Distribution is the Better Part of Valor

Winter may have a trick or two left, but it's going to be 50 degrees plus over the next two days in the Boston area and that makes winter much easier to deal with.

Distribution is the Better Part of Valor
Note: I sold KFN (-2%) and BCR (+2%) today for changes in my trading account.

Distribution days are one of those market observations than can have hard, set rules but you also need to allow for a little wiggle room. Investopedia tells us that distribution is:
"When trading volume is higher than that of the previous day without any price appreciation."
Simple enough.

On any given day every stock that is bought is sold and vice versa. Price is used to gauge the desire of one side or the other to move a security. Aggressive buyers will push bids up and prices follow. Sellers looking for an exit will take less and less just to off load the position. Volume tells us how many are in the active mode for a stock.

I was thinking about distribution today as it relates to a stock I missed buying, and one I currently hold. Joe Fahmy offered on Twitter that the Nasdaq had it's second day of distribution selling since January 1st today. Here is a chart of the QQQ which shows the two days very clearly and follow the defined rules (click any chart for larger view):

There was a smaller one on January 16, but the overall volume was low. The days of February 16 and February 10 were followed by solid moves up, so there is the chance there is not a severe correction at hand.

The stock I had in mind was a name I was pissed I missed a break out on a few days ago but it was an earnings deal so that's how it goes. This stock will not show the classical distribution rules in play, but tell me this is not an unwind of shares steady and strong over the course of days. SMG:

You can see the last 6 days have now eclipsed the accumulation over 5 days leading up and into the earnings report. The stock has even dropped out of the ascending triangle that made the setup attractive in the first place. Yet only two technical distribution days over the last 7.

Looking over my open 3 positions (AREX, BANR, WTS) I am most concerned that WTS is at a critical junction in the distribution debate. Take a look:

Why didn't I sell if I had qualms about the action? The 20MDA is coming into play tomorrow as possible support. The selling today was heavier and may signal a near term bottom. I also wanted to be in the stock as this plays out so I can react to it. Tomorrow's session is my debate ender.

When you start to see signs of distribution, remember that discretion is the better part of valor. (I played with that line for the title, obviously)

Have a good night.

Time and Event Pressures on a Trade

Back at it today.

Time and Event Pressures on a Trade
Not all market moments are created equal.

There will be "good" times to be trading long and there will be "poor" times to be initiating open positions. There are all kinds of situations that warrant some attention be paid when trading stocks. The purpose of this post is to go over some of those situations as well as a live example from this week.

The three key factors to consider when looking to open a position are:

Where is the overall market in terms of the current cycle?
Depending on what kind of oscillator you use, you know that markets tend to go through the overbought/oversold cycles. A big mistake I made last year was starting new positions near overbought signals (I use iBC PPT Hybrid score) and I think you remember how things went last year at sentiment highs. Buying when markets overall or the sector you are looking at are extended tends to limit your upside on any remaining move.

The rally in 2012 so far has been able to keep markets from getting overheated, and turns at overbought levels have not had anywhere near the teeth they did last year. All this can change, but for now it's the reality on the ground.

Earnings Announcements
When I am using my long term account I obviously do not move in and out of the names I hold. That's a different game and not the target of this post. When I am using my trading account I am usually looking for near term moves measured in days to maybe 2-3 weeks tops. Earnings season can mess with that.

Knowing when a company you own will report earnings is both huge and will bite you at least a few times if you do this long enough. It gets lost sometimes, just finds a way to escape attention. Waking up to or finding out that a position you opened just gapped way past your stop on an earnings miss is a great way to get aggravated. Some times this can even apply to the "big" names in your stock's sector reporting and that reaction finding it's way to your stock.

"You" Events
Everyone I know has been really sick all through January. If you are very ill (I don't mean the usual cold and the like) it's never a good idea to try and force some work. Corners will be cut and your usual sharpness will not be the same.

Going on vacation? When I go I take nothing to be dialed in with and will not even look at a paper. If I am holding something right up to my departure date, I tend to get more jumpy and reactionary because I know I need to close the position before I leave. Take a break, market will be here later on.

If you are one of the soldiers that works all day, a stacked week of meetings at the real job may preclude you from being able to watch the market or pull triggers except on short breaks. Know your schedule and how it will allow for activity.

(Feel free to add others in the comments section.)

With this all in mind I wanted to discuss a trade I could not make this week with The Scotts Miracle-Gro Company (SMG).

The stock came up on a screen I use in the iBC PPT late last week and I worked up a chart showing the pressure building on the stock as it approached the $49.70 price area. The accumulation volume was really coming in and I was looking forward to an entry early this week.

So what were the problems?
1- A "Me" event in that I was off from work Monday after the Patriots Superbowl loss and I just wanted to chill out.
2- SMG earnings were set for this morning before market open.
In light of these reasons I did not buy. The accumulation was for a reason as SMG had earnings it seems everybody liked, rising almost 8% just today:

I know it can be easy, especially this year so far, to say "that was an easy run up right into great earnings!" but I have seen enough of these go the other way to side step this set up right here

As things go, with a little recharge here SMG may be worth another look soon with an eye on the $59 level. Stinks to miss one like this but sticking to a plan and a set of rules will save you much more than it will cost you in lost opportunities.

Have a good night.