COST added to model portfolio

Watch on You Tube:  http://www.youtube.com/watch?v=ICWZU3yTrT8&feature=colike

COST was added to the model port at 103.86, 1/4 position size to start, stop at 98.66 which is about an 8% loss if it goes that low, so adjust your position sizes accordingly.

The stock is being bought and not coming back down for a better entry as expected, so since we already decided it was a winner to be involved with, and the SPY as a proxy for the market is still above the 50DMA, starting a 1/4 sized position is a good risk/reward.

http://www.freestockcharts.com/COST 11-30-2012

Lunch at Tiffany TIF

TIF 11-30-2012

I am shorting a stock today,  TIF.

Good lesson.   I was in it long with yesterday’s low as a stop assuming that was the maximum power of the BEARS, but when it broke, I took my stop, and started to short it with yesterday’s low now the stop in the other direction.  Once it did not hold as support, it now becomes resistance, so a short makes sense.  It is profitable now, and I will cover before the day is over.

UPDATE:  Covering the TIF short for a small loss.  That means I buy back the shares I borrowed to start the short at the current price which in this case is higher than my borrowed price, for a small loss.

It was a good idea, good risk management, but did not materialize.  Moving on.

The Dragonfly Doji or something like that …

Today  was a volatile day in the SPY trade, but when the dust settled, it closed just about flat but positive.  This creates a green candlestick with a longish tail below but a corresponding spike above the body of the stick.  Some smart people named this the Dragonfly Doji.  No conviction to move the market higher or drive it lower.

HDB  had a stellar day.  We mentioned this stock over the weekend as one to watch.  It is an IBD pick and performing like a winner.  If tomorrow is a day that seems to be decisive in terms of a market move higher, you may be tempted to buy this stock, but wait a bit longer.  It is extended above averages and volatile.  Perhaps a lower entry price will be more rewarding.

SLV is looking strong.  I would be a buyer above 34.06.  Can you look at the chart and see why that is a safe entry price?

COST was not a buy at the open as we expected.  Not because we can see the future, but because after a move like it had yesterday, in general, some consolidation is in order.  If you bought and placed the stop below yesterday’s low, you are down a bit, but safe.

It would be comforting to see a bit of a selloff in the SPY to retest the 50DMA, and if it holds, a move higher.  After that bounce off the 50DMA, if your top charts are performing.  Redeploy the dry cash.

Talk tomorrow.

A Look at the Sectors

A few posts back we talked about the need to look at the sector ETF charts on a regular basis to help decide which sectors of the market are working best. This focus will help you choose the best performing stocks in the best performing sectors, offering the best chances of success.

XRT, a retail sector ETF is looking healthy.

COST is a stock in the retail sector that is a highly rated stock by IBD and is looking ready to leg higher. We will be watching this closely. If the market (SPY as proxy) continues to perform as expected, COST may be a great risk for outperformance.  It is extended here, so wait for a lower entry price for a better risk/reward ratio.  Yesterday’s low price is a good point to place a stop.

Stay tuned for more.

To Buy or Not to Buy?

Today was a really interesting day in the markets.  Opportunities to learn important lessons, and reinforce fundamental skills were plentiful.

The market opened this morning in a gap down situation.  This means that when the bell rang on Wall St. at 9:30 AM to signal the start of trading, the SPY opened up lower than yesterday’s close, at around a price of 140.  See the chart below.

That opening price on the SPY chart can been seen as the bottom of wide open portion of the farthest right candlestick figure on the chart below.  The SPY continued a steep slide after the open, the lowest price point of that slide being marked by the lowest point of the thin line portion of the candlestick, otherwise know as the tail.  After that low point, the market reversed and continued to climb for the rest of the day, filling the gap between yesterday’s close and today’s open, and then continuing to power along on a high volume trade to close above the 50 DMA ( 50 day moving average, the red line).  Note the above average volume represented by the taller green bar on the bottom of the chart.  The open space in the candlestick means that the closing price was above the opening price and the green color means it closed higher today than yesterday’s close.

This pattern is a sign that the buyers are in control of the market direction for now, and there is more clarity about where the market participants want to move the prices… higher.

Yesterday we closed with much uncertainty, below the 50 DMA acting as resistance to higher prices, and with a bearish close to the day’s trading at lower prices and increased volume of distribution of stock.

It was smart risk management to protect against the loss of hard earned profits that were made if you had them running from last Friday’s reversal.  Your goal should be to own stocks that are moving higher in price, and exchange the stock for cash when the prices are losing value.  If you were stopped out today at the open and were back in cash with more dollars than you had one week ago, you made money in the market and congratulations.

What to do now?

It is pointless to talk about why the market may go up and down, as there are always convincing arguments to both sides.  A smart investor reads the chart to decide what to do and when.  We can see a healthy SPY chart on both the weekly and daily views below.  The prices continue to appreciate, the attempt to push the market lower was thwarted, and prices are above the key moving averages.  This is an all clear sign for the most part.  A few words of caution.  The dramatic swings in price have not proven that they are about to calm down.  There can be more volatile days ahead until a more quiet and predictable pattern is the norm.  Just compare the relative calm of mid August on the chart to what we have had the past few days.

Bottom line is that it makes sense to put dollars to work and buy some stock, but proceed with small position entry buys, and only on the best charts.  Always have the trade planned in terms of where your line in the sand may be if the expectation for higher prices fails to materialize

Let’s look at some charts to help develop a sense of what you should look for.

There are thousands of stocks to look at.  How do you even begin?

I like to look at the IBD 50 list of top stocks available at IBD.com for a great selection of quality stocks.  IBD does a great job of filtering out the diamonds from the coal.

IBD’s top stock these days is DDD seen in the chart below.  This designation does not assure you that if you buy it you will make money.  It just means it is a good company with exceptional growth prospects which tend to offer the kind of risk reward for capital appreciation investors look for.

Do you buy DDD tomorrow?

From my perspective, today’s action in DDD shows very positive accumulation of stock driving the price above the range that it was in for the past few weeks.  Ideal behavior in a stock you already own.

But if you get in tomorrow will there be a repeat of today?  Where do you place a stop?  Looking at the chart, if this is a stock you want to own, and you see this push higher on volume as a sure signal to get involved  (particularly because the overall market wants higher as evidenced by the SPY action,) buy some stock.  If you have $1000 to allocate to this one position, perhaps buy $250 worth.  Place a stop below today’s low point in case the stock does not act as expected, and buy more shares as the stock climbs in the days to come.  We can talk about how to exit a winner in the coming days.

Below are some addition charts to consider.  Ask yourself:  Is the chart indicating strong buyer accumulation?  Is there resistance overhead from potential sellers of the stock?  Is the stock so far above a moving average that it will have to correct and come down soon?  Has the rug been pulled out and the Chart now “damaged,” in need of some time to repair and stabilize before a march higher?

We will talk more about these issues in the days to come.

RALLY ON DUDE!

Today was open season on the BEAR.
 
We were shaken out of our long positions this morning with a serious push down by the BEAR following an opening gap down.  It looked like BULL steaks were on the menu.
 
10:15 or so comes around and the BEAR was KOed for the rest of the day.  The SPY closed the gap, buyers rushed in and ran with the bull for the rest of the day into the close.  The SPY made a new higher high since the reversal of the 16th and closed at that high.  The range of prices completely engulfed the previous days consolidation and the SPY closed above the 50DMA. 
 
Expect higher prices from here.  We will talk about entering new positions and how to chose what stocks in the coming days.
 
RALLY ON DUDE!

The Battle is On!

Aside

Intraday market activity is exciting today.  The bulls are not going down without a fight.  After a strong gap down the markets pulled a reversal on solid volume compared to yesterday, not unlike the Friday the 16th action.  Difference here is that the SPY 50DMA still lies up ahead, and that’s when the real fighting will begin.  Some individual names (stocks) are superstars, but again, the risk of a market downturn is high.  Keep the cash dry and we will regroup after the close.

Premarket View

Futures are down this morning.

There are always reasons to scare investors out of their positions and move to the sidelines in cash. Pick any reason you want for why the market may be down this AM, it just doesn’t matter. Price action and how the chart is behaving is all you should pay serious attention to.

The model portfolio may be all back to cash when the market opens as stops may be hit. It is critical to take the stops and then watch what unfolds before you decide to redeploy the cash.

Check back later.