Today's Entry: APA

I bought 100 shares of APA at $133.34.

Setup: Trend Pullback. The stock has pulled back to the 50 day moving average, where it found support the last two times it reached this level. Stochastics are oversold and OBV remains stong.

Risk: My intial target is the recent high at $150. I would likely take partial profits, move my stop up to my buy price, and hold the rest into new highs. My stop is just under the 50 day moving average, which makes this a very low risk trade.

Concerns: While OBV remains strong, individual volume bars are all over the place. We have some stong bars, and some negative bars on high volume. It's also worth noting that this pullback came off a negative RSI divergence.

So why take this trade with these concerns? Stochastics have been good entries the last 7 times the stock has reached oversold levels. I am playing this stochastic trend.

Pilot Position in CLF

I took a small 75 share position in CLF today at $102.01. This one's an early breakout pullback. The stock could pullback to the breakout point at $97 and still look good. My stop is around $95 with an undefined upside target in new high territory.

Questions and Answers

What books do you recommend?

I have read over 100 books on trading and frankly, most have been a waste of time. A few that I have liked include The Market Wizards books by Jack Schwager, Entries and Exits by Alexander Elder, Thomas Bulkowski's chart pattern books, Alan Farley's trading setup book (if you can get through the horrendous writing style) and Technical Analysis for Dummies by Barbara Rockefeller.

I would spend more time going through historical charts than reading books. Flip through at least 100 charts every day. Look at past winners. Understand price movement, momentum, sector analysis, volume and patterns.

You don't talk as much as you used to about psychology. Do you focus less on it?

Not at all. These days I focus more on psychology than I do the markets and setups. At this point, trading analysis comes easily to me. It takes me about 10 minutes a day to analyze the indexes and key sector charts to come up with a theme for the next day. The hard part for me, considering I have a ultra-competitive, addictive personality and am prone to taking gambles, has always been the pyschological aspect.

Creating a simple, balanced lifestyle and adopting a Zen-like approach to trading has helped. I also focus more on research than obsessing over current positions. I force myself to let my initial trade analysis do the job, and only exit at my preset stop or target.

Earlier in the year you metioned you wanted to start trading options. Have you put on any trades?

Not yet. I have done some reading and am starting to get a feel for the vehicle. I hope to put on my first options trade sometime this year. I know a few of the trades I have made would have made much more money had I went with an option strategy.

Are you still as bearish on gold as you were before?

I am standing aside the gold trade right now. Remember my analysis was short term (and profitable), when I made my trade. Now we are getting mixed signals. Price action still looks bearish, but I am seeing some indicator divergences in GLD. For instance, RSI broke out recently. Gold stocks like BVN and GOLD are acting more bearish than GLD. These might be better trades, although they are currently very oversold.



What sectors are the best right now?

It's tough to say what's "best", since strong sectors like energy might not currently be good long trades. I'll just list areas that I am watching closely, both for long and short setups:

Energy, Coal, Financials, Steel, Natural Gas, momentum tech stocks, recent earnings breakouts and breakdowns, Railroads.

Trade Setup: EWZ

I bought 200 shares of EWZ at $95.21.

Setup: Breakout and Trend Pullback. A low volume orderly pullback to the 20 day moving average. Strong obv and stochastics have reached extremely oversold levels.

Risk: My intial target is the recent high at $100. I would likely take partial profits, move my stop up to my buy price, and hold the rest into new highs. My stop is just under the 50 day moving average, which makes this a very low risk trade.

Concerns: The overall market. Also, some Brazilian stocks have moved lower on higher volume than the ETF.

Note: This is the second time I have traded EWZ since it initially broke over $90. The intial trade was a breaout-pullback while this one is more of a trend trade.

I'm Back

I'm back from vacation and hope to get into the swing of things this week.

By far, the number one question I have received during my hiatus is when I plan to exit the DUG trade. I have moved my stop to break even and plan to stay in until my upside target or my break even stop is hit.

DUG Divergence

Take a look at the DUG chart below. Notice that RSI has made a higher low while price action has made a lower low. The ETF, which is short oil and gas, is also extremely oversold. I took a small position this morning.

Quickie Trade Update: MTL, BZP and USO

I entered MTL and BZP. MTL is showing a negative divergence, but the steel sector looks like it can be bought on today's dip. BZP is showing strength on the pullback at support.

I am thinking of pulling the trigger on a small short position in oil.

Watchlist and Trade

Here are the stocks that made my weekly watchlist:

drys hma x ewz lufk cybs aks bzp mtl csiq gnk rimm fls sol fslr crk (bo-htf) jrjc flr apa dvn vip

I bought CRK on today's breakout, using a buy stop with a limit place just above the consolidation area.

Trade: CYBS

I bought CYBS four days ago, after the stock had pulled back from the breakout point and stochastics crossed over from oversold territory.

Since I did not post it here I won't include it in my performance stats, assuming I ever get around to updating them (you can click on the trade label after trade related posts to view trades I have made).

The reason I did not post that trade is, as I discussed before, I've noticed that some of you are piggybacking my trades (some with much bigger position sizes than me). Since this stock usually trades at a lower volume level, I didn't feel comfortable posting the trade. I do now since it's not at an ideal entry point.

Note the upsurge in positive volume of late, along with the a fantastic breakout-pullback pattern.

Question and Answer

I don't have much to say today, so I'm going to use this post to answer questions from e-mail and comments.

What do you think of GTLS as a short?

I certainly would not buy right now, but not sure I would short either. While the it printed a big down bar and the bounce has been weak, the breakdown did not break major support levels. The stock is still in an uptrend.

While the probability of the trade doesn't give a great edge, since the risk is well defined and small, I would not be opposed to using this as a pioneer short trade. A stop could be placed about two points away, above the recent high. I would only make this trade with a small position size.



How far would you wait for a pullback in FSLR?

I mentioned FSLR as a bullish setup requiring a pullback. I actually took a small "pilot" position at 303 today, but wouldn't make a big play until we see a pullback into the $290-300 range.



Does it concern you that MON's OBV is breaking out to new highs?

This was in response to my MON short. OBV has not made a new high since January. I would not have made the trade if OBV was at a new high.



A question related to my TRLG trade basically asked how I define my target with a breakout into new highs.

That is tricky. When buying on the pullback, my intial target is usually the recent high. I'll take some off and then move my stop up. If I get stopped out, I've made a profit. However, I am still in play if the stock moves higher. At some point the stock will become very overbought, at which point I might take off the entire position and wait for another pullback.



What do you think of oil right now?

I believe oil (USO ETF) has become a speculative play that will pullback soon enough. The commodity is very overbought. Historically, this is the point that we see a pullback. However, I am not confident enough to short. I will be a buyer on a pullback to the 50 day MA *and* successful test of that range.



That's it for today. I may do another Q&A post tomorrow. Feel free to comment or e-mail if you have a question.

Chart Attack

Here are selected charts from my watchlist.

SRX: Breakdown-pullback with bearish flag forming.



FSLR: Momuntume breakout. Hot sector. Overbought so I'd wait for a pullback.



LEH: Weak downtrend consolidation. If it falls, lots of room to drop. Easy stop placement limits risk.



ICO: Nice Uptrend. Possible buy on low volume dip to 20 day moving average.



GXDX: Nice breakout after bottoming formation.


GG: Classic short setup. Typical of most gold stocks. Coming off overbought condtion on pullback.



DFG: Breakdown-pullback with bear flag formation. Nice short setup.

A Monsanto Topping Pattern?

I went short 100 shares of MON at $120.76. Rather than analyze the trade setup as I have been doing, I'd like to take a look at MON's weekly chart. It's starting to look like a top might be forming.

Take a look at the price action. For the fist time in two years, the trend is stalling and we are starting to see a volatile, 30 point range forming. This by itself is not a sure fire bearish signal.

However, when we add volume, a bearish "tell" forms. Volume during this range has been decidedly bearish--lots of tall red vs short grey bars. RSI is also divergent during this range. The recent high was not confirmed by a high in RSI, which is not a bullish sign.

My current trade was not based off the weekly chart, and I am using a tight stop. If I do go short in my longer term position trade account (which I do not detail here), I would place a stop at the recent high around $132, with an initial target at the bottom of the range around $90. A second target would be at $70, the last area of consolidation.

Today's Trade: TRLG

I bought 300 shares of TRLG at $22.41.

Setup: Earnings-Breakout-Pullback. This specialty retailer broke out on massive volume two days ago as a result of strong earnings. I bought today on the pullback, about a point away from the bottom of the breakout candle.

Risk: I plan to hold this stock into new highs, possibly taking partial profits in the $24-25 range. My stop is just under the breakout bar.

Concerns: Stochastic is over 70, but this isn't unusual when playing earnings breakouts.

Quick Trade Note: MTL, SWN, EWZ, SKF and LEH

I took profits in my remaining shares of MTL and SWN, and partial profits in EWZ and SKF. I went short 150 shares of LEH at $44.68. The small position size was required because the stock is slightly above the 50 day moving average.

Sectors Nearest New Highs

Here is a list of sectors ranked according to "percent of 52 week high".
























Most sectors on this list will come as no surprise. However, "regional southwest banks" threw me for a loop. I dug deeper and looked at individual stocks and did not find one that I'd put on my watchlist. Some had decent price patterns, but not enough solid volume.

I still like many of the commodity sectors that top the list, but won't get involved until there is a pullback (which some sectors, like steel, seem to be starting).

Today's Trade: EWZ

I bought 200 shares of EWZ, the Brazil ETF, at $91.61.

Setup: Bullish Flag post Breakout-Breakout Pullback. The stock pulled back to the top of the breakout level, which is also where it broke resistance. Recent volume pattern is strong and obv has increased as stock has pulled back from breakout. As a plus, all things Brazil have been on fire.

Risk: My initial target is the old high around $95. I will either take full or partial profits at this level. If I feel the stock is ready to breakout to another new high, I'll keep a position. My stop is just under price support and the 20 day moving average, in the $88-89 range. This only gives me an intial risk of about 1:1 reward to risk, but I feel the probability of the setup is strong. Also note this is the "initial risk". If I decide to stay in for a breakout of $95, my target will be higher.

Concerns: Stochastic not yet oversold, but still is under 50. U.S market could pull down strong region like Brazil. Still, Brazil has great relative strenght compared to S&P 500.

Are Steel Stocks Ready to Rollover?

It has not been wise betting against steel stocks, but there may be a low risk short setup forming. Let's take a look at the chart of AKS, which is representative of many steel stocks (MTL, ZEUS, X).

The first thing that concerns me is that RSI has made a lower high while price reached new highs. This is a negative divergence.

While the obv indicator is still strong, volume has printed a couple of distribution days, which are high volume days of negative price action. Also, postive volume has not outpaced the negative days.

Finally, stochastics point to an overbought market.
























I am not saying the long steel trade is dead. No major resistance points have broke. I do think steel is ready to at least pullback, which could provide a short term, low risk short opportunity. Low risk in that you can place your stop just above the recent high, keeping the loss at about 3 percent.

Note that I am not taking this trade and am only pointing out a scenario that I am watching. I am about 65 percent short right now and don't feel like increasing that number.

Trade: Gold's Sell Signal

Over the past few months overbought stochastics readings have given reliable short term sell/short signals. We are just about there right now. I used today's strength to short gold via DZZ (300 shares at $29.22), which is a leveraged gold short.

Here is the GLD chart. Pay attention to the stochastic reading.

Trade Setup: BBD

I bought 200 shares of BBD, a Brazilian bank, at $23.31.

Setup: Breakout-Pullback. The stock pulled back to the breakout level and has a strong volume pattern. As a plus, Brazilian stocks have been on fire.

Risk: My initial target is the old high around $25. I will either take full or partial profits at this level. If I feel the stock is ready to breakout to another new high, I'll keep a position. My stop is under the breakout level. This only gives me about a 1.5:1 reward to risk, but I feel the probability of the setup is strong.

Concerns: I entered at the top half of the stochastic indicator--the pullback did not reach overbought levels. If today is the start of a deeper market pullback, it may bring this stock down with it.

Quick Trade Note

I bought BBD and CAT. Took partial profit in MTL, SWN and NFLX (short).

I'll have more details later.

I am looking to go long energy and steel on a decent sized pullback, and short any of my bearish candidates on strength.

Trade: MTL

I bought 200 shares of MTL at $147.85.

Setup: Trend Pullback. The stock pulled back to the 50 day moving average and seems to have confirmed that it will hold. I like the volume pattern and obv looks strong.

Risk: My initial target is the old high around $160. I will either take full or partial profits at this level. My stop is under the 50 day moving average, around $136. Only about a 1:1 reward to risk, but I feel the probability of the setup is strong.

Concerns: I would have liked to enter closer to the 50 day moving average, under $145. Also, the market in general is still overbought, so it could pull down this stock if we get a market pullback.

DIG Confirmation

DIG confirmed the bullish tail candle at support. I may add positions tomorrow if there is a slight pullback. I am already holding SWN.

Trade: MDP

I am short 300 shares of MDP at $33.95. This is a bear flag setup. Volume and OBV stink (which is what I want for a short) and stochastics are overbought. There are a couple of good places to place a stop. The two I agonized over were the top of the breakdown bar or the recent pullback high. Feel free to leave a comment and let me know how you would manage a stop on this trade.

Time Saving Tip: Weekly Focus List

As a part-time trader, time management is as vital to success as picking stocks or managing my portfolio. Over the years I have developed tricks to streamline what used to take me up to 4 hours a night, down to about 45 minutes.

Over the next week I will share some of these tips.

Time Saving Tip #1: Create a Weekly Focus List

As a swing-trader, I spend most of my time building watchlists. Watchlists can provide a number of beneficial functions. Of course, the primary function of a watchlist is to find stocks to trade. However, well built watchlists also can provide insights into areas such as market sentiment and sector rotation.

My watchlist is organic and can have anywhere from 100-300 stocks, depending on market conditions and how many different setups I am trading. However, I rarely trade more than 5-10 stocks at any given time. Most of the stocks in the watchlist are a few points away from ideal entry points, so it is a waste of time to go through the list every day.

Now, instead of wasting valuable time analyzing a few hundred stocks daily, I create a focus list every Sunday, after my sector review. I go though my watchlist and pick the 20-30 best setups, and put them in the focus list. This is the list I trade from during the week.

The focus list saves me an hour each night. That's about one extra day of "time" every month, time better spend analyzing my past trades, researching setups or just relaxing and having fun.

Check back soon for more time saving tips.

My Daily Prep Notes

Here are my daily prep notes, copied directly from my prep journal:

Today's big move could have been just a post fed reaction or the start of a leg up. Commodities that have been leaders were crushed today, although many closed nicely with long tails and still are just above support. Could be a sector rotation, as tech, financials, homebuilders and consumer/retail did very well. Look at ETFs for opportunites.

Expect a pullback, as market still overbought.

List of ETFs for sectors possibly seeing rotation: UYG USD ROM QLD URE SSO UWM.

Brazil is on fire, China rebounding.

A day like today is a good day to catch bounces in short setups off of breakdowns: MDP, BDC, DST, DFG,MNST IGT HMSY MBT.

DAR has nice breakout-pullbac setup.

Trade Entry: SWN

Trade Entered: 300 SWN at $39.77

Trade Setup: I entered based on the earnings-breakout-pullback setup. The stock, reacting to earnings, broke to new highs on heavy volume last Friday. The stock and it's sector have been in an uptrend with strong volume patterns. I bought on a pullback to the breakout point.

Stop: Below breakout point and today's low.

Target: Recent high around $45 is the initial target.

Concerns: Sector selling off with possibility of rotation. However, major support has not broke down. Still, enough of a concern to go with a smaller than normal position size.

Quick Trade Note

I bought 100 shares of SKF (short financials) at $96.53.

I bought 300 shares of SWN at $39.77

I was stopped out of ANR at $47.40 for a loss.

I went short 200 shares of GRMN at $42.67

I will detail these trades later today.