Hello everyone. I hope you are enjoying your winter weekend and I hope everyone is staying warm on the East Coast. Getting to the overall market, stocks rallied hard on Friday with the market undergoing one of its classic V-shaped oversold bounces. Unfortunately for the bulls, volume was lower than the session before, continuing the theme from Thursday. The good news, short-term, for bulls, is that all major market averages broke out above their 2016 downtrend lines. Despite this, the reality, for now, is that we are simply under day three of a new rally attempt. Nothing more. Nothing less.
This bounce could definitely have legs over the next one or two weeks. However, unless we see some real serious accumulation enter the overall market and start to see higher quality leadership, my best guess is that we will fail at some overhead resistance and either continue lower or stay range bound and choppy for months. As of right now, the current clear leadership being produced from my long scans are Utility stocks, Food & Beverage stocks, and Small Bank stocks. Not exactly the sectors that inspire confidence that a real strong rally attempt can manifest itself from here.
On top of that, the V-shaped nature of this bounce does not bode well for a start to a nice intermediate to long-term uptrend. You will want to see a market that at least calms down a little bit with the volatility and then rounds out before blasting higher. This will help create the consolidation patterns in the new round of leading stocks from innovative and growing industry groups. Until we see the market calm down and better leadership show up, it appears, so far, that this is a dead-cat bounce with defensive stocks getting the nod from PMs that have to stay long something no matter what the market is doing.
With these defensive stocks starting to form uptrending technical patterns it should be no surprise that we do have at least one new long position for Monday out of the Food & Beverage space. Also there are a few high quality stocks that are starting to attempt setups for potential moves higher. The best looking names include WBMD PLAB EEFT and TAST. All of these patterns do not quite have the proper price and volume structure as of right now for a new long position on our end but we will keep them all on close watch.
If this market does find a tradeable low here and can manage to rally for more than just a couple of weeks I am sure we will see these names a few more times. Unless they blow up following an earnings release. And since we are heading into the real meat of earnings season that will bring me to my final point this weekend. I continue to recommend everyone focus on those low priced (sub-$10) stocks that spike in the pre market session on extremely strong volume following positive earnings or contract news. This is your best bet for alpha in this volatile tape in the short-term.
We send out a pre market watchlist of names we find the night before in the after-hours session that are moving on unusual volume and/or are heavily in play among the daytrading community. However, any low float low priced stock gapping up on huge volume due to great news in the pre-market session should be watched for early morning spikes. If the stocks spikes initially and pulls back at any point during the first 30 minutes of trading we recommend using buy stops to get long these names on their next early morning intraday breakout.
Despite the current overall market, there continues to be plays every single day in this low priced low float space as degenerate gamblers with zero regards to proper risk/reward discipline simply can not stay away from the action. It allows professional traders to get some alpha, while we wait for a better EOD Trend Following market to return. Have a great rest of your weekend everyone. Remember we are still under an across the board operational SELL signal with our best investment being a high level of cash currently on an EOD basis. I’ll see you in the chat room on Monday. Aloha.
TOP CURRENT HOLDINGS – PERCENT GAIN SINCE SIGNAL DATE – DATE OF SIGNAL
UVXY long – +58% – 12/2/15
NVRO long – +33% – 11/17/15
AGRO long – +25% – 10/23/15
