This Week's Trading Plan
Navigating weekend event risk, potential tech breakouts, and tracking two strong steel names
Following up on open trades
In my June 3 update I had four positions on - CIEN, HUT, MKSI and KLAC. Three are now closed and one’s still running. Here’s what happened.
CIEN - stopped out at $607.23 on June 3, the same day that update went out. I’d moved my stop up to $607.50 ahead of earnings and it pulled back and stopped me out. +8.5% on the trade. It had a very negative reaction to the earnings and price has continued lower since then - it closed at $446 on Friday June 12.
HUT - moved my stop to $117.85 to lock in some profit after an ugly looking daily candle on Tuesday June 2. Stop got hit on June 5 at $117.31. +3.4% in the end - but I never let a decent winning trade turn into a loser and the stop served its purpose here.
MKSI was a loss. During the June 5 selloff my stop was hit and I exited at $305.52, down 8.2% from my $332.82 fill.
KLAC I am still in but took half off on Friday June 12 in the pre-market. KLAC did a 10-for-1 split on June 12, so I got 10 shares for each 1 held - same position, just 10 times the number of shares at a tenth the original price. I took half off at $239.45 for a touch over +22%, which was 2.4R (2.4 x my original risk on the trade). The other half is still running with the stop up at breakeven, $196.01. It closed on Friday around $253.
On the daily charts, the black line is the 20-day SMA, the green is the 50-day SMA, and the red is the 200-day SMA.
The plan for the week ahead
I put out my Market Temperature piece earlier today. The short version: strength broadened out last week across semis, small caps, cyclicals and international, but the SPY and QQQ still haven’t reclaimed their 20-day SMAs. I want to see the indices reclaim this moving average before I get aggressive with new positions.
So, this is a plan for how I’ll approach the week without a list of exact entries. There’s event risk over the weekend, with the potential signing, or non-signing, of the MOU between the US and Iran. No point suggesting precise entry levels on a Sunday night (Melbourne time) when these names could gap significantly in either direction. However, I know where my stops will be if I enter.
Here’s how I’m thinking about it. If there’s an agreement and the market starts running when the futures open, I’ll take a position in the Nasdaq 100, through CFDs (contracts for difference), which are available in Australia. I use them for a lot of my short-term and swing trading. I’ll be looking to enter on a break back above the 20-day SMA. That gets me in without waiting for the US market to open. And because they basically trade 24/5, I can manage risk more tightly and take a larger position.
For the individual stocks, I’ll watch the pre-market Monday without committing to a specific entry level in advance. If nothing happens over the weekend and stocks are opening a little up or down with no breakout and no severe gap down, I’m considering taking some early entries in half position size before a breakout, then leaving a resting buy stop order for the second half, probably with a tighter stop on the second piece. If it looks like there will be a severe gap down on the US open - I’m not interested and will patiently wait it out.
The names below all held up well through the early-June pullback and are consolidating near all-time highs or already making new ones.
The names
Teradyne (TER) - automated test equipment for semiconductors and electronics. Weakening, Strong Uptrend. Up 12.7% last week (week ending June 12). 9.4% above the 20-day SMA (1.4x ATR), 6.9% ATR. 4.5% below its all-time high. RSI 58.
Consolidating since making an all-time high at the end of April. Volatility is contracting and it’s making higher lows. My stop would sit below $356.60, under the 20 and 50-day SMAs and the low on Thursday, June 11.
Semtech (SMTC) - analog and mixed-signal chips. Leading, Strong Uptrend. Up 10.4% last week. 7.9% above the 20-day SMA (1.0x ATR), 7.7% ATR. 3.3% below its all-time high. RSI 62.
Consolidating since late May. Had a shakeout under the 20-day SMA on Tuesday, June 9. My stop would sit under $150, below the 20-day SMA, if buying on a breakout. If I take an early entry, I’ll use $143.61 to give it a little more room.
DigitalOcean (DOCN) - cloud infrastructure for developers. Weakening, Strong Uptrend. Up 0.3% last week. 4.2% above the 20-day SMA (0.5x ATR), 7.7% ATR. 7.6% below its all-time high. RSI 61.
Consolidating tightly since the earnings gap up on Tuesday, May 5. It’s held its 20-day SMA the whole time, other than a shakeout on Tuesday, June 9, where it breached it during the trading session but closed back above it. I’m strongly considering an early entry in half size on this one. If I do, my stop will probably sit under $148.23, the low from Thursday, May 28, although I may use a tighter stop under $153.71 - the shakeout low on Tuesday, June 9 - depending on the entry price.
Western Digital (WDC) - hard drive and flash storage maker. Weakening, Strong Uptrend. Up 10.0% last week. 8.7% above the 20-day SMA (1.4x ATR), 6.2% ATR. 6.6% below its all-time high. RSI 61.
Trending beautifully for over a year. During the recent pullback, it undercut its 20-day SMA but recovered strongly last Thursday and Friday. My stop would sit under $480.87, the pivot low from the recent pullback.
On watch - the steel names
Two steel names I’m watching. After a strong week for materials (XLB), I flipped through all the individual stock charts and these two stood out. Both finished last week at all-time closing highs, but they’re the most extended names on my list. I’d want a pullback or some tightening first, or maybe just use a tight stop - though entering here with the tighter stop is a lower-probability trade.
Nucor (NUE) - steelmaker. Lagging, Strong Uptrend. Up 4.7% last week. 8.4% above the 20-day SMA (3.0x ATR), 2.8% ATR. 0.9% below its all-time high. RSI 73.
It’s a bit extended at 3.0x ATR. If I do enter, my stop would sit under $252.69, or $245.33 below the 20-day SMA and the shakeout low on Tuesday, June 9.
Steel Dynamics (STLD) - steel and aluminium producer. Improving, Strong Uptrend. Up 5.3% last week. 10.2% above the 20-day SMA (3.3x ATR), 3.1% ATR. 1.1% below its all-time high. RSI 75.
The most extended name at 3.3x ATR. If I do enter, my stop would sit under $267.46, or $259.52 - the shakeout low on Tuesday, June 9.
Given the weekend event risk, I am open to anything next week, but I still find it helpful to have a clear plan. If things go badly, I will just step aside and wait for the dust to settle. The new Federal Reserve Chair Kevin Warsh is also scheduled to make his first press conference as Chair on Wednesday following the conclusion of the central bank’s two-day rate-setting meeting - adding even more uncertainty and risk to the week.
The four tech names are high-ATR, between 6 and 8%, so be careful and size accordingly if trading them and/or other similar names.
Stay open-minded and manage your risk carefully.
Cheers!
Marcus Grant, CFTe
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