Keep Your Watch List Sharp

Pardon the long delay in updating the blog. Being that my main vocation is running political campaigns, I was a bit busy ahead of the June primaries.

If you buy break outs in uptrends (I'll call it IBD style), you haven't missed anything.

Looking at the daily chart of the SPY below (the etf which tracks the S&P 500 index), you can see the price action of the market. IBD hasn't fired off a market rally indication yet, but the market's action shows positive behavior lately. To the naked eye, it shows some rounding bottom action. I'm not calling a near term bottom, but it could be enough constructive action to propel the markets higher for a short stint or even longer.

My personal view is the market could get a bounce higher, and who knows, it could set off a new rally. I'm doubtfull it will turn into anything meaningful just yet, but as always, let the market's action tell you what it is doing.

For this reason, I'm revising my watch list, which I'll post soon. A number of stocks in the IBD 100 list are showing potential to shoot higher if the market gives them the support needed.

While I wait for IBD style stocks to set up in bases and break out, I'm engaging in short term swing trades. I have bought call options in the gold etf, GLD, as well as silver, SLV. These are not IBD style plays, just to be clear. I'm just trading in ways I'm comfortable with (using good old fashioned price and volume action in conjunction with support and resistance areas and trend channels) while I wait on the bigger moves from break outs.

I may sell my SLV call as it doesn't show the same action as GLD. I originally liked the SLV because it plays catch up with GLD and GLD looked (and still looks) good, but it hasn't done much for me. In fact, I'm down slightly, while I'm up with GLD, so how's that with catch up.

The reason I liked gold has a fundamental background to it. Fear in the Euro primarily is the cause, and bloated budgets and high debt in governments around the world are creating tremendous uncertainty, causing gold to be a safe haven, almost alternative currency vehicle.


I also like the technical action. Looking at the daily chart, you could interprate a cup in handle that broke out on April 27. I announced this to our meetup group at the time, but even I didn't buy into it because the market was still showing upward potential and I was holding onto some stocks that had broken out.
 
 

 
After the market went into correction, gold launched into a new uptrend (with the support of the cup with handle break out) and I bought it on a pull back to its support area (near the break out level, or visually on the chart, along the bottom white trend channel line which marks the bottom of the trend's channel). You can see that it is slowly climbing higher and is hovering around its highs, similar to how good stocks that are going higher behave. When stocks or other financial instruments make new highs, they tend to want to keep doing that, and gold shows potential to do the same. I have no idea how long it will last, and that is the trick to trading: knowing when to take profits.
 
What I also like about GLD is that you can see some positive volume coming in on its recent breakout. To me, this is a nice confirmation that big money managers also like gold right now. To be clear, the GLD etf is a fund that buys gold and it alone does not cause the GLD to go higher or lower, but rather tracks gold, so it isn't as clear a supply and demand issue as it might be with a stock chart. But it is highly indicative that money is flowing into gold, and we know money is flowing into gold around the world.
 
Prior to this trade, I had shorted the market after the big break on May 6, when it rallied close to its 50 day moving average (the red trend line on the SPY chart above). I covered those positions recently, and am now long the market (again, just a short swing play for now).
 
Oil also shows potential, like the stock market, to go higher, perhaps up near $80 where it has clear resistance looking at a daily chart of it. On the below chart, I present the USO, an etf which tracks oil. The $80 crude oil level I refer to would be roughly equivalent to just above the $36 level of the USO. As with stocks, you can see where previous price action was, which now offers resistance since the current price is below that level. As a trader, it is a valid trade to attempt to make money off a move, in this case up to $36 or so on the USO (with a stop at a reasonable level if we are wrong) until it gets to an area it used to trade at often. This is resistance, and you can just see it looking at a chart. No fancy indicators are needed, although many traders use them to help time moves more precisely. Use what works for you. How did I decide to buy at these levels? Because it rebounded some off the bottom, made a recent high, pulled back and then broke out above that very short term high. Profit targets on these kinds of trades need to be tight, very much unlike IBD style stock break outs. This is a key point of difference between trading some instruments while I wait for IBD style stocks to break out and buying the actual IBD style stock break out. Upside potential on break out stocks in market uptrends is tremendous and open-ended. With short term trades, it's more defined by retracement moves and support and resistance areas.