If you watch my weekend Market Reviews, you'll already know this and you'll also have seen many more stocks with good setups that you can be watching on other days of the week. It's crucial that you're aware of this, because – quite simply – an optimal setup may not be happening on a specific Tuesday, and far better opportunities may well be setting up on the other four other days of the week.
Back to whipsaws, the challenge they present is in how to control your trades in terms of entry levels, initial stops, and profit targets and, by definition, your reward-to-risk ratios.
Now, in setting our first profit targets I'm very conservative – and for the purpose of this newsletter I try to keep the reward/risk level at 1:1 for my first profit target. Remember it's only a FIRST profit target. The idea is to get there quickly, so in many cases privately I'll make my first profit target even nearer. Now, that can mean that my FIRST profit target may be nearer than my initial stop, which really gets some people in a fluster. But I will say that overall – and again as a FIRST profit target – that works out very well, especially in challenging conditions like right now where the markets are whipsaw'ing left, right and centre.
So, when we talk about last week's pick – Western Digital (WDC) – several of you decided to secure your first profits EARLY, and didn't wait for it to hit $69.80 … and you were right! It got close, but didn't quite reach that target and then snapped back to very only just stop us out before rebounding up again.
That … is what you call tough market conditions.
Coupa Software (COUP) from two weeks ago failed as an implied volatility divergence play, taking a beating last Wednesday and recovering somewhat since then.
Three weeks ago, I called VALE which finally did break out properly on Friday and DID just hit our first profit target at $14.79. It's stalled a bit yesterday, but does look like there's more to come with that one, and now you can protect your profits using my trading plan. Either raise your initial stop to breakeven, or take half profits, or do a combination of both. It's all in my bonus training videos.
Another big mention has been Lamb Weston (LW) which I've mentioned continuously to my Private Group and here since 19th December. Now, this is a classic case of a stock not quite being right on the Tuesday's but being very good on other specific days. Just to give you an idea … back on the 19th December (which was a Sunday) the stock was at $58.08. By the Tuesday it was opening at $59.58 … in other words it had already broken out on the Monday, just one day too late for it to be picked here. The stock is now ranging between $68 and $70.
Now … should I have picked it back then for this newsletter even though it had already marginally broken out? Yes, probably with hindsight I should because the reward-to-risk was very attractive in terms of the quality of the setup itself. At the same time, that's why I highlighted it in my weekend reviews.
So, I guess the message is – again – please do watch my weekend reviews!
When I look at last week's stocks to watch, hardly any of them broke to the upside, which is fine, but a few did. Smith and Nephew (SNN) is up nicely, and Fifth Third Bank (FITB) is up around 10%.
One thing that has been a feature is that for swing trading timeframes these have been treacherous conditions for which most of my Private Group of traders will have just sat this market out.
As I've said in the past few weeks, I don't believe the worst fears will be realized about the new Omicron variant, which is why some of the leisure and travel stocks were looking perkier lately and have actually held up pretty well this past week … Like Caribbean Cruise Lines, Norwegian Cruise Lines, and a number of the airline stocks.
And I said over the past few weeks, the main challenge has been the high risk/reward ratios for many trades when you consider where your stop placements would have to be relative to sensible first profit targets.
It still remains a treacherous market, and so my Cautious outlook from our Cautious, Moderate and Confident market sentiments remains.
In terms of stocks I'm considering, there are three sectors that are interesting me right now. Foods, travel and energy. For the longer term I still like the Metaverse stocks, but they're beaten up right now.
So, stocks to look at right now include:
· Lamb Weston (LW) as it's consolidating right on its 200-dma having gapped up at earnings.
· UTZ Brands (UTZ) which is a packaged foods company that is consolidating just above its 50-dma with a bullish OVI that has taken over from a bearish OVI from August to December.
· Alaska Air Group (ALK) which will improve as travel restrictions are lifted.
· Caribbean Cruise Lines (CCL) is the same.
· Norwegian Cruise Lines (NCLH) will also benefit as soon as there's good news on travel, but do note these are all high risk and if there's not good news on travel, they could all drop quite a bit further.
· Occidental Petroleum (OXY) looks strong if it can get above $34.00.
· Ovintiv (OVV) is another oil & gas company that also looks good if it can get above $39.00.
· Chubb (CB) is essentially an insurance company and looks very good if it can consolidate for a couple more bars or even retest its 50-dma.
From all of those, I'm going with UTZ Brands. Buy if it rises above $18.40. Initial stop at $16.80. First Profit Target at $19.83.
The options for this are way too thin with wide bid/ask ratios, and this remains a treacherous market, so stay cautious and prudent.
The only thing I'd add is that we're likely to have a bit of a recovery with the S&P, but I would much rather it had shown an oversold reading on my Medium-Term Swing Timer, but it hasn't.
In the meantime, VALE is still looking pretty good for some more upside.
See you next week.
Bye for now.
Guy
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