The purpose of the Week Ahead post is to prepare you for the upcoming week in the markets. I do this not only to help others learn and develop trading skills but also to develop and cultivate my personal thoughts for the Week Ahead. Below you will find a written commentary portion followed by a Video Analysis the stock market and the set ups I am watching this upcoming week. This post is organized into sections, see bold titles and skip the items in which you are not interested in! Enjoy!
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Market Orientation & Bias: Market Uptrend breaking, outlook lower over next couple weeks
Conviction Level With Bias: 7 (out of 10)
1. Recap of Last Week
A. General Recap
We came into this week with the idea that perhaps the market is simply consolidating higher before attacking new highs, like we have seen much of the past year. However, this was not the case whatsoever. Instead, all the chopping around was distribution and this week we saw the weakness catch up with the indices. The Dow Jones finished last week down 3.5% or the worst week since 2011. We noted last week: “There truly were not that many A+ Set Ups that I felt like I should include in this post and therefore this is all I have got.” So, we took these set ups with a grain of salt and examined the market for only the BEST of of BEST set ups, which were of course few and far between.
B. Past Set Up Recap
HTZ – Started off the week strong and then quickly failed along with the broad indices. Still on a micro basis showing relative strength though.
JOSB – We spent a lot of time discussing this chart as it was one of the only ‘good’ ones that came up. However, when the markets pull back, most stocks pull back with it and momentum tends to fail, which is why we use stop losses.
OLN – Another great example of why we implement stop losses here at Ben C Banks. Coming into this week this stock was showing relative strength, not so much at the end of the week.
UUP – This higher dollar thesis is still very much intact from a macro point of view. Nothing new here. Will need to hold 21.50 to keep this thesis alive.
ZION – One of the best performing stocks from the watchlist last week. ZION actually closed higher for the week, but barely. It broke out early in the week and then came back hard later in the week. This is another good example of why we like to take half off on the breakout and then leave half for the swing.
2. Strategy For Next Week
A. General Broad Market Thoughts
Click to enlarge chart to see the notes.
This week saw a lot of carnage, no doubt about it. When the market pulls back, most stocks do as well and breakouts (momentum) fail at a much higher percentage. This is exactly what we saw last week. Next week or in the coming days I do see us lower than we are now. At least a touch of the 100 day SMA (not on chart) near 177.00 is more than likely. However, I think there is a chance for a deeper correction than that. The technical damage to the charts that was done this past week was significant and most of the time this does signal more weakness to come over the next couple weeks. Of course this does not mean we plummet or we are guaranteed this will happen. As a general rule to go on, this much technical damage will likely need multiple weeks to repair (at least) from a momentum perspective as well as slightly more pressure after an oversold bounce.
The oversold bounce will be great sought after this week, many traders focusing on catching the bottom. I have been one of these traders before, this game is not for me, not my type strategy. I trade breakouts and breakdowns only. Be aware of the inevitable temptation to buy and pick the bottom, especially if you do not have a plan for when you are wrong. A bounce will happen, likely Monday or Tuesday but this is not guaranteed, nothing is.
I will likely not be trading swings actively this upcoming week unless there is a major bounce back early in the week, there is without a doubt a lack of strong set ups.
B. Video Analysis & Watchlist
C. Set Ups & Charts Watchlist
CWH, CYTR, MRK, ROVI
CWH – A REIT play here that is showing relative strength this week and looks interesting over 23.80.
CYTR – A stock that is showing extreme relative strength. May need some more basing but on watch if it can consolidate a few more days above Friday’s highs.
MRK – One of the few stocks that held the 21 day this week, looks very nice over Friday’s highs and likely will see a good week given we have a bounce.
ROVI – Another one of the few stocks that is showing relative strength, a couple inside days would set this one up for a breakout the best.
3. Current Positions
TWTR, RES (long)
RES – Took long on 1/16, sold half on 1/17 at 18.80. Still holding half versus Friday’s lows and will be out before earnings on the morning of 1/29.
TWTR – Entered 1/22, before the market pullback. However, TWTR held up remarkably well and I am still in it versus Thursday’s lows.
I am mostly in cash at this point, sold out the rest of WBMD early in the week.
4. General Tips & Reminders
1. It is earnings season. Please check ALL stock’s earnings dates as this is vital to know if you are a short trader so you are not stuck in something like $KSU this past week.
2. Breakouts will have a higher tendency to fail during market corrections, keep this in mind and keep positions smaller until we set back up with strong set ups again.
3. Be consistent and do not lose your perspective.
Have a great rest of the weekend. Email or Tweet me with any questions or comments.