10 St50 Swing Setups for This Week

Last week best performers’ list was dominated by oil related stocks. The front month crude oil futures appreciated by 14% due to an elevated political uncertainty in the oil rich North Africa and Middle East. In short to medium-term perspective, industry-wide move is the most powerful catalyst for the price appreciation of a stock, even bigger than an earnings surprise. The energy related stocks continue to be well represented in the latest edition of the St50.

A large number of the momentum semiconductor stocks managed to bounce from their rising 20-day moving averages. Let’s see if this was the beginning of a new base or just a temporary relief.

The Long-term care centers industry reached another new 52-week high last week. The stock with the highest 6 month RS in the group is $SRZ. Less than two years ago it traded at 30 cents due to fears that it wasn’t able to refinance its debt. On Friday, it traded above $10 per share.

In general, all you need to spot good swing setup ideas is to find stocks that had a noticeable leg up (usually one to 3 months), followed by a consolidation in the upper range of that leg. The consolidation could be anywhere from 2 days to a month. Then you need to isolate the stocks from the currently hot industries and focus primarily on them.  If any of those stocks happen to be featured in either Stocktwits 50 or IBD 50, then you know that besides the price and industry momentum, your trading ideas have other strong catalysts behind. The latter is not critical, but it often helps as it is a testament that more market participants with various investing horizons are interested in the same stock. With other words, the stock is more predictable.

Last weekend I opened the topic about the difference between swing and position setups. I will go into more details later this week and share some entry and exit approaches for position setups, which assume longer holding periods.

Some of the best looking swing setups in the St50 this week are: $BHI $MRO $SFN $ITMN $AREX $ARBA $CAM $BRKS $ROK $FNSR

 

 

 

10 St50 Swing Setups for This Week

First, I would like to make a quick distinction between position setups and swing setups. The purpose of the Stocktwits 50 is to find stocks that are likely to trend up for an extended period of time. From my perspective, the idea behind the typical swing setup is to catch a 2-10 day move within an existing trend.

When looking for swing setups, the two most important factors to consider are:

– recent price volume dynamics: most swing setups consist of an uptrend move, followed by consolidation in the upper range of that move. Traders have come up with different names for them: flags, wedges, triangles..; Keep in mind that finding the so called flags and wedges is never a guarantee of success. It is not that easy. There is one more factor that needs to be taken into account: the industry group;
– which industry group is currently hot; Stocks tend to move in groups and being in the right technical setup in the right group could mean the difference between a 5% and 20% move; the difference between a failed breakout and a breakout with continuation. For example, last week I specifically underlined the energy and precious metal stocks on my Stocktwits steam. The best performing stocks for the week came from those groups.

Let’s take a quick look at the forthcoming week and what we can expect.

Oil futures are up after the situation in North Africa and the Middle East has worsened over the weekend. As zerohedge mentioned on the stream: “Don’t worry. Ben Bernanke will print more oil.” We are likely to see some silly moves in oil names, which will be a continuation of last week. On the first glance, the energy stocks look a bit extended, but that does not matter in short term perspective. It matters only in terms of risk management. When you enter extended stocks to monetize on a sector move, it is a good idea to decease the size of your positions.

Gold and silver futures are up too. In the past, geopolitical crises were positive for the dollar. These days, they are positive for gold and silver as they are considered the new safety currencies.

Will the rest of the sectors continue to rise or the market will take into account that rising oil might spark another global recession? The market reaction will tell. In general with zero interest rates and rising inflation, US stocks are still in the sweet spot as an asset class. Of course, don’t forget that even in the best years for the market, there has always been a period of 3-12 week correction. When is it going to happen is anyone’s guess. There are two types of forecasts – lucky and wrong. I rather watch price.

Last weekend I underlined 12 specific names from the Stocktwits 50 list that I liked for swing trades and 10 of them were actually the St50 best performing stocks of the week. I will keep that tradition.

Without further ado, the 10 st50 swing setups that caught my eye this weekend:$BHI $FNSR $AMAT $FXEN $CTSH $EMC $BRKS $CPWM $HON $LULU

Who is A Better Investor – The "Yes" Man or The "No" Man

In one of my favorite movies, a guy is trying an unconventional way to escape from the boringness of his ordinary life. He has an eye-opening experience, he has his fun, but in the end, realizes that saying Yes to everything is not the ultimate secret to happiness. There were way too many Yes Men and Women in the US Banking and Mortgage Industries; in the government too. We had our fun, we have had our bubbles. “Yes” could be a powerful word, but often “No” is a better alternative.

Apple is a huge success story because it learned that it can’t be everything for everyone.

That ability to express by omission holds a central place in Jobs’s management philosophy. As he told Fortune magazine in 2008, he’s as proud of the things Apple hasn’t done as the things it has done. “The great consumer electronics companies of the past had thousands of products,” he said. “We tend to focus much more. People think focus means saying yes to the thing you’ve got to focus on. But that’s not what it means at all. It means saying no to the hundred other good ideas.” (Jobs sometimes says this even more bluntly: Nike CEO Mark Parker likes to recount the advice Jobs gave him shortly after Parker’s promotion to the top spot: “You make some of the best products in the world — but you also make a lot of crap. Get rid of the crappy stuff.”)

The most successful market participants are specialists. They know how to do one thing exceptionally well – one time frame, one asset class, one approach, one setup.

So how to find the balance between the Yes man in you, who wants to experience the beauty of the world around him and the No Man, who needs to focus in order to achieve something of significance. Well, you have to learn to distinguish your life as a trader from your life as a human being.

Say Yes to trying new things in your life; embrace the diversity and the variety. But when it comes to trading, be a creature of habit. Say No to investing/trading setups you don’t understand and therefore have no edge at.

Having a Plan about Your Plan

In the VC industry, experienced investors often claim that ideas themselves are worthless without proper execution. The same is true for the stock market. Having a well thought out equity selection approach is a necessary, but insufficient condition for achieving consistent profitability. Finding new trading ideas is not enough. There is no purpose of having four-five stocks in your watch list if you don’t have a clear plan how to profit from them.

When are you going to enter: on a breakout or in anticipation? Can you afford to watch the stock in real time and do you have the emotional capability to enter when it breaks out? I like to enter in an anticipation of a breakout.

How much are you going to risk? Where are you going to put your stop? I like to enter my stop at the market order immediately after I open a trade. If I am stopped, I accept that as part of the game. I was either early or wrong about the direction. Mental stops don’t work with me as sometimes I can’t watch my stocks in real time or if I am watching, I might decide to give it a bit more room and lose more. I just know myself. Barring another flash crash, this works beautifully for me. It might work for you too.

Where are you going to exit and why?

– My position is automatically closed when my stop is hit, no questions asked;

– I will automatically sell 1/2 when the achieved gain is 3 times the risked amount; I will trail the rest;

– If my stock doesn’t move in the next 2-3 days after I entered, I sell. I have no intention to be in stocks that don’t perform.

Seth Godin on Social Leverage

Self sufficiency appears to be a worthy goal, but it’s now impossible if you want to actually get anything done.

All our productivity, leverage and insight comes from being part of a community, not apart from it.

The goal, I think, is to figure out how to become more dependent, not less.