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.

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Aaaaaand this is where things got interesting.  Materials have been slaughtered during this sell off and there are some monster players out there who still believe in the gold / hyper inflation trade.  It was only a matter of time before the decided to step in and buy what they must see as value.  Gold $GC_F was the first to make the turn having bottomed out in a capitulatory move before noon.  Crude was also down a ton before noon as it failed some important support levels.  After a little bit of churning the volume picked up and major players came after the gold miners $GDX.  Gold Corp. $GG ended the day up greater than 6%.  This was major buying but guys with deep pockets, they sent in orders to the institutional desks and told them to keep buying until the close, it was relentless.  The $SPY closed green and we now have one major hammer candle to think about this weekend.

Is it time to go all in and buy what you perceive as value, no I don’t think so.  The longer term technicals of this market are now quite ugly.  The 20 day moving average has crossed below the 50 for the first time since the March 09 low.  This is a sign that rallies should be sold into until further notice, just as a 20 day moving average trending above the 50 is a sign to buy the dips.  There most likely is a bounce coming though, and it’s possible that we could go into a period of several months where the market does not trend but chops around.  Until the 200 day moving average is broken, I believe you should be playing mean reversion now, do not be buying or shorting breakouts or breakdowns respectively.  Below the 200 day moving average and all bets are off, we could see a complete meltdown, I’m not kidding.  Look for the US Dollar $USDX to pull back in the coming weeks, it’s overbought after breaking through that big bull flag from a few weeks ago.

I stayed above 40% cash for most of the week as I did not trust the rally attempt on Tuesday until that major level of resistance was broken.  I did sell a few things on Thursday at the open but should have sold more in order to pick up more alpha on the downside.  I dipped in Friday afternoon as the market turned, buying positions in $ANR $TIE and $NTCT as well as more $DV.  This is a little bit of style drift for me, $TIE and $ANR are both support plays off very oversold conditions, not momentum moves.  I will most likely be selling into any major strength in these two names over the next week or two but believe there is a nice bounce in store.

Over all I made up some good ground through my large cash position and I’m poised to take advantage of any further strength in the market next week.  It’s very important to be extremely nimble in this environment unless you have chosen to move primarily into cash in order to play for a further sell off.  I think we are going to see some tradable bounces and will be quick to sell into them.

Stocks that I own and still look very nice to the long side with good momentum include $DV $CMG $NTCT $CREE $ALGT $VRX $PEGA.  I will be looking to add to $VRX and $PEGA on any strength next week.

I’m stalking a few other stocks including $PFCB and $GRA for entries.

The food service names have held up amazingly well through this sell off, frankly I have no clue why.  Possibly because of lower commodity prices, but who knows, they still show great momentum and I’m very interested in adding another name or two.

The major theme here is that if the market has found an intermediate term bottom, I don’t believe we are set to rocket back up to the highs.  The market needs to to base out and collect itself.  Wait for stocks to show good basing patterns and give good risk reward entries before you load the boat back up to the long side.  If we fail Friday’s low, run for the hills.

Materials were firmly rejected from that important long term level and have now spent the better part of three weeks regrouping.  We aren’t breaking through any time soon, but I believe based on this, and many of the daily charts, that you can buy this dip in materials with a close watch on the US Dollar.

The materials trade has not been one for the faint of heart.  It’s been a buy the dip market, traders playing breakouts have had their asses handed to them time and again, especially in the gold miners $GDX.  You’ve got to buy terrible looking patterns at their most bearish that stay within the intermediate term trend, which is up.  Remember that big big boys are playing in this space, and most mom and pops will lose money as their positions get whipped around.

The $USDX is threatening to break through the 200 day moving average which would be a very bullish sign for the greenback.  This is going to keep a cap on gold $GC_F and other materials, but I don’t believe it’s going to prohibit the materials sector from exhibiting strength.  This is of course unless the $EURUSD completely falls apart and we have a full blow European debt crisis on our hands in the form of a Greek default.  I don’t see this as likely.

I’ve posted below a bunch of charts from the materials space which are showing decent setups right now to the long side.  These come from my momentum watch list, but are not necessarily the strongest of the bunch, just the ones showing the best setups tonight.  Have at it.

ANR showed good strength today closing above the 20 day. I like the coal industry here as there is no chance in hell a clean energy bill is going to get passed, although I would like to see one. I think you can get long this name with a stop under today's low.

slammed into the 50 today but held, stochastics are in the basement, get long at the open with a very tight stop.

AUY hit the 200 day and bounced hard. That 200 day also represents an ascending trend line. You know the drill.

BUCY not in the materials sector but is very correlated. Great bull flag here above the 20 on light volume, get long and strong.

Backtest of the descending resistance line, looks real good here.

Very interesting pattern developing here, same triangular consolidation.

Trend line and 50 day, man up and buy the dip.

I don't see many great setups in the energy space, but this flag looks awesome, my favorite energy play right now.

Still in a big flag, buy the dip and run like hell on any further weakness.

Loving MEE here, nice wedge, nice trend line, get some.

Same chart as MEE.

Backtest of the breakout level, good support and on the 50 day, I'm adding to mine in the morning.

200 day, buy the dip, it looks ugly but it's the only way.

Nice flag above the breakout, going much higher.

Similar to PCX and MEE, I like it with a stop below the 20 day.

Pure momentum, love this stock, stop out below the 20 day.

This whole rally has been about turning bearish patterns bullish and squeezing the masochistic short sellers.  If it doesn’t happen this time you better think long and hard about what that means for the market, I know I will.  I still believe the long term trend line setups will work, like the one I posted this morning in $HITK, if they fail, watch out below.  I’m at 7% cash in the momentum book, and I’ll look to add some more materials exposure if they continue to take a whooping over the next few days.  The grains market is getting blown out of the water, so don’t go anywhere near the agg stocks, bu think you can buy the dip in the miners and maybe, maybe, maybe even the industrial metals producers like $TIE.

Stay nimble, three of the past 6 have been distribution days, the 115 $SPY level is obviously one that big players are selling into.  Remember that you can sell at any time and move to cash, but the biggest guys can only do it over time, that is your advantage.