We continued the pullback on Wednesday that started on Tuesday and although the selloff wasn’t as sharp, the volume did continue to grow. This is the largest pullback since November where we had a false breakout to the upside. The big money laid into that breakout hard but the panic subsided and we found solid support at the 50 day moving average. We traded sideways for a couple weeks before being propelled once more to new highs.
This type of action would be welcome but we do always have the possibility of a complete melt down like we called back in May of last year. We were out near the top before the bottom fell out and dropped nearly 20% in a short period of time. Most of our older trades have plenty of support and profit cushion to ride out pullbacks like that but the newer trades are always very susceptible to these whipsaws. This is why we will be pulling the plug when we see the first sign of weakness
There were several late attempts to lift the market late in the day but these attempts all fell flat. We had a number of our open positions close the day with long tails telling us that they may have whipsawed out the weak hands and are ready to move higher but due to the heavy volume and how stretched this market has been, we aren’t willing to take any new trades here.
A couple new positions from last week actually rallied huge and are already up nicely. These are the type of trades to look for during these weak periods. The wheat does get separated from the chaff and we will see which stocks will be the big winners during the next rally.
We had quite a few of our sturdy trades actually start to crack today. They started breaking loose from their tight ranges and through support and on higher volume. It could be some minor profit taking or it could be the start of something larger. We must watch closely.
You also must ask yourself do you want to ride this out or do you want to lock in profits here. The downside for many of these can be 10-30%. Even though we have a number of names that are up 50% and others like VRX that are up 183% it’s a tough call. We have to base our decision on how many solid support levels each stock has and how far away they are.
We would close the following stocks if they trade any lower: DE, TRW, ILMN, JDAS, VAR, SAM, SLH, HAS, POWI, SMTC
CYD closed out trade today with a 61% gain
No new setups for Thursday
Market Confirmation: Market in intermediate term uptrend
Short Term Action: We are still looking to buy on pullbacks but market is currently too stretched to buy here. We are currently letting our winners run and weeding out stocks that are stalling out or breaking support levels.