Some of our fears were tempered this week as the S&P 500 and Dow Jones Industrials closed the week at all-time highs. As for the NASDAQ, it has now logged six straight up days successfully fighting off the heavy distribution it had been seeing recently, at least for now. This action resulted in us closing our QID position which would have benefitted from a continued sell-off of Large Cap Tech stocks. We also opened up two new long positions in stocks that currently reside in two of the stronger industry groups, Biotech and Solar Energy.
Although we moved off of our neutral stance to a more bullish posture, we still have some mild concerns as the indices still have recent distribution days hanging over their heads. Additionally, the new highs in the Dow and S&P 500 came on decreasing volume. This will keep us slightly on guard in our trading activity until these issues are resolved and the markets continue this move higher with a bit more conviction. As we have stated in the past, there is no need to jump in with both feet and be all in at all times. Let your portfolio naturally evolve as the markets confirm their direction. Its better to miss a trade or two than get caught in a market reversals and whipsaws which bleed your account. With that, lets take a more detailed look at the S&P, NASDAQ and Russell2000 before moving on to our individual positions.
S&P 500- Along with the Dow, the S&P came into the week in slightly better shape than the Nasdaq however, it still has some unresolved issues. As you can see in the chart below, the index has held it’s 50 day exponential moving average as well as its support line at 2400 over the last several days and closed at a new high on Friday. On the downside, we still have five recent distribution days in the last 17 sessions and Fridays new high came on decreasing volume. Maybe we can chalk up the volume dry up to typical summer trade but trading volume at these inflection points can not be totally ignored. That’s said, we must error on the side of bullishness when markets are making new highs but best to do so with a bit of caution.
NASDAQ- As we mentioned earlier, the index has traded higher for six straight sessions and the huge gap up last Wednesday helped propel it close to new high territory by weeks end. The NASDAQ has fought off some recent heavy distribution days and we now have the count down to four over the last month of trading. After such a run over the last week we wouldn’t be surprised to see some selling early next week. Should this occur we need to see volume back off, as an additionally days of distribution in the near term will cloud the picture considerably.
Russell 2000- IWM, the ETF for the Russell 2000, has struggled to get out of an eight month consolidation after its post election rally. The index had previously made five attempts to rally out of its basing box only to be thrown back in. It is currently launching a sixth effort but similar to the other indices it has logged two consecutive days of lower volume on its recent advance. Furthermore, it also has four distribution days hanging over its head as of late. Small Caps have lagged the market all year but a solid breakout from this long consolidation with a close over the 143.00 level would go a long way in helping confirm a continuation in this aging bull market.
Now let’s take a detailed look at our current positions.
HIIQ- We took a LONG position on this Managed Care company on 6/14 at a price of $21.97 in anticipation of a breakout which did commence two days later. We were able to take advantage of this move and capture our swing trade profits in a matter of only seven days selling half our shares at $24.95 for a 13.56% gain. After a short period of backing and filling, the stock is on the move again and traded as high as $26.80 on Friday before settling to close at $25.70 which was good enough for an all-time closing high. We are now up just short of 17% with the second half of our shares and we have adjusted our stop up to near $22.80.
MDXG- We initiated our LONG position on this Medical Device/Biotech company on 6/2 at a price of $14.59 and it has been a bit of an interesting trade for us. Two weeks back the stock traded within a nickel of our swing trade target but did so in the blink of an eye near the open on 6/26 and we were not quick enough to take advantage. The stock subsequently pulled back and flirted with our stop area which had been bumped up to near breakeven as we were being extremely cautious in light of our market view over the last few weeks. Because of this, we wanted to raise a bit of cash and we sold half our shares on 7/11 at $15.03 resulting in a modest 3% gain. Then just this past Thursday the stock really tested us as it traded briefly below our stop however, we sent a note out to use some discretion (rather than a hard stop) and let the trade play out for the rest of the trading session as long as the selling did not intensify. The stock ultimately closed only .13 below our “mental stop” so we hung on to our shares. Well, this discretion has really paid off as the company released preliminary sales number for the quarter after the close on Thursday that were above estimates and very well received by the market on Friday. The stock traded up 6.85% in Fridays session closing at $15.45 leaving us up 5.95% on the second half of our shares. We would love to still have a full position? Of course, but hindsight is 20/20. We were disciplined and paid some serious attention to signals the market was sending us and in the long run this attention to detail will serve you well. Our current stop is near the 50 day EMA.
SEDG- We went LONG here on this Solar Energy stock on 7/12 at a price of $21.47. The Solar Energy sector has soared up the industry group ranks as of late and SolarEdge Technologies has been leading the charge. Not long ago we highlighted this sector as one to watch because of the recent strength it was exhibiting. This was a Trend Continuation set up off an eight day pullback. The stock gapped up on 7/7 and ran past our trigger point but we decide to take the trade when the stock offered us the slightest off pullbacks a few days later. Our initial stop is set near $19.85 and our initial swing trade target on the first half of our shares is near $24.25. The stock briefly touch high territory for the year on Friday at $22.00 before closing at $21.80 leaving us up 1.75% three days into the trade.
GILD- Gilead Sciences is our freshest position opened on 7/13 at a price of $70.81. The Biotech sector has been hot recently and this large cap company has been hitting our watch list as a Trend Reversal play. The stock charged up from multi year lows after hitting $63.77 on 6/16. The stock then raced up over 13% in a matter of two weeks before offering us a pullback we had been looking for. That pullback lasted five days before the stock resumed its advance late last week triggering a trade for us. The stock closed Friday at $70.57 leaving us essentially flat. We have an initial stop near $67.00 and a swing trade price target near $80.00.
BURL- Our final position is a SHORT in Burlington Stores. The trade was initiated on 7/5 and is also a Trend Reversal trade set up. The stock had defied the brick and mortar retail disaster until recently but has shown signs of cracking. The stock sold off hard the week of 6/20 before mounting a rally that fell shy of reclaiming its 50 day EMA. The stock resumed its decline with a brisk sell-off on 7/5 that triggered our trade. The stock has basically traded sideways since but has racked up four big distribution days in only the last two weeks. we have an initial stop set near $94.50 but may very well ratchet that down next week using the 50 day EMA as our ceiling. Our initial profit target is near $81.00 on the first half of our shares however, we would like to remind readers that the short side is a different bird all together and we may take profits on our full position should conditions warrant. As of Fridays close, we are essentially flat here as well.