Weekly Traders Homework: Bullish Optimism Reaching Critical Levels (w/ Economic Calendar & Stock Radar)

Last week started out with early consolidation as the bulls took a breather after the run we've had.  By Wednesday, the bulls took charge once again, catching many longs under-invested and frustrating the shorts even more.  The action has been so bullish that it has converted many capitulated shorts, usually a sign further upside may be limited in the short-term.  Many traders, myself included, are cautious of a pullback that we never seem to be receiving, but we logically believe is around the corner.  A pullback is actually quite healthy, not negative, but you can't tell that to this market as the bulls continue to run and the euphoria seems to be reaching critical levels.

This is not to say I am bearish.  I am simply preaching awareness of our surroundings in order to be prepared for the day the bulls do not show up.  The past 60 days have been some of the best trading days in recent memory, so we should all have significant profits to protect right now.

Since it has been very long that we have seen any serious weakness, we could see a deeper pullback in one day than we would usually see in a market that has more market player emotions involved.  This action still feels dominated by computers (HFT) making it more complex to predict the next movement if it is not to the upside lately.  Greece discussions have been creating buzz once again, but the markets are acting completely independent of them so far.  That could change, but the recent trend is ignoring the situation for now.  As I'm typing this, we have heard everything that a Greek debt deal has been hours away to impossible to achieve and a default is about to happen.  We'll have to wait and see what truly happens rather than continue to speculate based on rumors from all directions.  As of tonight, the futures are down, but that hasn't meant anything until 30 minutes before the markets open as it changes so often in the blink of an eye.

Friday was the important jobs data and the headline number was very bullish.  However, a debate quickly ensued as over the months/years, the labor participation rate has declined which makes the unemployment rate easier to lower.  This makes the data untrustworthy at best to skeptics.  It's not to say that the report was bad, it was actually quite good and considered the best jobs report under President Obama.  Opponents point out that the sad reality is it took trillions of dollars just to receive a good employment report when comparing it to other recent reports.  In the overall picture based on historic economic recoveries, this was mediocre at best.  So while we should be happy a new trend seems to be developing, we are already near last place in the race, so we have some catching up to do before we can get excited.  I'll try to write more about the jobs report later this week.

Economic Calendar

This is a very boring week for economic data unlike last week.  Due to this, European headlines may impact our markets slightly more.

Game-Plan

I have been in an aggressive day-trade mode lately.  This is due to being cautious of weakness or a pullback that we never seem to receive.  It is too hard to trust we can simply rise straight up from here, but that is exactly what is happening right now.

A pullback would allow a stronger support level to be created and additional buyers to get in at favorable risk-reward prices.  Until we receive that pullback, I may keep light inventory in my portfolio, but willing to aggressively day-trade positions that are seeing bullish momentum, so be sure to follow my StockTalks for real-time updates.

This strategy allows me to have less overnight risk, but still a little inventory to take advantage of any gap-ups while allowing plenty of capital to do damage control on any gap-downs.  When I see a bullish trade develop during the day, I can force my chips over to that position very fast and aggressively, keeping my risk minimal when I combine it with a stop loss.  The trick is you must not force a bad trade just because you need to do something.  When everyone around you is proclaiming they are making money, it can get your emotions running high making you feel obligated to put money to work and that is when bad trades may take place.  Be mindful of that.  Lately, I have had good success running aggressive day-trades with short-squeeze candidates such as Oncothyreon (ONTY) and BYD)">Boyd Gaming (BYD).  I will likely continue to focus on select ones when I notice strong volume moving in forcing the shorts to cover giving solid upside gains.

Per my StockTalks, I recently added Northern Oil and Gas (NOG) back to my portfolio.  NOG has pulled back towards it's long-term trend-line which I detailed many times before as a favorable entry area.  If I see bullish volume move in once again, I will look to aggressively trade this position next.  Harry Winston Diamond (HWD) has seem some very large block purchases in it lately, so I've slowly increased my position expecting something to play out to the upside over the coming weeks.

If you can't make it to the live-chat where all the magic begins, you can view my real-time trade updates throughout the day by following me on SeekingAlpha StockTalks.

Stock Radar

The screener this week picked up on a significant amount of big runners making it a tedious effort to slim down the radar with the best of the group.  Semiconductors had a great week and the screener was easily dominated in quantity from this sector over any other.  I had to be a bit more selective for this sector and will urge caution as many have run so high that entries are hard to justify unless we know we are going to keep running higher, something hard to predict, but is consistent with the current trend.

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I am sticking to stocks showing relative strength.  Preferably, these companies have more cash than debt and valuations showing reason to believe it is undervalued. I look for these stocks to pullback towards support levels where I start to buy incrementally. I am cautious of buying on breakouts unless I am in a very aggressive mode.  This aggressive mode may be just for a day-trade rather than risking the large position overnight where my stop-loss may not protect me from a large gap-down.  Market players have been reluctant to buy stocks on breakouts over the past year and I have adjusted my strategy to be more selective and patient.  If we can gain some very positive sentiment or a QE-based environment, I'd expect that will change.  The first list is my normal weekly radar using my proprietary settings on my stock screener.   For all my radars, I tend to keep four weeks worth before deleting them allowing me to rotate through a greater number of recently bullish stocks.

Avalon Rare Metals (AVL)
Augusta Resource (AZC)
Brigus Gold (BRD)
CBM)">Cambrex (CBM)
Cadence Design Systems (CDNS)
China Gengsheng Minerals (CHGS)
Ceragon Networks (CRNT)
Cenveo (CVO)
Denbury Resources (DNR)
Electronics for Imaging (EFII)
Endeavour International (END)
Entegris (ENTG)
Energy Partners (EPL)
1-800-Flowers.com (FLWS)
Integrated Device Technology (IDTI)
Magic Software Enterprises (MGIC)
Nevsun Resources (NSU)
RadNet (RDNT)
Silicon Image (SIMG)
SWC)">Stillwater Mining (SWC)
Terex (TEX)
TransGlobe Energy (TGA)
Taseko Mines (TGB)
Voyager Oil & Gas (VOG)
Warren Resources (WRES)
Willbros Group (WG)

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The second radar is the short squeeze radar which is compiled of stocks showing relative strength, but having high short interest (you will notice duplicates among both radars because of this). Any bullish spark may set them off in a short squeeze run netting significant profits if you trade correctly. Always trade these short squeeze candidates carefully as stocks with high short interest will have negative rumors swirling around them trying to shakeout investors who have not done their homework. However, some of those rumors may indeed be true, hence the importance of doing homework and being very selective. The risk is higher for these types, so make sure you know what you are getting into before you buy, not after you buy.  The key is to be selective and find those stocks which the shorts are wrong about, not to blindly believe every high short position is wrong.

Aegion (AEGN)
Amkor Technology (AMKR)
AsiaInfo-Linkage (ASIA)
American Axle & Manufacturing (AXL)
Biolase Technology (BLTI)
Bon-Ton Stores (BONT)
Brown Shoe (BWS)
Boyd Gaming (BYD)
Cenveo (CVO)
EBIX)">Ebix (EBIX)
Endeavour International (END)
ENTR)">Entropic Communications (ENTR)
GenCorp (GY)
InnerWorkings (INWK)
Iridium Communications (IRDM)
Local.com (LOCM)
Medifast (MED)
Pacer International (PACR)
Photronics (PLAB)
Ruth's Hospitality (RUTH)
Sonic Automotive (SAH)
Saks (SKS)
Uranium Energy (UEC)
W&T Offshore (WTI)

You can follow my trades alongside the 36,000 plus market players who follow me on SeekingAlpha(Shameless promotion). As always, do your own homework to see if you agree. Good luck out there.

Mike

At the time of publication, Kudrna was long BYD, ONTY, NOG and HWD, but positions may change at any time.

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Tags: Boyd Gaming (BYD), Cambrex (CBM), Ebix (EBIX), Economic Calendar, Entropic Communications (ENTR), Europe, Futures, Game-plan, Greece, Harry Winston Diamond (HWD), Iridium Communications (IRDM), job reports, Magic Software Enterprises (MGIC), Michael Kudrna, Northern Oil and Gas (NOG), Obama, Oncothyreon (ONTY), President Obama, Rick Santelli, Ruth's Hospitality (RUTH), short squeeze, Shorts, Sonic Automotive (SAH), Stillwater Mining (SWC), Stock Radar, Trade Updates, Unemployment, unemployment rate, Voyager Oil & Gas (VOG), Weekly Homework

This entry was posted on Sunday, February 5th, 2012 at 11:19 PM and is filed under Stock Market. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.