The S&P 500 (ETF Proxy – AMEX:SPY) remains unstable with low levels of liquidity intra day, and I would continue to urge caution if you are trading this index. There is a credible top showing on the daily chart of this index, and we are hearing this week that one of the major drivers of this latest bullish move are stock buybacks from American corporations which are being fueled by debt issuance.
Let’s think about that for a minute…when a company expects a better return for its shareholders by buying its own stock “on margin” (debt fueled leverage)to drive up share prices than selling its goods and services we are in a state of serious malinvestment. If you told me this would be our markets 5 years ago, I would have laughed in your face, but that is our reality today.
In spite of the inversion of common sense when it comes to so many things, there is still a LOT of opportunity for the active trader out there in this environment. Sprint (NYSE:S) completed its pullback, and triggered on a break-away gap last week. It closed just short of its initial profit objective, and I still expect to see good things from this stock in the week to come.
Pfizer Inc. (NYSE:PFE) offers yet another teachable moment on how important it is to have consistent filters in your trading plan to force the markets to “behave” before you put your capital to work.
Last week I wrote that I was expecting the bullish engulfing bar on the daily chart to act as confirmation, and trigger an entry IF its highs were violated.
This filter kept me on the sidelines, and thus avoided a false setup. Then, the stock formed another valid entry pattern as it left a bullish engulfing bar on the charts on Wednesday.
This bar also acted as a valid filter, as the price action on Thursday and Friday failed to “Trigger” the trade by breaking out above the reversal candlestick’s highs. Now, it seems that price will drift down to test the support offered by the 20 period simple moving average (blue line), and I will continue to monitor this stock for a new valid reversal candlestick on the daily level.
