Update

Hi Everyone -

I'm sorry I've been busy at work.  But for my swing trading, there has been little to do until recently.  I'm not going to post things just to post things.  But here is the update on how I have traded my 3 favorite positions in 2016 and how I've added and monitored a 4th.

LITE - Could be forming a new 5-7 week base.  Took 8 weeks to go up 20% out of its cup and handle.  I sold 1/2 of my position then.  Then LITE broke the 50 day.  I sold the other 1/2 that day.  Broke up above the 50 day tonight.  Stock is basically at prices where I sold on avg.  Earnings tomorrow night.  I don't love the current base.  I do love the fundamental story, but I don't get the short term technical setup.

VIAV - This broke the 50 day too.  I think this is forming its first base or handle after some pocket pivots and bottoming action. Had earnings tonight which seemed in line.  Headline beat, forecast missed by same.  Core biz was weak.  I could see stock rinsing on this.  I have not sold this.  This seems like an earlier stage idea.  None of my proactive sell signals went off.  I have not gotten stopped out on my entries (pocket pivot at 5.80).  If you defensively sell names when they break the 50 day, you are out.

IWM - The follow through day from a few months ago stuck.  Long term models I see no reason to sell.  But we could be 4 days into intermediate correction.

BSFT - Recent new idea.  Great reaction to "poor" earnings guidance yesterday.  Lots of tight weeks on weekly with a rinse last week and this week.  Earnings did decel.  Technically, I think this is going higher.  I like yesterday's lows as a stop.  Stock broke out from 39 handle in cup and handle and has formed a bigger deeper handle after.

Market and Leaders Update - 3/6/16

Market Health

The follow through day from a few weeks ago continues to stick.  My working thesis is a new bull market has begun and this is not a bear market rally.  One big reason is the sentiment stats (from Ryan Detrick) I retweeted in last 2 weeks.  People were as panicked, short, underinvested as they were at 2003 and 2009 lows.  That is pretty remarkable.

The bears say we are having a bear market rally.  I have circled the major bear market rallies in 2000-2002 and 2007-2008 to show you what they look like.  In Elliott wave terms, the big question is will we have a double or triple "3".  There is no doubt we completed one major "3" down.  See my IWM charts here and in past reports.  The question is are we having a corrective rally that will set up our next "3" down.  Does this current rally look like the circled areas in the bear market charts?

So far if you look at the chart of the IWM (which led again on Friday), it is too early to tell.  So far this looks impulsive, but there is way more "work" to do in this rally to figure out of it is corrective (bear market) or impulsive (bull market).  All we had is one very small pullback in this rally.  I'd expect one more similar minor pullback and a rally before we have anything more severe bull market or not.

Leader Update

I have kept the list narrow.  There have been a lot of damaged charts with stocks climbing up the right side of bases.  Candidly, I have been busy with my day job recently and feeling insecure that I don't have enough ideas for my trading and for this blog.  Having said that, I've still flipped through a lot of charts for 30 min most days and paying attention.  And ideally we should be focusing on our best 3-5 ideas whether you are a day trader or longer term Billy O style swing trader.  We do have this tendancy to want to have more ideas.  It feels safer.  It makes me feel like I am working hard.  But Billy O would say those are all excuses.  Do your work and believe in the best of your work.  Diverisification will lead a trader to mediocrity.  For better or worse and for whatever reason, I have been focusing on 3 ideas - IWM, LITE and VIAV.  I did add a few below for you to review this week if you haven't seen them already.

Existing Ideas

LITE handled CIEN's miss well.  Just because you have one guy in the group struggling, it's not a reason to throw your stock to the side.  LITE is 5 weeks post breakout, too early to sell, no sell rules have gone off.  Usually when these handles fail, they fail quickly.  They breakout, and a few days later they are forming a new base which stops you out.  Not so with LITE.  LITE is still holding the 10 day too.  I'm doing my best not to overthink it.  (this can be hard sometimes!)

VIAV continues to hold all pocket pivots and act well.  It continues to be around levels where I would anticipate a handle or a base.

New Ideas with Potential

Alarm.com broke out from a decent base.  Cloud home security provider with good Billy O earnings and sales stats.

There are a bunch of telecom, cloud component names in the IBD Friday "Weekly Review Section".  MXL, MLNX, MTSI.  I am going to show MXL chart.  I am still focusing on LITE for myself and not adding a second name.

Hope that helps.  Have a good weekend everybody.

Market Update - 2/21/16

Market Health

We got a day 4 follow through day this week.  So far it hasn't failed.  There were sentiment gauges that were showing investors were at similar levels of caution shown in 2008.  There is a good chance this one will stick.

The Russell, the weakest on the way down, is now the leader off the bottom.  It looks to me like it completed the final 5th wave in a zig zag discussed in previous reports.  I like how the MACD is turning up.  At the lows, the Russell was down 30%.

Leaders

Leadership is narrow.

LITE is still holding its pivot.  I'm trying not to overthink it.

VIAV is still holding its pivot point and now its trendline breakout without a stop out.  Again not trying to overthink it.  I could see a handle starting some time next week.  Could be a nice add if it forms properly.

Watchlist

There are other stocks like FB where I am trying to see if they right themselves after stop outs.  Not a lot of setups I like right now.  I am just focused on 3 favorite long trades - IWM, LITE, VIAV.

Update - 2/16/16

Update - 2/16/16

I don't have much to add this week.  We haven't had a proper follow through day yet but we are on the look out for one given the market made new lows in a 5.  You never know when a 5 is going to end.  But we were out of the weekly bollinger bands again for the indices and at key spots outlined in the past.

LITE and VIAV still look good and haven't stopped you out since last pivot and pocket pivot points.

FB has stopped people out yet again.

Hopefully I can add more thoughts in the weeks to come.

Leaders & Market Update - 2/6/16

This was a very interesting week!

Market Health

So far he have a follow through day that hasn't followed through.  It hasn't completely failed yet either although it is trying.  My best guess is the market still needs to make a "5" down to complete this correction/bear market.  I show the Russell, but the S&P is similar in structure if not severity.

Lesson in Why Stops are Good and "Bad Things" Can Happen Below 50 Day

LNKD - LNKD had some pocket pivots 3 months ago before and after earnings.  It looked like it was in a big macro double bottom base potentially.  It even looked to me like QCOM 98/99 initially.  But then LNKD diverged from historical precedent.  It didn't form a base within a base.  It got looser.  If you played those pocket pivots, you got stopped out.  It lived below the 50 day.  It actually lived below all of its moving averages going into EPS.  There was no reason to be there long and yesterday showed why.  Bad earnings report.  And they are closing one of their businesses which was supposed to be a growth driver - Lead Navigator (sales product).  LNKD actually led the market, tech and beta stocks down yesterday.

Wait, Are There Individual Stocks That Are Building RS and Getting Healthy???!!!

We actually had one pocket pivot and one watch list stock put in pocket pivots and breakouts this week.  Crazy right?  Yesterday felt like a day where everything should be going down.

You always have to follow your stocks first and not impose your market view on them.  Also, when you are this late in a correction, we do have names that start to break out and emerge.  In 1Q 09, when the market made its final whoosh down, AMZN was already up over 80% and not budging.  My best friend in trading brought that name to my attention at the time, and wow was he right on that one.

There are some similarities with LITE now.  Listen, LITE is probably not going to become CSCO 89-99 or AMZN 09-16 or AAPL  - one of the few core leader stocks that are foundational to the market and our economy.  But it could become a very nice leader like an NXPI or SWKS.  Or a TASR in 2003.  It could have a very nice component, product cycle and still become a "big stock".

Here is the weekly chart of LITE.  It broke out on earnings yesterday.  Like AMZN 09, it has held early pivot points from a few months ago and now is making new highs.  Nice tight weekly action in this last handle.  If LITE stops a trade out from the new 22.90 pivot, so be it.  But you have a new stock breaking out, when the market is still weak - don't overthink it, if you like it, make it stop you out from here.

LITE had "good" earnings on Thurs night.  If you look at the headlines, it's not like LITE crushed its numbers.  But they did beat.  More importantly, they had great things to say about the coming 100G cycle.  They already are 1Q into 100G cycle in their telecom business.  Their comments were strong there.  But they had "surprisingly" strong comments on their cloud/data center business with regard to the industry and their market share wins.  In short, they feel like that business will start to grow again this Q and they are very optimistic about 100G cycle in the data center starting now and them being the biggest beneficiary.  I would encourage you if you are in LITE to read the earnings transcript.  You can skim it in 10 min; you can find it on Seeking Alpha.

VIAV - Put in a potential breakaway gap and first pocket pivot off earnings.  120% earnings growth.  Great new CEO from International Rectifier, which was a big stock under his watch and sold (I think to Infineon).  We all like CEOs who manage companies well and sell them for top dollar, right?

VIAV is an example of why you put things on your watch list "early."  You can play the pocket pivot this week if you want too.  Watch its EPS report.  You can be on the lookout for a handle here.

FB - came in hard to the breakout on volume.  Billy O says 50% of healthy breakouts do this.  If you love FB, make it stop you out, 8% from this pivot.

Market and Leaders Update - 1/30/16

Market Update

We had a follow through day yesterday.   We had a lot of negativity at recent market lows.  And we were at key levels for the indices.  We now have a leader or 2 that has broken out.  From that perspective, this is follow through that could stick.  If one is a long term allocator to the market, I think it is an easy decision to allocate to the market here.  Either cheating ahead of the follow through day (marked with an F below), or allocating yesterday.  I'm not sure I'd have all of my chips in there, but I think one should have put a chunk of long term assets back in the market late this week.

Short term traders also had the basis for a market trade too and now have a stop.  If you are a short term trader, you should be using the low of yesterday in the market as your stop especially if we get meaningful distribution quickly.  If you like to ride a trend and a winner, you should see if this follow through day sticks.   Make it stop you out.  For all we know, the market could be starting a 30-50% run.  Risk 2% to make that is not bad.

Not all follow through days stick.  If this one doesn't, it will be because the market needs to carve out one more low.  On the weekly chart, The Russell could be in a zig zag.  5 waves down, 3 waves up, 5 waves down where we still need the final 5th wave.  If this follow through day doesn't stick, it's also because we have a leader or 2 not 50.

Longer term, I do love that the Russell outperformed the S&P off this low!

I think through the market for long term allocation decisions.  And to get a general feeling if I have the wind at my back on individual stocks.  That's it.  I always put individual stock action first when looking at a specific stock.

Leaders Update

As always, I let individual stock action guide me above all else.  Going into this week, LITE was my only watch list name that had held an earlier pocket pivot and has constructive action.

LITE

Put in a 4th tight Week!  Despite all of the above, I suspect LITE might need to carve out a lower low in this base with in a base.  I would not be surpised by 6-7 week cup or double bottom within the larger cup.

FB

Broke out this week on earnings.   FB has been a choppy trader for the last 2 years, stopping O'Neil rule followers out of many entries.  It happens.  It's possible this one can stick and start to trend.

Watch list Update

VIAV - I had this on a watch list due to EPS acceleration and a new product cycle.  It also had the classic big stock initial entry setup of cheap valuation, poor sentiment and potential powerful catalysts coming,  But there has been no ONeil or pocket pivot set up yet.  But I have drawn the Elliott Wave case on how this has been in its final wave down.  Since early 2011 (after its incredible 2 year run), this has put in a double 3.  A zig zag (5-3-5) and a flat (3-3-5) which made a new low.  I have seen many big stocks emerge from this formation.  This one will need to put in a pocket pivot first, build some RS, and build a real base down the road.

I do these types of exercise to stalk a long term trade.  Pay attention for big product cycles, what could work down the road.  It's very hard to buy things down the road if you haven't done the prep ahead of time.

LNKD

This had pocket pivots and breakaway gaps in late 15 that eventually failed.  It does have earnings acceleration and fundamental leadership qualities.  So it stays on the watch list.  Right now this could be a base within a base.  Or could be plunging to new lows.  We have earnings this week.  My nose says it will be base within a base.  But that's it.  There is no Neil or pocket pivot setup currently.

Market and Leaders Update - 1/24/16

Market Health

Still no follow through day.  The Market Indices did put in weekly hammer at key levels of support.  The August lows for the S&P and one of the support lines I drew for the Russell.  I am thinking the Russell turning is going to be a key for the overall market.

My best guess is we rally this week and then we make one more low.  For you Elliot Wavers, I think the Russell if carving out a zig-zag - a 5-3-5.  We have have now had 4 of the final 5.

Watch list update

I have removed one name from the watch list, N.  I didn't like that is made a lower low from its spring 2014 low.  My technical opinion was it was consolidating its gains from that low and getting ready to blast higher.  A lower low to me makes this look like a broken former leader for now.

My other 3 names have positive developments.  LITE is by far the most positive for the long term.

LITE - Put in its third week tight.  My best guess is this will pop and then make a lower low in this handle controlled fashion.  So far love the tightness and RS.

LNKD - They did reach for this on Friday unlike N.  This put in a nice weekly candle.  I have been trying to figure out if this is destined to make a new low vs early 2015.  Or whether this a proper low in a smaller base.  No pocket pivots.  This sits +30 point below 50 50 day and pivot point, with earnings in a week and half.  This does have accelerating bottom like EPS and so far little fundamental concerns compared to a TWTR.

VIAV - This looks the final leg down.  Put in week of accumulation.

Market Update

The market has spoken, and we have had a "more severe correction."  The odds toward a correction where we have a 20% correction (bear market) in the major indices has increased as we made a new low in the S&P 500.

We still haven't had a follow through day, but we should still be on the lookout for one despite the above.  The Russell has led us down, is in bear market territory, and I have drawn a few lines where we might eventually get support.  We are very oversold, I circled a few pertinent indicators.  But Friday put/calls, oversold oscillators got to pretty severe levels.  I thought we might bounce and make one more low.

Watch list update -

LITE - Still holding its pocket pivot and it put in a tight week in a handle.  Encouraging.

N, LNKD - same camp.  No pocket pivots in the bases that have held.  If they are forming real bases, this would have to be the lows of their bases.  No much more to say.  They stay on my watch list for pocket pivots down the road.

VIAV - Similar to N and LNKD.  The one thing I would add though is for you Elliott wavers:  VIAV is definitely in its final corrective wave.  There is no such thing as a quadruple 3.  I will try and explain in a subsequent post.  But here is the weekly.  At key levels.

Market and Leaders Update - 1/10/16

Market Update - 1/10/16

The market continued its correction this week.  We have yet to have a follow through day.  With the FFTY mutual fund down almost 18% since inception and a lot of false market health signals, I think a lot of people are getting ready to throw in the towel on IBD market signals.  Which probably means their methodology will start to work again and we will get a trending market.  It has been a great methodology that has worked well over 115 years.  Nothing works 100% all the time.

My thesis continues to be we are in a mild correction and not a bear market.  Intermediate corrections can still feel severe during the capitulation stage.  After all, they are corrections.  And the best bases, handles, corrections all have capitulations at their bottoms that rinse out the sellers.  The S&P hasn't made a lower low yet versus the August lows.  This still could be an intermediate correction and not the next leg of bear market.

Although our larger cap indices are still far away from bear market territory, the Russell and small caps are right there.  They are also at a key level, the October 2014 low.  The RSI is oversold too.  Even in bear markets like 08, we are around a spot where we will get a bounce.

But the main point is during corrections, we need to have a watch list of great merchandise we would want to buy if and when the market turns.  What has leadership potential?  Are you going to sit their and doubt a rally for 3-4 weeks if it comes?  Do you have some names that wouldn't surprise you if they ripped instantly if and when the market turned.  Where would you buy them?  What price levels would give you conviction that your leader is moving onward and upward and market health has returned?  Because I can tell you, it is pretty negative right now.  China can't open their markets for more than 45 minutes. We have had many things to worry about over the last 2 years, emerging markets, commodities, interest rates going up.  The market is up over 100% since 08 and people are waiting for the next bear market and opportunity.  "I'm going to wait for a bear market to get in."  I know many great money managers that had their second flat year in a row in 2015.  I know others that were down.

We do need a follow through day though.  We still haven't had one.

Watch List Update

LPTH - Added to watch list last week.  I missed the first entry.  Given this doubled in 8 weeks and has incredible sales growth, this has high tight flag potential.  Last week was week one.  20% drop, but nice tight weekly close.  Let's watch this like a hawk the next 2 weeks.

LITE - We put in week 1 of a real handle.  This is the first real handle in the base, this is what we've been looking for.  If you bought the pocket pivot on earnings day (early November), you are still safe and have a nice entry. The bottom of the cup (like LNKD) has a lower low (that's good).  Next entry is now the top of this handle (22.64).

LNKD - has yet to put in a pocket pivot in this current handle/base.  And is now building more a V type base within a base or a handle.  But that's ok.  Some of the best bases, like FSLR 07 and DELL 96 can be sharp and V like.  Still on my watch list, waiting for a first pocket pivot (in this handle) which would be way up at 237-238.  Lots of tight weekly closes, last week wasn't one of them.  If you bought the gap up day on earnings day, interpreting that as a breakaway gap within the larger base, you have now been stopped out.  It happens, part of the game.

VIAV - has not put in a pocket pivot yet or trendline break yet.  What i thought might a double bottom is turning into a deeper cup.  No entries yet.  Entries are 6.16 (trendline) or 6.56 (top of cup).  The cup still has tight weeklies and is shallow.  Still has potential.

N - hasn't had a pocket pivot since early December (which failed).  Still a great long term base.  Entries are 50 day (84.10 pocket pivot) and 88 (trendline).

Stalking Trades Mindset

Just because many leaders haven't broken out yet, don't give up on names or watch list building.  The best investors and traders identify potential A+ trades and stalk them.

Market and Leaders Update - 1/2/2016

Market Update

Happy New Year everybody.  The market had what IBD labeled a follow through day on Tuesday.  On Monday, we had peak levels of put/call activity (significant negativity).  On Wednesday and Thursday, the follow through day appeared to fail although the levels of distribution were mild.

I continue to believe we are in a mild, intermediate correction not a bear market.  I'm not sure it's over.  Billy O always said focus on stocks first, the market second.  There continue to be good trades either to be in or to stalk.  I do anticipate a time where the market starts to trend.  We weren't there yet on New Year's Eve.

New Addition to Watchlist

Lightpath (ticker LPTH) - I missed the initial entry points and now will watch to see if sets up a secondary entry point.  LPTH has had a nice breakout, incredible RS last week, and accelerating fundamentals (61% sales growth vs 45% in prior Q).  It is in the same group as LITE, a good sign for the opticals.  LPTH has an optical business but it also has an infrared component business too.  They are seeing strength in industrial, telecom and China (just like LITE).

One of the risks is this is a $30 mm market cap and a below $5 stock.  Ie, not institutional quality.  But with newer product lines like specialty products growing 103% and infrared growing 146%, I am going to do more work on this and look for secondary entry points.  There is an Internet of Things sensor part of this story I am trying to better understand.

Existing Watchlist Update

N - Took out 50 day and came back in.  Didn't have the volume for a pocket pivot.  Still RS starting to rise and I like the look of the MACDs on the daily and weekly.  I show the daily here.

VIAV - Put in a tight consolidation week in its double bottom base.  Nice tight handle so far with volume drying up as handle goes lower.

LITE - Continues to ride the 20 day and build RS.  Still hasn't had a classic handle.  It is trying to take out what some people would label the top of its cup ($22).  One of my favorite 2016 stories.  Its RS rating is now a 90, EPS rating continues to be an 89.  If a trader bought the pocket pivots before ($16) and after earnings day ($18), you are safe.  

LNKD - Not building RS.  But that's ok.  After getting rejected at the 50 day hard, this is looking to make a short term low.  Gap fill is down at 218.  This still is a very shallow, controlled, tight base in base or handle.  We still had another tight weekly close.  My bet is we make another hard low here, and then we start to climb the right side of this base on base and we will see if it fails or not.  This is a $30 billion mkt cap that dominates its space with accelerating fundamentals.  This is the type of market cap where you can have a multi bagger.   Don't fall asleep; continue to look for a pocket pivot.  We haven't had it yet.