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.

Weekly Update, PepTalk - 12/26/2015

Happy Holidays, Pep Talk for 2016

Happy Holidays Everyone!  For those of you that celebrate Christmas, I hope you had a great one.  At next writing it will be 2016.  I wish everyone a very happy new year.

2015 was a tough trading year for a lot of traders.  If you are in this camp, stay positive and look forward.  There is not a trader in history that hasn't had a drawdown.  The market has gone nowhere for 12-24 months (depending on what market you are looking at).  There were a few great leaders in 2015 like AMZN and the bank sector.  If you were talented, experienced and on your game, there was opportunity to have a nice year.  There is no doubt about that.  But it was an easy year to have a drawdown or to finish down for the year.  It happens to every trader noviced or experienced.  Learn from it, and then look forward positively.  There were traders that got chopped up in 98 and most of 99 and then went up 400-500% in 3-6 months.  We very well could be setting up for this type of environment again.  So stay positive, get your work in and if you see A trades going forward, believe and go for it.

It was an interesting market week.  After "losing" the follow through day, the market had a nice 3 day rally.  When the market doesn't do what you think it should do (fall apart after failed follow through day), pay attention.  That is a trading rule for many experienced and able traders.

Most of the signs I look at point to my scenario A in my market mosaic; i.e., we are in an intermediate correction, leaders are setting up and we should be looking for a follow through day soon that could be very powerful.

Just to hammer home the potential coiled spring/the market has gone nowhere for a long time theme, here is a chart of the Russell 2000.  Nowhere since 1/1/14 (2 years ago!).  The IWM also completed the Billy O (the nickname traders had for William O'Neil)) 5 waves down a few months ago.  See my previous charts on S&P 500.  As Bill O says, stay positive, he has never met a successful pessimist.  There might be opportunity here.

Watch list

Here are the updates to my watch list:

VIAV - Completed its 7 week in its double bottom base, started to climb up the right side and has built some RS.  The week was too short to show accumulation, but if we had a full week we probably would have gotten one.  I am giving you the daily view here.  I drew this as part of an ascending wedge, but it doesn't have to be going forward.

N - Continued to hold its RS after a nice rinse and high volume weekly recovery/accumulation the week prior.  If you have a Billy O "How to Make Money in Stocks" book, look at Pic N' Save 1979 chart (the base was actually in 81/82).  That double bottom base (a double double bottom!) was very similar and had a very similar rinse and high volume recovery at the bottom of the base on the weekly.   My stock charts don't go back to 1979 or I would show you.  The trendline pivots for N have fallen to 91-94 depending on how aggressive you draw them.  50 day is just above for you pocket pivot watchers.

LITE - had a nice tight 1%  week in a potential handle.  The handle probably needs more work as previously discussed with QIHU examples.  See last week.  So far we have a nice cup base, with pocket pivots before it launched up the right side.

I put the positive Wall Street comments for LITE through my twitter feed this week.  I caught this news late.  But it gives you a summary of some of the fundamental positives that are creeping into this story.


LNKD - had another tight weekly close (1.4%) in an 8 week base within a base.  I'd love more tight action or a nice rinse and recovery.  Don't fall sleep on this or any other A set ups due to internal worry or macro headlines.  QCOM broke out on Jan 6 1999.  See past posts or twitter feed for chart. Don't fall asleep here on this or anything that is setting up!  Here is updated daily on LNKD.

Happy holidays and new year everyone!  Let's get our minds and prep right ahead of this last week of 2015 and the 2016 that lies ahead.

Market and Leaders Update - 12/19/15

Market Health - Market in correction.  We still have distribution in the market and no follow through day yet.  I continue to build a mosaic in an effort to determine if we are in a intermediate, mild correction or a more severe bear market.  My thesis continues to be that we are in an intermediate correction and we should be looking for the best investments/long setups for when this ends.  But here are some of the market data points I am examining.

Mosaic for mild, intermediate correction - significant fear in the market over rising interest rates/commodities/many hedge funds failing, the market hasn't gone anywhere in a year and has chopped people up, oscillator is building again, I am seeing some emerging leaders set up.  When people are giving up on the market, trend analysis, and active management, I get excited.  This is exactly the type of backdrop that gives way to a follow through day and a market and leaders that finally trend.

Mosaic for severe bear market to come - some big leaders like AMZN look tired and extended, market has been narrow this year, not a lot of great setups.  IBD called Wed a follow through day this week, and it failed quickly and violently.

Watchlist Update:

I listed these in order of how constructive their action was this week from best to worst (even though they were all "constructive").

VIAV - great RS the last 2 days.  6 weeks into a handle, a cup or a double bottom base.  Cups need 6 weeks, double bottoms 7 weeks.  We had our 2nd week of volume accumulation (marked with A) in the base with no weeks of distribution.

N - Actually started to build some RS.  We had a big week of accumulation (marked with an A) at the bottom of this base!  In this year long base, weekly accumulation and distribution is roughly even.  Hasn't had a pocket pivot or trendline break yet.  I liked the CIO survey calling for increased spending in SaaS in 2016 this week.  As I mentioned in a tweet, the overall group has a lack of setups (main technical risk to assess).

LNKD - We are now 6 weeks into a base (a cup) within a base (a cup and handle or double bottom with handle).  We had a weekly close within 2% of the week before (not bad for a "beta" stock).  A few weeks ago, we had 2 weekly closes within 1% of each other.  So far on the weekly, we only have one week of distribution in this 6 week base (the first week), and volume has been very dry in the remainder of the base.   We didn't even get above average volume on options day and the 50 day break yesterday.

Using 8% stops, one hasn't been stopped out if they started a position in front of the the 50 day.   One hasn't been stopped out if they bought the low of the gap up day, but the stops are close on that entry.   Swing traders can look for a gap fill around 219.  IBDers who like to cheat from here will look for pocket pivots back up through the 50 day.  The non cheater pivot point remains 258.  I have included LNKD's current chart plus another similar base within a base - QCOM in late 98 before the run of a lifetime.  Both had several years of chop, wedges, subsequent double bottoms and bases within bases/handles.  QCOM's bottom of its handle or base within base was just under 50 day.

LITE - great RS this week but "handle building" process might continue.  We did have a short 5 day handle, the stock kept riding the 20 day and then "broke out".  But my sense is this handle making process might continue.  We need a real handle in terms of severity or time (over a week).  This might be an unorthodox handle that makes a higher high, then a lower low to key support levels like QIHU several times in 2012/2013.  Overall we have a big cup base with no official breakout, lots of weekly accumulation on right side of base (marked with As).

New stock for watch list:

RUN - very early, much work to do.  But I loved that this stock was up +100% in a correction.  We need to wait for a potential high tight flag formation over next 3-5 weeks.  This name is a beneficiary of last week's solar legislation.  This is a flakier name.  But so was TASR in 2003.