Good morning! Welcome back! I hope you all had a wonderful holiday season! It was quite a busy one for me... I think I need a vacation from my vacation! Who was supposed to remind me that driving to Iowa from Florida in the middle of winter is never a good idea? Hmmmm. No blizzard this year, but 6000 miles through fog and freezing rain nearly every day is just nuts! The sun did come out the day we left! Upon returning home I tried to hold up Lowes (LOW) and Home Depot (HD), but to no avail. Our water heater sprung a leak and flooded the garage so we had to replace it, I then laid new hardwood throughout the half the house, painted the living room and installed a new dishwasher and refrigerator. Boy am I glad to get back to work this week!

So far this year the market is off to a great start. After a weak start on the 3rd, the market pivoted off 50 day and 20 week simple moving average support levels in the major indices and popped very sharply Tuesday afternoon. That upswing continued, albeit at a more gradual pace, throughout the remainder of the week. This triggered a lot of breakouts in the market, but the move from the lows of the range through the highs also meant higher risk and less reward for traders using typical trend channel line breakouts or breakouts above prior highs.

In the grand scheme of things, this early January breakout carries with it some additional risk factors for bulls who are just now coming into the market. In terms of the rally off October lows, the market has only corrected off November highs for the same amount of time as that Oct. to early Nov. rally. This 1:1 ratio of buying versus correction brings with it the greater potential for false or premature breakouts. These are more often followed by a pull back into the range before the breakouts can decide whether they really want to continue or to turn around and reverse. A more solid test of the 20 week sma in another couple of weeks would have been preferable.

If you pull up and look at a weekly chart of OSTK, you can see this type of risk play out in the reverse form on the short side. It sold off early last year, then based into September. That base took about as long as the previous drop to form. The trend channel for the base at lows broke in September to trigger a short, but the 1:1 ratio of descent vs. correction helped it pull back up in November, potentially flushing out a lot of shorts, before it resumed its selloff in December.

BEN also did this as a buy setup in September when it tried to break its upper trend channel for the base after only correcting about the same amount of time as the prior rally. This allowed for it to come back and put in a more solid test of the 20 week sma in early October to try to flush longs before it then broke out to new highs to resume the prior uptrend.

Over the weekend I did a great deal of scanning for my longer term portfolios. I didn't find a lot for swingtrades, but my overall bias on the market is in favor of the bulls. The scenario laid out above is certainly a primary concern for me on adding to new position trades at this time, but overall I am favoring long setups over the next 6-9 months. I'm going to be starting out small, however, building into position more gradually due to the greater risk associated with the current phase of the market over the next three months.

There are certainly occasions that the type of action described in OSTK and BEN does not occur and the stock or index breaks more significantly before correcting, so my choices are: waiting and having to buy even higher, missing a stock completely, or accepting the risk of a larger correction and just entering in the middle of the rally. A middle ground is acquiring a smaller position on shorter term pullbacks on daily and intraday charts and then waiting to add on at better weekly setups. Generally I'm not a big fan of the "jumping on a moving train" mode of trading and investing, so easing more slowly into a stock I want can help minimize some of the risks a trader will run into when putting on an entire position at once.

A few of the places I am looking to invest in early this year are AES (I already have some of this from the $16 zone), MDY, WRES, JWN, BTU, AIRN, and IWR (a moving train, but one of the strong IShares) as longs. I am also watching KCI as a short. Intraday in the market we have a bit more room to move on the upside, but I'll be watching primarily 5 minute charts because the trend is becoming rather extended off last week's lows and is due for a larger correction on 15-60 minute charts pretty soon.

Economic Reports and Events
Jan 09: Consumer Credit for Nov. (3:00 pm)
Jan 10: Wholesale Inventories for Nov. (10:00 am)
Jan 11: Crude Inventories 01/06 (10:30 am)
Jan 12: Export Prices ex-ag. for Dec. (8:30 am), Import Prices ex-oil for Dec. (8:30 am), Initial Claims 01/07 (8:30 am), Trade Balance for Nov. (8:30 am), Treasury Budget for Dec. (2:00 pm)
Jan 13: Business Inventories for Nov. (8:30 am), Core PPI for Dec. (8:30 am), PPI for Dec. (8:30 am), Retail Sales for Dec. (8:30 am), Retail Sales ex-auto for Dec. (8:30 am), Mich. Sentiment-Prel. for Jan. (9:50 am)

Earnings Announcements of Interest
Only stocks with an average daily volume of 500K+ are listed. List may not be complete so be sure to always check your stock's earnings date before holding a position overnight. (A) = Earnings after the close, (B) = Earnings before the open, (?) = Earnings time not specified at the time of this writing
Jan 09: AA (A)
Jan 10: DNA (A)
Jan 11: -
Jan 12: MI (?), MTG (B), MOS (?)
Jan 13: -
Jan 16: AAPL (A)
Jan 17: ASO (B), CAL (B), INTC (?), MEL (?), SOV (A), WFC (B)

Toni Hansen is President and Co-founder of the Bastiat Group, Inc., and runs the popular Trading From Main Street. She can be reached at Toni@tradingfrommainstreet.com.