FSLR Revisited

In last night's post, I noted that I considered entering FSLR on it's breakout, but decided against it because volume was not as strong as I would have liked on the break. Today, the stock headed lower on earnings (although it did not violate the previous breakout support level). This is a good example of how important volume is. Volume is what propels momentum stocks. When I see a move without volume, I become concerned.


While this is probably not the time to trade FSLR, the stock will remain on my watchlist, where I will watch two key points. If the stock breaks out over $121 on strong volume, I will enter. If it breaks down below $105 on strong volume, the breakout will be invalidated and the stock would go on the short watchlist (although the exact short point might be below $100, since that is where the stock was basing before the breakout. Until then, the stock is in no man's land, and is only a trade if you are well versed in trading range strategies.

EWZ Entry Strategy

One of my favorite buy the dip plays, EWZ (Brazilian ETF), has pulled back to the 50 day moving average. There are two ways I am looking to enter this stock. I'm going to make a very small buy now, right around the support area, with a stop around $59-60. The next buy point is on a breakout of $70, the old high.

It is best to play this very conservatively, since there is a more than small chance that the current bounce could setup a breakdown below support. Therefore, I will only make a small nibble here (around 250 shares). If we get a breakout of $70, that would be a signal that the stock only experienced a natural correction in the midst of a continued bull move. This is the level where I would make bigger position sizing entries.

Swimming in a Sinking Market: FSLR

FSLR is one of those stocks that handled last week's dust up quite well, and is approaching all-time highs. I considered entry today, but volume was a little light for a higher percentage price move. I do think FSLR will continue to rise, and may consider entry in the near future.

Building My Watchlist

Today I had a little time to "get away" from the vacation and analyze the market. My best bet is we will see a "dead cat bounce" followed by another leg down. Of course, I could be wrong and we'll see more resilience from the bulls.

Right now I am building three sets of watchlists. The first is a short watchlist, which consists of stocks and ETFs that I want to see bounce to resistance before heading south. Second is a list of bullish stocks that have held strong during the tumble. For instance, CROX has not been hurt by the market misery. If I do decide to play the long side, I will be looking for "CROX-like" stocks. Finally, I will continue to monitor my "top 100 watchlist" and momentum leaders like AAPL, MA, RIG and BIDU. This will give me a good idea of the underlying strength (or weakness) of the market and provide some possible long and short plays.

While I may take a few nibbles, right now it's best to workout strategies and wait for the market to show it's hand. Trade smart and good luck to all of you. I welcome e-mail and comments on how you are currently handling your trading portfolio.

Stopped Out

A quick note, while on vacation, that I was stopped out of all of my positions. I am currently 100 percent cash and will not likely make any trades over the next few days.

Trade: HDNG

I bought 500 shares of HDNG at $38.25. It's a low float stock that showed up on my "trend pullback scan" last week, which placed it at the top of my primary watchlist. The stock printed a tail at support on Friday with a strong close, so I placed a mental buy stop today above the close. My stop will be placed at around $37, with an intial target at $40. I will likely take partial profits at the initial target and let the rest ride in hopes of a breakout to new highs, with a new stop at the purchase price..

Analyzing FTO trade

A reader wanted a more in depth analysis of the FTO trade. The basic principle is as I stated when I made the trade: a pullback to support with a strong confirmation move. Let's take a look at the chart:


The first thing that jumps out at me is the pullback to the 20 day moving average (mid-Bollinger Band), followed by a high volume postive day where the bar prints a long tail and closes at the day's high. This is a very good sign.

Next we move to stochastics. As the stock pulled back, we reached oversold levels (20), followed by a bounce and stochastic crossover. Another good sign.

Finally, OBV (on balance volume), confirms what we see by looking at the volume bars. Volume has been better on up days and there looks to be positive accumulation.

Finally, we have to decide our reward to risk parameters. The most logical area for a stop is just under the tail, around $44. A good target is at the recent highs, around $49. This is a good place to take partial profits, with hopes that the remaining shares will participate in a breakout to new highs.

I will hold this stock until I get stopped out or my target is hit.

Trades: FTO, VLO and CMG

Three trades based on confirmation moves after pullbacks to support. All three positons came from my "primary 100 watchlist". CMG was on the top 25 low floats posted yesterday.

I bought 500 shares of FTO at $46.05. Nice high volume confirmation move at support.



I bought 300 shares of CMG at $87.10. Another confirmation move after a pullback to support.


I bought 400 shares of VLO at $75.09. Not as strong of a confirmation as the other two. However, VLO tends to rebound at the 50 day moving average, so I decided to take a small position.

Primary Watchlist and Energy Stocks

Here are the 25 stocks with the lowest float on my "top 100" primary watchlist. I would like to make a trade tomorrow (I have recently taken a refreshing break from trading). Focus will be on energy and drilling stocks that made it to my primary list. I see the dip as a buying opportunity.

Reliance Steel Earnings Setup

Reliance Steel (RS), reports earnings this week and has a nice looking earnings setup. The stock is basing just under resistance, so a positive earnings report could set the stage for a breakout move to new high territorry. I will likely place a buy stop just above resistance.

Trades: EWZ and JOYG

I am posting yesterday's trades a day late due to computer problems.

I bought 500 shares of JOYG at 62.04. As I noted on Monday, I was looking for a breakout with better than average volume above $62.



I bought 500 shares of EWZ at $64.25. For quite some time, EWZ has been the perfect "buy the dip" stock. The Brazilian ETF is not to be missed on dips.

Chinks in the Armor: STLD

STLD and other steel stocks have been momentum favorites of mine for quite some time. While many steel stocks still look solid (l MT and RIO to name a few), some noteworthy high flyers are showing chinks in the armor. This is not a good sign for the industry as a whole.

Let's take a look at STLD's chart. The first thing that jumps out at me is that RSI is making lower highs. It is noteworthy that while price was making a double top that reached the old high in May, RSI trended lower.

Some may look at the recent positive price action and conclude that STLD is on it's way back to it's old highs. While the fact that the stock jumped back over the 50 day moving average and breakdown point earlier this month may seem like a bullish signal, it did so on less volume than the downtrend. Volume is the engine that pushes a stock forward, and I don't see much of it here. Therefore, the stock is front and center on my watchlist.

Note that this analysis is not a prediction that the stock will not mount it's old highs. However, it's fair to say that the probabilities favor a down move. While I won't take a stake in either direction just yet (that would be gambling, IMO), I will watch for a breakdown of support.

The key level to watch is $44. This area has acted as support since April, breaking down only once and subsequently remounting that level. If we see a high volume breakdown below $44, I will likely go short.

SNCR: No Longer an Ideal Pullback Candidate

I received an email from a reader who asked if today's pullback in SNCR was an entry signal. My answer was a not so subtle, "Not on your life!"

In last night's chart post, I mentioned that I liked SNCR on a pullback. Those that have been reading me for some time know that I only enter low volume pullbacks that gradually pullback to support.

What we had today was a high volume move with a long negative bar that "engulfed the previous day's smaller postive bar". In Japanese candlesticking vernacular, this is called a bearish engulfing pattern. Of course, as it sounds, this a bearish signal.

What we want to see is an orderly pullback to support that takes a few days to develop. While a big down day like today does not take SNCR off the watchlist, it certainly pushes it down to the secondary watchlist.

Charts: JOYG, PCLN, SNCR, CMG, HANS

I spent the weekend narrowing down the watchlist. Here are five stocks from various sectors that are near the top. I am not ready to enter any of these yet. Think like predator stalking it's prey. Keep a close eye on the target and pounce when the moment is right.



PCLN is a volatile trending stock that has been a good buy on dips. I'm looking for a pullback to $68.



CMG looks good on a pullback to the 50 day moving average, or a breakout of $87.50.



I like JOYG on a breakout over $62.



I'd like to buy HANS on a pullback to support or breakout over $46.



SNCR has been trending quite nicely. I like it on a pullback to the $30-31 level.

Google Forming a Negative Divergence

While GOOGLE (GOOG) made my long position trading watchlist (entry at 50 day moving average), I could not help but notice the startling RSI, OBV and stochastic divergences that have formed at the current new highs.

For those who don't know, a negative divergence forms when price increases while the indicators decrease. As you can see from the chart below, that is precisely what is happening to Google.

While it is tempting to short a stock at the moment a divergence is spotted, only aggressive traders willing to take on high risk or use a very tight stop should go short now. The more prudent way to play this divergence is to wait for the stock to break below the old high before going short. Here we would short on a break below $535, with a stop above the old high and a target near the 50 day moving average, approximately $520.

While the stock is on my very short term "short" watchlist, it is also on my longer term postion trading "long" watchlist. I would enter long on a pullback to the 50 day moving average. In an ideal world, I'd be able to short down to the moving average, then reverse and go long.

What if your pullback play goes against the overall market?

I recevied the following question from a reader. It's a tough one to answer, as I have no hard and fast rule on the topic.

I wanted to know if you will enter pullbacks that look good even if the market was strong during the pullback? Basically say the DOW or Nas had a nice 2 day rally, or even 1 good day. But you run your scans and notice stock ABC had a pullback during those 2 days. Would you consider buying that stock?

That is a tough question Aaron. I have no hard and fast rule on this, although it is something that comes up frequently. I tend to pay more attention to the accumulation pattern of the stock and it's sector, rather than the very short term market itself. Lagging for a couple of days is not all that significant. If this is a continuing pattern, then of course, there is something wrong with the stock.

I also like to look at the sector. Maybe the sector had a run up while the market was dead, which caused profit taking while the rest of the market surged. I've noticed this many times with energy and steel.

If there looks to be solid accumulation, the pullback is on low volume, it's a good setup, it's not lagging the sector, there is adequate support *and* the reward to risk ratio is good, I will consider the trade. I may protect myself by going with a smaller position size. Whenever I am in doubt, I go with a smaller position size and closely manage risk. While I am loose with my entries, I am precise with my risk parameters.

Trades Galore: SRDX, OII, MT, EWZ, RIO and NILE

I was a little nervous as to how the markets would react this holiday week, especially when you take into account that I was holding 7 positions over the weekend. I used today's bounce to unload almost all of my existing positions.

Since we are at the halfway point of the year, I decided it would be a good time to have a fresh start. This will provide the opportunity to rid myself of any biases from existing positions and an overflowing watchlist. I plan to totally revamp my watchlist over the next few days, cutting out stocks that no longer meet the setup criteria that placed them on the list in the first place. On to today's trades:

I sold 500 shares of SRDX at $50.20 (entry at $45.54) for a $2330 gain (+10.2%). I had entered based on my short squeeze setup, and the stock performed beautifully.

I sold 250 shares of OII at $53 (entry at $51.14)for a $465 gain (+3.6%). Entry was based on a simple pullback from trend setup.

I sold 250 shares of MT at $64.25 (entry at $61.35) for a $725 gain (+4.7%). Entry was based on a simple pullback from trend setup.

I sold 300 shares of EWZ at $62.63 (entry at $60.35) for a $684 gain (+3.8%). Entry was based on a simple pullback from trend setup.

I sold 500 shares of RIO at $46.10 (entry at 44.65) for a $725 gain (+3.2%). Entry was based on a simple pullback from trend setup.

I sold 200 shares of NILE at $63.04 (entry at 58.45) for a $918 gain (+7.9%). This was a short squeeze setup.

Total profits today: $5847 (less approximately $15 per round trip trade and margin costs).

I am still holding HEI, which has yet to make a decent profit or hit it's stop. Although I cleared out today, I still like all of the positions I exited, and will likely re-enter a few of them once I redo my watchlist.

You can see my entry explanations by clicking the "trade" label below.