It was another solid constructive overall pullback despite the higher volume than the session before. The price action was tight, we did not close at the lows, and volume was not above average. All in all, the pullback was orderly and there was very little damage in leading stocks. For now there are zero issues with this uptrend outside of a few days of distribution that hit the indexes the past two weeks. With the market at new 2016 highs following the strong move on Wednesday those distribution days are basically meaningless.
Our models are under an across the board operational BUY signal and we are fully invested. The good news, for today at least, is that there are zero new long positions I need to take following Friday’s session. So at least there will not be any missed-opportunity remorse. That being said, in the cash account at least, there have been so many shakeouts with those stocks now higher that my head is spinning trying to keep up. PNK PSTB JBT are just a few of the higher quality names to knock me out only to trade significantly higher following the shake outs. It’s a good problem to have, I guess.
Now that I am fully invested it is all about rotating out of the laggards into the leading names. That is if the market continues to trend higher. If the market reverses, obviously defensive measures will need to be enacted. Like the recent purchase of VIIX which has failed on an EOD basis following today’s session. If we get too heated and I am fully long, I will look to add hedges when it appears we might roll over. As of right now, this is not a concern and instead I will be focusing on rotating out of the laggards and into the leaders like I said earlier. An example from Friday is SWHC. SWHC is a full sell this evening with a close below the most recent lows on above average volume. We are leaving the rest of this position with a 15% gain. This cash raised will be used to enter a stock like BIDU RHP HNNA WB or PRMW if I can get my limit orders filled.
As we head into Monday it must be noted that the mood in the market is currently quite cautious. Bulls fell from the week before in the most recent AAII survey and currently stand at 27.85%, the NAAIM exposure index fell from the week before from 73% to only 64% invested, the U of Michigan consumer confidence is the lowest since September 2015, and the Gallup economic poll is at a level last seen in November 2015. This my friends is called the wall-of-worry. It is Wall Street’s most favorite wall to climb. Stocks love to climb a wall-of-worry and as you can clearly see the wall is very solid right now.
If you read ZeroHedge or read Twitter you can see many are still looking for a top. As long as we continue to get the technical setups we are getting in my scans and the crowd feels the way it feels, I will continue to focus on going long the fundamentally best stocks with the best technical setups. If these setups continue to setup and we start to get more technically “perfect” looking patterns in speculative names–like two stocks I am currently long (one is GRAM which is up 48% in 10 sessions)–then it is possible we could be looking at some huge returns in the intermediate term for EOD trend following traders. It is way too early to tell and I never count my chickens before they hatch but we do have the potential with the current technical backdrop in the overall market.
I am going to go ahead and wrap it up here. Have a great weekend everyone. I wish all the best during the upcoming week and make sure you religiously monitor your stop levels. Do not allow gains to turn into losses. Aloha.
TOP CURRENT HOLDINGS – PERCENT GAIN SINCE SIGNAL – SIGNAL DATE
CLR long – +79% – 2/11/16
GRAM long – +48% – 4/1/16
FPRX long – +32% – 3/18/16
OLLI long – +28% – 2/24/16
