This is no time to be firing off a slew of new long positions and even any short positons must be taken with great timing and proper risk to reward ratios as downtrends in markets and individual stocks can be met with swift, sharp upside retracements that frustrate traders who don’t remain disciplined in this kind of environment. Keep any new positions, long or short, to only the best set ups and adjust your position size lower until a solid trend resurfaces. Also, keep a list of the stocks that have been acting well relative to the rest of the market should a downtrend take hold, as they will be the best targets on the long side when markets perk up. Now, lets take a look at the charts starting with the major averages before moving on to our trading portfolio.
SPY- The S&P 500 closed the week well below its prior breakout level of $245.00. The recent selling started after a key reversal day at new highs on 8/8. From the high that day to the close of Fridays session, the index has lost close to 2.5% and has closed below its 50 day moving average in four of the last seven trading days. The current distribution day count sits at five, which warrants caution moving forward. Three of those days saw very heavy trade, however, monthly options expiration likely added to the volume figures in Thursday and Fridays session. We may get a gauge of the markets strength or weakness next week should it make a run at remounting its 50 day MA.
NASDAQ- The distribution picture here is much more dire than its S&P counterpart. Our current count shows six distribution days in the last 16 sessions and we are slightly more lenient in defining these days than other publications, one of which shows nine days. Either way, one look at he chart shows a picture of an index in correction, how deep that correction goes remains to be seen. Very much like the S&P, the index closed well below its prior breakout level near 6340 and has closed below its 50 day MA in four of the last seven sessions. The selling here commenced on 7/27 with a bearish wide range outside day with the index finishing lower on very heavy trade. From the highs that day to Fridays close the NSADAQ is down nearly 3.80%. Much caution is warranted here.
Russell 2000- Next up, our good friend and laggard IWM. We have made much here at TTP of the struggles of this small cap ETF to breakout and keep pace with its brethren. The problems here started with a breakout attempt accompanied by lackluster volume on 7/25 which was quickly squashed over the next two sessions. This failure started a sell-off that gained momentum as the index was hit with several distribution days, ultimately producing a bearish crossover of its 10, 20 and 30 day moving averages. From the high of that July 25th session to Fridays close the Russell is the leader in the clubhouse with a loss of nearly 6.5%. The good news here is that the index is approaching support near $133.00 which is right at the bottom of a long consolidation period that began in January, so perhaps a bounce is in the cards. Failure to hold this level could ultimately have the index test breakout support near $125.00.
QQQ- A very quick look here at the Nasdaq 100 ETF shows a similar picture with the index down nearly 3.25% since its own reversal day on 7/27. We would note here, that although it also closed below its 50 day moving average, the QQQs closed a bit tighter to that level than its counterparts.
Now a look at our current positions.
HIIQ- LONG since 6/13 at $21.97, we are in trend following mode with the last quarter of our position. We quickly took swing trade gains on half of our position on 6/23 at $24.95 for a gain of 13.65%, then took more profits on a quarter of our position at $32.27 netting us 46.88% there. We are currently up 50.63% on the remaining shares and are keeping our stop fairly loose to hopefully capture a longer term big winner, however, if market conditions warrant we will maintain the flexibility to tighten that stop which currently sits along the 50 day EMA near $27.50.
SEDG- Our trade in Solar Edge has a similar theme with us going LONG on 7/12 at a price of $21.47. We were interrupted a bit here by earnings and forced, by rule, to sell half of our position prior to the announcement. Nonetheless, we were able to net a 9.32% gain selling those shares at $23.47, then after a huge post earnings boost, we sold off another quarter of our initial stake at $27.61 for a 28.59% profit. Also hoping for a longer term big win with this stock, we are currently trailing our stop near the 50 day EMA. With a close of $26.70 on Friday, we are up 24.33% on the remaining quarter of our position.
TZA- This is our bearish Russell 2000 trade via this inverse ETF. We took a LONG position at $16.43 on 8/8 that would capitalize on a downward move in the index. We were able to take swing trade profits on the first half of our shares Friday morning after only nine days in the trade as price nuzzled right up to our profit target of $18.50. We were filled at a price of $18.49 leaving us with a gain of 12.53%. We will continue to hold the second half of our shares as a trend trade should this move continue. We have bumped up our stop to just over break even near $16.70.
QID- This is our newest position and is also a bearish play, this one via the Nasdaq 100 inverse ETF. We went LONG on 8/17 at a price of $16.29 and we will profit should the selling continue moving forward. What we liked about this trade is the low risk to reward profile should the index abruptly reverse and head to new highs. We are risking just under 5% with our initial stop price near $15.55 while setting an initial swing trading profit target near $18.00, a scenario that would net us nearly 10.5% on the plus side should our target get it. Two days into the trade we are up 1.23%.
GILD- We initiated a LONG position in Gilead Sciences on 7/13 at a price of $70.81. Similar to the SEDG play, we needed to vacate half of our positon before earnings and in doing so we netted a modest 4.69% gain. With the indices pulling back recently so has GILD, but we are still above our stop near breakeven and still up 1.88% on the second half of our shares. Should we be stopped out we will take our modest gains and move on, until then we will follow the trend transition that started in late June.
LUV- Last, but not least, is our current SHORT position in Southwest that we opened on 8/7 at a price of $55.38. This was a Trend Transition set up that we initiated after a modest two day pullback. The stock has moved in our favor over the last two weeks and we are up 4% with the stock closing at $53.17 on Friday. We have been able to nudge our stop down to near $57.50 and our initial swing trade profit target is coming into site near $51.30. For those of you that a new to TTP, let me restate that we use much discretion on our short trades. Depending on the current market landscape we may close our entire position at swing trade levels rather than scaling out and we may also aggressively move stop prices, or abruptly close our position should conditions warrant.
That’s all for now, enjoy your weekend and be careful out there!
CJ Agresta, Trust The Process Trading