IEM's Trading Blog This trading blog will include setups I see and track how I played them. I am a developing momentum chart swing trader. Draw your lines and take your trades, Cheers!

With IWM making new high, SPY & QQQQ very close to new 2010 highs and a better than expected job report (that U.S. might actually created job if not due to the snowstorm), should we go out and be heavily long? Everyone involved in the market sounds giddy and bears that wanted to short the market is close to stopping out of their positions (very clear stop losses above the 2010 highs for SPY and QQQQ). Is it time to be cautious? or at least only buy the lagging sectors betting on sector rotation?

The 2106 McClellan Oscillator is very overbought short term at 75, which anything over 50-75 suggests caution for correction or at least sideways action. Furthermore, this oscillator has come all the way from -50 to the current level. What happened if you were selling/shorting at -50 in late Jan or mid-Feb? However, be aware that tops takes much longer to form and usually it create a negative divergence before rolling over. The McClellan Summation index, on the other hand, is showing a clear negative divergence vs. the market since October.



Its clear that the lows from Feb were caused by some shorts covering, but I believe a bunch of buyers have came in starting around the last week of February. The psychology has shifted from "sell the next bounce" in early Feb to "this bounce cant last" in mid-Feb to "I am going to miss out" in late Feb to "we need to pay up" in early March. There will be a couple more stages - "I cant believe this is going higher" and "I will buy the next dip".

I continue to believe this market is a buy the dip market that traders should focus on spotting the next hot sector and buying the individual stocks (funds will focus on eps/revenue growth and accumulate when its favorable). I believe sector rotation will continue. My plan would be:
- focus on strong individual stocks in lagging sectors
- take profits as they go in my favor
- be aware of the shift in sentiment

However, I will not put on much size at this moment unless there are some correction that clear some of the giddiness in the market. The most important thing I should remind myself is... please take the good r/r setups and let the tape tell you when it stop working.

I believe Semi, Tech, Energy and Materials might be ready to make a catch up move as they have a high number of revenue from foreign countries. Dollar appears to be overbought and have multiple negative divergences. Baltic Dry index had a fairly good pickup last week.

I will be back to post some setups later tonight.

Needless to say, the market had significant selling all day. There were bear flags breakdowns everywhere and the EUR/JPY chart broke nicely and ran right to support today.



It certainly wasnt fun going into today net long, but I learned a couple lessons today and in the process helped pulled myself back to even. First of all, I stopped out 2/3 of my XTEX at 9.60 (purchased at 9.98) early in the day and my MGA also dropped today (need to hold around here soon or it will trigger my raised stop).

Looking back through my journal and tape, flexibly and early detection of the day's trend was what saved me from having a bad day despite coming in net long as a swing trader. My expectation from last night was a choppy day that might have a slight negative bias and certainly not expecting a 2%+ move in the /ES. Looking at the premarket futures at 6am certainly changed my read and a miss in jobless claims suggested possible further range expansion. The question became how do I want to manage my existing positions and how would I enter bearish positions given a big gap down? Would the day become a trend down day or would the market bottom around 10-10:30 like so many times before?

There are several observations that told me this will be a clean trend down day:
- opening under S2
- opening drive down on high volume with very negative tick reading (-1300)
- strong declining cumulative tick
- strong declining vwap
- almost 8:1 a/d line

This signaled me to focus on the bearish side and knock out a couple of good r/r plays (NUE - bear flag, COH - bear flag and IYR - base and breakdown) to pull me back to even. I closed both NUE and COH today, but held on to IYR short. I also found a great play on VIP off the 18 level, but I took NUE a min before VIP broke down and did not want to overtrade.

Although I did not make any money today, I am quite pleased with the execution on NUE and IYR today. I will continue to keep my positions small and time frame short. Tomorrow is the jobs report and it has a good tendency to fade off the open, be careful out there!

- Chris

I will be watching the old carry trade pair EUR/JPY, which has a high correlation with the equity markets around the world.

EUR/JPY - If this bear flag breaks to the downside, the US equity market should follow


FXI - This market bottomed before the US market for 2-3 months last year. Right now, this market topped in Nov and has put in a clear lower high. 41-41.5 would be a great place to initiate a short.

Position updates: BHI (Long - loss), VCI (Long - Win), MMR (Long - Win)
Open Position: MGA (Long)

Wasnt able to post due to computer issues. I resisted the urge to short the market aggressively on Friday as I thought market was too oversold for any swing entries. The market has since bounced strong 2 straight days and worked off most of the oversold levels. The strength or lack of selling (only 1 5min bar had a tick reading of < -500 today) is starting to remind me of 2009. Retail and REIT strength is negating a lot of potential bearish patterns. Furthermore, there are quite a few bullish breakouts from bullish patterns that have been working. e.g. GNW.

I am watching /ES 1120 on the upside for resistance, but I believe we will blow thru that level and break thru 50D to clean out the over-anticipating shorts. The market remains dangerous on the long side when the leaders are lagging and too early to short. I will focus on daytrading some breakouts and fast reversals in the next few days.

BHI - attempted to trade the breakout, but it came back quick. Market was not ready to turn. I was jumping the gun a bit without the proper support from market internals. However, BHI seems to have a hard time lifting even when oil has rallied strongly for the past 2 days. Took a quick loss on the position.




VCI - picked up VCI on good volume surge breakout. It ended up coming back under breakout point but showed relative strength last Friday. Settlement news popped the stock on Monday and I sold into the pop.




MMR - (2/2/10) traded MMR on break of 16, showed nice relative strength on the early economic data dip and took off in the middle of the day. Sold half when it reached my first target and sold rest when MMR was churning sideways at R3 on increased volume.




MGA - nice bull flag and bouncing off 30DMA. Long @ 56.4 (2/2/10)

Nothing much changed today - there werent any significant bounces, nor was there many sharp sell offs that trigger my support alerts. Market is still oversold, but the bulls need to push us higher fast, else we can work off this oversold level by going sideways through time.

PDC - bull flag, but might need more consolidation

AF - sold 1/2 of swing at 13.18, from 12.62

A pullback is very much needed and should create good setups. Here are a few charts that had strong breakouts and I will observe its pullback (if it does) over the next several days:

GHL - worth watching here... 80 is support area on weekly chart

AF



KONG - watching for a break of trendline