Setups to the long side are abundant right now, on Tuesday night I posted a handful, I could have posted at least double that number.  The first batch of leading names broke out on Wednesday.  The market did what the market does, and tried to shake out buyers like me on Wednesday afternoon with a nasty move lower into the close.  I was undeterred.  Thursday and Friday confirmed my belief that the market is getting a bit healthier.  More stocks broke out on Thursday and the rest Friday.  Friday in my mind was a classic follow through day with higher volume on the $COMPQ.

The naz is now back above its 20, 50, and 200 day moving averages.  That 50 day moving average is flat and the 20 is rising.  The only thing left to confirm that we are back in an intermediate term uptrend is some consolidation without bids evaporating.  In a perfect world, bulls would love to see Monday and Tuesday be extremely quiet, giving back maybe 20 basis points each day.  Three days of a slight drift to the downside would be even better.  If that happens, I will be loading up to make some real money.

What do we not want to see?  A huge gap up on Monday morning or a big distribution day.  Here’s the play book.  If we gap up big I will be a seller, not a short seller, just a seller.  Short term we would be very overbought and I am not going to risk giving back great gains over the past 3 days.  I won’t be a seller on the downside until we see a distribution day now.

I’m now about 40% long, but I do have a few short positions, so overall it’s further towards 30% or so.  Garmin $GRMN is a dying company, what exactly do they make that anyone wants?  Everyone has GPS on their smart phone now, who really buys those car navigators anymore besides the rental car companies?  The chart is broken as well, it’s flagging out, I fully expect another leg down there unless this market just rips.  Either way, in a market that still feels a little iffy, it’s nice to have a few shorts.  In fact, I am a much better short seller when I have a good deal of long exposure, I have no clue why this is the case, but I’m pretty sure the performance numbers would bare this out.

Ok, this week I took long positions in $FNSR, $ISLN, $OVTI, $RBCN, $SWKS, $WPRT, $CMI, $VQ, $TIE, and $ARBA.  You’ll notice two main themes going on here.  The first is tech, obviously.  Tech will be the sector to lead us out of this downtrend or the market isn’t going anywhere.  The fundamental story in the semi space is still on fire.  I saw YOY revenue growth rates in certain semi reports that were pushing 50%, and that’s after a year earlier that was up 100%.  The point I’m making here is that we are no longer in “recovery mode” for semi revenues, we’re now in a crazy strong secular growth phase.  Trend traders take note, you should have large exposure to tech.  The other theme is industrial.  Frankly I don’t know why the industrials are running, but $CAT and $DE are leading this market out of the hole and I want to ride that train.  Those two stocks are a little too low beta for me though, so I’m going with $WPRT and $CMI.  I will be adding HEAVILY to these two positions if we get some consolidation early next week.

The positions I took this week are still relatively small.  My largest position is only a little more than 5% of my book, and the average is about 4%.  These weren’t quite test positions, but they don’t represent balls to the wall exposure.  As I said, I’ll be upping the size on constructive consolidation next week.

I added a short position in $RIG this week.  The chart is broken, they have major issues regarding their liability for the well explosion, and none of it is going away any time soon.  As I said I’m short $GRMN, and I’m still short crude oil via short $UCO.

Best performers this week were $ISLN which was up 20% on Thursday after a great earnings report, and $PWER which continues to be a monster.  $WPRT also led to the upside on Friday and I’ve got decent size there already.

Worst performers this week were my crude oil and $GRMN shorts.

I put up 300 basis points of absolute return this week and lost 40 basis points of alpha, I’m perfectly fine with that.  I’ve got a huge lead on this market for the year so far and I have no reason to be anything but patient with adding exposure to the long side.  If I do get comfortable though, I will be going after high beta names, it’s time to make some money.

If we are at the cusp of a new uptrend, look for those weekly charts which have been consolidating well over the past few months.  These are going to be the stocks that you can swing and make the real money on.

Good hunting.

Nothing that I say or show on this blog should ever be considered investment advice or a recommendation to buy or sell any security.  The performance numbers that I post in the momentum book should never be regarded as representative of any specific client account managed by Surfview Capital, it is there solely for educational purposes and should be treated as such.

These videos were all made using the new Chart.ly screencaster.  If you are new to this blog, please remember to check my Chart.ly page on a daily basis as I post most of my individual setup technical work in real time there, it’s just a much easier platform to use to share ideas in real time.  You can find the link to that page on the navigation bar above.

And so it seems that I may have been a bit trigger happy.  We tested the 20 day moving average on Monday and bounced strongly.  Looking back, I should have been a buyer into the close on Monday and not a seller.  The market tested that rising 20 day moving average again on Thursday and bounced even stronger, I should have been a buyer off that bounce as well.  And on Friday, the market broke out to new highs.  Make no mistake, a failure at the 20 day moving average now which was tested twice last week will be big.  But taking a step back and looking at the larger trend, last week’s action seems to constitute a very very bullish short term consolidation that was needed.  At 1,217 the market sits only about 1% from the long term resistance level of 1,228 and the 61.8% Fibonacci retracement level.  Given that fact, I am in hit and run mode now, very weary of this market running into major resistance any day now.  I’ve been out of this world bullish since the very beginning of this rally in mid March, but I just believe it’s time to take risk off the table now.

For the week the momentum book was up 110 basis points but lost 110 basis points of alpha.  I went from 26% cash at the end of last week to 41% cash by the end of this week, although cash levels were much larger earlier in the week, I did some buying mid week.

Positions added this week include $TTI, $SLW, $APA, and $DISH.  I also added to $DRQ and $MJN.

Positions sold this week include $MSPD, $ATHR, $CREE, $PCLN, $SWKS, $NEP, $PCX, GMCR, $UTHR, $LZB, and $SWC.  The last three in that list were hit and run trades that took place intra week.

As you can see, I sold out of technology last week.  My long held position in $CREE is now gone, I was out before the earnings drop.  I feel like I just let my best player walk due to free agency because he was overpriced and not worth the money.  I’ll hope he has a bad year and can buy him back at a lower price because his long term prospects are very bright.  I goofed on selling $ATHR into the earnings number, there was no reason to do so other than overall long exposure.  $MSPD, $NEP, $PCLN, $SWKS and $GMCR were timely sells.  I will be back in $PCX shortly I believe, that sell was unwarranted.

As you can see my long exposure to materials and energy is getting significant.  I now have very large positions in $TTI, $DRQ, $APA, $SLW and $IVN along with a long position in $UGA gasoline.

I missed most of the retail melt up, probably my greatest mistake of the year so far, but I did get a piece.  My positions in $TRLG and $NUS have paid off nicely, I took some profits into the end of the week.

I will continue to focus on energy and materials here as I believe over the intermediate term the risk reward there is better.  I think we’ll see technology, retail, and financials (which I have pretty much completely ignored) take a rest as things which hurt when you drop them on your foot lead the market.

Nothing that I say or show on this blog should ever be considered investment advice or a recommendation to buy or sell any security.  The performance numbers that I post in the momentum book should never be regarded as representative of any specific client account managed by Surfview Capital, it is there solely for educational purposes and should be treated as such.

That said, we’ve come quite a long way, and gains to the long side are significant.  Let’s take a closer look at Friday’s action to see if now may be the time to take some risk off the table.

Futures Friday morning pointed to a weak open, this coming after what felt like an overheated market given the strong volume to the upside on the Nasdaq during Wednesday’s session.  I began to take risk off the table on Thursday afternoon, selling partial positions in several names.  After a weak first hour of trading, the market was hit with news of the SEC charging Goldman Sachs with fraud.  After getting hit hard on high volume, the $SPY found support at the uptrend line and the 119 support level.  And like every other dip during this rally, it was bought as $GS stabilized and rallied back up to VWAP.  Both Goldman and the market could not break through VWAP as they were rejected twice during the afternoon session.

In the larger scheme of things, how bad was the damage?  Well, the S&P 500 was down a little more that 1.5%, and didn’t break the uptrend line or any major levels of technical support.  Given those facts, panic was not warranted, I took a deep breath stepped away from the screens into the close.

On the other side, we were within 1% of my ultimate target for this rally, S&P 500 1,230.  The market was hit with bad news leading to a high volume sell off while extended to the upside at the end of a long rally.

At 25% cash, I’ll be looking to unload more stock if the market fails to hop back over the declining 5 day moving average and 1,200 $SPX level.  If the market breaks the uptrend line and the $SPY 119 support level I will be taking my exposure levels under 50%.

I still see plenty of good setups to the long side, this market is still healthy, until major support levels are broken, including the 20 day moving average, continue to take your entries, trade the chart in front of your face.

For the week, the momentum book was up 20 basis points and booked 40 basis points of alpha.  Given that momentum names often get hit far harder than the market at tops, I’m pretty satisfied with my performance last week.

Positions sold this week include $DV, $INCY, and $VLTR.  I also sold partial positions in $TRLG, $ATHR, $CREE, $MSPD, $NUS, and $MJN.

The only position added this week was Skyworks $SWKS on Friday afternoon.

Positions that outperformed this week include $MSPD, $NUS, $TRLG, and $CREE.

Positions that underperformed include $NEP, $MJN, $GMCR, and $UGA.

My weighting in materials and energy is now upwards of 40% with technology clocking in at 30%.  I still believe oil services and miners are setting up for a major run, and I am positioning myself accordingly with large stakes in $DRQ, $IVN, and $PCX.  The semis are on a roll and I’ll continue to be heavily long that industry until the trend bends.

Nothing that I say or show on this blog should ever be considered investment advice or a recommendation to buy or sell any security.  The performance numbers that I post in the momentum book should never be regarded as representative of any specific client account managed by Surfview Capital, it is there solely for educational purposes and should be treated as such.

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My ultimate target for this rally off the February lows has been 1230, although I did think we would have seen more of a pause or pullback at 1200.  Guess what, we’re pretty much there, the $SPX hit a high of 1214 yesterday before putting in a very bearish doji candle.  I began to take risk off the table yesterday afternoon as I believed everything was just way too extended, profits needed to be booked.

And then the Goldman news struck today.  We’re currently down great than 1.6% on the $SPY, not quite your garden variety sell off, but in the scheme of things, not really a big deal.  What is a big deal is that the news market is back in full tilt, and it comes at a time when technically we should start to see major resistance in the equity markets.  So, it’s time to take some more risk off the table.  I have pared back exposure today, I’m now +25% in cash after adding a long position in $SWKS today.

Here’s what I’m looking for.  The $SPY will rally back up to the declining 5 day moving average over the next few days which can be found around 120, at that point I will watch very closely for resistance and a roll over.  If it fails that level, I will be a big seller, pulling exposure back to around 40-50%, possibly less.  That type of action, a lower high, could mark the end of this rally and a signal that consolidation if not a major pull back is upon us.  I was always taught that you make your living by collecting alpha in down markets by playing defense and striking hard and fast when the market is healthy.  It is now time to get defensive, I’ll be watching a failure of the 20 day moving average very closely as well.

It’s not the news you should be paying attention to, it’s how the market reacts to it.  The market is obviously spooked, and if a negative feeling about Goldman Sachs $GS persists beyond a few days, it will put a vice on this market.  More on the news itself late, just because I love bashing idiocy.

The signs were there last night as I noted the market internals yesterday were ugly.  Well, today’s were uglier, down / up volume was almost 20:1 with 500 advancers to 2500 decliners.  Up until yesterday we were seeing up / down volume relatively balanced even on down days, pointing to the fact that buyers were stepping in all day to support prices.  This changed yesterday as we saw 6:1 selling to buying volume, and spilled over into today’s 20:1 collapse.  The last 10 minutes today were especially bad as the market really puked on big volume after the closing imbalances came in heavily sell side.  This tells me a few things, first off, sellers were waiting too see if a rebound rally emerged late in the day as it often has during this epic run.  Second, short sellers felt much more comfortable today holding onto their positions.  I’ve been joking that the shorts who refused to cover into strength have been left icing their balls more often than not, today was not the case.

The next few days now become very important as the sellers have a strong win under their belts.  Shorts thrive on momentum, selling begets selling, it’s now time for the dip buyers to step in if they still have the appetite.  The $SPY will test its 50 day moving average either today or Monday, that will be a monster level.  Take a glance at the chart of the SPY below.  The rising wedge patter of the rally since March was broken on strong volume today.  If you don’t think big players are looking at this you are kidding yourself.  At the end of the day charts are a visual representation of market psychology.  Market technicians don’t study chart patterns because they look pretty, we study and observe because the bars on the chart represent how the market feels, fear and greed represented by price, and more often than not these patterns which go back hundreds of years play out in the same manner.

Let’s get something straight though, this does not mean that it’s time to get bearish.  I’ll be very vocal when I believe the time to get short equities in size is upon us, I’m not one of those who chose to waffle around and hedge their statements.  Cash is a position, sometimes it’s better to sit and wait for the next move to reveal itself instead of flailing around trying to test the market for direction.

I will be on high alert for a tight range over the next two days.  If we churn above the 50 day moving average in a tight range tomorrow morning through the close on Monday it will be a very bullish signal.  Each time during this rally where the market has put in an intermediate term bottom we have seen two days of churn followed by a strong up day.

A few more important things I’m looking at.  The corporate bond ETF $LQD went ex dividend yesterday and opened weak, after which it continued to get crushed.  It ended the day down nearly 1.5% which is quite a wallop for a bond ETF.  The volume here was huge, almost three times average, someone wanted out.

The 20 day moving average had been trend support since the beginning of this rally, it was broken today.  I believe we are entering a period of consolidation, at best.

Material names led to the downside today with retail, staples, and healthcare finishing the day in decent shape.  The dollar had a strong day, but I see this as more of a reaction to the equity and bond weakness than a driver as the dollar has been lately.  I mentioned a few days ago that we were going to see the short dollar trade unwound a bit, I think we are almost through with that process.  Tests of 50 day moving averages by $EURUSD and and $USDCHF will be huge.

Treasuries, especially the 10 year are breaking out in a big way.  We’ve been seeing signs of this coming for a few weeks.  I got long on the first breakout in early September only to be whipped out.  It was a mistake not to take the second entry signal given on the 25th.

As I’ve become less bullish over the course of the past few days, not bearish though, I’ve shifted my book to a more even weighting.  Visa, Take Two, Jet Blue, Huntsman, and Skyworks on the long side were sold.  I’ve added Magna and LDK Solar shorts as targeted positions, not on an overall bearish bet on the market.

Everything automotive looks weak right now, it has been by far the weakest looking industry for a few months.  The charts and fundamentals are both bearish here, if the market takes a leg down this is somewhere you want to look for downside momentum.  Take a look at yesterday’s post for a little color on the $LDK short.

Today was important for sure, but not a reason to be bearish yet, it will take a break of 99.50 on the SPY to get mere there.  I’ll keep my book balanced and take note of a definite chill in the air.