December 15, 2008
There are many positive signs for the market, but it's still tough to find a good entry. Positives include a strong volume pattern underlying positive price action. This is a sign of accumulation by the "elephants" or big money. Price shows a bottoming formation and is making higher lows and highs.
The problem for entry is that stochastics, while not extremely overbought, are still above 50. A better entry would require more of a pullback.
Those looking to enter still have a low risk setup. Entry on weakness tomorrow, with a stop just under Friday's low, provides a 3:1 reward to risk ratio if using the recent high as a target. Note that because stochastics are above 50, I don't consider this a high probability trade. Still, the good risk ratio makes it a justifiable trade.
I am finding a lot of setups with positive underlying volume. This is another factor that leads me to think the market is setting up for a rally.
WW, ESS, MCK, GEF, ESL, CNQR, LRCX, MAN, EXP, AMZN, SBS, UYG, USD, MDC
Focus List: Buy Dips
Here are stocks from the focus list that can be bought on low volume dips to support.
BHP, TXI, STR, CX, TXI, CLF, X, FWLT, VMI, SGR
TXI: See blogpost (http://themarketspeculator.blogspot.com/2008/12/trade-txi.html)
STR: I bought 200 shares at $30.06, after the stock recaptured the 50 day ma.
I talked about this strategy a few weeks ago. Stocks with positive volume and price patterns that recapture the 50 ma quickly after breaking down tend to resume the trend. If have not done any formal research on this, but I have a high win rate with these types of trades. Thus, whenever a stock on my watchlist with a strong pattern breaks down below an moving average, I watch it for a remount entry.