This is the opening summary of the Premium Members Morning Line-Up Newsletter that I publish daily, along with the Mid-Day Update and the Martini-Hour Thoughts. The actual newsletter includes much more detail, such as exact trade setups with entry points, stops and limits, and tons more.
Morning Line-Up Thursday, April 21
Good morning folks,
Yesterday’s rally was what we needed for what I now consider a 75% chance of hitting fresh 2011 highs in the SPX soon. The inverse head & shoulders pattern (see chart below), coupled with two nice 50% Fibonacci retracement levels since the recent mid-March lows make for a convincing argument of higher prices in the near-term. In order not to get caught streaking naked we must keep in mind the possibility of a sneaky re-test of the SPX 1340- 1345 area, followed by lower lows (i.e., below this week’s lows and ultimately below the mid-March lows. How do I plan on navigating through this? As you know, position sizes are roughly at 1/3 of full-size bets currently, so I am treading carefully for one. Second, the plan is to layer into long exposure up to the 1340 area, start scaling out up to 1350, and only re-add on a successful hold above 1350. (detailed trading plan below in the ‘buckets’ section)
As discussed in real time yesterday, new positions are Harley (HOG) short and Fossil (FOSL) bucket 3 long. I closed F5Network puts (FFIV) mid afternoon due to earnings release post bell and similarly closed Patriot Coal (PCX) long cash, both bucket 2 positions. With this shuffle the book remains fairly delta neutral, although with the shorts in Research in Motion (RIMM) and short calls in Apple (AAPL) and Infosys (INFY) is admittedly overweight short in tech. This overweight short in tech is mostly focused on idiosyncratic risk however and not so much a bet against large cap tech…which by the way was on fire again yesterday (see Vmware (VMW) as example).
The semiconductors slapped together quite the rally yesterday as Intel (INTC) rallied big and held support at a 2.5 year uptrend line. The SMH semiconductor ETF broke a very nice bearish pattern to the upside as price jumped above the 50 dma and 61.8% Fibonacci retracement level. From my point of view the bearish setup in semiconductors is gone and I am evaluating testing it from the long side. The semis have been laggards and as such may have indicated that cyclical top in equities is near, given the semis’ early cyclicality. Much of that changed with yesterday’s tape however, hence we are forced to reevaluate much of this semiconductor weakness leading indicator. More on this next week.