Looking over my profits from last year, my largest came from swing trades that ranged from about three weeks to a month in a half. This year I am going to focus more on those type of trades because I think they will continue to do well this year. I personally believe that overall we have more upside this year, however, 1) my personal belief means nothing and 2) if you take a more broad view of the many sectors and stocks that outperformed last year they seem very extended. At some point there will be some mean reversion, but since we can’t time that I will just illustrate my point and then highlight that some areas aren’t as extended and could benefit from rotation this year. Feel free to chime in and tweet other ideas you may have.
Getting Away From the Moving Averages:
Although on a daily or even weekly time frame both the SPX and IWM seem to be consolidating in a healthy manner and don’t appear too overly extended, if you span out to a monthly or quarterly view you can see how far we are from the moving averages. The moving averages are all lined up properly and pointing up so I believe we will remain in an uptrend for now, but it could also mean that we start seeing more minor corrections or a lot of nothing. What I mean by that, is we may see a lot of sideways action while the moving averages start to play catch up on the larger time frames. Having said that, strength begets more strength and we have already seen that what is extended could easily get more extended. However, if we start so see some sideways action on the out-performers from last year, then I think looking at the less extended would be could rotation candidates.
Not all sectors are as extended and still haven’t gotten back to their all time highs.
The same goes for stock picks. If at some point this year we start seeing some of the high flyers take a break, I think that would be healthy and would bring money into other stocks that still have growth and could play catch up.
Here are a few not so extended stocks that have room for some money flow.
FSLR Monthly - still forming a bottom
AIG Monthly - still forming a bottom (one of the craziest charts)
Just some thoughts to take forward into the new year. Happy trading.