Mark June 1, 2009 down on your calendar. It will be one of the days that we look back at 6 months from now when we are charting the markets. It will either be the day that started the next leg of the rally higher or it will be the big fakeout before the move down. All the charts seem to indicate this is the next leg higher but one thing I am sure of is that today is an inflection point.
As I have gone through today’s action, the charts are all definitely confirming a bull run. Still, price momentum is very extended on most indexes making it difficult to find a lot of great opportunities once you take price momentum into account. So, even with the breakout today, it is no slam dunk. With that said, oscillators can stay overbought for a long time in trending markets. Not a bad time to take some shots at some long ideas since risk can be managed using the broken resistance as support. Especially since many of the charts look really good except for the overbought readings.
I was quite active today, but I wasn’t buying much. Rather, I was letting the market take care of business by stopping out my large QQQQ position, XRT short and DRI short. I responded by adding a small long QQQQ position, trimming gains on my long positions, adding VXX long (long volatility being a short) and shorting some IYT. VXX was a play off support and IYT allowed a good risk/reward entry using the recent high as a stop out. My main goal on a day like today was to avoid potential whipsaw. The last thing I wanted to see happen was getting stopped out of shorts and having the market reverse. I recalibrate my portfolio very slowly and it is mainly to avoid whipsaw days at all costs. Those days are the killers. I haven’t had a whipsaw day this year and I didn’t plan to start today.
QQQQs finally broke $36. Mays highs are taken out and the October gap is filled. I covered my entire QQQQ short today and I added a very small long position in the QQQQs. RSI is at 70 but the breakout looks real crisp.
Breakout on SMH over $21. Again, RSI is near 70 but the breakout is crisp.
New high on XRT. I am pretty surprised to see XRT take out its May high. I can hardly believe that I am actually contemplating buying a stock like ARO on a breakout over its all time high. But this is why I always stick to the charts. The feeling is very similar to when I bought AZO at $140 and rode it to $155 when everyone was shorting it. I didn’t believe in AZO, but the chart said to buy it.
Breakout over $53 on XLE.
KOL breakout above $24.5. KOL looks really good but RSI is at 74. I think there will be a buying opportunity for those that are patient at $24.5.
For those looking for a decent short idea, how about buying a little FXP? FXI is running into resistance and is overbought. Meanwhile, FXP set an all time low on RSI today. FXP is a falling knife but because FXI looks like a decent short and because price momentum favors a bounce on FXP I like the trade.
Today’s trades:
- Added small long position in QQQQ.
- Added VXX long. Worth noting that the VIX was up today even with the market up big.
- Stopped out of QQQQ, XRT and DRI short.
- Trimmed DXO, FXC, DBB, CIT, AIV, CVI, AMD, KWT, NM, SEA, MTL, IRE, TIE, RRI, MPW, MOO, JTX, JNY, DBB, MYRG and UNG.
- Shorted IYT.
- Added stops to some of my junk longs which are now over $10 per share.
- Moved up stops on my currency trades. Especially my long FXB position.