The Bigger The Base The Higher Into Space It Goes

I’m always intrigued by huge bases, normally a prolong period of contraction leads to a prolong period of expansion., hence the term; the bigger the base the higher into space it goes.  We’ve pointed out a few bases over the last year that have made huge moves after we flagged them.  We pointed out $QSII on 7/10/2013 it ran 18% in a few weeks, $PVA on 7/17/13 at $5 and a few months later at its peak it was up 250%, on 9/13/2013 we highlighted $HZNP at $2.75 at its peak 6 months later it was up 481%.  These huge bases don’t show up on a regular basis especially after a long running bull market, but when they do you have stay on top of them because once they emerge from their bases (stage 1 to stage 2) they usually do very well.  

 $KCAP  has been basing for almost 12 months after a blow up last year.  The base just tells you that the company has a whole new set of stock holders who believe that perhaps last year’s blow up is out of the way and that company has greener pastures ahead. (that of course is until the stock breaks-down).  If you look at the chart you will see up and down movement  ($8.50 to $7.80) until recently.  Now what you are seeing is a series of higher lows which tells me that buyers are in control for the first time in 12 months.

Here is the way I would play this; I’m a buyer of stock above the base with a stop at $8.20, if for some reason it becomes a failed break out I would continue to track the stock because these bases tend to be very powerful, and just because it fails the first time it does not mean that it can breakout down the road.  $SKUL was flagged on 9/24/13, the initial breakout failed but but 2 months later it was set up again to break above its base and it did which led to a 70% move in 3 months.

$KCAP will probably not be a fast or a big mover like $PVA, $HZNP or $SKUL, its more of an income stock with a nice yield, nevertheless you can probably get paid while you wait and that makes it intriguing.  Currently its dividend is 11.72%.

FINVIZ; KCAP Financial, Inc. is a private equity and venture capital firm specializing in mid market, buyouts, and mezzanine investments. It focuses on mature and middle market companies. The firm structures its investments through senior debt, second lien debt, secured and unsecured subordinated debt, mezzanine debt, and equity. It invests in all sectors except cyclical industries. The firm invests equity in both minority and control transactions alongside other equity investors. It invests through its own balance sheet. KCAP Financial, Inc. is based in the New York, New York.

HZNP BASE

PVA BASE

QSII BASE

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Frank Zorrilla is the founder of Zor Capital LLC a New York based investment management firm.  Our goal is superior performance, with preservation of capital as our number one priority. Zor Capital manages separate accounts (both taxable and retirement) for accredited investors and institutions. This structure gives clients access to a hedge fund like strategy while maintaining 100% control of their accounts.  Managed Assets

PHOTO; ALDAHAR

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

8 Things To Learn From Japan’s Biggest Day Trader

Bloomberg did a small profile on a Japanese day trader who made 6 billion yen last year and pretty much started from scratch to build a small fortune, it sounds a lot like the Dan Zanger story.  While many on the social media front were making fun of the article and down playing it they’re a few things worth noting.

1. “Self-control is so important. You have to conserve your assets. That’s what insulates you from the downturns and gives you the ammunition to make money.”  This is a classic rule for traders, you need to be able to survive the learning years in order to stay in this game for the long haul, you do that by taking small losses so you can live to fight another day.  You need to protect your capital and emotional capital in choppy downtrending markets in order to take advantage of the healthy markets.

2. “CIS discovered he had a talent for winning games. At 15, he says, he could earn 400,000 yen a month gambling. One secret was identifying the machines most likely to give bigger payouts. Another was being able to endure 13 hours at a time in smoke-filled and deafeningly loud pachinko parlors; he had to play thousands of consecutive games to take advantage of the odds”.  You need to find an edge and exploit that edge and do it over and over again.  If you are day trader or a swing trader then you know that you have to do a lot of trades to make a difference in your account for the year.

3. “That’s how he now plays the stock market. CIS says he bets wrong four out of 10 times. The trick is to sell the losers fast while letting the winners ride. For him, a well-played stop-loss is just about the most beautiful trade there is.”  It doesn’t matter how much research you do, how much time you spend in front of your computer, how much you scrutinize your entries, etc…you are going to be wrong half the times, one of the biggest hurdles for beginning traders is accepting that fact and that’s when they get in trouble.  Risk management is everything.

4. “Some people can do it, some can’t,” he says with a shrug. But the game taught a bigger lesson: when to cut and run. “I was a pretty confident player, but just like in the real world, the more opponents you have, the worse your chances are,” he says. “You lose nothing by running.”  You don’t have to be in the game all the time, the market might be open 5 days a week but that does not mean it is open for you to extract money from it 5 days a week, many times sitting on sidelines is the best thing you can do as a trader.

5. “He found success after a friend gave him a piece of advice: Forget the fundamentals. CIS doesn’t subscribe to the Nikkei or any other newspaper. Nor does he scrutinize earnings reports or parse central bank statements or spend much time looking at moving averages or other price chart patterns normally associated with technical trading.”  TUNE OUT THE NOISE and figure out what works and what is important within your time frame, you figure out what is important within your time frame not by reading books from the 40′s,50′s 60′s etc..but by studying what is working now based on your own work.

6. If there’s one basic principle, he says—repeatedly and slowly, as if instructing a child—it is this: “Buy stocks that are being bought, and sell stocks that are being sold.”  Many made fun of this quote by CIS but this is not his quote, this was one of the famous quotes of one of the most successful hedge fund managers-Paul Tudor Jones, not so funny now.  They are different ways to make money in the market and this is one of them, and yes it can be that simple, trust me.  However many people want to believe that it has to be complex and proprietary for something to be valid or work, but it is all a gimmick, making your strategy complex and calling it proprietary is a marketing scheme, makes it more sellable.  

7. That’s more profound than it sounds, according to Hersh Shefrin, professor of behavioral finance at Santa Clara University in California and author of Beyond Greed and Fear, a 2007 book about the role of psychology in investing. The human mind is hard-wired to bet on reversals, Shefrin says.  “If you can get yourself out of that mindset and bet against the crowd, who act instinctively, then you have an opportunity to make money,” Shefrin says.  Again this is pretty much what Paul Tudor Jones said in his Market Wizards Book, if you think about it for a while you will get it and even build a scan out of it, here is what he said; “We have tested every system under the sun and, amazingly, we have found one that actually works well.  It is a very good system, but for obvious reasons, I can’t tell you much more about it.  What type of realm does it fall into: contrarian? trend following?  Trend following. The basic premise of the system is that markets move sharply when they move. If there is a sudden range expansion in a market that has been trading narrowly, human nature is to try to fade that price move. When you get a range expansion, the market is sending you a very loud, clear signal that the market is getting ready to move in the direction of that expansion.”

8. “Now that he has more money, there’s no choice but to hold positions longer, because shifting such large sums in and out of the market influences prices.”  For all you aspiring money managers who’s interest is not just gathering assets but to outperform the market then realize that the more money you trade the hardest it will be. Having too much money to trade is one of the biggest hindrance to a money managers performance.

This is a great inspiring story, it really is, especially when all you hear nowadays is all the reasons why it can’t be done.  It can be done, but not by 99% of the people out there, your biggest obstacle in trading is you and many can’t get over that hump.

SOURCE; BLOOMBERG

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Frank Zorrilla is the founder of Zor Capital LLC a New York based investment management firm.  Our goal is superior performance, with preservation of capital as our number one priority. Zor Capital manages separate accounts (both taxable and retirement) for accredited investors and institutions. This structure gives clients access to a hedge fund like strategy while maintaining 100% control of their accounts.  Managed Assets

Shorts Beware

So here we are, the markets are oversold by a few measures and all you read for the most part on the social media front is all the negative things that led to this pullback.  The guys who have been pounding the table consistently to short the market are patting themselves on the back, cnbc of course had someone calling for an 11% correction at a point where the market might be due for an oversold bounce.  The bullish guys who bombard us with with every single bullish stat they could come up with have gone AWOL with the studies exactly when it might be best to talk about them.  It seems like many people just believe in whatever they believe in when the market is moving in their favor.  I’m a fan of looking at the positives when I believe the market might be extended to the downside due to the tendency of the market bouncing from oversold levels time and time again.  Sure every now and then the dam opens up and all hell breaks loose and oversold becomes more oversold, but really how good have those odds been?

Let’s look at some of the things that might go right in the next 1-5 days that might give you a better price to sell and or a better spot to short if that’s what you want to do.

Telechart’s McClellan Oscillator closed under -200, readings under -200 have led to bounces many more times than it has led to a further pullback in the short term.

Only 11% of stocks in the Russell 3000 are above their 10 day moving average, see the chart below to get a feel how the market has reacted around these levels.

The CNNMONEY fear and greed sentiment indicator has done a decent job as a contrarian signal when the market has sold off, its at extreme levels.

Midterm Election Years seasonal chart h/t @RickyRoma0

Here is the point to all this; the market goes up and down not up or down, so chances are high you might get a better price in the next 1-5 days to sell if that is what you want to do.  If your game is shorting you will also probably get a better place to short risk reward wise in the next 1-5 days. As far as buying, I’m not going to touch on that point, that you do at your own risk.

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Frank Zorrilla is the founder of Zor Capital LLC a New York based investment management firm.  Our goal is superior performance, with preservation of capital as our number one priority. Zor Capital manages separate accounts (both taxable and retirement) for accredited investors and institutions. This structure gives clients access to a hedge fund like strategy while maintaining 100% control of their accounts.  Managed Assets

Photo; Scary Mercedes

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

Looking For A Bounce

The market is oversold at these levels based on the McClellan Oscillator, many are probably looking for a bounce based on this indicator.  To keep things simple the McClellan is used as a overbought/oversold indicator that like 99% of indicators works best and it is most useful as an oversold indicator. Telechart’s McClellan indicator closed yesterday at -221.11, readings of -200 are considered oversold and a level in which many including myself look for bounces that can be actionable but more importantly this is a place where I don’t want to initiate new shorts.

Like most mean reversion set ups the probabilities are high that it will work but when it doesn’t then something big is normally afoot.  Mean reversion trades for the most part eat like birds and take dumps like elephants.  An example of this is July of 2011 when oversold became more oversold and it led to a 20% decline in the Russell 2000 in 2 months.  If one were to play this then you have to keep an open mind that the dam can open up, and its well overdue.

As you can see from the chart below we’ve only had a few oversold readings this year and they have worked out fine for the bounce players. The current one could very well play out the same but the context of the set up is a little different due to seasonality and the massive put buying in ETF”s and in individual names that we have seen over the last 2 weeks. That is just something to be aware of.

Here is a longer term view of the Mclellan Oscillator versus the IWM.

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Frank Zorrilla is the founder of Zor Capital LLC a New York based investment management firm.  Our goal is superior performance, with preservation of capital as our number one priority. Zor Capital manages separate accounts (both taxable and retirement) for accredited investors and institutions. This structure gives clients access to a hedge fund like strategy while maintaining 100% control of their accounts.  Managed Assets

Photo; Dean Ashton

Current State Of The Market

Here are a few things you should know about this market;

• My watch-list continues to be small and the performance has been very weak, I’ve been harping on this all month.  This is my best health barometer for swing trading.
• The $RUT is below its 50 and 200 day moving average.
• We spoke about this over the weekend, we have more stocks down 25% for the quarter than up, currently we have 350 down, 513 up, amazing with the markets near all time highs. “The Bull Market Is Over For A Large Portion Of The Stock Market” –Brett Steenbarger
• Telechart’s McClellan Oscillator is near oversold levels, it closed at -178 and with today’s gap down we will probably be in oversold territory which is anything under -200.
• In this environment I prefer mean reversion trades over breakouts.  Mean reversion trades should be in ETF’S and or known liquid names not your local small caps.  When merchandise that has good sales and earnings growth gets put on sale that is when you should get excited.
• A known technician just made a top call, we had more than 2 puts bought to every 1 call bought according to the ISEE equity only ratio (rare), a bunch of etf’s are below their lower bollinger band including the $IWM$COMP, $MDY, I would not short into the hole here.  Market goes up and down not up or down.
• Some of the most oversold etf’s; $XOP $XES.
• These are some of the things that are important to me within my time frame (1-20 days), day traders, long term holders, need not apply.

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Frank Zorrilla is the founder of Zor Capital LLC a New York based investment management firm.  Our goal is superior performance, with preservation of capital as our number one priority. Zor Capital manages separate accounts (both taxable and retirement) for accredited investors and institutions. This structure gives clients access to a hedge fund like strategy while maintaining 100% control of their accounts.  Managed Assets

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

Something Has To Give

I’m not a big fan of pointing out negative divergences because in a bull market it really doesn’t pay to take action based on them.  Look how many negative divergence articles we see on a weekly basis, tons, if you took action on them you are probably are not so happy right now.  And I know they read well and are sexy and make all the sense in the world.  However, negative divergences work best in markets that are in a correction, this market has not been in a correction in a long time.  Positive divergences work a whole lot better than negative divergences, that is a fact.

Pre 2009 if you got this same playbook we have now you can go out there and short the indices hand over fist knowing that there was a huge chance that the indices will catch up to stocks on the downside because stocks always lead.  This was the old play book. This is probably why there is a love affair with writing about negative divergence along with the fact that every body wants to make a name for themselves by calling a top.  However every now and then the divergence gets so blatant that it is worth talking about and perhaps even playing it.  I’ve blogged about blatant divergence and you can catch up here to see what I mean; Blatant Divergence Is Upon Us Again.

Last night after the close I saw one stat that made laugh out loud, shake my head and say something has to give. Its a stat from Pradeep Bonde’s market monitor; stocks up 25% for the quarter and stocks down 25% for the quarter.  It just so happens that with Nasdaq, Dow Jones, SP500, pretty much at ALL TIME HIGHS, and the $RUTjust down a little we currently have MORE STOCKS DOWN 25% FOR THE QUARTER THAN STOCKS UP 25% FOR THE QUARTER, 411 up 25% vs 429 down 25% for the quarter (rolling 65 days).

Now, the something has to give does not have to be negative.  I think we have to be open minded to the fact that this blatant divergence could right itself by having individual stocks catch up to the indices, this is something that I don’t think anyone is talking about that is a possibility.  I’m I banking on this, no.  I’ve been harping this whole month how the performance of my 5 day rolling watch-list has been lackluster with market at highs, and now you can see why, stocks have no mojo.  This can change in a heartbeat, but for now take a look at this chart.

Click to enlarge

P.S. I’m not complaining how the market is rigged, and there is no alpha etc… like the hedgefund manager who blamed his performance on the market.  I’m up for the month, quarter, last 2 quarters etc…and I have a huge lead over the last 12-24 months, I don’t use huge lightly.

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Frank Zorrilla is the founder of Zor Capital LLC a New York based investment management firm.  Our goal is superior performance, with preservation of capital as our number one priority. Zor Capital manages separate accounts (both taxable and retirement) for accredited investors and institutions. This structure gives clients access to a hedge fund like strategy while maintaining 100% control of their accounts.  Managed Assets

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

Daily Watch-list 9/19, Gaga Over BABA

Alibaba $BABA one of the most anticipated initial public offerings in a long time will start trading today, before you go gaga over the stock read this first; My 2 cents on Alibaba. If you find sometime to do some trades while you watch the $BABA opening while waiting for your Iphone 6, here is my trading list for today.

$RLYP $CLVS $ENT $WDAY $N $WIX $AMZN $DDD $KING $NDLS $COUP $IMPV $SPLK $GWPH $VRNS$GRUB $ATHM $COH $CSLT

The Process;

Every morning I go through a few of my scans to find buy candidates for the day.  Depending on the current state of the market the size of the list will vary, usually its no more than 50 names.  My process is based on market structure not on beliefs or myths of what works– or what doesn’t work.  They are certain behavioral patterns that have been around for 100 years that are based on market structure, these behavioral patterns are recognizable, observable, and quantifiable.  On daily basis we have 3,000 stocks that we filter based on certain market structures that gives us an edge of a higher probability than a random outcome.  Once the list is narrowed to a handful of names the market will further narrow down the list by getting us in or keeping us out of these names with a range expansion move.

 I don’t look at charts in your conventional cookie cutter manner, or have rules as to where the stock should be whether its 15% off its 52 week highs or above or below certain moving averages etc…

These are what I consider “tight set ups” that will trigger a buy signal for me if  and only when they break the previous day’s high.  On a regular trading day I would indiscriminately take every trigger because you just don’t know which one will be the big winner, you might have an idea but in the end you don’t know.

How much you put at risk per trade depends for the most part what your current outlook is for the market over the next 0-5 days.

Put these names on your trading platform, set the alerts at yesterday’s high for each name, once the alert goes off take a look at the chart, decided within 3 seconds whether or not you are going to buy it, decide how much you want to risk on the trade and your stop loss, hit the buy button, and leave the rest up to the market, wash, rinse, repeat.  Buy’em tight, Sell’em loose.

A few things that you should know about this swing strategy;

•  Its main goal is to get you in when stocks are moving and keep you out in choppy/sloppy markets, it is imperative that you allowed the market to get you in only when the stocks go through their previous day’s high.
• Your awareness of how the market is behaving is crucial, this will give you an idea of how hard to push the envelope.  My best indicator for this is my rolling 5 day watch-list.
• Swing trading is a numbers game, you are going to be wrong half the time, risk management is above all, and many times you will have nothing to do like yesterday because the market did not get you in. We are not looking for any action, we are looking for the right action.
• Don’t be penny wise, don’t try to anticipate a move just because the chart looks good.  You can have a great looking tight set up with a stock coiling for 10 days but who is to say that it won’t coil for another 5 days.  If you anticipate the range expansion you might buy something that is not ready to go and it will only frustrate you and lower your odds of a winning trade.
• For me this list is a one way list – long bias.  I do not look at this list as a long or short list, long and short are two different games with different dynamics.
• You need to be extremely organized.  Most if not all your work will be done pre-market and you will spend the day just executing or you can just automated it with buy orders after 9:45am.

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Frank Zorrilla is the founder of Zor Capital LLC a New York based investment management firm.  Our goal is superior performance, with preservation of capital as our number one priority. Zor Capital manages separate accounts (both taxable and retirement) for accredited investors and institutions. This structure gives clients access to a hedge fund like strategy while maintaining 100% control of their accounts.  Managed Assets

Daily Watch-list, Fed Day

I have to say, the performance of my rolling 5 day watch-list has been weak.  The stocks that are breaking out are not following through, and this happens, the market is not going be on full throttle all the time.  You have probably heard the saying–”this is a market of stocks not a stock market”, well this is a stock market right now with very little stocks performing.  This part of the game and this is why you should always do your homework so when your time comes you recognize it and you capitalize on it.

Today is a FED day and it will probably be quiet until their announcement and then you will get a reaction followed by a reaction to the reaction.  It might be best to hang loose, let the algos go back and forth and then step in or not after the dust settles.

Today’s list; $IMPV $SPLK $RDNT $CMG $TOUR $PNRA $HIMX $OAK $WTW $PLUG $GOGO $CSUN $YGE$LITB $TDC $COH $SWM $DSKY

The Process;

Every morning I go through a few of my scans to find buy candidates for the day.  Depending on the current state of the market the size of the list will vary, usually its no more than 50 names.  My process is based on market structure not on beliefs or myths of what works– or what doesn’t work.  They are certain behavioral patterns that have been around for 100 years that are based on market structure, these behavioral patterns are recognizable, observable, and quantifiable.  On daily basis we have 3,000 stocks that we filter based on certain market structures that gives us an edge of a higher probability than a random outcome.  Once the list is narrowed to a handful of names the market will further narrow down the list by getting us in or keeping us out of these names with a range expansion move.

 I don’t look at charts in your conventional cookie cutter manner, or have rules as to where the stock should be whether its 15% off its 52 week highs or above or below certain moving averages etc…

These are what I consider “tight set ups” that will trigger a buy signal for me if  and only when they break the previous day’s high.  On a regular trading day I would indiscriminately take every trigger because you just don’t know which one will be the big winner, you might have an idea but in the end you don’t know.

How much you put at risk per trade depends for the most part what your current outlook is for the market over the next 0-5 days.

Put these names on your trading platform, set the alerts at yesterday’s high for each name, once the alert goes off take a look at the chart, decided within 3 seconds whether or not you are going to buy it, decide how much you want to risk on the trade and your stop loss, hit the buy button, and leave the rest up to the market, wash, rinse, repeat.  Buy’em tight, Sell’em loose.

A few things that you should know about this swing strategy;

•  Its main goal is to get you in when stocks are moving and keep you out in choppy/sloppy markets, it is imperative that you allowed the market to get you in only when the stocks go through their previous day’s high.
• Your awareness of how the market is behaving is crucial, this will give you an idea of how hard to push the envelope.  My best indicator for this is my rolling 5 day watch-list.
• Swing trading is a numbers game, you are going to be wrong half the time, risk management is above all, and many times you will have nothing to do like yesterday because the market did not get you in. We are not looking for any action, we are looking for the right action.
• Don’t be penny wise, don’t try to anticipate a move just because the chart looks good.  You can have a great looking tight set up with a stock coiling for 10 days but who is to say that it won’t coil for another 5 days.  If you anticipate the range expansion you might buy something that is not ready to go and it will only frustrate you and lower your odds of a winning trade.
• For me this list is a one way list – long bias.  I do not look at this list as a long or short list, long and short are two different games with different dynamics.
• You need to be extremely organized.  Most if not all your work will be done pre-market and you will spend the day just executing or you can just automated it with buy orders after 9:45am.

Sign Up For Free Updates

Frank Zorrilla is the founder of Zor Capital LLC a New York based investment management firm.  Our goal is superior performance, with preservation of capital as our number one priority. Zor Capital manages separate accounts (both taxable and retirement) for accredited investors and institutions. This structure gives clients access to a hedge fund like strategy while maintaining 100% control of their accounts.  Managed Assets

Below Average

Within my time-frame (1-20 days) the $RUT trading below its 10,20,50,200 day moving average is a big deal.  When this is the case I tend to press on the brakes and prefer mean reversion trades versus breakouts.  Breakouts tend to work below average under these circumstances.  The mean reversion trades should be in liquid known names, not your local small cap.  I’m talking about the big names from the DOW JONES, QQQ, SP500, the $TSLA‘S  $AAPL, $LNKD $GOOGL, $Z, $AMZN ETC…..Keep an eye on oversold/overbought indicators like the McClellan Oscillator, and % of stocks above their 10 day and 20 day ma’s, when they get to extended to the downside you tend to get bounces until that one time that you don’t, keep that in mind.

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Frank Zorrilla is the founder of Zor Capital LLC a New York based investment management firm.  Our goal is superior performance, with preservation of capital as our number one priority. Zor Capital manages separate accounts (both taxable and retirement) for accredited investors and institutions. This structure gives clients access to a hedge fund like strategy while maintaining 100% control of their accounts.  Managed Assets

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

Blatant Divergence Is Upon Us Again

The short term divergence that has been happening will probably catch up to the indices in the short term and it will probably cause a small pullback.  I am not a big fan of negative divergences in a bull market, I literally laugh out loud every time I see a blog post about it.  Eventually when we finally get more than just a normal pullback they will be right and we’ll never stop hearing about it.  In bull markets I believe that 99% of all negative divergences should be ignored until it is actually blatant, where it gets to a point that its comical and you feel sort of an admiration for the boldness of how it is being done.  I don’t normally feel this way, the last time was July 24th as you can see here;

This is the post I wrote about blatant divergence on 7/24/14–In Case You Are Struggling, I felt similar a year ago when I wrote “ignore the divergences” , all you have to do is plot the dates on the SP500 7/24/14 and 8/14/2013.  These last 2 weeks I’ve been stating right here on the blog how my daily watch-lists has been short as far as names and the performance has been lackluster.  My rolling 5 day watch-list is my best barometer for how well the market is doing, and how much I should press on the gas.  The indices only tell you 1/8 of the story.

The markets have been going sideways for 12 days after a decent move up, most technicians would call the current set up a bullish flag, bullish resting period, etc….When you see this type of set up in most cases you get a continuation move in the direction of the precedent trend, in this case up.  But while the market has been resting there has been masterful distribution of stocks underneath the surface that might bring a small pullback.  This is all short term stuff, if you are a long term investor this means nothing unless this turns out to be THE BIG ONE that we have been warned about since 2009, however when you accepted the fact that you were a long term investor that means you accepted account volatility and at times large draw-downs, so you are all good.

Here are 2 charts that show you what has been happening underneath the surface, what you see is the Nasdaq going sideways for 12 days while breadth has been deteriorating in a big way.  What you want to see is the indices move sideways like it has but with individual stocks still performing well underneath the surface while the market catches its breadth for the continuation move, that has not been happening.

Nasdaq vs stocks above their 40 day moving average

Nasdaq blue vs 10 day moving average (red) of advancers – decliners for the Nasdaq, NYSE, Amex

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Frank Zorrilla is the founder of Zor Capital LLC a New York based investment management firm.  Our goal is superior performance, with preservation of capital as our number one priority. Zor Capital manages separate accounts (both taxable and retirement) for accredited investors and institutions. This structure gives clients access to a hedge fund like strategy while maintaining 100% control of their accounts.  Managed Assets

Daily Watch-list, the list looks promising

The list today looks promising if the names can get through yesterday’s high.

I’m a big, big fan of liquid stocks that print an inside day; $YELP $DDD $NFLX $CMG $BIDU, trigger on all this is yesterday’s high plus .10 cents.

Here is the entire list, and remember to follow the process; $HIMX $ZEN $MOBI $YELP $BIDU $CSUN $YGE $A$DDD $NEON $DSKY $ZSPH $CMG $NFLX $LITB $SWM $SWM $GOOGL $SCTY $LOCK $PNRA $GWPH

Miscellaneous names; $QIHU mean reversion name with some call option activity, looking for it to get through 80 while using yesterday’s low as a stop.  $YY pulled back to the 20 day ma, looking to cheat at $90.50, $CTRPsimilar situation, looking to cheat at $65.30.  $ARCO another mean reversion play, through yesterday’s high, stop a yesterday’s low.

The Process;

Every morning I go through a few of my scans to find buy candidates for the day.  Depending on the current state of the market the size of the list will vary, usually its no more than 50 names.  My process is based on market structure not on beliefs or myths of what works– or what doesn’t work.  They are certain behavioral patterns that have been around for 100 years that are based on market structure, these behavioral patterns are recognizable, observable, and quantifiable.  On daily basis we have 3,000 stocks that we filter based on certain market structures that gives us an edge of a higher probability than a random outcome.  Once the list is narrowed to a handful of names the market will further narrow down the list by getting us in or keeping us out of these names with a range expansion move.

 I don’t look at charts in your conventional cookie cutter manner, or have rules as to where the stock should be whether its 15% off its 52 week highs or above or below certain moving averages etc…

These are what I consider “tight set ups” that will trigger a buy signal for me if  and only when they break the previous day’s high.  On a regular trading day I would indiscriminately take every trigger because you just don’t know which one will be the big winner, you might have an idea but in the end you don’t know.

How much you put at risk per trade depends for the most part what your current outlook is for the market over the next 0-5 days.

Put these names on your trading platform, set the alerts at yesterday’s high for each name, once the alert goes off take a look at the chart, decided within 3 seconds whether or not you are going to buy it, decide how much you want to risk on the trade and your stop loss, hit the buy button, and leave the rest up to the market, wash, rinse, repeat.  Buy’em tight, Sell’em loose.

A few things that you should know about this swing strategy;

•  Its main goal is to get you in when stocks are moving and keep you out in choppy/sloppy markets, it is imperative that you allowed the market to get you in only when the stocks go through their previous day’s high.
• Your awareness of how the market is behaving is crucial, this will give you an idea of how hard to push the envelope.  My best indicator for this is my rolling 5 day watch-list.
• Swing trading is a numbers game, you are going to be wrong half the time, risk management is above all, and many times you will have nothing to do like yesterday because the market did not get you in. We are not looking for any action, we are looking for the right action.
• Don’t be penny wise, don’t try to anticipate a move just because the chart looks good.  You can have a great looking tight set up with a stock coiling for 10 days but who is to say that it won’t coil for another 5 days.  If you anticipate the range expansion you might buy something that is not ready to go and it will only frustrate you and lower your odds of a winning trade.
• For me this list is a one way list – long bias.  I do not look at this list as a long or short list, long and short are two different games with different dynamics.
• You need to be extremely organized.  Most if not all your work will be done pre-market and you will spend the day just executing or you can just automated it with buy orders after 9:45am.

The Charts

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Frank Zorrilla is the founder of Zor Capital LLC a New York based investment management firm.  Our goal is superior performance, with preservation of capital as our number one priority. Zor Capital manages separate accounts (both taxable and retirement) for accredited investors and institutions. This structure gives clients access to a hedge fund like strategy while maintaining 100% control of their accounts.  Managed Assets