Giving IWM the Benefit of the Doubt

The Russell 2000 small-caps ETF, IWM, has taken a beating the past few months trading within a 13-point channel. After significant selling to close the last week it is now at a crucial do-or-die point that could impact the broader markets significantly.

IWM retested multi-year trend support Friday coming within about 0.5% of a direct hit. Nonetheless, I’ll consider this a touch and the third (fourth if you count the May $107 low ) which makes this a very strong trendline.

IWM trendline support

IWM trendline support

 

However, that doesn’t mean it cannot be broken. In fact, what clearly stands out is the potential for a double top which is a decent, but not great, chart pattern. For the double top to even have a chance this trendline has to be broken.

In the pre-market trading we’re seeing a healthy bounce this morning as IWM is now back into the $111′s. I’m going to treat this last test as a successful bounce but until a new uptrend takes shape I have to remain strongly cautious of yet another retest and possible failure.

IWM extended on the daily chart

IWM extended on the daily chart

The daily chart shows a steep selloff well under the 2 deviation bollinger band but a strong bounce. With today’s follow through at least in pre-market I want to take a long position in the small caps. The $113 area will be first resistance and I’ll have to see how IWM handles this area before making my next move.  I expect that test to come as early as today but should be by tomorrow.

The trade: long IWM $112 Aug 16 calls which closed at $110 Friday and should be about the same this morning. I’ll be picking up four contracts (five if can get under $100). We have to expect some possible volatility today. We don’t want to get shaken out but we don’t want to stick around for a retest of Friday’s lows (which could fail). IWM did set a decent base above $110.25 going into the afternoon. I’ll allow for potential overshoot as well down to $110. This will effectively put our risk up to half of the position so I’m accepting the possibility of losing 50% of this position.

Trade Plan – June 25, 2014

Bears got whipped into a frenzy yesterday as the leading indices gave away several days worth of gains yet they weren’t able to capitalize as good chunks of those losses have been recovered.

I remain cautiously optimistic $SPX can overtake the $1970/$1975 area but as long as the 50-hour SMA holds I will continue to seek out long positions. However, I will also be very tight on stops at the first sign of market weakness. That starts with getting $SPX back under $1955.

SPX - Jun 25, 2014

SPX – Jun 25, 2014

Not really anything to be concerned about when all but consumer staples are green. Would like to see XLF show some strength. Though it did bounce nicely off the 20SMA.  Health care broke out to new highs while industrials should also get a good bounce soon as well perhaps tomorrow. Look for a breakout in utilities soon as well.

Sector Summary - 2014-06-25

Sector Summary – 2014-06-25

I’m looking at two setups in LNKD and TWTR going into tomorrow with reluctance; mainly because of the market.

LNKD is probably my favorite setup and the one I will look to target foremost; LNKD has been consolidating pretty nicely between $164 and $171. Though I’ve drawn a rising wedge these are not great performers so I’m reluctant to give it much weight. A breakout though would set up a test with the 100SMA. $172 will be the first test.

LNKD-1D-CDL-2014-06-25

Five-minute chart shows a great triangle break near $167.50 and that would’ve been a great opportunity to get in early. Beautiful run up the 9EMA. Would like to see consolidation near $170.50 but will take any setup between there and $171. If gap-up have to beware of gap-fill especially if market is weak. LNKD-5m-CDL-2014-06-25

TWTR has been consolidating beneath long-term resistance for a week now and it may be ready to begin a serious run. Here I’ll be looking at the 100SMA for a test next week.

TWTR-1D-CDL-2014-06-25

Five minute shows the sell-off that hit the market yesterday afternoon but tremendous recovery today. Looking for a brief buildup beneath resistance early tomorrow or a break and pullback. If can get any kind of 1-minute or 5-minute pennant early above resistance but below $40, gotta take a shot.

 

 

 

 

 

TWTR-5m-CDL-2014-06-25

I’m probably being a bit more paranoid here than I’d prefer but will give the momo’s the benefit of the doubt even in a choppy market. FB, GOOGL, BIDU and DDD all exploded big today off yesterday’s lows. It’s just damn hard to ignore.

Putting a Strangle on PCLN

PCLN is trading in a rather tight channel a bit unusual for this high beta equity. The range has compressed between $1180 and $1230 down to between $1195 and $1215. I’m looking to capitalize on this consolidation while not having a clue which direction this will break.

Priceline.Com Inc (PCLN) 1D Candles, Jun. 23, 2014

Priceline.Com Inc (PCLN) 1D Candles, Jun. 23, 2014

Contracts on this equity are very expensive even out of the money and demand a high tolerance for some serious price swings. These consolidation patterns are generally very productive especially on upward breakouts. However, I do not like that it comes on a pretty steep downswing. Had this just been a pullback I’d suspect we’d have seen a breakout by now. Because of this, I’m taking a neutral position.

Priceline.Com Inc (PCLN) Strangle, Jun. 23, 2014

Priceline.Com Inc (PCLN) Strangle, Jun. 23, 2014

I want to get tight in on this while not overexposing myself to a potential week-long consolidation. In other words, this thing needs to move quick else I’ll have to bail. I’m looking for a $1195/$1215 long strangle. At the closing price of $1205.60 this position is estimated to be around $13.70 tomorrow morning. It’s highly unlikely we’ll get this but will absolutely take a shot when possible. I’ll adjust the actual position if necessary on any gap-up gap-down but want to keep my entry confined to between $1200 and $1210. Anything beyond that will have to bail as I’ll be leaning too far in one direction.

Assuming we can get the fill on $13.70 $1195/$1215 strangle, my breakevens will be less than $1181 and greater than $1228.  Anything between is a loss with max loss coming between $1195 and $1215.  Any move 1% above $1215 or below $1195 puts the position in the money by this Friday; PCLN is very capable. But, again, looking for a quick move; not a consolidation for the rest of the week.