Momentum traders need to be very careful in the current market environment, especially when we consider the lack of upward momentum for the broader market indices. Sunday's play pick in shares of F5 Networks (NASDAQ:FFIV) is a perfect example I think of how a trader can damage his/her account if proper account management is not implemented. One thing I often ask myself before entering a trade is "What's the range? Where's the stock been and where's it going?" For F5 Networks, I'd find it hard to even think of more than 1/2 position under current market conditions. Here's why.
F5 Networks (FFIV) Chart -
A "fitted" retracement bracket on shares of FFIV give hint that this stock is going to encounter selling near the $17.50 level near-term. When I look at volume spikes, most have come near the upper end of our retracement bracket and the price action that follows the volume spikes and been downward liquidation. This is very indicative of a rather large seller that is willing to sell into strength. The recent break above the downward trending 200- day MA on light volume has been the recipe for a pullback and I think shares of FFIV between the $12.20 and $14.22 level is more attractive in a MARKET environment that lacks volume and momentum. The recent trading in shares of FFIV is very reflective of what is going on in the markets. This stock advance nearly 42% from the $12.22 to $17.45 level. Do I really want to add a stock that has moved 42% higher on light volume in two weeks to my account? If the broader market had momentum, then perhaps I would look more favorable on shares of FFIV, but the current market environment and current technicals of FFIV show a stock that could easily pull back to the $14.22 area.
Relative Strength of F5 Networks vs. Networking Index
The relative strength of F5 Networks (FFIV) is strong vs. the Networking Index (NWX.X) and this indicates that this is a stock that bullish traders can be trading, but entry points become very important under current market conditions. Much of F5's relative strength performance has come from a downward trending Networking Index (NWX.X). Traders should understand that the Networking Index (NWX.X) recently set a new 52-week low on August 21st and sellers are more likely to show and take profits when/if they've got a 40% gain in a stock like F5 in a short amount of time.
Bonds continue to show gains as YIELD falls
Stocks are suffering once again today as bond YIELDS continue to fall as buyers show up in that part of the market. I still feel this lower bond YIELD action is a negative for stocks as cash flows toward bonds and away from stocks. What I'm looking for currently is a 30-year YIELD near 5.35% and will then want to monitor things closely there. If we're going to get some selling in this bond (TYX.X) I think the 5.35% might be a pivot point for such selling to occur. If so, then we should be monitoring stocks at that time to see if money flows in that area. Current relative strength indicates that Biotechnology and Semiconductor sectors might be the benefactors for a shift from bonds to stocks.
30-year YIELD Chart -last 9 months
The 5.35% level has been a level where we've seen some significant reversals in the past year. I've set an alert on my trade station at that level to alert me to be watching stocks closely should that YIELD level be achieved. Bearish traders currently holding some short positions in stocks can perhaps use a YIELD level of 5.35% to also be alert to a level to potentially lock in some gains.