For today’s letter, I wanted to do something a bit different and talk about the final result of my stock picking process. Now, you’ve heard a lot about specific picks I make, along with the tools and strategies I use.
But, today I wanted to give you my watchlist.
A watchlist is critical to have, because the only way you can successfully get into trades (on-time) is if you’re lying in wait for them. Trades you’re stalking MUST be on your watchlist!
So check it out below (it’s a complete game-changer for any trader)…
To Start: Updating Watchlists
I usually add and subtract tickers off of my watchlist on a daily basis, however the core of it remains the same. I also don’t trade everything on my watchlist. I enter into different names as entries present themselves. I try and look for the best pullback buy entries. This is especially helpful after gaps down in the market, when we look for Phoenix to rise.
For those of you who aren’t familiar, let me just touch on my stock picking process real quick, and then we’ll get to the watchlist.
Like we’ve talked about before, I always start with a top-down process, with the overall indexes, sectors, and industry groups. From there, I use my Phoenix Folio, or my hand-picked stock lists coupled with my Phoenix Finder, to identify relative strength and pick the stock itself. Of course from there — it’s about entries and strategies.
The watchlist however, doesn’t ignore the market condition. That’s always paramount. The watchlist is conditional, based on major changes in the market condition.
Current Market Condition
As a directional trader, I prefer to be in a trending market. Right now, this is NOT that. This is my least favorite spot to be in, in the market — but like we talked about Tuesday, we must adjust to the weather and trade what’s in front of us.
Why’s it my least favorite spot?
The indexes have quite a bit of overhead resistance, downside support, and
technicals are breaking down. We’re seeing the transportation sector, along with the industrials and semiconductors (all considered a foreshadowing of what’ll happen in the stock market) all breaking down. This isn’t the ideal situation to have a lot of longs on in the market. But, like always, I pick and choose a few, sticking with the strongest.
As the market condition improves, I’ll add more size. If in fact it doesn’t improve, I’ll make a new watchlist, of the weakest links, and focus on downside. But, it’s not time for that… yet.
Right now, we’re in ‘hurry up and wait mode,’ (if you recall, we’ve been here before). So we need a catalyst, one direction or another, to get the market going. Then, we can follow the tide.
Potential Market Catalysts
These are the key events I’m watching for:
- News related escalation/de-escalation of the trade war with China
- Federal Reserve changing stance on interest rates
- Indexes breaking below May’s lows
- High Put/Call ratio turning into a short squeeze
Right now?
We’re stuck in a limbo. That also means we’re seeing a lot of consolidation on daily charts (one of my favorite things) because that means, at some point, we’ll get a break out, and that’s when I strike.
Though we’re seeing daily price moving lower intraday — on a swing basis — I’m still leaning to the long side of this market until further notice.
I’ll change my mind if we break below May’s lows in the S&P and Nasdaq, and selling’s fierce and constant. That’ll likely lead to the 200 SMA on the daily charts. Today, while we traded lower, the market’s actually still holding up… this isn’t fierce and constant selling, thus far.
On pullbacks like this, I ALWAYS have a list ready to strike. Here’s my list of swing long stocks I’m stalking for buy entries — if and when the market beings to recover:
- Starbucks (SBUX)
- Paypal (PYPL)
- Disney (DIS)
- Honeywell (HON)
- Adobe (ADBE)
- Microsoft (MSFT)
- Ally Financial (ALLY)
- Guidewire Software (GWRE)
I hope everyone has an excellent three-day weekend, and I’ll see you next week!
