A Mix-and-Match Play

 | Jul 17, 2014 | 11:30 AM EDT  | Comments
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Wednesday was Intel (INTC) and today is Microsoft (MSFT). Sadly, I forgot to include IBM (IBM) in my Dino-tech mix yesterday, but shares have certainly been seeing buying as well. I'm like a barber with these: cut, cut, cut. I can always grow the positions again, but I'm cutting size in Microsoft and Cisco Systems (CSCO). My trading target on CSCO was only $26.20. Yesterday was close enough, so those need to be sold. It wasn't a huge gain, but fell within the thesis. MSFT is setting up for big expectations into earnings if you follow the sentiment on Twitter (TWTR). These names are getting a little too optimistic for me. My view is to keep enough in the long-term portfolio to maintain interest, but not enough to lose sleep if any of them take a quick 5% or even 10% hit in a week's time.

We'll hear from IBM tonight, as well as Google (GOOGL), so there will be plenty of fuel for the tech names. IBM has been less than impressive around earnings for quite some time, and Google always feels like it could move 5% in either direction without a second thought. I don't think this is the time to be greedy on these Dino-tech names. The easy money is long gone. Lately, it has been moderately difficult money. I don't want to push my luck.

Instead, I would rather look for a large group of securities with a low correlation factor to play into the rest of the week. Normally, you wouldn't think to mix and match names like Southwest Airlines (LUV), Xerox (XRX), Steel Dynamics (STLD), Petrobras (PBR), Santander Consumer (SC), Direxion Small Cap Bear 3x Shares (TZA), ProShares UltraShort Euro (EUO) and Natural Grocers by Vitamin Cottage (NGVC), but that's what I did.

If you look at simple price and moving average charts below, they work as a "breakout group." Plus, it is a very diverse group. You have transports, retail, financial, energy and steel, all while being short small-caps and the euro.

Breakout Group
Source: StockCharts.com

Every name is this group is above its 50-day moving average except TZA, which is trying to pierce it today. Furthermore, every name is above its shorter-term 20-day moving average.

Finally, price is breaking above resistance formed over the past month and in some cases the past two months. Stops on every name are clearly outlined by the lows in either June or July (wherever the last low occurred) and breakout targets equal or exceed the stops. I am comfortable with equal risk/reward because I believe each chart favors a better chance at breaking out higher. Sometimes it is just that simple.

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