Saturday, July 16, 2016

Trading Outlook for the Week of July 18-22

Before we get into the week ahead, let me provide a brief overview of how my preparation progresses over each weekend.
  1. I start with an overview of the major indices.  These charts contain a 7-period Simple Moving Average, a 30-period Exponential Moving Average, and the 14-period Slow Stochastic %K line.  That's it.  The trading bias is based on this:
    • Long Only if SMA(7) > EMA(30) AND %K > 50.
    • Short Only if SMA(7) < EMA(30) AND %K < 50.
    • Any other combination, I'll either stay out of the market or stick to one or two day duration trades based on the direction the SMA(7) is headed.
  2. I maintain a chart in Excel that shows the weekly percentage change for the S&P 500 and each of the S&P sectors.  That chart is updated Saturday morning, and if my trading bias is long, I'll pick the 3 best performing sectors for the week.  If the trading bias is short, I'll pick the 3 worst performing sectors for the week.
  3. I will then run my various trading setup scans focusing on the sectors found in #2.  My scans primarily look for pullbacks of stocks that have been trending, or they look for stocks that are range-bound and nearing one of the range extremes.
  4. I then annotate the charts found in #3 and save them in my watch list.  The stocks I'll trade on Monday are selected Sunday night, although the actual orders will be placed before I leave for work on Monday after I've seen the movement of stocks in Asia and Europe and have also seen the direction US Market Futures are taking.  Since all of my trading is short-term, I want to be trading with the trend, and I want the market setting up to move in that same direction for the day. 
  5. #3 and #4 is repeated nightly, searching for the stocks to trade the following day.
 So with that in mind, let's take a look at the trading outlook for the week of July 18 to July 22.

Trading Bias

Dow Jones Industrial Average - LONG.
S&P 500 - LONG.
Russell 2000 - LONG.
NYSE All Issues - LONG.

In all four cases, however, the %K is at an extreme high position and as of Friday began trending down.  While the bias is long, due to the risk being called out by the %K, we'll keep our stops very tight.  Risk of a pullback in all four indices this week is near extreme.

Strongest Sectors

The three strongest sectors beating the S&P 500 for the week were:
  1. Materials Sector (XLB)
  2. Financial Sector (XLF)
  3. Industrial Sector (XLI)
Two other sectors beat the S&P 500 and we'd consider a trade there if the setup is strong.  Those are the Energy (XLE) and Technology (XLK) sectors.

Economic Reports of Significance (all times are EDT - GMT-4)

Monday, 7/18
  • 10:00 - Housing Market Index
  • 16:00 - Treasury International Capital
Tuesday, 7/19
  • 8:30 - Housing Starts
Wednesday, 7/20
  • 10:30 - EIA Petroleum Status Report
Thursday, 7/21
  • 8:30 - Jobless Claims
  • 8:30 - Philadelphia Fed Business Outlook Survey
  • 10:00 - Existing Home Sales
Friday, 7/22
  • 9:45 - PMI Manufacturing Index Flash
  • 13:00 - Baker Hughes Rig Count
Earnings Reports Watched for Sector or Market Significance

Thursday, 7/21
  • Before Market Open - Union Pacific (NYSE:UNP)
  • After Market Close - Schlumberger (NYSE:SLB)
Friday, 7/22
  • Before Market Open - General Electric (NYSE:GE)
  • Before Market Open - Honeywell (NYSE:HON)
  • Before Market Open - VF Corp (NYSE:VFC)

We'll start the week with a long bias, trading stocks in the Materials, Financial, and Industrial sectors primarily.  We'll keep our stops tight due to the extreme level of the Slow Stochastic indicator and will shift to a very short-term (one or two day) strategy if it drops below 50.  While there's interesting economic news at the beginning of the week, we'll be especially focused on Thursday and Friday with major market indicators being released and earnings releases from five of the key companies we follow for overall market and sector analysis.

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