Momentum Book Update

It was a frustrating week for the bears.  Several times it seemed as if all it would take to tip us over the edge was a hand full of sell programs.  After the major hammer from last Friday it seems that the bears have run out of ammo for now.  On the swing time frames, the market is chopping traders up and I’m seeing a lot of frustration.  On the shorter intraday time frames, traders are loving the volatility.  The average true range has expanded as the bears fight for control and expand the daily trading range.

It also seemed as if the market makers took the week off.  Spreads have been super wide the last few days producing wild intraday swings without the normal liquidity.  It’s possible that this week was just a bear flag, a respite from the selling, and that in the coming weeks we will move back down towards the 200 day exponential moving average and the bottom of last Friday’s hammer candle.  The chart below should be your guide, if we lose the green ascending trend line I’ll be far more negative on the market.

If and when we break through Thursday’s high, 109 is going to be a massive test for this market, it marks the location of the declining 20 day moving average.  I would also be taking off exposure at that point, and wait for more clues.

The $QQQQ had a strong week, tech outperformed by a decent margin.  The Nasdaq sits right under the 20 day moving average and the all important 44 dollar level.  A move above 44 and asset managers who are light on tech could start to panic a little bit that their exposure is too low, a move up towards the highs in a quick fashion would not surprise me.

As for my long only momentum strategy, we had a great week picking up some serious alpha, 175 basis points in fact.  I sold a bunch of my materials exposure on Wednesday brining my cash position up to around 35%.  I added positions into strength on Thursday and early Friday morning.  Cash in now under 24%, and as I said above, I’ll take off some exposure into strength early next week and wait for more clues.  A few days a consolidation above the 20 day moving average would get me all in with tight stops.

Two major losses and one major mistake this week.  I took a position in $SWM Wednesday afternoon without checking for earnings.  $SWM reported Wednesday after the close and got mauled.  The damage was bad, but not catastrophic as I pulled the rip cord Thursday morning for a bad loss.  I took a similar earnings beat down on Thursday afternoon in $BWLD but luckily got stopped out after hours before the damage got too severe.  I almost pulled the plug on $CMG as the food service industry looked real ugly across the board after hours, but decided to hang on and keep my stop where it was.  It paid off as $CMG showed great strength on Friday with a major breakout.

Positions added this week include $RVBD, $IPXL, $MR, and $LOPE.  I also added to my position in $ARUN.  Positions sold include $TIE, $BUCY, $ANR, $BWLD, and $SWM.

I have no financial, energy, or materials exposure at this point in time.  I’ll look to focus on materials if the $USDX shows signs of making a short term top in the next few days.

As I’ve been saying for a few weeks now, bring your positions sizes down and shorten your time frames.  Being flexible in your thinking and willing to change sides in the matter of a few hours is extremely important in this market environment.

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