Volatility spiked in the markets this week as most major indices suffered losses of more than one percent, with the Russell 2000 losing more than 2 percent. This should not have come as a complete surprise to those who take the time track the market averages as well as individual stocks. Every week we take the time here to look at the indices in an effort to assess the current health of the markets. If you have been following us, you know that we have expressed some concern over the fact that the Russell 2000 has been struggling to keep pace with the overall market for months. We noted that the failure or success of this index to breakout could possibly be the impetuous for the markets to either continue their run or perhaps fall into a correction.
As a result of reading recent market clues, we quieted down our trading on the long side and have been able to lock down further gains on some of our top performing positions by selling partial stakes. Additionally , based on the weakness and potential for a breakdown in the Russell, we took a long position in $TZA. This is the 3x leveraged index that will profit from a decline in the small caps. So without further ado, let take a look at where the indices stand, as well as the individual stocks in the TTP portfolio.
Russell 2000- We can see in the chart below that the weak breakout attempt on 7/25, accompanied by poor volume, was our first clue that the index was weak under the surface. The index tried to rebound in early August with a couple of days of gains but again, volume on the rebound was anemic. As the short term moving averages starting rolling over, the index made one more charge to the upside but suffered an ugly reversal day with a wide range bar that closed beneath the 50 day EMA on heavy trade as the selling intensified over the next two days. $IWM closed at $136.47 on Friday, down $3.47 for the week. How this sell-off plays out remains to be seen but their is some potential strong support along the bottom of a long 7 1/2 month consolidation near the $133 level.
NASDAQ- After a valiant attempt to hold breakout support near 6340, the index also succumbed to heavy selling on Thursday with the index closing well below its 50 day EMA. This marked the fifth day of distribution in only the last 11 sessions which should raise a large caution flag to traders. Friday saw a bit of a rebound but volume was lower as the index fell a bit shy of reclaiming the 50 day EMA.
S&P 500- The action in this index pretty much mirrored that of the NASDAQ as Thursdays action ended with a heavy distribution day and a close under the 50 day EMA. Fridays bounce was a bit more tepid then its index counterpart and volume was also subdued. The S&P has now chalked up four distribution days in the last two weeks and is fighting to hang on to the 50 day which has acted as a solid support over the last 4 1/2 months. The index also may see support, should the sell-off continue, near its prior breakout level around 2400.
Now on to our current trading portfolio.
HIIQ- There is not much to report here as we have paired down our position to a quarter of its original stake. This scale out has left us with gains of 13.56% on half our position, 46.88% on one quarter of our position and we currently hold the last remaining quarter at a 42.90% gain. We will inch our stop up to near $26.00 as we try to give the stock some room in hopes of latching on to a large longer term gain.
SEDG- With the solar sector still holding the number one spot on the leaderboard, we continue to hold a quarter of our original position hoping to nail a big long term winner.
We took our LONG position on 7/13 at $21.47 and by rule, closed out half our position before quarterly earnings at a price of $23.47 for a gain of 9.32%. We locked in more profits on 8/3 selling a quarter of our original stake at $27.61 for 28.59% gains. With the stock closing the week at $27.15 we are up 26.43% on the remaining shares. Here as well, we will inch our stop up to near $23.00 in an effort to capture a large long term gain.
GILD- We took a LONG position here on 7/13 at a price of $70.81 and similar to SEDG we were forced to take half our position off the table prior to earnings, this netted us a modest 4.69% gain. After making a nice post earnings run to over $76.00, the stock has pulled back with the markets closing the week at $72.40 leaving us with a 2.25% gain on he second half of our shares. We will follow the plan and hold these shares hoping the trend continues and we will keep our protective stop in place near breakeven at $70.81.
TZA- We took this positon on 8/8 as a moving crossover transition trade based on the weakness of the Russell 2000. We were filled at a price of $16.43 and with a Friday close of $17.70 we are up 7.70% four days into our trade. This is in essence a SHORT play, so we will use much discretion in managing the positon. We have a swing target of $18.50 on the first half of our shares and our stop will now be at breakeven near $16.43.
LUV- Finally, we will take a look at our SHORT position in Southwest Airlines that we opened on 8/7 at a price of $55.38. Over the last couple weeks we noted some weakness in the airlines as the sector turned tail after making all-time highs. In scanning the individual names ,we found a possible trend transition play in LUV. The stock sold off for three straight days after we initiated our position before stabilizing a bit on Friday. The stock closed at $54.14 leaving us with a 2.25% gain five days into the trade. We have a swing target of $51.30 on the first half of our shares and a protective stop loss is near $58.50. This is still a full position and it will be managed with the “short discretion” we often talk about here.
That’s all for now, enjoy your weekend!