On LinkedIn, Stay Nimble

 | May 16, 2014 | 9:30 AM EDT
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The last four to six months or so in this market, we've had to stay pretty nimble to extract some cash from it. In 2013, it was quite a bit easier to do so. You may wonder why.

Well, when the weekly and daily and intraday charts were all showing bullish patterns, it was pretty easy to just buy pullbacks in the direction of the uptrend. The market was relatively forgiving at that time. Right now, not so much.

Although there are still some strong and bullish stock patterns around, many names have taken a beating, and we have to wonder if we are looking at bargains at these prices or if we should be concerned that the declines may just continue instead.

In my bigger-picture work, I do see the reasons why some analysts are concerned about a deeper downside correction possibly unfolding. I do also believe that these markets are in the "position" for such a correction, but that does not mean it will definitely unfold. So instead of freaking out about what some of the analysts are suggesting, how about we just take it one trade at a time?

In many of the charts I'm currently following, I can see the tug of war that they are involved in. For example, many stocks are testing weekly support where an important low could be made. These same stocks, however, still look terrible on the daily charts. What is a trader to do?

Until the weekly charts and the daily charts are in agreement, we need to tread lightly. We can still look at some trend and countertrend trades, but we want to make sure they are relatively low risk. We can get a bit more confident in some of these markets when a setup on the weekly chart, for example, is finally confirmed by price action on the daily chart. This can actually take quite some time to unfold.

Let's look at my weekly chart of LinkedIn (LNKD). This chart recently provided another countertrend buy setup at the $129.59-$135.30 area. We have seen a $17.32 rally off this key support decision. There is some money to be made off zones like this at least in the short term.

LNKD Weekly

But now let's take a look at the daily chart. The daily chart of LinkedIn is below the 50- and 200-day simple moving averages, and the five-day exponential moving average is still below the 13-day exponential moving average. There is nothing bullish about that or about the pattern we are looking at. It is clearly lower lows and lower highs.

My strategy lately has been to set up both sides and to stay nimble. For example, we did take some countertrend buys in this one against the support, but we were very quick to tighten up stops as we approached resistance on the daily chart just in case it would fail, as it did after the May 12 high was made.

Now that we've had a nice pullback to this key weekly low, I'm looking for new buy triggers on a 15-minute to tell me it's worth placing another bet on the buy side. If this occurs, I will take another long position via options and then define my risk below the low made prior to my buy signal. Bottom line, stay nimble on the stocks that are not showing us great patterns just yet. LinkedIn is one of them.

LNKD Daily
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