It was a moderately busy day today as we lighted up on longs and added just a bit the short side by way of AMZN. More on that trade in a moment. We had a Durable Goods report that was a huge beat of 4.6% vs. expectations of 1.6%. What drove that number was increased manufacturing of transportation goods which is great for the economy. So, why no massive rally on Monday? The obvious and non skeptical thinker would say it was obviously the massive drop in Pending Home Sales (0% Expected vs. Actual -4.6%…YIkes). However, I am skeptical and I am of the opinion that the Durable Goods Orders put a scare into longs who are afraid of an early Federal Reserve move on rates. That is their worst fear so even a speech by a voting member of the FOMC can send this market into a panic. Add to that issue that the markets are in fact overextended and you have yourself the makings of a sell off but not a crash. I sent out an Morning Update advising not to short into the selling the mornings because traders have O.C.D and the DJIA being so close to it's all time high of 14,198 is too compelling for them to let go of before touching it. Yes, sounds completely insane but when you deal with a heard mentality well don't get in the way of a heard of Wildebeest and a river.
I mentioned in The Week Ahead Commentary that I had concerns about X and it breaking it's daily uptrend line and I didn't proceed into the week with much tolerance for falling further so we stopped out of that trade.
As for KORS I had hoped for a successful breakout but again as I mentioned in The Week Ahead the RTH had flashed a massive topping tail last week and it put into doubt the ability of the retailers to continue higher. I stuck with the trade as long as I did because of the company's solid fundamentals and it's ability to outperform. It did attempt a breakout but it reversed and failed. Ideally we get a pullback and we jump back in.
As for AMZN it is a company that I have always done well trading both long or short. It reports earnings after the close on Tuesday so please be forewarned. On a PE basis it sports a very high PE of 3400 current and 160 on a forward looking basis and it isn't heavily shorted. Now, that wouldn't be enough for me to place my chips on the table unless I noticed something that tipped the scales in favor of the trade. The first observation is is the obvious as the stock flashed a bearish engulfing of Friday's move on above average volume. What concerned me more was the divergence of the Ultimate Oscillator which has headed down since early January as AMZN has proceeded to new highs on a daily chart. That prompted me to take a look at the AMZN weekly chart which illustrates a divergence going back to early December where the oscillator was in virtual stall mode as AMZN proceeded to new highs. The market sends signals and momentum for AMZN appears to be slowing. Now, this is pure speculation which is why my maximum downside risk is known up front by way of the put options premium.
EGLE had a great day Monday after a solid consolidation, it remains a hold. Great up volume and great RSI performance. The Transportation Sector after its pull back will be the place to be as reflected in NAV which broke out but predictably ran into resistance. We still like it and will watch for an entry point.
Finally the TZA, since its a 3x's leveraged bear ETF lets talk about it from the perspective of the Russell 2000 which it tracks inversely. The Russell 2000 is at multi year highs which is good because you don't have the OCD factor as you have with the DJIA however, there is also no overhead supply to act as resistance. What keeps me with this position is that the Russell 2000 is very extended and as we rotate out of longs we can add to our shorts.
In closing watch the geo political risks that are out there. On Kudlow this evening there was a report of an explosion at a nuclear facility in Iran and radiation was leaked. What the fall out from this will be if there is enough to show that Israel was involved is an unknown but just know it is out there.