This Week's Battle Plan

Live from the Bellagio Hotel!

It’s Saturday afternoon, and I’m in heaven. I’m sitting in the Sports Book at the Bellagio Hotel, surrounded by dozens and dozens of overhead screens. College basketball, Pro basketball, all-star hockey games, racing from around the country and more are all happening at the same time. And Sunday, the mother of all sports events will be played. And my Pats will be there. Few give them a chance of winning; they’re a 14-point dog. But they're doing what no one in the world expected them to do...play in the Super Bowl.  As I said, at least until kick-off, I’m in heaven.

Back to Earth

Last week, my opening words in this column were, “The days of boredom may be over. It looks like we are setting up for a move this week…maybe a big move.”  So what happens? Tuesday we implode 247 points, Wednesday we explode for 146 points, and Thursday we move higher by another 158 points. And where does this leave us for the week? Right where we started. Huge daily moves three days in a row. An abundance of volatility. The daytraders are ecstatic. For them, the good 'ole days have returned. The momentum guys are not so happy. No trends for them. No follow-throughs...yet.

Let’s first look at and learn from the reasons why we had such large intraday moves last week. For those of you who have read my books, you know that low periods of volatility are usually followed by high periods of volatility (and vise-versa). When a six-day or 10-day historical volatility reading is half its 100-day historical volatility reading, there is a high likelihood that a large move is near. This is the condition we had early last week. These readings do not predict direction. They predict movement. You need to then combine these low-volatility situations with specific directional strategies to help capture the upcoming move (you can read more about this in the Volatility Lessons I’ve written that are scattered throughout TM University). For example, on Wednesday night, we had multiple CVR buy signals found on our Market Bias page; (on my nightly trading service, we had six buy signals, an event which is rare, but leads to a very high percentage return). When you combine the above, you have the making of a very solid move with a directional bias. This is a big edge...an edge you should be able to capitalize on over and over again.

There are many more ways to use the combined volatility and directional movement. Kevin Haggerty cc’d me on an e-mail he sent to a member late in the trading day on Wednesday. He combined volatility with his own in-depth analysis and trading strategies and he came to the same conclusion...there was a high likelihood for a big move to the upside for Thursday. Kevin’s analysis was not an isolated case; he does this type of work all the time. And I believe Kevin’s biggest edge is the fact that he is nearly Zen-like in his analysis each day. He starts with the premise that he has no opinion. He then does his homework, puts the pieces together, and lets the market tell him what it’s going to do. No ego, no trying to be smarter than the market. It talks to him each day, and he listens. Kevin’s not smarter than the market...but he’s definitely smarter than the marketplace. Read him each morning. He’s a gem. I know he can at times be difficult to follow, but even if you only understand 60% of what he has to say (as I do), you’ll be ahead of the rest of the crowd.

This Week

This week’s analysis is brief and to the point. First, there is no market bias for early in the week. But we again find the averages at key levels. The SOX is at its 200-day moving average, and the NDX is at both its 200-day and 50-day moving averages. If these two indexes move strongly above these levels, and then you combined this with the fact that the one–week and one-month top RS list includes the SOX, the transportation index, and the retail stocks, you have the making of a bull market move likely to occur. In the meantime, be Haggerty. Let the markets tell you where they’re going. They will. They always do.

Two More Signs the Bull Market is Digging In

1.   Over 700 stocks hit new 52-week highs last week.

2.   This week, copper (HGH2 | Quote | Chart | News | PowerRating) exploded higher. Mark Boucher has talked about this in the past. An economic recovery will be preceded by moves in the industrial commodities.

Coming Up

Tim Truebenbach has a new trading service coming out for intermediate-term traders later this week. Lewis Borsellino has an E-Mini trading service also coming. And later this month, we will be adding a proprietary database stock rating service co-created by Andy Chao. Andy is a Harvard graduate, Wharton MBA (he won their Rocket Scientist award) and traded a $20 billion portfolio for PIMCO. Andy’s weekly quotations (Power Ratings) are a 1-10, one-week ranking system. His stocks ranked 10 have previously outperformed the average stock by 1 ½ - 6 times over a one-week period over the past decade. Stay tuned for the release of these three services.

Live Alerts

If you day trade or short-term trade, take the one-week free trial to our new Live Alerts service. We put out between 50-80 stories/alerts each day on stocks that are moving or are likely to move. The alerts will show you set-ups and give you information you can use immediately in your trading. Click here and you'll have access to the Live Alerts service beginning Monday morning.

Have a great week trading and from the four TM New Englanders (me, Don Miller, Greg Che and Dr. Paul Ruggieri)...GO PATS!

Larry Connors and Brice Wightman

Larry Connors is CEO and co-founder of TradingMarkets. He is also the author of four books on trading, including Street Smarts, co-written with Linda Raschke, Connors on Advanced Trading Strategies, and his latest release, Trading Connors VIX Reversals.

Brice Wightman is a Market Analyst at TradingMarkets.com.