Building upon last week’s aggressive and profitable action, we will look to see if the positive sentiment can continue for another week. It has been a long time since the bulls have had consistent positive action to work with. The EU situation is still a large burden. No real solution has even been discussed. Currently the only plan is tossing more money at the problem to delay more pain in the short-term. With that being said, we must stay aware and ready to pull our trades off the table if the sentiment starts to turn negative once again, and it will. The only question is when.
While the sentiment was very bullish, most of the gains the past week were for bulls who had held positions overnight. Day trading on breakouts was not very rewarding as most fizzled rather than saw aggressive and confident money entering them. Until this changes, I am not chasing breakouts, but rather buying trades near long-established trend lines like last week. This provides additional support and favorable pricing on a risk-reward basis, but creates additional risk due to any unknown negative headline dragging us down in the premarket.
On Thursday, policy makers at the ECB will be meeting to discuss and likely change interest rates. On Friday, EU leaders have a summit where market players will be very concerned with and focused on anything that comes from it. I expect by Wednesday afternoon, we will see market players positioning for downside risk, so the markets could trend sideways or down a little leading into these meetings. Good news or any “fluff” that just sounds positive will likely send the bulls running big. Bad news will send us lower, but unless it is unexpected bad news, the downside risk is not likely to be overly significant for now. Many underinvested bulls are waiting to join, so it would take a very bearish sentiment change to make those bulls step aside. It’s very possible, I just don’t anticipate it is very likely this week. Regardless, I will be keeping tight leashes on trades and likely peeling off some of my positions before the meetings.
From an earlier article, I am still using ProShares UltraShort 20+ Year Treasury (TBT) as my shadow chart. I found that if TBT does not move in the same direction as the markets, follow TBT first. Example, per my StockTalks, the markets gapped up on Friday morning. However, TBT was flat premarket and at the open. This lead me to believe we had good odds that the markets would lose their gains. Sure enough, the markets followed TBT and did lose their gains on the day. It has been a great indicator for me lately. However, like all trends, it will end at some point in time. Until then, keep using it.
The economic data is thin this week. None of the data should be market moving unless something is significantly different than estimates. The EU should be the entire focus this week. See the economic calendar below for details.
| Date | ET | Release | For | Actual | Briefing.com Forecast | Briefing.com Consensus | Prior | Revised From |
|---|---|---|---|---|---|---|---|---|
| Dec 05 | 10:00 | Factory Orders | Oct | -0.6% | -0.4% | 0.3% | ||
| Dec 05 | 10:00 | ISM Services | Nov | 53.0 | 53.4 | 52.9 | ||
| Dec 07 | 07:00 | MBA Mortgage Index | 12/03 | NA | NA | -11.7% | ||
| Dec 07 | 10:30 | Crude Inventories | 12/03 | NA | NA | 3.932M | ||
| Dec 07 | 15:00 | Consumer Credit | Oct | $7.0B | $7.0B | $7.4B | ||
| Dec 08 | 08:30 | Initial Claims | 12/03 | 400K | 395K | 402K | ||
| Dec 08 | 08:30 | Continuing Claims | 11/26 | 3700K | 3700K | 3740K | ||
| Dec 08 | 10:00 | Wholesale Inventories | Oct | 0.2% | 0.2% | -0.1% | ||
| Dec 09 | 08:30 | Trade Balance | Oct | -$44.0B | -$44.0B | -$43.1B | ||
| Dec 09 | 09:55 | Mich Sentiment | Dec | 63.0 | 65.0 | 64.1 |
Here is the stock radar this week, it has grown significantly from previous weeks. This is because I want to ensure I have enough on my radar that I can be selective from. Smaller radars can mean we justify a bad trade and force it simply because we don’t have enough selections to choose from and want to buy something. Now that more charts are starting to grow bullish, we can safely increase the radar. Again, I continue to focus on stocks already showing good strength and not overly speculative. I don’t want to risk capital on overly speculative stocks until I know we have a longer timeframe of being bullish. Rumors QE3 may be announced at the Fed meeting on the 13th, that may be the start of a new bull market for a few months. We’ll have to wait and see.
Asbury Automotive Group (ABG)
Apricus Biosciences (APRI)
Ariad Pharma (ARIA)
Cerus (CERS)
Ebix (EBIX)
Entegris (ENTG)
Healthstream (HSTM)
Integrated Silicon Solution (ISSI)
InfoSpace (INSP)
Jaguar Mining (JAG)
Magma Design Automation (LAVA)
Mentor Graphics (MENT)
NovaGold Resources (NG)
Newpark Resources (NR)
ORBCOMM (ORBC)
Parker Drilling (PKD)
Procera Networks (PKT)
Royale Energy (ROYL)
Revett Minerals (RVM)
Spectrum Pharma (SPPI)
Vical (VICL)
ViroPharma (VPHM)
As always, do your own homework to see if you agree. Good luck out there.
Mike
At the time of publication, Kudrna was long VICL, NR and JAG, but positions may change at any time
