Good Risk / Reward Here

by: Leigh Drogen

We took down some exposure on Wednesday and Thursday morning as the market was a bit overheated and needed a break. Thursday afternoon though we put a little more back on, and added to that this morning brining us to 66% long and 20% short. Our shorts are working very well here with Polycom (NASDAQ:PLCM) and Fifth Third Bancorp (NASDAQ:FITB) acting miserably compared to the rest of the market and our long positions.

The reason why I’m putting this note out now is due to a great opportunity I’m seeing to add to long side exposure here. I’m seeing many similarities to the end of March beginning of April when the market consolidated its gains before the next leg of the rally. We are seeing rotation from leadership tech to commodities and a few other sectors. Mutual fund/merger Monday could well be in effect this coming week with the technical setup I’m seeing. In my opinion Friday afternoon provided a good risk/reward entry to a bunch of positions on my watch lists. Use the lower end of the range from the past two weeks for stops.

Here are a few stocks that look great going into next week:

  • Universal Display (NASDAQ:PANL) is setting up right below 24.40 in a beautiful flag.
  • Oracle (NASDAQ:ORCL) is flagging out beautifully and provides a good risk reward long entry to a great stock with a stop at Thursday’s low.
  • Nanometrics (NASDAQ:NANO) continues to flag out after its big run earlier in the week, if you’re in this looks like a place to add more.
  • Perrigo (NASDAQ:PRGO) sets up very well for a buy off the 20 day moving average and a stop placed at Thursday’s low.
  • Lubrizol (LZ) a stock that I have loved for many years is showing a good entry here on strength as it trends above the 20 day.
  • Zhongpin (NASDAQ:HOGS) is trying to break the highs and I think this is only the beginning of the trend, the stock is about to go parabolic.
  • AutoNation (NYSE:AN) is looking real good here, especially on the weekly time frame with its big bull flag.
  • Yum! Brands (NYSE:YUM) and McDonald's (NYSE:MCD) are set to run again here with nice consolidations.
  • Finisar (NASDAQ:FNSR) is also setting up well and showing great momentum.