My Approach Is Still The Same…Here It Is
A new week, and after Friday’s rather dismal
performance (for bulls at any rate), we are still faced with a tight
trading range. However, the pot has been stirred, and hopefully some good price
action will come of it.
First off, let’s focus in on some key levels for the S&Ps for today and the
coming days. I still expect trading to be muted, but if some of the levels below
are breached, it may add some volatility.
Second, the best way to capitalize is to look at the
tech stocks. They led the way up, and if the market gets into some trouble here,
they will surely lead it down. From an intraday perspective, the chip and box
makers offer good range and liquidity.
I figured it would also be a good idea to go over some
trades that I have done recently to illustrate how I am adjusting to the rather
quiet market. Again, I cannot stress enough that there is no need for a radical
shift, simply minor adjustments. Consistency cannot be achieved by constantly
dabbling and trading every system under the sun, especially in this market. My
approach is still the same:
- Buy pullbacks in uptrends
- Sell short rallies in downtrends
The only difference is that I am taking my cues from a
five-minute chart rather than a one-minute chart. Naturally, this increases the
duration of the trade, but other than that, it is the same approach. I can tell
you that this has made all the difference for me.
The first trade, which has always been a staple trade
for me, is fading the morning gaps. Friday most of the tech stocks gapped down
in the morning. Naturally, it is not a signal to run right in and buy them,
however, observing the price action immediately after the stock opens will give
you clues if there are more sellers, or if that was the equilibrium point for
the time being. In this case, the opening print was also the low, and
HPQ traded up nicely
over the next 5-10 minutes.Â
However, I did not stay in the trade for very long at
all, and as a result, only caught a portion of the “up” move. The reason was
simple. The S&Ps also gapped down. However, they simply moved sideways. Normally
you expect some sort of immediate reversal for a few minutes at the very
least. This time there was none. Without the futures, the risk/reward on this
trade was growing unfavorable. So, I exited. You need to be able to do this
without question.
There are several more earnings reports due out this
week, and with the negative technical close on the major averages, bad news will
not be taken lightly. As a result, I see this as a pivotal week, especially on
the heels of the Fib time cycle on Jan 15-16, which in fact did call a change in
the trend of the market, for now at least. Look at the charts below. They are
pretty ominous from a technical standpoint, as both closed outside of their
regression channels from the October lows, but also are confirmed by the
stochastics crossing to the downside.
While you may elect to look at these stocks as
longer-term shorts, the important point here is that we have a tech leader,
Microsoft
(
MSFT |
Quote |
Chart |
News |
PowerRating) breaking down pretty badly. Compare that with other tech stocks
which are far less vibrant in terms of their business model, and you begin to
see the picture. Granted, as a short-term trader, this may not impact us today
or even tomorrow, but I believe having some bigger picture scenarios can give
you that extra conviction when in trades (shorts), simply knowing that the wind
is at your back from a longer-term perspective.
Key Technical
Numbers (futures):
S&Ps |
Nasdaq |
| *934* | 1064 |
| 926 | **1049** |
| *915-16* | 1042.50 |
| 912 | 1038 |
| 900 | *1018.75* |
| 898 | 999.50 |
| 892 | 989 |
| 888 | 983 |
| 883 | Â |
As always, feel free to send me your comments and
questions.