The Russell rebalance dominated the Friday action though the flat as a board trade up to the last half hour makes the choice of the word 'dominated' somewhat curious. But that is what the rebalance did: the market just sat around all day in anticipation of the volatility and volume to come in late and thus no one did much of anything leading up to the last hour. When it hit, volume spiked, some prices surged, and some prices purged. It was over and done in about an hour.
So there was the Russell rebalance that kept the indices basically flat on Friday, and the end of quarter window dressing on Thursday that influenced the last half of the week after that Monday dive lower to get things started. Again, Thursday was end of quarter window dressing; the program trading that took over and the areas sold and sectors subsequently purchased show the fund managers were sprucing up the portfolios for the quarterly statements. Why Thursday? Because Friday was the Russell action and next week is a short week (Friday off) for Independence Day when many on Wall Street are gone. Thus the dressing up was taken care of Thursday.
The end result for SP500 on the week was similar to Friday's action, i.e. pancake flat. The Monday dive and the Thursday rebound evened things out. Even Steven as Kramer called Jerry on 'Seinfeld.' That kind of action doesn't tell you a whole lot. Monday SP500 looked just a session away from 875, but it turned as fast as it sold. That leaves SP500 in the middle of its 900 to 950 trading range and us waiting for next week once more to fill in more of the picture.
Read "The Daily" Entire Weekend Summary
Here's a trade from "The Daily" and insights into our trading strategy:
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Company Profile
No doubt the market is in a transition phase, consolidating as it tries to hold its gains and avoid a deeper test by SP500. As a market shifts gears the old leaders sometimes get tossed (this time energy and most commodities) while money finds other areas (this time Chinese stocks and healthcare). So, we look for upside plays in sectors that are getting money pushed their way and are in good patterns; they often go together.
MR has several things going its way. It is a China stock. It is a healthcare stock (medical instruments), and it is in a great technical pattern. We saw it setting up and make a nice break higher on 6-12-09. When the market is in transition we tend to avoid buying on the breakout, instead waiting for a successful test. The reason: a test shows us that the buyers are still interested in the stock even after an initial break higher. So we put the stock on the report on 6-17 as it came back to test the break higher, holding over near support at the 10 day EMA.
It tapped the 10 day EMA on 6-18 and closed positive. We could have entered that day into the close as it was holding its gains. We entered the next morning as it continued higher, buying some stock at $26.53 and some October $25 strike call options at $4.20, looking to play a nice break higher through resistance at 25ish for a run up to some resistance at 31 as an initial target, but really looking at 34 to 35 where the more serious resistance is.
That was a Friday and we usually do not buy on Friday. Given MR straddled two hotter sectors, its strong volume breakout, and its very nice orderly test, we went ahead and bought. Then on Monday it flopped back to the 10 day EMA, reminding us why we don't usually buy on Friday! It held at the 10 day EMA near support, however, and volume remained low, so there was no panic. Good breakout, nice test, good stock, good sectors; so we let it work for us as no swing lows or other support was violated. It rebounded some on Tuesday and Wednesday, then got back to the breakout business on Thursday, posting a $1.14 gain or 4.38%. That put it at a new high on the breakout move. Friday it surged $2.09 or 7.7% and on some strong volume. Of course the Friday volume is all a throwaway given the Russell rebalance, but MR is moving well, and another good push gets us up to our initial target where we will take some partial profits and then let MR continue to work for us on up toward that next target. That is where you make the real money on your swing trades. The partial profit pays for the trade & takes the mental pressure off and allows you to let a good play run to its full extent. That way you don't have to win on every trade you make but still make very good money in the market
STOCK SPLIT PLAY
Playing stock splits can be very profitable, but it takes know-how. Our stock split service focuses on three main types of plays:
1) pre-announcement (where we forecast an upcoming split prior to the company making the announcement); 2) pre-split (these plays are made in the days leading up to the actual split day); and 3) post-split plays (plays made after the actual stock split where the stock is showing continued or renewed strength).
For post-splits, we can play them as we would pre-splits (very short term), but we prefer to stretch our horizons, playing the trend. When playing options, we look further out, 2 or more months at least. We let the trend carry us along if there is one, but we will also take profits if the technical pattern degenerates, e.g., breaks a trendline. The main difference between post-splits and pre-splits plays is that we really have to like the pattern. Pre-splits can run right before their splits even with poor technical indicators. For post-splits, we are looking at the best stocks for 2010 from more of a longer term "would I buy this stock at this juncture?" position. Now there are times when a hot stock splits and investors pile in to get in while the stock is 'cheaper.' We play those, but with more of a short-term, pre-splits mentality in that we will be ready to get out fast if the momentum fades.
Remember, everything we do has to pass muster with the market that day ... don't fight the market on these plays.
NFLX (Netflix--$40.37; -0.74; optionable): Mail order DVD's
Company Profile
After Hours: $40.38
EARNINGS: 04/23/2009
STATUS: Double bottom w/handle. Good move Thursday, high volume Friday on the rebalancing, but NFLX faded to the 50 day EMA (40.30) on the close. Nice setup for a bounce starting next week. To recap: Okay so there are some positive patterns out there. NFLX sold off in early May after its April all-time high. It bounced at the February and March consolidation range, faded into last week, then bounced off that same support again. Rallied through Friday on some solid upside volume, reversed intraday, and continued coming back Monday. Unlike many best stocks to buy, however, volume was lower and NFLX bounced up off the 10 and 18 day EMA hit on the low (39.55) to close above the 50 day EMA. After a strong November to April run it needed to base out again, and it has done so. This test is giving us a solid upside opportunity. This is a very solid recession play: people entertain themselves more at home in these tough times. NFLX fills that niche nicely.
Volume: 6.923M Avg Volume: 1.903M
BUY POINT: $41.38 Volume=2.9M Target=$49.95 Stop=$38.48
POSITION: QNQ IH - Sept. $40c (57 delta) &/or Stock
INT (World Fuel Service--$39.81; +0.83; optionable): Sale and marketing of fuel products
Company Profile
After Hours: $39.75
EARNINGS: 05/07/2009
STATUS: This is a bit different pattern with somewhat of a bearish posture (head and shoulders and shoulders), but it is holding key support at 38 to 40, holding that on last week's low. Bounced up to the 50 day EMA on the Friday close. After the sprint higher in June INT's tests is a stair-step pullback to support that often leads to a rebound to test the prior highs. Despite the look the risk/reward positioning is solid; if it makes the move we make some very nice gain. If it cannot make the move our stop is close at hand.
Volume: 1.548M Avg Volume: 697.214K
BUY POINT: $40.22 Volume=850K Target=$47.88 Stop=$37.41
POSITION: INT KH - Nov. $40c (51 delta) &/or Stock
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