Walking the Tight Rope

As you may know I am in Colorado this week for some rest & relaxation time. There are many good reasons to take a break from everyday life on a regular basis and is something that I recommend everyone do.

On this particular time away I had set a few goals for myself in terms of things that I wanted to get accomplished – some things to do some deep thinking on. Through the course of the week I did manage to sneak in a trade here & there as the opportunity arose, but for the most part I left existing positions in play.

I did receive a fair number of good questions regarding Chart elements and thought I would focus on one particular one in this post: The Moving Average play. As you may know by now I use a variety of abbreviations in my charts (Glossary here) and so if you see “MA” in a chart I am referring to a Moving Average. I often will post charts showing an impending Moving Average breach and note on the chart to play the Bounce or Failure (sometimes I note “B/F” in referring to this). The following is an example of well a stock “walks the tight rope” that is the Moving Average:

As you can see, FO (Fortune Brands Inc) touched the 100 day Moving Average for 2 days and then bounced up to the 50 day Moving Average. A very  nice clean job of walking that Tight Rope. The Stochastics bottoming & then curling up is a good tell for me that I look for in a stock’s movement. I like these types of setups very much due to the high probability.

Of course there are those times where the appropriate trade is to play the failure to hold a Moving Average – remember it is walking a tight rope.

Happy Trading.

Smelling the brakes

I think most understand when they see this comment from me in one of my twitter messages what I am referring to (“I smell the brakes”). For those that don’t I’ll provide some color on what I’m trying to convey by looking at the Daily chart for VHC (Virnetx Holding Corp) as an example:

I have been stalking VHC this week looking for a good entry (either Long or Short) and noticed today that it had held the 22.24 Support 2 days in a row. To me this looks like the Bulls are starting to take over so the down move has abated – hence the “I smell brakes” comment to reference the move coming to a stop.

I trade VHC frequently as it provides good movement for daytrades both long and short – today being no exception. The trade setup today is just a daytrade.

Hello

I thought I would do a quick post for the new followers as well as refresh some info that I provide here on my blog. If you want to keep tabs on the Stock charts that I post, you can go here. If you are baffled by some of the abbreviations that I use, I keep a Glossary of Terms.

Welcome and feel free to ping me on anything.

Gap Fill

I have received a few good questions this week regarding the way that I draw a Gap Fill on some of my charts. Usually a box is drawn on a chart to show consolidation or a “Basing” action with price, but I also use it show the space in price during a Gap up or down. Here is a good clean example of a Gap Fill play that I am trading in NKE (Nike Inc CL B):

As you can see in the chart above, I have drawn a box in between the price for the Gap down move on 3/18/2011. Price did a brief sideways action before slowly drifting up in to the box to fill the Gap. Now price is meeting with Resistance at the top of the box and you have major Moving Average congestion (noted at the arrow). A battle here is ensuing between the bulls and the bears for sure.

Mind the gap.

The Measured Move

Action film starring Clint Eastwood and The Rock. Summer 2012

Just kidding about the film but I did want to discuss something that you will see from the Technical Analysts in their charts from time to time: the Measured Move.

Let’s get straight to an example:

Here is a Weekly chart of MCP (Molycorp Inc.) showing 2 angled lines of identical length. The first line is drawn from the lower shadow of the candle from the Friday of 11/19/2010 to the upper shadow of the candle on Friday 1/7/2011. The 2nd line is drawn from the shadow from Friday 3/18/2011 to a target near the 75.50 level (noted in the text on the chart when posted).

As you can see from the current chart below, this “Measured Move” was a great guide in determining where price was headed. Of course these moves often come up short or overshoot, but do serve as a high probability target determination.

Stop It

The subject of using Stops is a frequent question that I receive from the twittersphere. Some choose to use mental stops while some (like myself) choose to put in trailing or traditional stops once a trade is put on.

I received several questions today regarding a stop that I took in a VMW (Vmware Inc.) long position so I thought I would add a little more context for my trade exit. I trade VMW often so feel that I know the movement of the stock well and had opened a new long position today based on what I saw early. I had determined that I was going to use the 93 level as my stop as I wanted to keep a tight leash.

In watching the 5m chart through the morning, it became apparent to me that it was not going to have any real follow through and began to fade – so I let the stop hit for a loss. My trading style has several key aspects to it with one key tactic: keep the losses small.

Period.

Of course the flip side of this: keep the winners gigantic.

LOL

Hedge your bets

Last week was a poor week for owning a lot of varying commodities. We saw an insane move in Silver just to highlight one key example. There were numerous ways to play the downward pressure on many of the commodities and here is one:

The question now is this: were traders simply playing a down move in GSG, or was it being used as a hedge against long commodity positions?

No matter your trade view, it appears that GSG is now seeing some stability in price as the Stochastics are beginning to bottom. In addition, the MACD appears to be done falling off a cliff and is bottoming as well. The RSI indicator is at 30.8 which is very near the area of being oversold. Support is at 34.

If you are a trader that likes pullback and/or bounce plays, this setup may be right down your alley.

Something sMELI fishy

I spent some time this morning reviewing my Trading Journal for the week, with a focus on trades that never materialized. While doing this review, I also spent some time reviewing trades that I had executed & exited – to see where price stands in the pre-market action.

One thing that caught my attention was MELI (Mercadolibre Inc.). What caught my eye was the price being up $2.92 on volume of 300 shares. That’s right, 300 shares. I reviewed the spread in the bid & ask and decided that a good short opportunity presented itself. Pre-market shenanigans at its best as this appeared to me to be propped up for a nice short.

I have built a short position in the stock at an average of 90.40 (current price is 87.90 as of this post). Just a trade opportunity for the day.

Something to throw in the Tool Belt for future use.

ProMomoDOWN

Planning a trade takes a great deal of work if you want to ensure that you create a high probability opportunity. One of the Tools in my tool belt comes from @daytrend. If you have never seen these tools, you can get them here: http://daytrend.wordpress.com

I have been using his Excel spreadsheet for quite some time, and have found it to be useful in many ways. What I would like to do here is walk you through how I used it last night, noting where I focused my attention.

As you can see in the Excel spreadsheet above, I simply focused on the large column of stocks in the ENER (Energy) section on the ProMomoDOWN tab. By focusing on this industry at this juncture, one has two paths to take:

1) You can review the chart of each entry to find pullback plays, short plays, etc in individual stocks.

2) You can determine that this industry is under pressure and go short an energy ETF.

I chose #2 and went short the XLE. Here is an updated chart of where that stock stands at the moment:

 Sort of explains the large ENER column now huh? Just one way to use the tool so dig in and create your own strategies.

Happy Trading.

Once Upon a Time

No happy ending in the Osama Bin Laden story – unless you are a victim of the terror he led while on this earth. Many folks fall into that camp (like 380 million in the US).

I was unsure how the stock market would react today given the multitude of emotions that are felt towards OBL. Now that we have the day in the books, it is likely easier to evaluate where we go from here.

I did have a light plan of attack (pun intended) for today with a focus on fading any move that did occur out of the gate. Now I will spend some time revisiting a lot of the charts I posted over the weekend – and today – to see what stands out.

Now when I mention an indicator is down with the Titanic, you can visualize that OBL is down there too.