind that being able to see both sides of the market will make you a much better, not to mention a much more prepared trader.
S&P 500- This index is in the best shape of the bunch as it has held firm at support near the 2400 level and closed firmly above its 50 day EMA to close the week but has still suffered six distribution days recently. Five or more distribution days inside of four weeks of trade is a signal that institutions are selling and caution is warranted. However, we must be diligent in our on going assessment of the markets because selling pressure can reverse at the drop of a hat leaving eager bears who jump in with both feet in a world of hurt. Be patient, constantly looking for confirmation of new trends and let your portfolio slowly evolve to represent the state of the markets. Make sure your watch list includes both long and short set ups at all times. This ensures that we are more prepared to switch gears if necessary. Additionally, these lists also help reflect the state of the markets as the balance of your lists should lean very heavily in favor of the current market trend, or it may help you identify a new developing trend.
NASDAQ Composite– By comparison, this index is under more pressure than the afore mentioned S&P. It has suffered, by my count, five distributions recently however, other technicians and publications such as IBD have the current count at seven. In any case, it behooves us to be prepared of a possible change in market character. The index rallied to close above both the 6100 level of support as well as its 50 day EMA however, as we mentioned earlier, volume came in lower than the previous session. Remember that distributions days come off the count after day 20, so in this case, the June 9th distribution day will come of the count for the NASDAQ after Mondays close.
QQQ- This Large Cap Index of 100 tech stocks is in the worst shape of the bunch. It has suffered six heavy days of institutional selling recently with several leaders, such as Tesla, breaking down and flashing sell signals. The index closed up a little over 1% on Friday but the ongoing theme of lower volume on the advance resonates here as well. Additionally, unlike its index brethren, it was unable to mount or hold its 50 day exponential moving average. Noting this healthy distribution, as you will see below in our portfolio review, we took a LONG position in QID which would capitalize on further selling pressure in the index.
So, without further ado, lets take a look at the currently portfolio which only contains four positions right now and reflects our current neutral market stance as we continue to trade with a bit of caution.
QID- We took a LONG position in this inverse ETF which will benefit from selling in the QQQ’s, or Nasdaq 100. We were filled at $17.66 and after the Friday market rally we are down 1.64%. We have a stop near $16.30 risking only a little over 7% should large caps snap out of their funk and reverse. We have ratcheted down slightly our initial swing trade profit target to near $19.00. Next weeks action could give us a good look at where the markets may be headed.
HIIQ- We took a LONG position here on 6/14 and were able to capture our swing trade profits of 13.56% in only seven trading days. So per usual, we will hold the second half of our shares as a position trade with our stop near breakeven. We like the recent mild pullback on low volume and if the healthcare sector continues to outperform we like the potential here.
MDXG- We opened a LONG position here on 6/2 at a price of $14.59. We had a brief opportunity on 6/26 when the stock gapped up on the open and traded near our $16.25 swing trade target but we were not quick enough to seize the opportunity. Aside from the short term advance in late June the stock has traded sideways along with most of the other small cap stocks. We will maintain our relatively tight stop near $14 which coincides right now with the 50 day EMA. Sometimes we get paid quickly as we did with trades in HIIQ or TGH earlier in the year and sometimes we get paid slowly, which can occasionally lead to big gains like we saw in our UCTT trade, if we are patient. Other times we don’t get paid at all and that’s why we have stops. We will continue the process with this one.
BURL- This is our newest position taken last Wednesday on 7/5 and it is a SHORT position in Burlington Stores. This stock has been one of the few performers within a underperforming, if not dismal, Retail-Discount Store sector but it looks like cracks may be developing in the armor. The stock started an initial strong thrust down from near all-time highs on 6/20 shedding nearly 18% in only four sessions before quickly rebounding but stalling just below the 50 day EMA line before reversing back down with a big volume selling day. This triggered our short sale and we were filled at $89.05. The stock rallied on Friday with the rest of the market but similarly did so on lower volume than the two previous days of selling . We currently have a stop near $94.50 and a swing trade profit target on the first half of our shares near $81.00. BURL closed the week at $90.42 leaving us down 1.53% three days into our trade.
That’s all for now. Enjoy the rest of your weekend!