Last week was the first week of 2012 that the markets closed lower than they started. The modest move lower did little to remedy the majority of extended stocks. For most of the week, any weakness was quickly bought by anxious dip-buyers and only until Friday did we actually receive true weakness. However, even that weakness was contained as many market players were positioned for a much deeper pullback. That, in itself, may have been a reason the pullback was contained as many were prepared.
As I’ve repeated multiple times lately, I’d like to see some more weakness. That way we can find safer entries in our trades. This action is still feeling very dominated by computers making it even more riskier to chase. We must fear the day we are aggressively long only to get caught as the computers turn to sell. This is the new environment that traders must adapt to which was never the case just a few years ago.
Europe has also mattered once again this past week. As I am typing this section, Greece and the Eurozone have not firmly agreed to more bailout money yet as they inch closer to default. However, this does create another opportunity for a “Greece is saved” rally that we have grown so accustomed to. Odds are that the situation will be agreed upon just in-time and then odds are we will have a “Greece is saved” short-term rally. For the younger traders reading this, as many of you gain more experience in the markets, you will notice that logic is not the driving force behind markets moving up or down.
Stay on-guard this week and keep sifting through stocks for the right risk-reward opportunities. I believe we have more upside to go, but I’m skeptical it will be without much worry. A pullback is still ideal.
Unlike last week, this week is loaded up with economic data and many of these events has the ability to move the markets.
Retail sales on Tuesday morning will be the first piece of data to focus on. With so much optimism that the economy is improving, we will start needing more economic indicators to confirm these beliefs. Consumers buying more would be a very important indicator to confirming this belief. I’m skeptical myself, but do believe we are at least modestly better off than the previous year, which I attribute mostly to better consumer sentiment that the world hasn’t ended like some had feared.
The Manufacturing surveys and Industrial Production data will be another area to focus on. This data will gives us a better feel for what we can expect the manufacturing output to be for February. Many are expecting manufacturing to really turn the corner this year and continue to strengthen at an increasing rate. A curve-ball in this though is if Europe worsens and exports there decrease.
We also need to keep an eye on inflation indicators. They will likely create much discussion from the talking heads on television as they try to figure out what the Fed may or may not do next. I only pay attention just enough to see what the Fed is using and what others are perceiving, but I take the number with a grain of salt as it doesn’t do much to account for inflation from higher gas and food prices. That is true inflation to the consumer.
|Date||ET||Release||For||Actual||Briefing.com Forecast||Briefing.com Consensus||Prior||Revised From|
|Feb 14||08:30||Retail Sales||Jan||1.2%||0.8%||0.1%|
|Feb 14||08:30||Retail Sales ex-auto||Jan||0.6%||0.5%||-0.2%|
|Feb 14||08:30||Export Prices ex-ag.||Jan||NA||NA||-0.2%|
|Feb 14||08:30||Import Prices ex-oil||Jan||NA||NA||0.1%|
|Feb 14||10:00||Business Inventories||Dec||0.4%||0.5%||0.3%|
|Feb 15||07:00||MBA Mortgage Index||02/11||NA||NA||7.5%|
|Feb 15||08:30||Empire Manufacturing||Feb||15.0||14.0||13.5|
|Feb 15||09:00||Net Long-Term TIC Flows||Dec||NA||NA||$59.8B|
|Feb 15||09:15||Industrial Production||Jan||0.1%||0.6%||0.4%|
|Feb 15||09:15||Capacity Utilization||Jan||78.2%||78.6%||78.1%|
|Feb 15||10:00||NAHB Housing Market Index||Feb||25||26||25|
|Feb 15||10:30||Crude Inventories||02/11||NA||NA||0.304M|
|Feb 15||14:00||FOMC Minutes||1/25|
|Feb 16||08:30||Initial Claims||02/11||365K||365K||358K|
|Feb 16||08:30||Continuing Claims||02/04||3550K||3505K||3515K|
|Feb 16||08:30||Housing Starts||Jan||645K||670K||657K|
|Feb 16||08:30||Building Permits||Jan||650K||675K||679K|
|Feb 16||08:30||Core PPI||Jan||0.2%||0.1%||0.3%|
|Feb 16||10:00||Philadelphia Fed||Feb||10.0||10.0||7.3|
|Feb 17||08:30||Core CPI||Jan||0.1%||0.2%||0.1%|
|Feb 17||10:00||Leading Indicators||Jan||0.4%||0.5%||0.4%|
The game-plan has changed little from last week. I am underinvested and in mostly an aggressive day-trade mode. The market is making it more complicated to chase stocks that have already risen significantly. In the meantime, it has been rewarding very speculative stocks that are hard to hold overnight due to fundamental/news-driven concerns. It’s still a healthy sign that speculative stocks are receiving attention, so I’m optimistic for the short-term future.
That being said, I am ensuring I don’t lose the gains made over the past few months therefore I am being very cautious. Outside of my long-term positions in Dejour Energy (DEJ) and Gastar Exploration (GST), which almost never make up more than 25% of my portfolio, I am mostly cash with few swing trades. Friday’s weakness helped, but we truly need more weakness to reset some charts and shake out some of the bulls. This would make it easier to hold larger positions overnight allowing us to take more advantage of the optimistic market. Until then, I am stuck sorting through charts for favorable opportunities and keeping trades on a tight leash. Preventing unnecessary losses is many times more important than making gains. We must find the right favorable trade, not force the best trade from a list of bad trade setups.
My main swing trades have all been reduced, but will look to increase if the volume and price action warrant it. These positions are down to only Harry Winston Diamond (HWD) and Endeavour International (END), noted on my real-time trade updates. I’ve had to close out positions this week to protect profits and protect from losses. With the increased capital, I can now look to re-position the portfolio with some new ideas. Pending the action this week, I will look to initiate at least two more swing trades and if we gap-up Monday morning, I will be more inclined to reduce positions further rather than buy into it. Monday morning gap-ups are rarely wise to buy into. Waiting for it to settle down is almost always the best strategy.
If you can’t make it to the live-chat where all the magic begins, you can view my real-time trade updates throughout the day by following me on SeekingAlpha StockTalks.
This week I’ve modified the main stock radar slightly. I have added in “price areas of interest” that I’d “consider” buying at. Moving to the price area is only one factor in determining the risk-reward of the trade, but it is a very key point of it, so I will try to include those target prices from now on.
I am sticking to stocks showing overall relative strength. Preferably, these companies have more cash than debt and valuations showing reason to believe it is undervalued, but more homework is needed to sort through the list. I look for these stocks to pullback towards favorable support levels (the price area designated next to the stock below) where I can start to buy incrementally if the conditions feel safe upon reaching the support area.
I am cautious of buying on breakouts unless I am in a very aggressive mode. This aggressive mode may be just for a day-trade rather than risking the large position overnight where my stop-loss may not protect me from a large gap-down. Market players have been reluctant to buy stocks on breakouts over the past year and I have adjusted my strategy to be more selective and patient. If we can gain some very positive sentiment or a QE-based environment, I’d expect that will change. The first list is my normal weekly radar using my proprietary settings on my stock screener. For all my radars, I tend to keep four weeks worth before deleting them allowing me to rotate through a greater number of recently bullish stocks.
Abiomed (ABMD) – $21
Akorn (AKRX) – $12
Amkor Technology (AMKR) – $6
Amylin Pharma (AMLN) – $16.50
Accuray (ARAY) – $6.50
Ariad Pharma (ARIA) – $14
Actuant (ATU) – $26
American Axle & Manufacturing (AXL) – $11.75 to $12
Brunswick (BC) – $22
Briggs & Stratton (BGG) – $16
BPZ Resources (BPZ) – $3.25
Brown Shoe (BWS) – $9.25 to $10
Boyd Gaming (BYD) – $9
Cadence Design Systems (CDNS) – $11.50
Chelsea Therapeutics (CHTP) – $4.75
CIENA (CIEN) – $15
Star Scientific (CIGX) – $3
Celldex Therapeutics (CLDX) – $5
DepoMed (DEPO) – $6 to $6.50
Delek US Holdings (DK) – $13.50
Dynavax Technologies (DVAX) – $3.75
Ebix (EBIX) – $24
Emulex (ELX) – $10.25
Endeavour International (END) – $11 to 11.50
Entropic Communications (ENTR) – $6.50
FuelCell Energy (FCEL) – $1.10
Hercules Offshore (HERO) – $4.50 to $4.75
Kodiak Oil & Gas (KOG) – $8.75
Mitek Systems (MITK) – $9.75 to $10
Orexigen Therapeutics (OREX) $2.75
Raptor Pharma (RPTP) – $7.50 to $7.75
Triangle Petro (TPLM) – $6.50 to $7
Transcept Pharma (TSPT) – $8
ValueClick (VCLK) – $19 to $19.50
VirnetX Holding (VHC) – $24 to $24.50
Wabash National (WNC) – $9.75 to $10
Zoltek (ZOLT) – $12 to $12.50
The second radar is the short squeeze radar which is compiled of stocks showing relative strength, but having high short interest (you will notice duplicates among both radars because of this). Any bullish spark may set them off in a short squeeze run netting significant profits if you trade correctly. Always trade these short squeeze candidates carefully as stocks with high short interest will have negative rumors swirling around them trying to shakeout investors who have not done their homework. However, some of those rumors may indeed be true, hence the importance of doing homework and being very selective. The risk is higher for these types, so make sure you know what you are getting into before you buy, not after you buy. The key is to be selective and find those stocks which the shorts are wrong about, not to blindly believe every high short position is wrong.
Amkor Technology (AMKR)
American Axle & Manufacturing (AXL)
Boyd Gaming (BYD)
Briggs & Stratton (BGG)
Brown Shoe (BWS)
Corinthian Colleges (COCO)
Endeavour International (END)
Entropic Communications (ENTR)
Flotek Industries (FTK)
KIT digital (KITD)
Northern Oil and Gas (NOG)
Collective Brands (PSS)
Sonic Automotive (SAH)
Spectrum Pharma (SPPI)
Take-Two Interactive Software (TTWO)
Wabash National (WNC)
You can follow my trades alongside the 36,000 plus market players who follow me on SeekingAlpha (Shameless promotion). As always, do your own homework to see if you agree. Good luck out there.
At the time of publication, Kudrna was long DEJ, GST, END and HWD, but positions may change at any time.
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Tags: Akorn (AKRX), Ariad Pharma (ARIA), Bailout, Boyd Gaming (BYD), Default, Ebix (EBIX), Economic Calendar, Emulex (ELX), Endeavour International (END), Entropic Communications (ENTR), Europe, Eurozone, Flotek Industries (FTK), Game-plan, Gastar Exploration (GST), Greece, Harry Winston Diamond (HWD), Inflation, Kodiak Oil (KOG), Michael Kudrna, Northern Oil and Gas (NOG), Orexigen Therapeutics (OREX), short squeeze, Sonic Automotive (SAH), Star Scientific (CIGX), Stock Radar