Solitaire Trader

Snoopy Dance: CLEC

Every time a stock in my portfolio goes up 10% or more in a single day, I do a Snoopy Dance!

CLEC was up +11.60% today. 

This was purchased last week.  Another nice selection from my strong stocks in a tight consolidation screen.

Snoopy Dance: IAAC

Every time a stock in my portfolio goes up 10% or more in a single day, I do a Snoopy Dance!

IAAC was up 15.86% today.

IAAC was purchased last Thursday around 20.  It was one of my favorite setups: a strong stock (current price more than twice the 52 week low) with a symmetric triangle with a long uptend line and a much shorter downtrend line.  I actually jumped in early when a NR7 occurred (narrowest range of the past 7 days) - when that happens in combination with a triangle it often makes for fast moves.  The NR7 also happened near the 50 day moving average, providing an obvious place to put a stop for a low risk trade.

Rally Intact..For Now

Yesterday morning it started to look like the market was ready to drop, but it recovered.   I have to assume that the rally is still intact.   The Dow and the S&P have hit new highs - but the IWM Russell 2000 and the MDY (S&P midcap index) have not.  This indicates to me that while the large cap stocks may be rallying, it is not carrying over to smaller stocks.  Since I trade the smaller stocks, that says that this rally is not going to last.

This rally could of course continue for some time, but it would be nearly unprecedented in history if it does.  The only recent case where the 4 year cycle low didn't come in the near future was in 1986-1987, where it kept going until it crashed.  The longer we keep going up, the harder the fall will be when it comes down.  The fact is that the market needs periods of decline in order to prevent valuations from getting out of whack.

Some bears are starting to capitulate.  This is good news.  I'm not going to argue with the market either, but since I follow IWM - 2000 stocks, instead of just the 30 in the Dow or the 500 in the S&P - I'm not ready to capitulate yet. 

Here's the situation in the IWM:  It closed today at 72.39.  Last week's high was 73.34.  Until that high is hit, I still think we may have a possible top here.  Even if it does get hit, I doubt it will go up very far.  We are in a favorable time of the month, which probably is why we are not dropping, but there are only 3 more trading days this month.  Then after the 1st we will move into the unfavorable time of the month.  The 4 year cycle is still out there, just waiting for someone to say "It's different this time".

Last week's low was 71.06.  The 50 day moving average is at 70.04, and the lower bollinger band is now 70.06, which makes 70 a hugely important level if 71.06 breaks.

As long as we remain between 71.06 and 73.34, I'm mostly just watching.  I'm looking for really good setups, but there hasn't been anything interesting so far this week.  If IWM breaks 73.34, I will reluctantly get a little more bullish and look harder for good longs.  And if it drops below 71.06 and especially 70, I'm ready with shorts and puts.

The only trading action in the portfolio so far this week was on Monday morning, AP hit its stop for a small loss.

Possible Top

First, the action from last Friday: stops in BTJ and GROW were hit, so they are out of the portfolio.  Having my biggest gainer in GROW get stopped out is a signal that has me looking for a possible top.

Here is a chart of the Russell 2000:

Note 3 of the last 4 days are down on above average volume.  Note the slow stochastic close to dropping below 80.    Note the PPO (MACD) has crossed the signal line.  And note that last Friday's low was pretty much dead on the uptrend line of this rally.

This leads me to believe that we are sitting at a critical point.  Friday's low looks very important.  In fact, there are a lot of important levels just below the current price.  As long as Friday's low of 71.06 holds, then I consider the rally intact.

But if it drops below 71.06, the parabolic SAR is 70.84, which could indicate a change in trend if hit.  The 50 day moving average is 70.07, another important signal.  And the lower bollinger band is only at 69.70.  If that gets hit (and especially if there is a close below that), then it's likely that a cascade downward would happen.

So here is how I'm looking at it: as long as we are above 71.06, I am assuming the rally is intact and I'll keep looking for buys.  I am however keeping my stops tight.  If we drop below 71.06, no more buying long and I'll be looking at shorts and puts.  If we start getting down to near 70, it's time to start thinking about selling longs and getting more aggressive on shorts and puts.  And finally, if 69.70 falls, it's time to sell longs regardless of stops and get short and go for puts. 

Here's a great article: Focus on the 4 Year Cycle
With the rally in September, people seem to be forgetting the 4 year cycle.  Here's some quotes:

At this time, my work does not indicate that the June/July lows were the 4-year cycle low or that it will come in October...

If this scenario continues to unfold, then the decline down into this 4-year cycle low has a few surprises in store. One, the probabilities never have been and are still not supportive of a low in October. It seems that the infinite wisdom has come to expect market lows in October. At present, the phasing of the short-term cycles is suggestive of an October low. But, the phasing of the intermediate-term cycles is not set to make a secondary low until November/December. As the phasing of the intermediate-term cycles currently suggests, that will not mark the 4-year cycle low either. The phasing of the intermediate-term cycles tell me that the 4-year cycle low is not ideally due until after the end of 2006.

The least decline ever into a 4-year cycle low from the intra-day top down into the intra-day low was 12.04% and this occurred with the decline into the 1994 4-year cycle low, which was obviously part of the greatest bull market ever... In the current case, the decline from the May 10th high at 11,670.20 down into the July 18th low at 10,683.30 was a mere 8.46%.

More Trades

Tuesday:

I bought CLEC, AP, CRS, URBN, and SA.  Most of these were buy stops getting hit.  It looked like the market was really going to explode higher, and then it fell apart in the afternoon.   Stops were hit in NSTR and ICON for small losses and RWC for a small gain.

Wednesday:

With the Fed decision, I didn't do much but bought GMTC.

Thursday:

More buying - AIRM, BTJ, IAAC.

The market was weak late today, so the possibility is there that a top is in.  The portfolio stands with 3 double digit percentage gainers in GROW, FMD, and GIGM.    The rest are pretty much cancelling each other out.  I'll be watching carefully in case I need to take profits.  My index puts are showing signs of life with the decline and hedging against a market drop.

Tomorrow could be an important day.  If we drop much more and break the recent range, there could be a snowball effect on the downside.  On the other hand, the market has shown a lot of strength lately and we could just go right back up to the highs of the week again.

Lots of Trading

Lots of activity in the portfolio now.

Yesterday I got stopped out of two stocks - ILMN and DTLK.  Both immediately went back up.  In ILMN's case, the stock was downgraded by an analyst.  I should have been on the ball and pulled the stop, because in my experience analysts are almost always wrong when they downgrade.  In fact, I suspect one could create a profitable system by buying stocks on the day they are downgraded (if you restricted it to stocks in strong uptrends with good fundamentals).  So I wound up with a small (less than 1R) loss in ILMN.

I'm not sure what happened with DTLK, but I had my stop set to get me out before it dropped down to my buy price, so I didn't lose money there.  This is what happens when you set stops close as I am doing right now.  I'm trying to avoid big losses, and that often means small losses or small gains.  At any rate, GROW and FMD are powering the portfolio right now.

On the buy side, on Monday I bought LIFC and UCTT.  LIFC is definitely off to a good start. 

I'm a little nervous buying here as it sure looks like we are near a top, but I'm seeing good looking setups and I'm setting buy stops and the buy stops are getting hit, so what can you do?  These stocks seem to be saying they want to go up, so who am I to argue?

A number of buy stops have been hit this morning, I'll detail those later.

Something to Make You Go "Hmmm..."

From Weekly Wrap-up: Extended Trends by Adam Oliensis :

The current cycle is represented by the thick red line. And as you can see, it falls very clearly in the "middling" group of 4 previous cycles over the past 44 years; it is neither in the "very strong" group ('94-'98 and '82-'86) nor in the very weak group ('66-'70, '70-'74, '78-'82, '98-'02).

So, in looking for guidance in how the current cycle might behave, let's look more closely at the middling group.

The SPX has now completed Trading Day # 990 in its current 4-yr Cycle. The 4 previous cycles in the middling group have all topped out between Trading Day #992 and Trading Day # 996 before heading into significantly serious/tradable declines.

Snoopy Dance: FMD

Every time a stock in my portfolio goes up 10% or more in a single day, I do a Snoopy Dance!

I just went back into FMD earlier in the week, and now a 17% move on Friday.  Nice!

Still Going

The market continues its rally.  Nice gap up this morning, although it is fading fast.

I continue to make more buys and they continue to work.

On Wednesday, I added RWC, GIGM, and FMD.  FMD was my big winner this year and it looked like it was setting up nicely so I moved back in.  This morning it gapped up big, so it looks like a good move.

On Thursday, I added ILMN.

Today is options expiration day and I expect not to do much.

Still Going Up

The market refuses to die.

I've sold nearly all of my index ETF puts, keeping just a few in case of a late September/early October drop.

There is still enough time left in September that we could still see the usual seasonal weakness, but with each passing day it gets less and less likely.

Everything in the portfolio is green today, including the new IBCA that I bought yesterday.  GROW in particular continues to look fantastic and DTLK is doing pretty well now too.

There is now talk that the usual 4 year cycle timing may not hold this year - see this Ned Davis interview for details.  The last time the cycle didn't hold was 1986 - which means be careful next year.