Jul 222014
BXS daily July 22nd

BXS daily July 22nd

The BXS (Bancorpsouth Inc.) short trade has broken below the neckline of the Head & Shoulders pattern, thereby triggering the second entry or add-on. BXS was first posted as a Short Trade Setup on Thursday and triggered an entry later that day, with prices breaking below the primary uptrend line. This trade also listed a second entry or add-on criteria of a breakdown below the neckline of the H&S  topping pattern which occurred via a large gap down today.

Prices overshot the neckline by quite a bit immediately following the open today and have since snapped back somewhat & are trading right on the neckline as I type. Therefore, best to wait for the next move below the NL, below the 21.85 area to be safe, before adding to or initiating a new position if not done so already. Also note that the suggested buy-to-cover level for the targets have been added to the bottom right quadrant of this updated chart.

Click here to view the live, annotated chart of BXS

Jul 212014
KBE daily July 21st

KBE daily July 21st

Nearly identical to the recent KRE (regional banking sector ETF) short trade idea, the KBE (KBW Bank ETF) has two distinct but not unrelated bearish pattern formations: The blue lines show a breakdown & backtest of the primary uptrend line/bearish rising wedge pattern (complete with a divergent top) while the black annotations show a Head & Shoulders topping pattern with prices currently forming the right shoulder.

The fact that all of the recent short trade ideas are financial stocks (all regional banks plus one REIT) coupled with the warning signs that I’ve been pointing out in the credit markets is most likely not a coincidence. Although I only posted the recent bank & REIT short trade ideas based on their bearish technical patterns, if there are problems brewing in the credit markets, many of the financial related stocks (banks, brokers, REITs, insurance co’s, credit card companies, etc…) will most likely come under selling pressure.

I still plan to add a few more individual regional banks as short trade ideas although I’m still narrowing down my short-list of the most attractive names in the sector. While I’ve been focusing on the regional banking sector, the banking sector as a whole, including the some of the mega-cap TBTF institutions, are starting to look precarious from a technical perspective. As such, I’m going to go ahead and add KBE as an Active Short Trade at current levels with a sole profit target of 27.60 and a suggested stop above 34.00, which is the top of the right shoulder on this potential H&S pattern.

As with the recent KRE (Regional Bank ETF) short, this is only a potential H&S pattern as the right shoulder has yet to be fully formed. Therefore, more conservative or conventional traders might wait to see prices break below the neckline, assuming that the pattern fully develops. Although KBE holds multinational, mega-cap banks in addition to regional banks, the charts of KRE & KBE are nearly identical as there is a large overlap of holdings. Keep this in mind regarding portfolio or position diversification if already short KRE one or more of the regional banking stocks.

On a final note, the popular XLF (Financial Sector ETF) is also on my radar as one of the more promising swing-short candidates. I haven’t pulled the trigger yet but there are several large financial companies, in fact many of the largest components of the XLF, including banks, credit card companies, insurance companies, & even the almighty BRK-B (Berkshire Hathaway cl.B) that although not ready yet, may be setting up as potentially lucrative swing-short trades.

Jul 212014

Since the May 30th post titled Junk Bond Spreads Flashing a Warning Sign for Equities, the divergences between the normal (inverse) correlation between equities and junk bond credit spreads has continued to build. This first chart plots the BofA Merrill Lynch US High Yield CCC or below (aka- junk bonds) Option-Adjust Spread vs. the S&P 500. The nearly lock-step inverse correlation between the two began disconnecting shortly before that previous post about 7 weeks ago with the SPX continuing to move higher along with a sharp rise in junk bond OAS’s (as well as a sharp drop in junk bond prices).

Junk Bond OAS vs $SPX July 21st

Junk Bond OAS vs $SPX July 21st

Obviously, as the perceived credit risk of high-yield bond issues increases, so do the yields on the underlying bonds. High-yield (aka “junk bonds”) bond prices have typically had a very strong correlation with stock prices as the credit quality, or ability to make interest & principal payments on those bonds, is largely dependent on the business cycle. Default rates on junk bonds Continue reading »

Jul 212014

HAIN (Hain Celestial Group Inc) will trigger a short entry on any move below Thursday’s low of 84.79, which will confirm a breakdown below this symmetrical triangle (daily chart).

As the weekly chart below illustrates, a more powerful, longer-term sell signal on HAIN will come on a weekly close below the multi-year primary uptrend line in the stock which makes up part of a very large bearish rising wedge pattern, complete with negative divergences on the PPO & RSI leading up to the January 21st top in the stock.

click here to view the live, annotated daily chart of HAIN                    click here to view the live, annotated weekly chart of HAIN

Jul 212014

HSY (Hershey Foods Corp) will be added as a Active Short Trade here around the 93.85 level. HSY recent broke below this 5+ year bull market primary uptrend line with strong bearish divergences in place before the breakdown (weekly chart). HSY bounced on Friday & opened just below the bottom of last Wednesday’s gap today (see daily chart) which offers an objective short entry as that gap will likely act as resistance. For more conservative traders not willing to short until clear evidence of a trend reversal in the broad markets (which I think we will soon get), alternative short entries on HSY might also be made on any bounce back towards the 96 area (resistance) or a break below the 90.25ish area (support)… see daily chart below for both those levels/scenarios.

This trade is based primary off of the weekly time frame & should be considered a longer-term swing trade. Targets are listed on the weekly chart below with suggested stops using an R/R of 3:1 or better based on one’s preferred target and average entry price. Daily & weekly charts below.     Click here to view the live, annotated chart of HSY

Jul 182014

Those who checked the links to the recently posted 60 minute live chart of the SPY & QQQ might have noticed some resistance levels that I added earlier today. With this being an OpEx day (options expiration), I typically don’t place much consideration into what the market does as OpEx days are often driven more by position squaring due to all of the expiring options than by the true underlying forces of supply & demand. Regardless, I figured that I would go ahead & point out those resistance levels out as prices are current challenging them at this time. We’ve also seen prices on the SPY regain the wedge today, something that definitely warrants monitoring into next week as if we don’t see prices move back below the wedge by early next week, along with a break of the support level that the Q’s bounced off of yesterday, then the odds that the markets will take out the recent highs will rise sharply.

Continue reading »

Jul 172014

The trade ideas on Right Side of the Chart are typically updated when each profit target is hit or as soon as possible shortly thereafter. This is due to the fact that all trade ideas shared here have one or more explicit profit target levels. Trade ideas that are removed from the Active Trades category, whether or not one or more profit targets were already hit, are typically moved to the Completed Trades category for one of several reasons: Either they have exceeded the maximum suggested stop level, if one was provided; The trade has exceeded any reasonable stop level, if none suggested; The technical outlook for the trade and/or the broad market has changed enough to book profits on the trade before the planned target is reached; or the trade simply no longer looks compelling from a risk/reward perspective and is removed to make room for more attractive trade ideas.

As stop parameters, risk tolerances, holding periods & trading styles vary widely amongst individual traders, many of the stopped out trades or those yet to be stopped out but stuck in a trading range are removed together in bulk from time to time. Remember, all profit targets and suggested stops, if any listed, are simply suggestions based on my own personal trading style and preference of using a R/R (risk-to-reward ratio) of 3:1 or better on each trade (i.e.- accept $1 of downside risk for every $3 of upside profit potential). Some traders might opt for an even lower R/R, say 2:1, while other might only take a trade using a 4:1 or better R/R. Every trader must decide not only which trades to take but also which profit target(s) to aim for as well as which stop-loss parameters to use for each trade.

In reviewing the Long Trade Ideas category tonight, the following trades will now be considered completed as they have either exceeded their previously suggested Continue reading »