Trade Updates & Market Thoughts

From time to time, I will share a reply to a question that I've received which might have some usefulness to others following the trade ideas or market commentary on RSOTC.  The following trades; GRA, HSNI, GIS, & ABG, as well as my thoughts on the market are discussed below:

Question: I must ask if it's wise to hold the shorts GRA, HSNI, GIS and ABG given the expected bounce off S&P support.  I've read projections that the S&P could go as high as 1830 on this rebound.  I realize each stock is a different situation so generic answer may not be possible.  I guess the question would be: how much of a bounce for S&P is expected and how long before the descent returns? Days, weeks? Those short losses could really mount and I wouldn't want to bail to soon (as is my habit).  Any additional insight is appreciated.

Response:   To begin with, although I have not outlined all my likely scenarios for the SPX, a bounce to the 1830 area that might take around 2-4 weeks would probably be the 3rd or 4th most likely scenario in my book right now.  That could give us a nice high-level backtest of the recently broken uptrend line on the SPX as well as some other indices. Again, not my primary scenarios, which was laid out here yesterday:  but certainly within the realm of likely possibilities right now.

The SPX equivalent on that primary scenario above would only have us going to around 1770 or so before a resumption of the downtrend. Next, I would give preference to a move to the 1794-1800ish area before reversing. There are a few other bounce targets between that and 1830 but right now, I plan to remove the long hedges (SPY calls) that I bought when my 2-hour T2 level was hit yesterday once the SPY is close to the 177 level. I also booked quite a bit of profits on short trades yesterday and I will start adding back some more short exposure as we approach that level as well.

Finally, to the trades that you asked about; Yes, each one is a different situation and I do put the heaviest weighting into the individual charts of each but I also factor in the bigger picture (broad market) into my trades as well. I can say that I remain overall bearish on all four of those names at this time.

GRA is even offering an objective add-on as it backtests the TL here but of course, could keep backtesting higher, esp. if the broad market continues higher.

HSNI still has tremendous potential as a long-term swing trade but is certainly getting oversold in the near-term which always raises the possibility of a counter-trend bounce. A likely catalyst for such a bounce would be a break above the downtrend line generated off of the Dec 31st highs which is best viewed on a 60 minute chart. Any break above that TL would most likely be capped around the 56.80 horizontal resistance level so as with all of these trades, whether or not one decides to cover or hedge for a bounce depends on their trading style and time frame. More active, nimble swing traders might certainly have reduced short exposure when the SPY 120-minute chart downside target was hit yesterday while less active swing traders shouldn't be overly concerned with trying to game all the smaller counter-trend bounces in what they believe to be a larger move down (and risk being shaken out of their position early, only to miss an objective re-entry should the market suddenly continue sharply lower).

GIS, having only just recently triggering an entry on the break below the neckline on its head &  shoulders pattern, still looks like a very promising short trade at this point. The most bullish of my scenarios on GIS would be a bounce back to the neckline and/or 200eam (which are very close). That would be a very objective short entry or add-on for the trade and as that would only be about 2-3% above current levels, I see no reason to close the position here just a couple days after the pattern triggered a short entry.

ABG already hit the first profit target recently for nearly a 10% gain a week ago today and has been consolidating around the T1 level every day since. The stock jumped sharply on earnings today although nearly half of the day's gains have already been faded. Most of the gains took place on a large spike immediately following the open. This is one reason that I will usually pull a standing GTC stop-loss order when I notice a position is indicated to gap higher (that huge spike following the open was due to order imbalances & undoubtedly, a large number of stop-loss orders on short trades being hit in short order). Based on my evaluation of the 60 minute chart, a stop over the 51.80 area makes since from a technical perspective and would also assure a break-even or very slight profit on any shares still held (shorted on the breakdown). Also keep in mind that on the last update for ABG posted a week ago, I stated that a bounce off the T1 level was likely due to the positive divergences in place on the 60 minute chart. Considering the longer-term (daily chart) bearish technical picture for ABG, there's a good chance that today's earnings induced/60 minute bullish divergence induced move higher already played out to its extent shortly following the open today.[/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]

Feb 4, 2014 2:29pm|Categories: Equity Market Analysis|Tags: , , , |Comments Off on Trade Updates & Market Thoughts