Markets were well behaved while I was away as the S&P 500 and NASDAQ Composite finished at all-time highs on a weekly closing basis. But perhaps the better news was that the small caps out paced the other major indices with a gain of 2.6% for the week. We have been waiting for small cap stocks to join the party and they have been showing signs of life lately posting their best weekly close in two months. The markets continue to remain strong despite a lot of outside noise, the latest being that crazy man in North Korea firing off more test missiles. Sector wise, hot areas include biotech, solar, internet retail, software and semiconductor equipment, which is flashing its muscle once again. Should the markets continue to prove themselves TTP trading will likely ramp up long side exposure so be on the look for a new trade or two if markets remain well behaved. Remember, it only takes a handful of well selected positions over the course of the year to outperform the markets, so we will continue to look for the best set ups concentrating our efforts in the top 30 or so performing sectors. With that, lets take a look at the charts starting with the major indices before moving on to our open trades.
SPY- The S&P picture continues to brighten as the index popped up Monday by about 1% and held those gains into options expiration on Friday closing right on that big round number at 2500. Hmmm, funny how that happens sometimes during options expiration. The distribution picture continues to improve here with only four days in the current 20 session count, and the 8/18 day will come off after the Monday close. The Thursday and Friday sessions do not qualify as distribution days as Thursdays trade finished in the upper half of the range and Fridays session did not show an increase in volume over Thursday and also finished near the highs on the day. Moving forward, it remains to be seen how much, if any, round number resistance will be created at 2500.
NASDAQ– The composite paints even a better picture as it has only three distribution days in the count with the 8/17 session coming off the books after Mondays close. The index tested the 6460 level for most of the week before settling for a close of 6448. The Nasdaq was turned back at that 6460 level on that large reversal day in late July that eventually led to a 4.5% correction. We will be watching closely to see how the index resolves this level of resistance moving into next week and beyond.
IWM- We have felt for a while now that if the small caps could get their act together it may spur further a rally in the other indices. The Russell 2000 has traded primarily in a sideway consolidation since December of last year but has added nearly 6% since its most recent bottom in mid August. On a distribution basis, this index looks the healthiest with only two days in the count, and the 8/17 trading day will come of the 20 session count upon Mondays close. For the Russell, the lines of demarcation lie between 143-144 for an upside breakout.
Now on to our current open trades.
SEDG- Solar stocks look they may be ready for another advance after a brief respite following any early summer surge. We purchased shares of SolarEdge in mid July at a price of $21.47 and have booked gains of 9.32% and 28.59% thus far. We still hold a quarter of our initial stake and with a Friday close of $26.90 we are now up 25.26% on those shares. The stock successfully tested its 50 day EMA early in the week and scored its highest close since 9/1. We have nudged our stop up only slightly to near $24.50. With the Guggenheim Solar ETF notching its best weekly close since April of 2016 things look promising for a further advance here.
GILD- Biotech stocks remain a strong sector and Gilead Sciences is one of two stocks from this group currently in our portfolio. We bought shares in mid July at $70.81 on what we identified as a Trend Transition set up. We took modest swing trading profits of 4.59% on half our shares on 7/25 just prior to the company’s quarterly earnings release (we do this by rule). The stock gathered more steam in late August after the announcement of its purchase of Kite Pharmaceuticals and we are now up over 16% on the second half of our trade. Considering the fairly large move the stock has made in a short time, we are trailing our stop far enough behind the market to hopefully capture a larger long term gain without getting prematurely stopped out on a normal retracement. That stop remains identical to last weeks placement near $77.00.
SUPN- Our second trade in the biotech sector is Supernus Pharmaceuticals. We initiated a LONG position on a breakout style trade at a price of $47.00 back on 9/1. The stock closed at an all-time high of $49.05 on Friday leaving us up 4.3% two weeks into the trade. Our initial swing trade target on the first half of our shares is near $51.00 and our stop, for now, remains near $45.00. Don’t forget that some discretion can not only be used near stop loss areas but on gains near previously targeted price levels. Should SUPN trade quickly past $51.00 , you can always place a trailing stop closely behind the market in an effort to enhance swing trade profits on the first half of your shares.
LUV- Now for one of our two SHORT positons starting with Southwest Airlines. Why do we have short positions in a bullish market? The short answer is, we have not been stopped out so we will follow the process as is set in our methodology. We went short on 8/7 at a price of $55.38 and booked swing trade profits on the first half of our shares on 8/23 at $52.04 for a gain of 6%. After bottoming recently near $50.00 the stock has gotten a nice bounce over the last two weeks and closed Friday at $54.72. This puts our stop, currently near the breakeven point, in the crosshairs and it closely coincides with the 50 day EMA. We will see how price responds if and when it threatens that price area and use some discretion if appropriate. We are currently up 1.2% on the remainder of our position.
AXTA- Lastly we have our second SHORT position and it is in Axalta. We went short on 8/25 at $29.23 and the stock has traded pretty much sideway since leaving us virtually flat on the position. Again, we still hold this short position because we have not been stopped out. Most of the time it is best to do less thinking after a position has been initiated and let the market take you out. Do all your heavy thinking BEFORE you open a position then just follow your process, you will tend to make less mistakes. Our stop in AXTA remains near $30.50.
That’s all for now. Enjoy your weekend and be careful out there!