The markets

On Thursday I said that transports would bounce back from an oversold condition. What happened on Friday? Transports bounced back from an oversold condition. They were up the most of all the major indexes – 0.41%. The industrials were up 0.15% but the three major indexes (the Nasdaq, Russell 2000 and S&P 500) were down.

The Nasdaq, Russell 2000 and S&P 500’s 21 EMAs

I want to look closely at the 21-day EMAs (exponential moving averages) of the three major indexes. We observe 21 days of EMAs because the average trading month has 21 trading days.

The S&P 500 may have gone down on Friday, but it is still above its 21 EMA. It is looking okay. It is sitting on its 8 EMA, but the Russell 2000 is an index we need to watch. It is sitting right on its 21 EMA of $141.92. The Russell 2000 is at $141.96. Will it break below its 21-EMA today? Will it drag the other indexes down with it? I will be watching the Russell 2000 like a hawk. The Nasdaq, and the industrials, are well above their 21 EMAs on a daily chart. So – the main one to watch today is the Russell 2000!

The sectors

I like to begin by looking at the overall market and then drill down to the sectors to start looking for ideas. The biotech sector was up the most out of all the sectors on Friday, 0.63%. It was closely followed by health care, which is somewhat related to biotech and that was up 0.5%. Let’s drill down to actual stocks. Because biotech was doing well on Friday, you needed to search for companies that were already looking strong. One of those was CLVS. On a five-minute chart a bull flag formed just after the markets opened. CLVS broke above its 30-minute opening-range high of $93.73 at 10.30am (New York time) and then moved higher for the rest of the day, getting as high as $99.45 – that is almost a $4 move up. Another great trade was TSRO, also within biotech. It also had a bull flag followed by sideways consolidation. It broke above the 30-minute opening-range high of $128.68 at 10.15am and closed at $134.15. That’s almost a $6 move up, so again great money to be made there. Within healthcare, ANTM had a 30-minute opening-range high of $183.96 and broke above that at 10.35am. It moved up to $187 within 90 minutes.

The weakest sector was consumer staples. The stock MO was dead flat in the opening 30 minutes, which gave you plenty of time to enter the position with a put option. It broke the opening-range low of $73.35 at 10.10am then it moved down to $60 within 30 minutes – there was plenty of money to be made on that one to the downside!

There is a nice sample of stocks you could have traded on Friday.

Going forward …

A lot of companies will be reporting earnings this week, especially on Tuesday, Wednesday and Thursday. We are still in the midst of earning season. On Tuesday we have 230 companies reporting earnings, on Wednesday more than 350 companies will report and on Thursday 400-plus companies report their earnings. Of course this could affect the market, so we need to be aware of that.

Overseas markets

The Asian markets are already open. Hong Kong is up more than 1% and China is up 0.6%. It looks like the Asian markets are slightly up. Always keep an eye out for major divergences in the overseas markets. The futures market is dead flat.

New trades

I have some new trades for the elite students – there is a great Chinese company I’m looking to enter and I have an Indian trade as well. I also have a bearish retail stock and a bearish technology stock.

Don’t forget to monitor the Russell 2000 tonight. Also, will the 1000-plus earning reports pending this week keep the market up or drag it down? We shall see!