X: Low Risk Setup

X provides a low risk setup as it pulls back to the 50 day moving average. If the market tanks, X will go down with it, but losses are easily managed at this level.

Buy the Dip

I'd suggest most traders continue to stay on the sidelines. If trading, my preference right now is short term long plays. Homebuilders and airlines look good, but only on pullbacks.

Can We Buy CNX's Pullback?

Ronald wants to know if I consider the 3.7% drop in CNX, a stock I highlighted earlier in the week, a buyable pullback.

While I would not buy just yet, the stock is still technically sound. Support has not broke and volume on today's decline was within the stocks normal range. OBV still looks good. Ideally I like to see pullbacks head to support slowly and with small price bars, so I won't buy until I see more evidence that backs the idea that today's decline is nothing to be concerned about.

Another concern for this stock is the negative RSI divergence. This is a sign that momentum is waning. I don't use divergences as a primary tool, but they do go into the overall analysis and let me know that I must exercise caution.

This analysis does not cause me to discard the stock from my watchlist. As long as support holds, it's still a bull candidate. However, it does effect my entry. I enter stocks in one of two ways on pullbacks. When I am supremely confident in a stock, I will enter during the pullback, before a confirmation move like a bullish engulfing or long tail candle at support. My other method, when there are more queston marks, is to wait for confirmation.

Today's Trades: SGR, OII, BHP, JASO, EDU

I am using today's dip to buy stocks from strong sectors nearing support. I made the following trades:

300 shares of SGR at $68.00. This is an infrastructure and post earnings suprise play.

300 shares of OII at $78.50. I've been waiting for this energy stocks to pullback near 20 day moving average support.

200 shares of BHP at $82.70. I bought this one at the 10 day moving average, which hs provided support for this high flying energy/metals/coal play since mid August.

300 shares of JASO at $49.10. It's a high flying chinese solar stock. Need I say more?

200 shares of EDU at $73.10. Education stocks have been on fire for quite some time (see also CPLA). The stock surprised on earnings yesterday and I bought today on pullback near the earnings breakout point.

Today's Trade: AEM

I bought 300 shares of AEM at $46.85. I've been waiting for a pullback to support in gold and it looks like we've finally got one. Stochastics have reached extremely oversold levels and obv has dipped to a support level on low volume.

There are a few reasons to be skeptical about this trade. It's always tough entering into a sector when the rest of the market is up and breadth levels are close to 2-1 to the upside. Also, today's price bar is long to the downside, which is not ideal. If volume had been extreme on this pullback, that would have been a dealbreaker. However, since volume is still lighter than the updays, I'm was willing to take a small feeler position.

Trade: MMM

Later in the day I bought 400 shares of MMM at $88.75.

The stock shows no signs of the recent market slide. I know some of you are scratching your heads thinking "it's dropped from $92 to $88." I see that too, and I like it. While many stocks pulled back quickly on heavy volume, 3M did so gradually on light volume, with stronger volume on the up days. This is a bullish pullback to support (price and moving average support are right at $88).

My stop is place a bit under support, with my initial target at the recent high. For those counting, I am now long 3 stocks and short 2. I will likely add short positions if the market bounces on low volume, or violates major support.

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.

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.

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.

Today's Trades: OII, HEI and MT

Today I took positions in three of the six stocks that I posted on my primary watchlist last night. All three are pullback plays in trending stocks. Due to the current nature of the market, I cut my normal position size in half for these trades.

I bought 250 shares of OII at $51.14.

I bought 250 shares of HEI at $42.18.

I bought 250 shares of MT at $61.35

Primary Watchlist for Wednesday

Here are six of my favorite long candidates: VRGY, HEI, JCG, CYNO, OII, MT. All are trending stocks with nice pullbacks. While these are short term trade opportunities, MT and OII (two of my favorites in their respective sectors-steel and gas equipment) will be buys for my longer term position trading account if they pullback to the 50 day moving averages (red line).

I define a short term trade as anywhere from a few days to a few weeks, while the time frame for position trades is a few weeks to a few months.

Today's Trades: GMRK, EWZ and AAPL

Yesterday, I sold 200 shares of AAPL at $108.25 (entry at $101.25) for a $1400 (+6.9%). I had moved my trailing stop when the stock hit $110. I have a feeling a long tail is going to print today, followed by another move up. I hope I didn't sell too early using too tight of a stop.

I sold 250 shares of EWZ at $56.47 (entry at $52.78) for a $922 gain (+7.1%). The reason for getting out is stochastics, RSI and OBV are printing divergences (lower highs) at the new high.

I bought 400 shares of GMRK at $49.76. We have a low volume pullback of a trending stock from the recent high of $54. These types of pullbacks have held strong during the trend, and I'm betting that this one will be no different. I haven't decided whether to place my stop under the 50 day moving average ($46.72) or under recent congestion at $48.

Today's Trades: ZOLT, FUL, TSL

As mentioned in comments yesterday, I sold:

250 shares of ZOLT at $31.80 (entry at $32.30) for a $125 loss (1.6%).

500 shares of FUL at $26.14 (entry at $27.22) for a $540 loss (4.1%). I am upset at myself over this trade because I did not pay attention to earnings. I did not even check the earnings schedule. I rarely hold pullback plays into earnings. Bonehead move on my part.

Well, after 24 straight wins, 3 of my last 4 round trip trades have been losers. Luckily, they have been small losses.

I bought 250 shares of TSL at $51.07. This stock has pulled back to the 50 day moving average and has not broke any major trendlines, although the pullback has been fairly hard. The stock has reacted well to these types of pullbacks in the past, but I still decided to go with a small position size and will place my stop under the 50 day moving average.

Breakout-Pullback Charts: BA and AMZN

BA and AMZN look to be setting up for breakout-pullback plays. Here is a quick summary of what I like to see on the breakout:

1. Price breaks out over established resistance on above average volume


2. Stock closes near the high of the day, printing a long range bar


3. Evidence of accumulation prior to breakout


4. RSI is at a higher level than when at previous high


5. Stochastics printing higher lows previous to breakout

Both stocks fit the breakout critieria. All that is left is a low volume pullback to the breakout point. I'd like to enter Amazon around $44 and Boeing at $92.

Today's Trades: TZOO, GROW, MVIS, FUL, VLO

I sold 500 shares of TZOO at $39.85 (entry at 37.72) for a $1065 gain (+5.6%). This stock was a textbook breakout-pullback play. I bought on a pullback to support after the mid-March breakout, and sold on the new breakout. In the meantime, I was also able to make a few trades within the range that formed post breakout (while always making sure to have a core position while waiting for another leg up).

The stock is again setup as a breakout-pullback, and I may buy on a pullback to $38-39.


I sold 300 shares of GROW at $32.55 (entry at $29.96) for a $777 gain (+8.6%). Here, I traded the post double bottom breakout range, which is approximately $28-33. I might be willing to buy another pullback. GROW is a volatile, and fun, stock to trade.


I sold 1000 shares of MVIS at an average price of $4.60 (entry at $4.04) for a $560 (13.9%) gain. Here is another breakout-pullback play. I bought on a pullback to the breakout at $4.00, and sold the following breakout. Note that I did not sell on the day of the next breakout because the stock was not yet extremely oversold. It hit that level today.



I bought 500 shares of FUL at $27.22. This is a breakout-pullback entry. The stock seems to be holding nicely at the breakout-support level. My initial target is $29.


I bought 300 shares of VLO at $66.48. This is a bit of a risky play, thus the smaller than normal position size. The stock has made a parabolic run and now has pulled back to a short term support level. However, the size of the run makes me think there might be a deeper pullback. My stop will be placed at $63, which is just under the late May consolidation range.


A lot of stocks on my watchlist have been acting as I had hoped they would, but I've been slow to pull the trigger on a few (DGIT, BWLD, SON, JSDA, EWZ, CCOI). I'm going to have to figure out why I held back and pick up my game.

Today's Trades: HES, VDSI and AAPL

I sold 300 shares of HES at $57.55 (entry at $55.91) for a $492 gain (+2.9%).

I bought 200 shares AAPL at $$91.05. I had been looking to see how AAPL would handle a pullback to the peak of the double bottom formation it recently broke out from. The hammer that printed today is a strong sign that the stock will bounce here. I bought on the move up after touching the resistance line.


I bought 500 shares of VDSI at $17.63. During it's uptrend, the stock has rewarded pullback entries, especially on tests of the 50 day moving average. Yesterday's long tailed hammer looks to have been another successful test. Also note that stochastics are turning up and volume shows increased accumulation since the February breakout. These are all strong momentum signs.



I am still holding TZOO, QID and GROW.

Today's Trades: GROW, MVIS, QID, EWZ, HOKU

I sold 600 shares of EWZ at $51.80 (entry at $50.43) for an $822 gain (+2.7%). I suspect that it will retest support at $50, which could provide another entry.

I sold 1000 shares of HOKU at $6.44 (entry at $6.11) for a $660 gain (+5.4%). There is not enough volume to think this price will hold. As with EWZ, I will re-buy on a pullback if it is on low volume.

I bought 400 shares of QID at $51.85. Take note of the stochastic indicator in the chart below. QID has rewarded buys after stochastics move out of extremely oversold territory.

I bought 1000 shares of MVIS at $4.04. This one is straight out of last night's watchlist notes. I like the low volume pullback to the previous highs. What's tricky here is stop placement. Should I use a tight stop at the previous highs ($3.95), at the high volume breakout (3.8) or the 50 day moving average ($3.50)? I'll probably go with $3.80. I move back down to the moving average would put the stock back in an ugly trading range, and I ain't got that kinda time.

I bought 300 shares of GROW at $29.96. Last night I wrote that I was waiting for a deeper pullback, but decided to enter on a test of gap/breakout support. This stock is extremely volatile, and there is another support area at $28, so I decided to use a wide stop. To make up for the stop, I went with a smaller than normal position size.



Along with the positions I entered today, I am also holding TZOO and HES.

Potential Breakout-Pullback Candidate

JAH (Jarden Corp.) has most of the characteristics I look for in a breakout-pullback stock:

1. Price breaks out over established resistance on above average volume
2. Stock closes near the high of the day, printing a long range bar
3. Evidence of accumulation prior to breakout
4. RSI is at a higher level than when at previous high
5. Stochastics printing higher lows previous to breakout

All that is remaining for entry is a low volume pullback to support.

JAH

Trade Review: HOC

Before posting my review of the HOC trade, I'd like to answer a question posed to me after the latest "today's trades" post. The question:

You seem to hold on to positions for only a few days even though it may seem as though the position could move higher. why is that?

The person who asked this question is quite perceptive. While I've been on a tear of late, in terms of win rate and profits, I am still frustrated because I know I should be making more money. I have been exiting trades way too early, bagging profits when I probably should stay in a little longer.

The HOC trade is a good example. When I entered the trade, at $57.94, I posted a target of $62. While I didn't say it, that target was only for partial profits. My strategy was to then move my stop up and see if the stock could breakout over new highs, which I think is likely. Using this strategy, if it breaks out, I continue to make money. If it doesn't, that's fine. I break even on the remaining shares and still have my initial profit.

Instead, I was short sighted, looked at the nice looking profit that I would gain on all of the shares, and let greed and fear based emotions get the best of me. Looking at the chart below, you will see that the stochastic level has not given a sell signal. At the least I should have stayed in the trade with half the original position.

Note that I believe I made a mistake, even if the stock tanks tomorrow. It's about doing the right thing, not stroking the ego from one trade. If I trade properly, over time what should happen will happen more frequently than not.

Setup:
Low volume pullback to support of a trending stock in a hot sector. Early entry. The safe play would have been to enter on a confirmation move a day later. However, the stock was acting perfectly and a low risk stop was in place, making for a nice reward to risk ratio.

Results:
Entered at $57.94
Exit at $60.76
$1410 gain (+4.9%)
Hold time 2 days

Final Analysis:
Great entry off of a great setup. However, I should have stuck to the plan and taken partial, rather than full, profits. This would have given me the chance to catch a big move. The fact that volume was acting nicely and stochastics are not oversold make the timing of the exit awful. I should have held on longer.

What to Work On:
A. Sticking with the plan at entry
B. Psychological aspects of profit taking.
C. Exits: partial vs full profits.
D. Exits: pay attention to stochastic indicator

What to Continue:
A. The "low volume pullback to support of momentum stocks" setup
B. Early entries on good setups with good reward to risk

Today's Trades and A Question About how I Spotted PDE

In reference to the PDE setup, Rahul asked "Indeed a good trade. Could you tell how it came on your radar."

Sure Rahul,

Two weekends ago, I performed a sector screen, as I do every weekend. Energy was one of the stronger sectors that I identified, but I felt that it was a bit extended. I went through about 300 energy charts and identified 30 pullback candidates. PDE was one of those, and once it hit my target, I entered.

Today's Trades:
Just as with PDE, two more stocks from my watchlist pulled back to good entry levels after strong breakouts.

I bought 600 shares of FCEL at $7.89. The stock has handled support, both the breakout point and the 200 day moving average, by printing a bullish engulfing candle. I expect the stock to challenge the recent high.

I bought 500 shares of HOC at $57.94. The stock has pulled back to supprt on diminishing volume. I have placed a loose stop at $55.90, under the 50 day moving average. The target is $62, which would mark a test of old highs.