Roping a Buy signal with a Volume Bar count in Roper Industries

As part of the Simple Approach series I bring you a Buy signal approach in $ROP. On to the Daily chart:

ROP_volume_barI have marked up 4 entries on this 200 day chart. Here are the specifics:

  • Buy the 1st Green candle after 5 RED volume bars in a row
  • Use your stop/trade process to manage the risk in the trade (example: a 3% stop would have kept you in all 4 trades)

Gap Fill play starring International Business Machines

For anyone that studies charts frequently, one of the common things present in all charts are Gaps. These gaps almost always get filled, at some point, so one of the strategies is to play for the Gap Fill.

For an example, I bring you the Daily chart of $IBM:

IBM_gap_fillSeveral things point to the potential for this including:

1) Topping Tail Festival has formed over the past 6 candles

2) MACD has peaked, matching the October 2012 highs

If no position, just keep an eye out for a break below $203 with a target of $190.

Volume Bar Sell signal in Whole Foods

I like $WFM as a company and feel their growth prospects are exciting. However, when it comes to trading the stock, I look for high probability entries (as does any trader).

With that in mind, I have been reviewing the Daily chart and noticed 2 things worth pointing out:

WFM_falling_wedge

1) Falling Wedge was resolved to the upside. The MACD Ski Jump looks nice too, given it is Winter and the X-Games was just on TV. However, Now a Hanging Man candle is forming for today – this is a Bearish Trend Reversal signal (needs confirmation tomorrow, 01/29/2013).

2) More importantly though, this is Day #8 for a Green Volume bar so the probability of continuing up continues to decrease dramatically with each passing day. Time for a short-term short position.

Change your perspective in a search for bias confirmation

I frequently write about perspective and how important it is when doing the work in chart review – to confirm or bring doubt – to an existing bias for a particular stock. This process of “changing the lens” should bring clarity to a stock chart’s price movement and the probability of where it is heading.

To illustrate this, I chose a random chart this morning during my chart review to show several different points of view on the recent price action. I will let you decide if it confirms a Bullish bias or not.

First up is a clean chart with no moving averages or trend lines drawn – only volume is shown:

GGC_cleanThe volume in 2013 sure looks like folks. want. in. wow.

Now let’s shake it up a bit by showing a perspective that causes me to pull off to the side of the road and actually read the map for directions – the Megaphone pattern:

GGC_MegaphoneNow back to feeling Bullish again, if only short term, with this perspective:

GGC_breakoutThis perspective may help further by showing 2 breakout back-test efforts that were bought quite nicely:

GGC_breakout_backtestsIt appears that from this point a trader can do a short-term trade to play for a breakout while swing traders may like a fade of this Megaphone pattern. Long term traders should be raising stops as they go or if into Options a Collar is appropriate here.

Your money, you decide.

Position Updates – 01/26/2013

From time to time I like to share a part of my Trading Journal that pertains to positions and some of the information that I track for each. I have a little leaner position list as 2013 kicks off as I am leaving more money available for post-earnings trades. One thing that jumped out at me as I have no short positions.

Yikes.

PositionsI am not sure how many of you keep a trading journal but I find it important for my trading process as it helps me to be able to look back to see what I may have been thinking at a particular time during a trade. I use Collars a lot to protect positions and that is reflected here as well. I put one on the $CRM position on Friday as it drifted up to say hi to Mr. 175 – seemed prudent.

Another reason for getting a little leaner in my personal account is the ramping up of our efforts at Presidium Capital. Focus is required on managing a trading book for clients so I am working through adjustments in terms of time management as well as a good balance of strategies for trade entry and exit.

Adjusting an existing trade to prepare for an Earnings Report

A much-anticipated earnings CATreport on Monday from $CAT is the subject of this post. I have a position in the Fab 5 basket of stocks for $CAT (purpose is for the $100 Roll trade) and wanted to illustrate one way to make an adjustment so that the Risk to a trade is managed properly. In addition, I will show how an adjustment for many different reactions can be taken into account and structured for. Here are the details to the initial trade:

  • I am Long the February 95 Call
  • I am Short the February 100 Call (thus the 2 pieces make a Call Spread)
  • I am Short the February 87.5 Put (premium collected to help lessen the cost of the above Call Spread)
  • This is considered a Risk Reversal trade

On Friday I began to evaluate the trade by changing the lens on my view, adjusting my perspective based on recent information that was putting pressure on price. Based on this information and what I saw being reflected in the chart, as well as my plan to protect against any significant downside risk, I elected to make the following adjustments:

CAT_earningsLet me break it down:

  • I bought back the short 100 February Call and sold the February 1 weekly 95 Call. This converts from a Call Spread to a Call Calendar.
  • I bought the February 1 weekly 87.5 Put to protect the short one I have in the February monthly chain. This creates a Put Calendar, but one I am short.

A few scenarios that can occur, and how I would work the trade accordingly:

1) The stock moves down after the report and hangs out near the 87.5 strike Put. I will be glad I own Puts for next week and will deal with accordingly. In this scenario it is likely the short 95 Call can be bought back on the cheap, thus collecting the bulk of premium from the sale. Ideally from here, the play is for a price recovery back up to Friday prices to get value from the long February monthly 95 Call. If this occurs, the plan would be to create a Call Spread again to lower the cost further for the Long 95 Call.

2) The stock moves down after report into the Gap Fill area (92.95 to 89.80). In this scenario it is likely the short 95 Call can be bought back on the cheap, thus collecting the bulk of premium from the sale. Ideally from here, the play is for a price recovery back up to Friday prices to get value from the long February monthly 95 Call. I would manage the Put Call side as appropriate, can wait until Friday if desired.

3) The stock stays in current price area (97.73 to 94.66). In this scenario it is less likely the short 95 Call can be bought back cheaply – near premium collected or lower is ideal if given the opportunity. Ideally from here, the play is for a minor dip and then price recovery back up to (and above) Friday prices to get real value from the long February monthly 95 Call. Manage the Put Call side as appropriate, can wait until Friday if desired but would imagine can take these 2 pieces off and keep a good portion of the premium.

For those that are more visual, let me add a graphic that shows the plan and how it could play out in these scenarios:

CAT_scenarios

The Fab 5 update – 01/26/2013

This week was very good for this basket of stocks as 2 positions started the $100 Roll and have completed Day #2 as of Friday – a Monday close above and $FDX & $MHK will get Complete status.

The $MON position has been left in to see if it can run more. $ARG had an earnings report that saw its shares dip but got bought well – price recovered and the position is up slightly from initial entry. The $CAT position will be important on Monday as it has an earnings release. To help protect the short 87.5 Put for February I did buy some very cheap insurance: the February 87.5 weekly Put. I also adjusted the Call side of the trade by buying back the short 100 Call and selling the weekly 95 Call. the overall position is now a Double Calendar.

Here is the Summary:

01262013

Apple PnF charts – an update

I did a  post in December on the 3-box & 4-box PnF charts for $AAPL and thought I would do an update to see how things look now. First the 3-box PnF:

AAPL_PnF_BAs you can see today was a Double Bottom Breakdown with a new Bearish PO of 408.

Now the 4-box PnF:

AAPL_PnF_4boxAs you can see today was a Double Bottom Breakdown with a new Bearish PO of 360. Yowza.

Don’t get Hot under the Collar, it can be a real benefit

I started a new position in $URI in after hours action on 01/23 and came in today with a plan to look for an opportunity to do additional pieces. I usually incorporate Options in my plan so I had to wait until market open.

Unfortunately the market didn’t wait for me as the stock price moved up through the $50 level in pre-market action and was running at the open. I don’t like to chase as a rule so the position size I had, well, it is what it is.

When I am in a position, and I see a potential stall point, my usual next step is to put on a Collar. Here is what I ultimately did this morning:

URI_trade

So now where do things stand? Lets take a detailed look:

  • I am long stock and short the February 52.5 Call
  • I am long the February 50/48 Put Spread
  • This was done for a credit as noted above

The move to the market close saw price fall through the $50 strike and so the key protection in the Collar kicks in: the Put Spread. Here are the current bid/ask on the pieces as of the close:

  • 52.5 Call is .35/.45
  • 50 Put is 2.00/2.15
  • 48 Put is 1.00/1.15

There are several ways to play this to expiration but for now there is no need to do anything (1 of the choices always available to the trader). The Put spread has increased in value AND the short Call has lost over a $1 since selling it – so the pullback in the stock price is offset by these two factors.