Happy New Year! The market is starting out with a bang today. For now, my gut feels on DE and CVX are paying off and the account value has risen to over $11K. My natural inclination is to cash out after a run like the market has been on over the last 2 trading days but there are several dynamics in play. Many of the newsletter services and pundits out there are talking about profit taking on this move. Low volumes, toppy markets, and even more fiscal concerns are cited as the reasons the markets will reverse here….and they very well could.
There are a couple things weighing on my mind when it comes to the trades I am in. The 1st is similar action in the market last year. The 1st trading day of 2012 was characterized by a gap higher with very little follow through buying that day. In the chart below we can see the resulting action. Small pullbacks occurred but overall the market the surged through the subsequent weeks. The market has similar themes and tones for 2013 and the negativity may very well catalyze a continue rally for the coming weeks.
The second thing I’m looking at is simply the charts of DE and CVX. Frankly, the CVX chart scares me and I will look for an exit opportunity into the close today. I think there are better trades out there and would like to have a little more capital available to get into future opportunities. The DE chart is very encouraging. The $87 level is finally breaking and is doing so on a rather bullish head and shoulders look. The technicals point to a $90-$91 price target and I would like to ride DE into that price. Low volume may signal a false breakout but given the time of year, light volumes are common and not always symbolic of a false move. As long as $87 holds, I will look to continue to hold DE as an upside play until it reaches my price target.
So bottom line, DE looks very nice as a bullish hold. CVX is like many other stocks today with black candle (prices that opened higher than where they trade now) and these candles typically signal a bit of a pullback to come. While I may change my mind depending on the price action into the close, I am looking to exit CVX and hold DE. I may add some short term puts on the market but they would only be looking for a shallow sell-off.