Good evening. The broader market is in a tough spot heading into OPEX. It appears we may get a breakout tomorrow on the heels of good earnings reports from RIMM and Oracle after the bell. But considering how extended this move higher has become the risk of "buying a top" is extremely high, while the risk of shorting remains elevated because prices have not started to turn down yet. Obviously there are stocks making individual moves but in general it is best to be swimming with the current, and not against it.
So it's a "catch 22" where you stand to lose in both long and short positions. Although the outlook has certainly tilted to the bullish side, the bottom line is we are stuck in an overbought situation that is unconvincing and unenthusiastic with moves in either direction. For swing trades it is smart to take a step back and wait for these conditions to be resolved which will present a lower risk situation for directional trades. I'm in the camp that dips will be bought but we need to see the retracement and it could come at anytime. And my biggest concern with a breakout is that it will turn into a head fake which is why I think it is a good idea to consider closing long positions, especially if a breakout occurs prior to a pullback.
Considering the circumstances, opening new positions without knowing a direction is not a smart move. There may be some opportunities with stocks tomorrow to short a breakout or buy pullbacks but we will not know a direction until we see the price action. Therefore, I have re-listed the two long trade set-ups from last night and have also provided two new short trade set-ups below. There is a good chance one or two of these plays will make it into the model portfolio but I wanted to give readers a heads up in case you want to time an entry. We will have new plays this weekend. Please email me with any questions or comments.
DECK: The retail sector has been higher for 7 consecutive days but DECK looks vulnerable. The stock is consolidating below its 50-day SMA and forming a descending triangle on its daily chart. Target a move to the 200-day SMA which is about -8% lower than current levels.
TIN: The stock is close to falling out of an ascending channel formed on light volume after a strong move higher. If the pattern fails target a -$1.50 lower, which is -7.5% lower than current levels.
Long Set-ups (re-printed):
HD - Look for a pullback into the $29.00 to $29.25 area. A breakout could be considered but it a riskier trade for more nimble traders.
FWLT - The stock poked its head above prior resistance on Tuesday but closed below it today. Look for a pullback to the $23.00 to $23.50 area.