If buying DUG here, a relatively tight stop can be placed just below the 20-day exponential moving average (1.5 points below yesterday's close). If DUG rallies back to test its July 17 high, selling into strength of the quick move would net you a gain of about 4 points. A risk of 1.5 points with a potential reward of 4 points means the reward/risk ratio on the setup is better than 5 to 2 (4 points / 1.5 points). For all trades, whether short or long-term, we look for reward/risk ratios of at least 2 to 1.

As expected, Biotech HOLDR (BBH) gapped sharply higher on yesterday's open. News of the Roche acquisition offer of Genentech (DNA) caused BBH to open 6.4% higher. Per real-time Intraday Trade Alert to subscribers, we sold into strength of that move a few minutes later, netting a gain of more than 19 points (11.2%) on the trade! Admittedly, a bit of luck contributed to that massive winner. However, we originally bought BBH due to relative strength in the biotech sector, which led to a breakout in BBH. The Genentech news was just icing on the cake.

We're smack in the middle of quarterly earnings season. That means lots of surprises and opening gaps from day to day. After yesterday's close, Apple (AAPL) trumpeted their latest report card. Though they beat earnings estimates, they lowered their forward-looking expectations. This did not please Wall Street. In the after-hours market, AAPL was last seen trading approximately 10% below yesterday's closing price of $166.29. Regardless of whether or not you have a position in Apple, this is noteworthy. Google, Microsoft, and Apple all had disappointing news within the past three days. When market leading stocks such as Apple start falling apart, it acts as an anchor on the entire broad market (especially the tech-heavy Nasdaq). We're not saying last week's rally attempt off the lows is already dead, but we have not yet seen any indication that it was anything more than a very short-term, counter-trend bounce. Either way, we welcome the direction of the stock market's next move because we trade what we see, not what we think!

Open ETF positions:

Long - GLD, RSX
Short - (none)