Tuesday's Trading Strategy

With Tuesday's move, the market just became even more overbought.  The SSO moved right into a resistance zone on low volume with a high stochastic reading. This usually provides a good, low risk short entry.  

While the trade would still be low risk, since a tight stop can be placed just above entry at the first level of resistance, the probability of getting stopped out is tough to call. The presidential results, plus the fact that the resistance zone is quite large, lowers the probability of the trade working.

The better trade would be to wait for more of a bounce for entry. However, the risk is so low right now that entry at this level would amount for a very small loss - in my eyes this makes the trade worthwhile.

To summarize, there are two ways to trade the market via SSO: 

1. Wait for a bounce and take a short position. Use the resistance lines to manage trade with stops.
2. Enter now, with a tight stop above the first resistance line. If stopped out, one can re-enter on a bounce to the second and third resistance levels. 

 click to enlarge 

New Focus List Stocks:

Each day I'm finding more interesting setups. Also, we are finally seeing some stocks near highs. Here are today's additions - Emergency Medical Services (EMS), Myriad Genetics Inc. (MYGN) and Bank of the Ozarks Inc. (OZRK). All require pullback off breakouts, are somewhat overbought and feature strong accumulation volume patterns. Entries are as close to the market support levels as possible.

 

 

 

The Rest of the Focus List:

Longs:

DRYS, ALK, CLF, AVAV, WYNN, LVS, APOL, CPLA, EDU and DV RSX, URE, EZA, DIG, EEM, UYM, UYG, DAG and SSO

Shorts

FSLR, BWLD

The stocks from the bullish list are overbought and require pullbacks.  In fact, many can be traded as very short term short trades if tightly managed. 

Disclosure: I exited my SSO and DIG long positions Tuesday for sizable gains, and entered FSLR and SSO as shorts. Both are with small positions sizes and tight stops.