The S&P and NASDAQ consolidated near their record levels finishing the week along the flat line while the Small Caps stole the show with a 1.6% move higher this week. We have been waiting for months for the Small Caps to join party and now they are poised, perhaps, to lead the market higher. The Russell 2000 has shot up over 7% from its August 18th low without much of a rest and stopped Friday virtually on the breakout level closing at 144.30. Common logic dictates some sort of a consolidation may be in the cards after such a move, but markets have a tendency to eat up logic and spit it out in the form of your equity. This is why we assess the markets constantly, identify the trends and follow along taking one day at a time while honoring our methodology and process. There are still some heads winds and cross currents in the markets so its no time to be a hero, in fact, it never is when it comes to the markets. As for our portfolio we took two new trades this week while closing out one position for a 5% loss, this leaves us with six open trades heading into next week. With that, lets take a more detailed look at the individual indices as well as our positions.
SPY- The S&P 500 closed the week at 249.44 resting just above breakout support. We talked last week how about indices can struggle near big round numbers, such as the 2500 level for the S&P in this case. The index has fought with this level for the last nine trading days but the good news lies in the distribution picture with our count sitting at only three such days in the last 20 sessions. With volume running slightly below average daily levels recently, a move above the 2500 level on heavy trade would be a nice shot in the arm for the markets and legitimize the breakout.
NASDAQ- As for the Nasdaq Composite, it has yet to overtake the 6460 level that would confirm a breakout of its own. The index made a run at that level early in the week before ultimately calling off the fight by Thursday. The good news here is that distribution days are down to only one over the last 20 sessions painting a much improved picture from what we were seeing not too long ago. We would note that Apple may have weighed heavily this week on the Nasdaq attempt at record levels with its 7% weighting on the index. AAPL closed down 5% for the week.
IWM– Are Small Caps finally waking up? The Russell 2000 boasted a gain of nearly 1.5% this week building on gains of over 2% last week. There is still work to be done however as the index has struggled for over nine months to breakout out of a consolidation that started after the huge post election run up last fall. In keeping with the theme of its index counterparts, distribution days have been disappearing since late August. With only one such day in the count and the Russell sitting comfortably above its 50 day EMA, it is poised for a breakout. But we will need to see some heavy volume in any breakout attempt in order to decisively bust through the ceiling that has held this index back for some time now.
Now on to our open trades…
SEDG- We took a LONG position here in mid July at a price of $21.47 and after having booked gains of 9.32% and 28.59% on this solar stock, we are sitting in trend following mode with the last quarter of our position. The stock has bounce nicely on two occasions over the last two weeks off its 50 day EMA and closed Friday at $26.80. This leaves us up just over 18% on our remaining shares. The solar sector has been strong but there is some news overhanging the sector in regards to possible tariffs hitting some companies pending the outcome of a decision by the ITC. We normally do not try and over analyze news items, especially when we have pared our position down and are sitting on gains. That said, we suggested some put protection in the near term for those that may be worried about an adverse reaction to any news in the matter. Our stop remains near $24.50.
GILD- We went LONG Gilead Sciences on 7/13 on a Trend Transition set up at a price of $70.81. We were somewhat interrupted by quarterly earnings in late July and booked modest swing trade gains of 4.59% on half our position. (For newer followers, our rule is that if we are still carrying a full position into an earnings report we will sell half of that position to lower our risk). We are now in trend following mode with the second half of our trade hoping to nail down a big winner. With a close of $83.27 on Friday, we are now up over 17.5% on our remaining position and will keep our stop near the $77.00 level giving us enough room to account for normal price consolidation after the recent large run up in the shares.
WTTR- This is one of our new trades put on this week. We went LONG this energy stock at a price of $16.42 on Wednesday as an IPO breakout trade. The stock closed the week at $16.88 leaving us up 2.81%. We have an initial swing trade target on the first half of our shares near $19 and we have nudged our stop up to $15.00 from an initial $14.70. We entered this trade on the premise of a possible Trend Transition taking place in the Energy Sector which we will highlight in another article this weekend. Be sure to check it out.
CAI- This is the second of our new positions opened this week, taking a LONG position here Wednesday as well. We initiated the trade at a price of $29.35 on a Trend Resumption set up after a brief pullback in the shares. We have a swing trade target near $32.50 on the first half of our shares and an initial protective stop near $27.00. The stock has been trending strongly above its 50 day EMA since mid April before briefly piercing it recently then recovering nicely back above the line this week.
LUV- We went SHORT in Southwest Airlines in early August after spotting a Trend Transition setting up in the Airline Sector. We took the trade at a price of $55.38 on 8/7 and were able to take our swing trade gains fairly quickly netting 6% on the first half of our shares. (For newer followers, we use much more discretion on our short positions often taking gains much more quickly or closing our entire positon at once without scaling out, although we will trend follow with a portion of our position under certain circumstances). Since taking our swing trade profits the stock has recovered form an oversold condition and is nearing our stop area closing Friday at $54.93 leaving us up just under 1% on our remaining shares. We will honor our stop area as always, but we will use a bit of discretion when the stock enters this area if appropriate. For instance, should the stock open trading on Monday morning strongly we may wait a bit to see how trading plays out. The idea is to not get shaken out on an otherwise good trade on a very temporary move in our stock. However, and most importantly, we will never let a position run away from us. We will always have a “uncle point” we will sell our shares, no questions asked, not far above the predetermined stop area.
AXTA- Lastly we have Axalta. We initiated a SHORT position here on 8/25 on a pullback after a big earnings miss that resulted in a gap down. The trade has tracked pretty much sideways since but we continue to hold since we have not been stopped out. We don’t trade for excitement here, we trade to make money. We have had trades that initially bored us for weeks before turning into nice winners, so we will continue to follow our process. Barring any overnight gaps our risk is small with our stop sitting near $30.50. Our initial swing trade target remains near $26.00.
That’s all for now. enjoy your weekend and be careful out there!