One of the key components to identifying and executing on a good trade setup is knowing what the TARGET is. A chart that gives cleaner clues, or easily identifiable potential target(s) is the preference for all traders.
One such method for determining a target is the Measured Move. To illustrate this concept, I bring you the Weekly chart of CBS (CBS Corp Class B). The chart below shows an initial move from July 2010 to July 2011, the basis for measuring the next move:
As noted within the chart above, the Measured Move is to 35.25 and is 4% from the current price. If long the stock already, be mindful of this level as the Bears may see it as an opportunity to short.
If short the stock here, well, you may take a little more heat here.
SHW did survive the pullback this week (was mild) but I am watching the Topping Tail on the Weekly chart very closely. Tight stop remains. UA was a little soft this week, but remains in the list.
There are times where a stock is simply under selling pressure. Every trader can see it, no way to read it incorrectly. However, at some point, the stock action will get to a point where Dip Buyers, Knife Catchers, etc. get interested. I bring you the 5 minute chart of TIBX (Tibco Software):
This is what I have been watching today, for a new Swing position. The $31 price level looked like it would hold this morning but has since given way to more selling pressure.
In looking at the chart above, some clues emerge as to why that may be. The Accumulation/Distribution indicator is near the 0.3 line (starting point today) so Bears likely want to push this down a little more into the Red box area. Also, price is testing the low of day from yesterday, March 29.
No rush here, just waiting for the stars to align for the best entry.
In the spirit of March Madness, I bring you a Final Four selection of stocks that are arm wrestling the $50 price level. Here is a breakdown for a potential trade idea for each:
I have updated the above spreadsheet information to include a look at where the trade stands today. I also corrected the information for JOSB from a credit to a debit.
For those that put an effort into reading stock charts, there are many components to the chart that require review. However, one of the tasks that is often overlooked is the simple step of “looking to the left” – where has price come from.
I came across a Daily chart of ULTI (The Ultimate Software Group) today and it reminded me of this:
Price is testing the prior breakout level, a key level to watch for any new position. If already long, you want it to hold this level.
I received a great question this week regarding the use of watchlists – and how this differs from the use of stock screeners to run scans. I am sure that each of you has a preference but for me I find them equally as important to my trading process.
Now for the reasons why Watchlists are so important:
- Over time you gain more intimate knowledge and experience from stocks on a watchlist because you pay a great deal more attention to them on a daily basis. This gives you an edge.
- Because of this more initiate knowledge, you will have a better feel for how a stock behaves when compared to the market overall. You should also better understand when a dip buy is more appropriate for example.
- Having watchlists will provide some additional benefit, like having a few “tells” in a list that become great market guides for you in your trading.
This is likely not all the reasons, you may have others, but hopefully it helps make a case for watchlists being a part of your trading process.
Now on to why stock screeners should be part of the arsenal:
- A key reason to utilize stock screeners is to find stocks that are starting to draw interest from a larger pool of traders/investors. An example would be to scan for stocks that are approaching the $5 or $10 price range as the will come on to the radar of a larger pool of buyers.
- As with many things in life, your watchlists can become stale so it is always important to rotate out the bottom performers with new or up and coming stocks.
- I have several scans that I run for very specific things, like the Fab 5 basket that I trade. Another scan is to find stocks that are extended too far from a particular moving average. Again, specific things I am looking for – for a specific type of trade.
In summary, I think every trader should do both. Keep watchlists, sorted in a way that best suits your trading. But also be sure to run scans each week for specific criteria that helps you find those new opportunities.
One of the common Trend Reversal signals is the Shooting Star. Here is a brief explanation:
On Monday, March 26 2012 I noted that one such candle had formed on the Daily chart for FINL (Finish Line Inc) and that it would need confirmation the following day. Here is a current Daily chart of FINL:
As you can see, the price action today is NOT confirming the Shooting Star candle from yesterday. This is a key point to make here: these Trend Reversal patterns do in fact need confirmation from subsequent price action (in this case, the next day’s price action).
One of the stocks providing a good entry for a long – and short – position today using RSI is MAPP (MAP Pharmacueticals Inc). This company received a CRL from the FDA yesterday that caused a negative initial reaction to the stock price this morning.
Here is a 5 minute chart showing how traders have driven the price up steadily since and where the Bears stepped in to sell the stock on the breach of 70 on the RSI:
Pretty clean action utilizing RSI in this short squeeze.
Today, the stock market is enjoying a nice green start to the week with many stocks pushing higher – the all boats rise with the tide notion. However, there are numerous stocks that I am watching that are approaching a very key level whether it be a moving average or psychological price level.
One such stock is FIRE (Sourcefire Inc). Here is a look at an Area Daily chart:
As you can see in the chart above, the stock is approaching the $50 price level. I would expect a battle to ensue here for sure but do expect the Bulls to win.
For those that follow me on twitter or read my blog regularly you know that I am a firm believer in understanding all the perspectives that exist on a given stock. I feel it is imperative to know what your enemies think so that you be fully prepared when trading. The differing perspectives on a stock are just some of the puzzle pieces that you must assemble to create a clear and complete picture.
In order to have all the pieces you need, it is important to take the time to look at each stock from different viewpoints and timeframes. Here I bring you VFC (VF Corp) with a more common candlestick Daily chart:
Now on to the PnF chart:
Knowing that some traders utilize the PnF chart above for their trading is just one of the pieces that you need to complete a clear view on how traders see this stock.
Now bring me my breakout !!
P.S. That PO of 194 sure looks good too.