A Simple Setup

Although I often post charts on chart.ly  that can be full of indicators and lines drawn in every direction, there are times where I try to keep it very simple. Here is one example of a chart that shows a simple approach at getting long a stock:

As you can see from the chart, POR (Portland General Electric Company) is in a well-defined up trend. With this chart, one could open a new long position and use the 20 day moving average as the stop.

Let it ride.

U-turn

When you see this sign, a proper U-turn is allowed.

What about in stock trading? What does a U-turn have to do with trading? This term describes a trade where a position is taken in a stock, executed, and then exited. Then a new position is taken in the opposite direction of the initial trade, hence the U-turn view on the stock movement.

I executed this strategy in GDI last week, and found myself with an opportunity to do a U-turn trade in NFLX today. I have been short since earnings, and posted the following chart earlier today:

On twitter I noted to play the impending bounce or failure. As it sat at this level, I began to cover some of my short position, and continued watching the action on the 5 minute chart. The bounce occurred and I set my stop at 230 on the remaining short – which ultimately hit as moved up through and in to the 233 range.

A missed U-turn trade opportunity as I never played the bounce. In reviewing my execution on this trade, the mistake I made was in not determining my target and playing it once hit. Had I set my strategy to exit at the 50 day moving average, I would have been clearer in my approach to the stock movement.

Lesson learned.

Perspective

A common discussion point that I notice within the StockTwits streams is the topic of “what are you seeing in this chart?”. Since I believe that a great deal of chart reading can come down to interpretation, I thought I would do a little exercise within this point. Let’s look at a chart through several different lenses.

 I thought I was use AAPL (Apple Inc.) as my example since I believe most traders keep an eye on this stock and/or have had some position in it at some point. Here is a plain vanilla Daily chart showing the volume, MACD, Stochastics, VaP (Volume at Price), & BB (Bollinger Bands). I have the 20, 50, 200 moving averages as well as the 10 day VWAP & 8 day EMA (Exponential Moving Average).

What do you see? What are the things that you look for? What sticks out at you, the glaring clues? Write them down before you read the rest of this post. Feel free to send them along to me, I’ll put together a follow-up post that shows all the different perspectives.

Now on to what I see. First off, I note the green volume bars as of late with a small rise this past week. Looks Bullish. I also notice the Stochastics reading in my Rocket Ship formation. Very nice indeed. The RSI reading is rising lending to great up movement in price this past week. I also notice the LARGE VaP bar at the current price level. This is a BIG clue for me for price action.

Now let’s put some Trend Lines on the chart. Currently the price is attempting a test of the Trend Line above after a big bounce near the 320 level this past week. Do you see the Lower Lows being made? What significance does that play, if any?

Now let’s look at a plain vanilla Weekly chart of AAPL.

I see a nice move to get back over the 50 day moving average this past week. I see a MACD that is drifting lower with some acceleration however. The Rounding Top pattern is more visible here, showing the Lower Lows being made.

What would you add here to get more clarity? More moving averages? Some Fibonacci lines?

For me, I do make it a habit to draw a chart using different perspectives. I believe it helps me to see the price movement on the chart with more clarity, instead of just seeing what I want to see.

Keep things in perspective by looking through as many lenses as you can. Happy trading.

Home Work

Now that I have my Home Work done (you know, I work for my home, mowing the yard for it, trimming its bushes, watering its flowers, etc. LOL) I can do some beginning prep work for my stock trading efforts next week.

But it is the same question every week, where do I begin? Well hopefully you keep a Trading Journal like I do, as that is the place to start. I have reviewed my daytrades for the week, and I am currently in the process of assessing where I am with my Swing & LT account positions. I will get to my Option trades later on in the weekend.

As I have posted before, I use several spreadsheets to assimilate all the various data for stocks that I am interested in watching. Below is a screenshot of my starting list noting various data on the stock that I use:

Based on my review of stocks that triggered  & those that did not, I begin to populate the watchlist with those that continue to look promising. I expect to have 50-60 stocks in this initial spreadsheet by the time I am done with this process, then the trimming begins.

Hopefully you are doing your HomeWork too. :)

Seeing RED

One of my normal prep tasks each morning is to review stocks that are making unusual moves (up or down) in the Pre-Market. One opportunity that presented itself today was GDI (Gardner Denver Inc.) as it had a solid earnings report and had gapped up. What really got my attention at the open however was the RED volume bars. And I mean massive RED volume bars on the 5m chart, one after another.

I went short with an average of 85.24 and rode it down to 82 (my 1st target, posted on twitter) where I covered my 1/3. I then assessed the chart and volume to determine the next point for covering the short. I chose the 81 level for the covering the next 1/3 of the position.

Now comes the hard part – finding the “bottom”. There is no exact science to this, some of it is a “feel” for the chart, while some of it is purely a technical support level. I noticed a tightening of the candles as it approached 80 and then watched it breach that level for a moment. I elected to cover the remaining at 79.80 level.

Now what?

Back to watching the volume and I notice several GREEN bars forming. Time to go long? Relief rally? Dead-cat bounce? All of these are thoughts that had to be assessed. I went long on a strong move back over 80 & continued to monitor the recovery / retracement. I further felt confidence in the new long position once it reclaimed the 20 day moving average on the 5m chart.

FA, from a technical perspective

I frequently see debates ensue between those that take a FA (Fundamental Analysis) approach versus those that rely solely on a TA (Technical Analysis) view of stock charts. Today I found myself needing to pay attention to both sides in earnest as I was involved in 2 trades that required a lot of focus, but more importantly I needed critical data from both.

Trade #1

I have been short BKS (Barnes & Noble) since Feb but had started to see a lot of rustling from those that were looking to get long. I keep an eye on the charts daily, but elected to ferret out more information on the FA side of things. Although I don’t see a real case for a viable business there, there is still chatter of a possibility for a LBO as a possibility. I am not one to answer whether that makes sense or not, but I would not want to bet against that possibility at this juncture. A view of the chart for 4/19 & today show that someone has a belief in that possibility. So I have closed that short position for now, but will certainly keep an eye on it for a revisit.

Trade #2

There are days where it seems there is an opportunity fest all day. Today was one of those days. I picked up on some PUT option activity in OCZ (OCZ Technology Group) and saw various messages on twitter regarding a Seeking Alpha article on possible fraud. I do follow this stock regularly so I was comfortable in just following the herd into the May 10 PUT options. The waterfall move wasted no time in forming and the stock headed down to the 6.5 level rather quickly.

A bounce occurred at 6.25 and the stock began to retrace. I began to sell some of the option contracts. I sold most of these contracts in the $3 range. I then began to review some of the FA information that was being put out on twitter and elected to play a retracement from the long side.

Although I made the decision on my PUT option exit based on technicals in the chart, my decision to then consider a long position was based on technicals AND information from reading the SA article as well as other valuable information reviewed (HT @firstadopter).  Below is the how the chart of OCZ ended for the normal trading session:

So technically, I made some of my decisions from a fundamental perspective. LoL

The winds of change

Bricks & Mortar Shell update.

I have seen some increasing interest in BKS (Barnes & Noble Inc.) this week – from the Long side. As many of you know, I have been short this stock for some time, and believe that its long-term prospects & their business model are dead.

However, I believe in paying attention to all the perspectives involved with a stock – technical and fundamental. I tightened up my stop on Tuesday (down to 9.99), but took the stop off as it approached the 10 level. I am currently evaluating my stop strategy now as it consolidates today.

The stock currently is struggling to achieve a hold above 10 (flagging below at the moment) as volume diminishes back to normal levels. Bollinger Band squeeze in play as well.

I will keep a tight leash on this trade, just in case the winds really are changing.