Sunday, June 29, 2008

What's Worked Over Two Different Time Frames

Below are two sector lists. The first is the best performing over the past year, while the latter lists them over the past month. The sectors that show up on both lists are the ones I am most interested in right now, since it seems to be where most feel safe parking their money during the current market.



Saturday, June 28, 2008

The Six Indicators

I am getting a lot of questions about the 6 indicators I use to measure market extremes. Most seem to think I am talking about stochastics, TICK, T2108 and a few others. It's not that simple.

I've created the indicator I mentioned, and 4 of them are combinations of some of the indicators many of you use. I have found them to be more accurate under specific conditions. I won't release these indicators, but I will let you know when they are giving buy or sell signals.

Off Topic:
In my last post I was giddy that the Wolves drafted Mayo. Well, a few hours later I found out that they traded him for Kevin Love. I've been asked what I think of the trade. Let's just say I won't be buying season tickets any time soon and think Kevin McHale should be fired.

On the positive side, at least we won't be subjected to any "Gay Love" jokes. For those that don't know, Kevin Love was originally picked by Memphis, and would have been teammates with Rudy Gay.

Thursday, June 26, 2008

Trades and Thoughts

All of my oversold bounce indicators are now flashing buy signals. However, I do have some concerns and am not taking on any huge positions here. While I have made some trades to the long side to try and capitalize on a bounce, they are all average or small in position size. Why am I not trusting my usually trustworthy indicators?

The reason is the bounce play hasn't passed the "gut check" test. Basically, I have not got to the point where I just feel sick to my stomach about the markets. I haven't sensed any fear yet. In fact, what has caused me fear in my bounce positions is the fact that everybody is expecting a relief bounce.

As I stated earlier today, I made one index play, one ag and one energy play. I also entered TRLG and EWZ yesterday, and both are still above stop levels.

As I stated earlier this week, POT was due for a pullback, and we are now at a good entry position.



SSO (short S$P) is testing lows and is extremely oversold. The fact that we are close to the support/breakdown level provides a low risk entry. I will lose little if I get stopped out, but could make a nice gain.



SWN is still riding above support. This is either a topping formation or a pullback that will continue the trend. If it is a topping formation, I will lose very little.



Off Topic:
I'm a diehard Timberwolves fan and can't believe Kevin Mchale did not screw up the Wolves pick in tonights draft. I am ecstatic that the they picked OJ Mayo. He is going to be a star, and a perfect compliment to Al Jefferson (who at 23 is already better offensively than KG).

For the first time in years, I actually see hope for the Wolves!

Religion

TRLG (True Religion) has been a "go to" trade for me ever since the early May breakout. It's held up quite nicely and I am back in.

Quickie Trade Update

I'll post specifics later, but I've used today's weakness to buy an index ETF, and made one ag and one energy play.

Wednesday, June 25, 2008

Trade Entry: EWZ Bounce Play

I bought 500 shares of EWZ at $90.06.

Setup: Oversold bounce setup. I had a buy stop set above $90. Volume was great today, and the highs held, unlike that of the Dow.

Risk: My stop is set under the recent lows. Target is the $94-95 range. I chose the Brazilian ETF over the US markets for obvious reasons. EWZ is technically more sound and has reacted better as a bounce play.

Concerns: The 50 day moving average provides overhead resistance.

Tuesday, June 24, 2008

Stalking for the Bounce

I use 6 indicators for deciding when to play an oversold bounce. Today four of them are giving buy signals. If we get a good amount of weakness tomorrow, the fifth indicator will likely give a buy signal as well.

For the time being, I am ignoring my watchlist. I am only playing the indexes waiting for the buy signal to make a big, but low risk SPY or Q trade.

Note that my bounce play will likely be short term, and I may reverse it and go short at resistance levels.

Trade Update: PCX and TRA

I've made a number of entries and exits today. I am gettting a lot of questions about TRA and PCX. I'll have more details on all my trades tonight. I was stopped out of TRA for a loss and took partial profits in the PCX short.

Monday, June 23, 2008

Trade Entry: TRA

I bought 500 shares of TRA at $53.12.

Setup: A combo platter of a breakout and trend-pullback and entering within a forming high and tight flag. I expect a continuation of the trend. Great volume pattern and RSI and stochastics confirm price highs. The stock is under accumulated here.

Risk: My intial target is the recent high at $60. My stop is just under the forming consolidation area.

Concerns: No doubt, the stock (and sector) is overbought. However, momentum and volume are so strong that I'm betting the trend will continue.

PCX: I'm in

I used this morning's strength (on feeble volume) to enter my short position in PCX. Read last night's post to understand the entry.

Sunday, June 22, 2008

PCX: High Risk and High Reward

PCX has been the killer momo play for 2008. The stock has more than tripled, and has been relentless since breaking out in April, going from $50 to $150 in about two months. When I say relentless, I mean relentless. In that span, there was not even one high volume selloff. The few down days the stock did have were on relatively weak volume, which is a bullish signal. At least, until Thursday.

Thursday marked the first high volume down day. Not only was it a down day, but a "rough and imperfect" bearish engulfing candlestick pattern also printed.

Want more bad news? Here it is. The stock ranked 18 out of 7000+ stocks in my properiety scan for extended stocks. I never short based on this scan alone. There need to be other factors. PCX has ranked high on this scan for quite some time, but only now (after the first distributive volume signal) am I thinking of shorting.

Note that shorting a momo stocks is never easy and can be a hair raising experience. I actually don't recommend shorting PCX. Those that do enter short now better be fine with taking a loss.

If I do enter a short position here, I will manage risk closely. A logical stop would be around the recent high in the $162-165 range, with a target at the 50 day moving average, around $100. That would give about a 5:1 reward to risk.

Overbought Sectors

Here is a list of sectors with the highest stochastic readings. I use this information for three setups:

1. To find sectors with good chart patterns and await a pullback for entry

2. Find sectors with bad chart patterns that are bouncing to resistance and ready to short.

3. Find topping patterns in overheated sectors.

Friday, June 20, 2008

Don't Overpay for POT

Ag related stocks are finally starting to pullback. Those of us who missed the recent run (I raise my hand in shame) are starting to get itchy trigger fingers. Rest assured, I've got my gun set on safety.

Take a look at Potash. Even with the 10 point pullback from all time highs, the stock is 15 points above the 50 day moving average and barely starting to work off overbought stochastics. With the runnup the stock has had, I would expect a more meaningful pullback to some real strong, well defined support areas.

I will buy if the following conditions are met:

1. The stock pulls back to the support zone I've drawn below, in the $220 range.

2. Downside volume stays below the line I've drawn within the volume bars. The idea is that downside volume should be less than previous upside volume. If volume increases on the pullback, that is a sign of distibution.

3. Stochastics near oversold levels, in the 20-40 range.

Thursday, June 19, 2008

Sector Analysis: Discount Variety Stores

As many of you know, I usually spend Sunday evening analyzing sectors and the hot stocks within those groups. Due to time constraints I've been skipping this watchlist ritual, instead only trading stocks that I find through my scans.

I had some free time today and was surprised to see Discount Variety Stores among the top of "sectors making 52 week highs" list. I should not have missed this and will go back to my Sunday ritual this weekend. Now lets look at Discount Variety Stores:



The sector action looks great. Price is pulling back from all time highs in an orderly fashion. The moving averages are all moving up and, not seen on this chart, volume is confirming the trend.

There are twelve stocks in this group, and nine are within 70 percent of their 52 week highs. Here are my favorites:

BJ: Stick with the trend and buy pullbacks



COST: It's dropped below the 50 day moving average, so I would not buy here. However, a dip to the 200 day MA would provide a low risk entry. I haven't shown it here, but Costco has been an excellent deep pullback play since 2004.



BIG: Watch for a pullback to the 30 breakout level.



WMT: Already pulled back to support. Low risk entry with good volume pattern.

Wednesday, June 18, 2008

Managing the Trade: Partial Profits in BEXP

In my last posts I talked about trade management. Today's trade is an example of how I manage a swing trade in a momentum stock. I took a 500 share position in BEXP on Monday at $15.50. My intitial target was set at $17.50. I exited half my position at this price for a $500 gain. I have no moved my stop up to 15.50 and will let the remaining shares ride until my stop is hit or I get another significant gain. Most traders love to be in this position because there is nothing to lose at this point. I have locked in my $500 gain and could make much more if the stock continues its uptrend.

Perception and Trade Management

Trading chart patterns is an inexact science. Two smart and experienced traders can view a chart in very different ways, based on their biases, mental makeup, psychology and a variety of other factors. Let's take a look at SWN:



An argument can be made for three different chart patterns. One with a bearish outlook might see a double top forming. A bullish position trader may argue a trend is in place with a buypoint around the moving average. A more aggressive swing trader would note that an NR7 has printed and the time for entry is now.

Who's right? I don't know. What's more important is which trader will manage the trade better. If you want to have a long and productive trading career, you must be obsessive about managing your entry exit and risk. I would rather be the guy who was wrong about this pattern but only took a small loss, than the guy who nailed this trade, exited too soon, and used too wide a stop on his next trade.

Tuesday, June 17, 2008

BEXP: Late Entry Post

I entered BEXP yesterday at the close as it showed that it would help support. This is a late post, so I won't include it if and when I get around to updating my trading results.

Sunday, June 15, 2008

Part-Time Trading Review

I am frequently asked questions about part-time trading, and received a number of e-mails this weekend. The recent market action has something to do with it. I must admit that I too have been tempted to take a few days off and monitor the markets more closely. I'm glad I did not, as it would have likely lead to overtrading.

Here are a few past posts on part-time trading:

First of all, I would like to let you know that I enjoy your "Market Speculator" blog and find it very educational. After reading many of your posts, I noticed that you prefer not to micromanage your trades and sometimes only check the market a few times a session because of your day job. How do you enter and exit your trades? Do you use buy stops to enter positions or do you enter a position by buying when you get an opportunity to check the market?

I check the market a few times per day, in the morning, lunch and at the close. If I have time while at work, I might sneak in a few more looks. Each time I check in, I take a look at all of the stocks on my watchlist to see if they are at my buypoints. If the stock and market looks good, I enter.

This method works really well for breakout-pullback plays, but not quite as well if I am trying to time pure breakout entries. Therefore, I use buy stops for breakout plays. For example, if a stock is basing near a strong resistance level, I'll put a buy stop above that level. The drawback with the buy stop is I can't monitor the volume.

The key to trading part-time is to do loads of research at night, build a strong watchlist, and stick to that watchlist during the day.

Also, when you exit, do you enter a profit target order or just exit when you get around to checking the market and if the price is good you close the position?

I have a profit target based on technical factors for every trade I enter. I try to stick to the target, but may exit early if the stock isn't acting as it should.

Trailing stop?

Depending on the setup and how the sector is acting, I'll either use a trailing stop, take partial profits as each target is met, or exit in full. Trailing stops work best for trend trades lasting longer than one week.

Any tips you can suggest for swing trading the market and holding a day time job?

Have a disciplined post and pre-market routine. Carefully study market and sector action every day. Pay attention to market sentiment (high/lows, percent above 50 day moving average, etc). Study at least 300 charts per day. This is easy if you have Telechart. Create a daily watchlist based on your preferred setups. Preperation is the key to success as a part-time trader.

Here are some of my past posts on part-time trading, preperation and routines:

Part-Time Trading

Early Rising Part 1

Early Rising Part 2

Daily Schedule

Watchlist

Watchlist and Entry Points

I welcome any questions my readers might have. Whether it's about my trading methods, sports, entertainment, something I've talked about, or anything else that you may have on your mind, feel free to leave a comment or email me at SinghJD1@aol.com



Friday, June 13, 2008

QID Pattern

We've got a nice bottoming formation forming in QID, which is short the Nasdaq. I took a small position on the pullback (Nasdaq strength) today, and may take a bigger position on either more of a pullback or break over resistance.

I am using this as a hedge on any long positions I may take. However, it's not time to take a big position, since stochastics are overbought.

Thursday, June 12, 2008

MTL Exit

I exited MTL today for an acceptable sized loss. It's not difficult to guess where I exited. My stop was placed just under the 50 day moving average.

I've been asked if I now think MTL is a short play, since it has broke below support. I definately will not short at the moment. This is only a price breakdown. Volume was weak on the move below support. This suggests a recovery could take place. In fact, if price mounts today's bar on good volume (closing above 52.50) the stock would again become a long play.


TBSI Still Looks Like an Attractive Short

TBSI, and other dry bulk shippers, have put in topping formations and dropped enough that it's tough to enter short right now. However, there still is room for further downside. I expect to see a bounce soon and may enter short if it's of the "dead cat" variety. The March low of $26 is my downside target.

Wednesday, June 11, 2008

Sectors Analysis

The 20 most oversold sectors:



The 20 most overbought sectors



How do I use this information? In the overbought sectors, I look for charts where stocks are near highs and wait for a healthy pullback. In oversold sectors, I look for stocks oversold near support that have good risk-reward potential.

MTL at Support

I still like MTL here. The stock has not broke support and down volume has been lighter than previous up volume. The 50 day moving average has been a good entry point.

Tuesday, June 10, 2008

You Wouldn't Like Me When I'm Angry!!!

Marvel, the comic media company that recently released Iron Man and the upcoming Hulk movie, is on fire. Bear Market you say? There are still longs to be found, and MVL is a good example.

Breakout-Pullback Candidate

Zolt is pulling back to its breakout point. It's not a buy yet, but keep an eye on this one once the overall market gives us a buy signal.

Saturday, June 07, 2008

Friday, June 06, 2008

Trade Setup: MTL

I bought 200 shares of MTL at $53.84.

Setup: Trend Pullback. Nice trend. OBV and volume pattern look good. Stock has more accumulation than distribution days. RSI bouncing. Stoch turning up at higher high.

Risk: Initial target is 60. Stop is either under yesterdays confirmaion bar or the 50 day MA-set at $49.85.

Concerns: Market.

Thursday, June 05, 2008

APPL Buy Point and Negative Divergence

I am thinking about putting a buy stop in place for AAPL just above $190. As you can see from the chart, that would be the logical breakout entry.

A major concern of mine is the RSI divergence that is developing. Last year I did a study of breakouts accompanied by a negative RSI divergence. My findings surprised me. Contrary to popular opinion, the failure rate was about the same as without the divergence. However, and this is key, the rise is not as high. From where I'd have to place my stop, my reward to risk right now would only be 1.5:1.

I probably won't put in a buy stop since I can't monitor the volume with this type of entry. However, if I do so a volume surge I may jump in.

You guys can probably tell I'm conflicted about this trade setup.

Wednesday, June 04, 2008

Earnings Breakout: BOBE

BOBE broke out today over long term resistance levels in a reaction to a postivie earnings announcement today. It is also worth noting that this stock has a high short interest ratio.

This is a good example of an earnings breakout candidate.

How To Play This Market

The e-mails I have received over the past week tell me that many of you are confused about how to play this market. Many of you see some good setups, both long and short, but are afraid to pull the trigger because you do not know which way the market will turn.

Guess what guys? I don't know which way the market will turn either. I do have a bearish bias, but it's not strong enough to go "all in" with short plays. Here are some tips on trading this market:

1. Focus on individual setups rather than the overall market. If a stock is showing the perfect long setup, go with it. Don't worry about the market.

2. Play a variety of long and short setups, with close to a 50/50 ratio of longs to shorts. This way you won't be caught with your pants down if the market turns on your positions.

3. Keep tight stops at logical spots and let profits run.

The idea behind these three elements is you will be well positioned for a move in either direction. If the market tanks, your shorts will make lots of money while you will only take small losses on the long (the same applies if the market takes off on a bull run). A few big gains in stocks positioned with the market will more than negate the losses and could provide for a very profitable month.

USO

USO is starting to look interesting as a buy, but not at the current level. I have set my buypoint in the $95-96 range. The 50 day moving average should provide support for at least a bounce, and possibly a continuation of the upmove.

The buy is contingent on volume contracting on the rest of the pullback. If I see more high volume down days, I will not enter.

Tuesday, June 03, 2008

Trade Setup: SOLF

I bought 300 shares of SOLF at an average price of $21.48.

Setup: Breakout Pullback. The stock has pulled back to the 20 day moving average after a strong breakout. Stochastics recently reached oversold levels and has turned up. The volume pattern is consistent with the breakout-pullback setup, with volume contracting post breakout. Moving average traders will also note that the 50 day has crossed above the 200 day moving average.

Risk: My intial target is the recent high in the $26-28 range. 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 support.

Concerns: The overall market stinks right now.

The Focus List

Here are a bunch of stocks that are front and center on the focus list:

Bullish: ACI, MA, ESV, RDC, EWZ, SOLF, INFY (46), SOL, JOYG (80), EXM, FWLT, FLR (181), BZP, ILMN (bo 80), CAT (81), CAN, ZOLT, ZUMZ, BTU, RL, RIMM, CF, CLF, MTL, LUFK

Bearish: URBN, RHI, GME, MCRS, LNN, JPM, MS, LEH

Note: Just because they made my focus list does NOT mean they are ready for entry. Some of them are close while others still need confirmation.

Monday, June 02, 2008

The Power of Strong Support

I outlined my entry in APA on Friday. Today the stock is up over 3 points on a negative day for the market (as of noon eastern time). This is a good example of the power of strong support.