May 18, 2009
The market has pulled back close to the entry point we've been watching (87-88). The pullback is not ideal, as price has not pulled back in an orderly fashion. Also, while volume is not significant enough to show distribution, the pullback was not on below average volume.
These two consideration decrease the probability of a successful trade, and could point to a deeper pullback to the 50 day moving average. However, the setup does offer a good reward to risk ratio. An entry at $88.50, with a stop at $87 and target at the old high around $92.50 gives us a 2.5 to 1 ratio. This ratio makes the trade acceptable, even if the probability has decreased.
Another factor that concerns me about the long trade is that my focus list is starting to show more short setups. I am still willing to trade SPY on the long side since the risk ratio is good.
Get long SPY if it hits my target entry area. Balance this trade with short setups from the focus list.
Here are the top performing sectors that also show good price patterns: Dairy, Ag, Internet Service Providers, Drug Manufacturers. Beverages.
Banks, real estate and auto related fields lead to the downside.
I am still holding NTRS short and SDS.
shorts: bke, rrgb, cpla, ntrs, brcm, gme, rl
BKE broke it's uptrend and now shows a distribution volume pattern. Bearish flag is forming.
RRGB is similar to BKE. Broken uptrend with consolidation under new resistance.
GME shows distribution and is pulling back up to moving average support.
BRCM is not as clean cut as the above chafrts, but does show negative distribution and the possible start of the second leg down.
RL shows more of the same. A pullback to the 200 day moving average would be ideal.
Longs: IBN, MTN, PPS, MRVL, ACL, MSTR, ERTS
Extreme oversold setup: DHI. It's not ready quite yet. I'll detail this setup tomorrow.
Disclaimer: All information and opinions expressed in this report are to be used for entertainment purposes only. The author of this report is not an investment adviser and does not give buy, sell or hold recommendations. Trading stocks is a risky undertaking, and due diligence is required before making a trade. Consult an investment professional before making a trade. The information in this report is not verified and may be incorrect. The author of this report may or may not hold a position in stocks mentioned in this report.