Chart of the day: GoPro

Today's stock chart of the day GoPro. GPRO is a recent IPO that is riding an earnings catalyst after bottoming out in early March. It is now breaking out and stalling at the newly formed 200 day moving average resistance level. A break of this level could set the stock up for a run to it's highs around $80.

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Chart of the day: GTLS

We have been swing trading the bottoming formation in commodities since December and now the formation has matured to the start of a possible trend move.

GTLS is a good example of a commodity stock ready to start a momentum trend.  It looks to have put in a bottom formation on strong volume and now is working hard to remount the 50 dma.  Once this level clears a measured move to $45 is in play in the coming months.

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The Next Explosive Bottoming Formation: Steel

Back in December we successfully identified and swing traded the bottoming formation in gold miners, followed by energy/oil/gas in early January.  Often when one or two sectors show this formation, other related sectors will follow.

Steel is showing signs that it is the next bottoming formation candidate.  This sector does not have an ETF to trade, so we look to leading stocks like X.

Notice the trend line break.  The big gap up 5 days ago was an earnings breakout, which gives the stock the catalyst it needs to start a new trend.  Positive volume is pouring in, which is exactly what we want to see.

As we saw with gold miners and energy, these types of bottom formations take time to develop and are volatile.  You must be patient with entry as there will likely be a pullback and test of the lows.

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How to identify explosive bottom formation breakouts

Every momentum stock starts from a bottom formation breakout.  Back in November we started talking about Gold Miners as a potential bottom formation trade.  

Study this chart carefully and notice the positive volume as gold miners put in a bottom formation, the remount of the 50 dma and successful hold on pullback.  

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How to trade the gold miner stock bottom formation breakout

Swing Traders must be vigilant about sector rotation and money flow.  Back in early December we started talking about gold miners as a bottom play in the Trade Report.  Notice that as gold miners were at lows, positive volume outweighed negative.  This was a clear signal that "big money" players were accumulating positions in this sector.  That's what we call positive money flow.

There were two great spots to play this sector.  First, a low risk trade was available on the second leg of the late December bottom retest.  Second, where we played it, on the remount of the 50 day moving average.  Now that the stock has exploded, we can weight for the inevitable pullback for another trade entry.

Unless we get clues to the contrary, gold miners is the sector to watch for 2015.

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Stock Chart of the Day: ZU

Trade Report focus list stock ZU broke out of a post moving average remount breakout range on strong volume.

This stock has been showing signs of accumulation even before remounting the moving average. This underlying volume support should help propel the stock to recent highs around $42.  I will look for a good entry on weakness.

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The Low Risk SKF Trade Setup

SKF is slighly bouncing off support lows. Support could break, but the setup still offers a good risk ratio and a trade that is easily managed. Enter as close to support as possible, place stop below support lows, with a target near resistance levels.

Monday's Game Plan and Free Trade Report

I am offering today's Trade Report, which features my plan for Monday and the coming week, free to blog readers today. Enjoy!

January 5, 2008

Market Notes

The market is overbought. I'll get back to that, but first let's take a look at the overall picture. The market (via SPY-SSO) is putting in a healthy looking bottom pattern. RSI has broke out over the middle area. Price is putting in a constructive looking price pattern. Depending on how you view it, an argument can be made for a reverse head and shoulders or a bottoming cup and handle. Price has a broke out over the 50 day moving average. Last and probably most important, the volume pattern is strong, which signals underlying accumulation. Underlying accumulation is an important trait when bottoms are put in.

Note that this "bottom" is not a long or intermediate term prediction. However, it does signal a good probability we will see, at the least, a good bear market rally. I don't mean the 3 day variety we just got, but the type that could last a few months.

Short term, the market is overbought. For my trading style, it is not a good time to buy. Stochastics have reached overbought conditions (see chart), and the T2108 indicator has reached extreme levels, currently at 83.

The Trading Plan

The plan right now is to enter short term short positions to take advantage of the overbought conditions. Once overbought conditions are worked off, I will get ready to enter long in focus list stocks that pullback to support on low volume.

I will only enter shorts on strength. If we get good strength Monday or Tuesday, I'll enter positions listed in the focus list. Note that I already took a small position in FAZ on Friday (see intraday alert from Friday and the blog (www.themarketspeculator.blogspot.com).

Focus List

All longs are overbought and require pullbacks to support. Note that strong volume patterns and overbought stochastics on all stocks. Aggressive types can try taking quick shorts on some of these. This requires entry on price strength. A tight stop must be used.

JBLU, CKH, USM, USD, SUN, VMI, SGR, X, STR, DE, FSLR, ACI, TXI

Stocks from last week's focus list:

BKE, TBSI, IOC, GDX, GG, BG, DBA, CPA, ACM, MOS, SLV, SLW, PAAS, AIPC, AET, DRYS, SUN, URE, LVS, JOYG

Shorts: AXYS, CSX

Bullish Setup in Financials

A nice bottom pattern is forming in financial stocks and the leveraged ETF UYG.  Trade management is made easy with a stop placed below Friday's close and the target near the recent high.  I may be tomorrow on weakness.

Trade: TXI

I bought 300 shares of TXI at $31.50, as my limit buy order was hit this morning. This is a manageable low risk trade in a good setup that offers strong price and volume support. The setup is both a bottoming and breakout-pullback setup.

If the market tanks, my stop wil likely be hit for a small loss. If it doesn't, I would expect a retest of the recent highs.

Bullish Chart: CPO

CPO has formed a nice bottom formation. Price has broke out over price and moving average resistance, RSI has formed a positive divergence and volume shows strong accumulation. I like it on a pullback to support.

Holding the Lows

The lows are holding. My game plan is to hold my current positions with stops in place below the lows. As long as the lows hold, we are still within the "bottoming range" formation and just experiencing a retest.

The chart below is not annotated, but note the RSI divergence.

Trade Setup: KSS

I have been following KSS for quite some time in the Trade Report. Retail, and KSS specifically, caught my eye as a bottom accumulation setup in early to mid July. The volume on the bounce gave clues that the bounce could lead to a continuation move.

Since that time, we have had two good setups. The first was on the break of the 50 day moving average. The second was on the pullback of the recent breakout highs in mid August.

The two key areas I am now watching are $52 and $46-48. Stochastics are extended, so I doubt we'll see a $52 breakout. I'd like to buy a pullback to the $46-48 area. This is no longer a bottom accumulation trade. I now see it as a breakout-pullback.

Airlines

I have been saying almost non-stop over the past couple of weeks that airlines are in a short to intermediate term bottoming formation!!! Take a look at the capitulation day in mid-July, followed by that purdy volume pattern. Does it get any better than that?

As noted earlier today, I exited UAUA, for a gain, but not as big of a gain as I could have had if I had held it to the close. Going into the fed announcement I felt I was over exposed on the long side and I was holding two airline stocks.

I did hold onto CAL. I took partial profits at the close, but am still holding a nice sized position going forward.

CAL was first mentioned as a bottoming setup in the Trade Report on July 21. It was trading at $9.25 at that time and is now trading 58 percent higher, closing today at $15.91.

Sectors with Bottom Formations

No matter how bearish your fundamental thesis is on the following sectors, it's hard to deny that price and volume are showing bottoming formations in financials, casinos and real estate.

Here is what I wrote about these sectors in the Trade Report to start the week:

I have narrowed my list of stocks this week, focusing more on sectors. I also am not labelling sectors as bullish or bearish, since I've been reversing biases as extremes in buying and selling dictate. Here is how I am grouping them:

The beaten down sectors that were oversold but quickly became short term overbought. Well, they still look like bottoming patterns since the recent pullbacks have been on low volume. If one buys the bottoming thesis, it could be time to reverse again and go long.

Financials: SKF to short and UYG long.
Real Estate: SRS, TOL, DHI, HOV
Ailines: CAL, UAUA
Casinos: LVS, MGM, WYNN

These sectors have made strong moves this week, and the bottom formation thesis is still in tact.















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CAL setup

I mentioned earlier today that I entered to airline stocks. Both CAL and UAUA have similar setups.

CAL shows a classic bottoming formation. Note the volume pattern. Entry close to the moving average is ideal, with the upside target at the first sign of strong resistance. I may buy more tomorrow on early morning weakness.