"The most common cause of low prices is pessimism—some times pervasive, some times specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It’s optimism that is the enemy of the rational buyer.So smile when you read a headline that says ‘Investors lose as market falls.’ Edit it in your mind to ‘Disinvestors lose as market falls—but investors gain.’ Though writers often forget this truism, there is a buyer for every seller and what hurts one necessarily helps the other.” Warren Buffett
Equities continue to trade in a very tight range and after going through my scans I have discovered a TON of great looking setups for may alert list. There are so many stocks that are consolidating with their perspective sectors and the overall equity indexes.
What if the markets continue to consolidate in sideways choppy action?
There are stocks out there that have trades sideways for years. Markets can do the same thing. I read a report this week where a Morgan Stanley chief strategist indicated that he thinks the market will be trading sideways with choppy action for the next three years. Now this is just one persons opinion but, if it happens, how will that impact your trading?
With markets on what could be the tail end of a nine year bull run, all the geopolitical concerns, fears of rising inflation, interest rate hike fears, high energy prices, burgeoning national debt and midterms just around the corner there is plenty for traders and investors to be cautious about. At the same time we have the recent tax cuts, a strong economy, good earnings, low unemployment, and interest rates that I would suggest are still quite low so there is also plenty to be optimistic about.
Could the markets be priced for perfection?
Only time will tell, eventually there may be some sort of black swan event that creates enough fear to give the bears full control allowing them to take the markets lower. We could also have some sort of fantastic catalyst the powers the markets higher and keeps the bull market running for another 9 years. NO ONE KNOWS.
All we can do is adapt and try to navigate whatever market climate we are in and a choppy market can be quite boring. The problem with boredom is it can make you take trades that may not be ideal just because you feel like you need to be doing something. I like to use this time to do more research on potential investments as apposed to just looking for something to trade. I take the time to look up insider activity, listen to earnings calls, read the most recent 10k, look at the balance sheet, read the recent analyst reports, seeking alpha articles, send their investor relations department a note and see what kind of response I get.
Quality over quantity can be very powerful.
You should take the time to really research the stocks you may be interested in. The more you learn about a stock the more comfortable you will be in potentially owning it, even if it is just for a quick day or swing trade from a sweet looking technical setup.
That is how I discovered HEAR long before any of the day traders or chat rooms were talking about it. I put out a trade plan for HEAR to the pro members when I started buying it for and eventual dollar cost average of .47 cents prior to its reverse split. I had HEAR in three of my accounts. I closed the trade plan shares for a 45 percent gain and when I closed them I let the members know I had an additional 14k shares in my other accounts. I closed the balance of those shares throughout the recent rip higher selling the last of the shares in the 17 dollar range.
Here is a copy of the the completed trade plan with the grade I gave myself on that trade along with the original summary as to why I initially took the trade.
I am not sharing this to boast or try to convince you to become a member of Alpha Wolf Trading. I am trying to show you how I have been able to stay in the game for as long as I have. I have been in the market for over 25 years and even though most day traders just want to jump in and out of stocks trading for only an hour a day its important to recognize the markets aren't always that giving and the trading climate can go through long periods with choppy action that will eat traders alive with commissions and poor returns. Instead of taking trades that make your broker rich because you are bored. Why not use the time to try and identify the next HEAR.
What to watch for next week
There was some positive news out yesterday with a joint announcement from the US and China of an initial agreement to abandon the trade war and work together to reduce the trade imbalance. This could be a very good thing for the markets if it holds up to be true and we get more concrete specifics. As of now the statement sounds good but the markets will need more clarity over the next few weeks.
With the supreme court ruling that will allow states to open up legalized sports betting the obvious sector to benefit will be gaming. There are some potential sympathy groups that could benefit like media since there will be a ton of advertising being placed from Draftkings and other sports betting providers trying to make a name for themselves. Online pay providers, Master card and visa could also be another group to benefit.
On the economic calendar fro next week we have the Fed minutes on Wed as well as new and existing home sales numbers that could impact the markets. We also have the House of Representatives voting on a new bank reform bill that could give a boost to the banks with under 10 billion in assets and that may give a lift to the entire financial space.
Technical outlook for some specific sectors
IWM small caps have been the leading space and recently took out all time highs we could see more consolidation or a test of the 160 level for support China small cap names could be in play after the trade news
SPY took out recent short term trend line putting in a nice pattern 270 needs to hold as support
QQQ Tech could be forming a double top on the daily would like to see 165 hold as support
SMH semiconductor also forming what could be a double top on the daily 95- 100 support is a key area
XHB homebuilders new and existing home sales report out this week as well as TOL reporting earnings this could give the sector some action 37 to 38.50 area needs to hold as support the index does have a death cross which makes it one to be cautious with
XLF Banks and finance sitting right on the 50 day after consolidating with a rising interest rate environment and the bill that could be passed this week. There could be some action in the space
XLP consumer staples Big thick stocks that are really more long term hold considerations The index looks like its building a bear flag However, this weekend Barron's points out that this space is potentially providing some high yield value plays
IBB Biotech overbought and consolidating just below a short term trend line and sitting on a cluster of moving averages.The sector has been under pressure but there are still a ton of good looking individual stocks in the space that have great looking setups on the daily time frame need to hold onto the 100 area of potential support a break over 109 110 area with volume would be bullish
Last weeks Pro members full list of stocks to watch for trading and investing and their performance for the week below.
Sample of next weeks stocks to watch from this weeks Pro member video.
$ACBFF $SE $QTNT $BZH $BZUN $IRTC
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Highly anticipated earnings next week
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Economic calendar next week
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