The gradual grind higher in stocks makes for very little content of interest.

Until we see a break of the trends in the indices, expect more of the same.

There was a little separation among sectors today, such as financials, energy and materials...but despite the weakness, they are all within the context of their recent trends.

If I were you, avoid shorting the market until we get either a reason or a technical event that warrants the risk. I've tried on a small number of shorts with only mixed results.

I like the idea of playing small cap stocks while the market does nothing. At the open I issued a couple alerts on XRA and BGP to help tide me over until conditions change. These stocks are capable of a lot in a short space of time and are easy to manage from a technical perspective.

In the meantime, my bracket is of more interest than the market. I picked Murray State. Did you?

Trade on,

OA

For those requesting the link to the article I referenced in our Option Volatility Open House, here is the link.

http://www.investopedia.com/articles/optioninvestor/08/implied-volatility.asp

You might have already noticed, but the next Open House is scheduled for Tuesday. The topic will be on Relative Strength, which will include some top down analysis, OA style.

Be well,

OA

This latest win streak in stocks is nothing short of amazing. Despite my actions, I continue to stare at this overbought market, puzzled, and struggling to chase stocks higher. At the same time I keep asking myself, "Why should stocks go down?"

What's even more interesting is that the market has been working off its overbought reading in the McClellan by trending higher. Go figure.

I thought this bearish divergence would be a little more significant, only because Goldman called for a range bound market this year, and bearish divergences in the McClellan mean next to nothing in an upward trending market. New highs in stocks today.

What's got me upset is that I've avoided the temptation on a few amazing bullish set-ups over the last few weeks thinking that at any point the ship could turn, and it hasn't. 13 days. In a row. Up. Nice.

The good news is that I've only taken a few small bearish bets. However, I'm carrying the smallest number of positions in as long as I can remember. I took profits on all but about a half dozen positions or so. I get antsy when I am mostly in cash. I want to play ball.

So I am looking out there today, and there are a few things I am considering, if I were to nibble on a few longs here. Mostly breakouts, but good ones. Here are a few themes to keep an eye on.

Builders

I've been long HOV for months. Now she is starting to act right.

I like LEN, RYL, TOL, and DHI as anticipatory breakout plays.

Also, the Casinos caught some traction here today, at very interesting spots.

I still contend that these are dangerously high prices to buy into, but if you are nimble, the ideas mentioned here might have some gas left in the tank.

Stay thirsty, my friends.

OA

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My post yesterday generated a few e-mails and comments that I felt I needed to respond to.

To set the record straight, I can't say I am bearish on the market. In fact, I am not. I am carrying a small number of puts; a few that are worthless, and a few that are working, but I can't say I am a bear. I don't have a catalyst or a reason to be bearish. Not yet.

I do expect a correction, but at this point, I feel it will be mild. 3-4% perhaps. But in order to see something more significant, I feel we need a shoe to drop in order to see that happen. There are a lot of great bearish ideas I have right now, but I am also regretting not owning some of my favorite longs to pair against shorts.

I sold ZQK earlier today, and have been liquidating longs all the way up. PCX, AKS, TEVA, UNH, DDR, MOS, AEZ, KWK, AUY,and a few others as the market has worked its way into overbought territory. I still have a few long stock positions on, but only a few.

I like the idea of buying individual small cap stocks in order to keep your bullish desires preoccupied. They're good for 10-20% moves over a few days span, and who knows, you might hit a home run. As an example, we issued a trade alert on BEE at $2.13 last month, and the stock was up 90% as of today. These little stocks move independently from the market, which makes them easier to manage into a correction.

Other than that, the only way I'd want to get long here is through a pairs trade. If you haven't traded in pairs, its a great way to use your stock picking skills to generate profits between the strongest and weakest stock in a sector.

Let me give you an example...

Let's take coal stocks as the group you might be considering. Your choices would include ACI, ARLP, ANR, BTU, PCX, MEE, JRCC, WLT, YZC, ICO, and maybe a few others. It's not hard to see when looking at the charts who the top player in the space is, but here is a quick comparison.

The idea here is to put an equal dollar amount into a stock you'd want to buy and an equal dollar amount into the stock you'd want to short. It is imperative you take correlated instruments and pair them together so that you can earn the difference in performance even when the two trend together.

The obvious choices here would be to take a long in the leader, Walter Energy (WLT), and a short in the laggard, James River Coal Co (JRCC). When comparing the two to each other, you can see that the spread on this trade is very profitable.

Relative strength comparison:

It's not the sexiest trading style, but it is an alternative, especially when you might not have a strong directional bias on the overall market.

We focus on relative strength analysis a lot during the stock selection process at Trading Addicts. We'll likely do an Open House on this in the near future.

Be well,

OA

Look, I am just as fond of buying stocks as the government is. But there comes a point in which the "market situation" warrants caution, and signals that there are more downside risks present than upside rewards.

This is one of those times.

I'm going to pull the same cards as usual, which have been spot on for forever. First, the McClellan, which was discussed on our Open House last night.

Here is a 3 Year chart, signaling that aside from the extreme readings in late 2008, early 2009, this is as high as she goes.

This does not suggest that the market won't go higher. However, it does suggest that it can fall a lot more than it can increase from here. Which means that you are better off not pushing your bets and chasing breakouts here, when we get these types of extreme readings.

The other chart I want to present, is my secret leading indicator to stock prices. Copper.

I don't think its much of a secret now, as more and more people quote this relationship, but just remember where you heard it first.

Copper prices were down 1.4% today, second only to Silver, which is at an interesting location. Looking at a quick comparison at the bearish wedge patterns that have set-up in Copper and the Dow, you can see a lead to the downside in Copper.

Copper

Dow

If Copper prices continue to deteriorate (line in the sand at $3.35, which was the gap up on news of the Chilean earthquake) then equity prices will follow.

Bottom line, its too risky to buy stocks here. Buy Boom's Beard instead. 

Stay Frosty,

OA

To access the recording of the TA Open House from Tuesday, March 09, 2009, follow the link below:

Click Here

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Hey guys.

I must again apologize for my disappearing act last week. I had a family event to attend to and the time to update the blog was never really there. However, I am officially back to daily updates, and more importantly, I am ready to kick off my return with another webinar tomorrow night, on the topic of "The Volatility Playbook."

I know there were some issues with the link not working before, but all links now point to the appropriate location. So join me tomorrow as I attempt to help you understand the volatility structure we will be working with for the upcoming year, and how to take your option trades to the next level by strategizing around this important trading component.

Aside from a discussion around volatility, I will also update you on what we are doing at Trading Addicts, along with an inside look at what we've been doing to take money out of the market.

Hope to see you there!

OA

Register for a session now by clicking a date below:

Tue, Mar 9, 2010 7:00 PM - 8:00 PM EST

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I apologize for getting this list out so late, but I didn't get in this evening until just recently. For those unaware, I had to take care of some family matters over the last week.

The stocks below are those that I will be focused on to start off the week. With the McClellan as high as it is, I will focus almost exclusively on small caps for long positions, and have a decent sized list of stocks that I will be following from a bearish perspective. We'll talk more about these during TA Live tomorrow. 

Happy Trading!  

OA's Sizzlin Small Caps  

For bullish stocks of interest, CLICK HERE. 

For bearish stocks of interest, CLICK HERE.   

CLICK HERE for the point and figure version of the bullish stocks of interest.  

CLICK HERE for the point and figure version of the bearish stocks of interest.