As we anticipated, the market pulled back last week and the slow grind higher continued.
Whenever the market pulls back, I always like to see what the stocks from the Universe List do. Are they consolidating constructively? Are the setups few or plentiful?
Heading into next week, I’m not seeing a ton of setups I like. There were 19 ideas that caught my eye and are on the Trade Ideas list. But upon further scrutiny, only 3 of them made it onto the Focus List. That’s pretty telling in and of itself! If that weren’t enough, each of the trades on the focus list were graded as a ‘C’!
I’ve started grading my trades in addition to the Trade Gauntlet score. We discussed this at length during today’s DEEP DIVE (watch the video below). The letter grade is a combination of my gut feel, the gauntlet score, and proximity to earnings. The purpose of the letter grade is to assist with position sizing. A’s will get 1.5% risk, B’s 1%, and C’s 0.5% max. Over time, we should see a bell curve with most stocks getting a ‘B’. This is my first week using these letter grades and I feel seeing all ‘C’s is likely an anomaly. That said, I also think its telling of the environment we’re in.
Something else that was interesting was the New Highs vs New Lows. Take a look at the the chart below. New highs on the NASDAQ have flat lined while the NYSE has pushed higher. It’s abnormal and lets to the chop we’ve seen.
I’m still cautious and treading lightly heading into next week. I haven’t added anything to the actions list yet and want to take a little more time to think it over. Any trades I take at the onset will be light given the choppiness and low grade setups.
Checkout the charts of the indexes below for a closer look at the action.
MONTHLY CHARTS (indexes) Overcall Direction = Up: https://www.tradingview.com/x/O3bwXy3S/
WEEKLY CHARTS (indexes) Overcall Direction = Uptrend: https://www.tradingview.com/x/0UpENPwc/
DAILY CHARTS (indexes) Overcall Direction = Sideways: https://www.tradingview.com/x/2kea9Xdn/
(on the lower right is the image of stocks hitting new highs vs new lows on the NASDAQ & NYSE)
Deep Dive Video