Quick Market Overview
April 13th, 2008 by Corey Rosenbloom
Let’s take a quick peek at the US Dow Jones Index and what may be in store for next week:
http://blog.afraidtotrade.com/wp-content/uploads/041308-2203-quickmarket1.png
The market has broken beneath key support coming from the flattening of the 20 and 50 period moving average, as well as the bottom trendline of an ascending triangle pattern.
The market is in an overall consolidation phase at the moment, and it wouldn’t surprise me at all to see a little more downside – perhaps at least to 12,000.
There appears to be strong resistance at the 12,800 level, and relatively strong support about the 11,800 level, giving us a 1,000 point range.
Let’s also take a quick glance at the AMEX SPDR sector performance over the last week:
http://blog.afraidtotrade.com/wp-content/uploads/041308-2203-quickmarket2.png
The biggest loser was the Industrial Sector (-5%) followed by the Financial Sector (-4.5%).
Only two sectors gained ground last week – Energy (+0.25%) and Utilities (+0.26%).
The broad based S&P 500 index lost 2.74% last week.
Here’s a peek of the Dow Jones Weekly Chart:
http://blog.afraidtotrade.com/wp-content/uploads/041308-2203-quickmarket3.png
Again, resistance comes in about the 12,800 level, only now the weekly chart shows key resistance via the 20 and 50 period moving averages.
If the market travels lower, key support may come in between 11,500 and 11,750 via the 200 period moving average and previous support.
Let’s keep our risk low and see what the market gives us this week!
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Tips on Trading Trend Days
April 12th, 2008 by Corey Rosenbloom
Friday’s action was clearly a ‘trend day down’ in all classic definitions of the concept. How so? And how might you profit if this situation occurs again in the near future?
http://blog.afraidtotrade.com/wp-content/uploads/041208-2244-tipsontradi1.png
First, let me give some generalizations for a ‘trend day’
Trend days often begin with an overnight gap
Breadth is extremely skewed on a trend day (from the start)
Volume is often noticeably higher on a trend day
The TICK often reaches extremes and fails to retrace far below (or above) Zero
The shorter (20 period, especially) moving averages serve as barriers for price
Here are some Tips for Trading Trend Days
A large overnight gap is your first clue that we may have a trend day.
Failure to retrace the gap (or even a 50% retracement) is your likely confirmation. At this time, assume that we have a trend day underway.
Next, trade only in the direction of the original gap – do not attempt to ‘fade’ a trend day at any point of the day. Use retracements only as places to ADD TO or establish new positions – never try to profit from retracements against a trend day.
Once you believe we have a trend day (in the major indexes), it is best to establish a ‘core’ trade (even a small position) that you plan to hold until the end (close) of the day. If it is truly a trend day, price will close either at the daily low, or very near it.
Use pullbacks to the 20 period exponential moving average either to add to your core position or put on a large position (perhaps on leverage) and play for a small target with larger size. Your personality and risk-tolerance will determine your exact strategy here.
Unless you have a strategy (or system) that accounts for trend days, it is often best to eliminate all your indicators and follow key moving averages only as entry points and risk management (stop-loss placement). Example: What if you had entered each time the market retested the falling 20 period moving average and placed your stop above the 40 or 50 (shown) period moving average? Do you honestly need additional indicators to help you identify better trade location?
Relax, and do not try to over-think or over-work the day’s action.
Trend days are normally ‘rare’ occurrences, but in this current market environment, they are certainly becoming more frequent.
If you have not done so already, try to make an exception in your strategy (or an addition) to account for, and successfully trade these wonderfully profitable ‘market gifts.’
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What is a Doji?
April 11th, 2008 by Corey Rosenbloom
Take a moment and educate yourself on what a “doji” is and what it might mean.
A standard doji is a type of candlestick pattern that is comprised of a single ‘candle’ where the open and close price are equal (or very close) but the high and low of the candle are distant from the open and close.
The following images demonstrate what it is and what may have happened in the intraday action to cause the pattern.
http://blog.afraidtotrade.com/wp-content/uploads/041108-0252-whatisadoji1.png
http://blog.afraidtotrade.com/wp-content/uploads/041108-0252-whatisadoji2.png
There is a virtually infinite set of patterns that can create the pattern, but the goal is to understand the basic ‘psychology’ of the concept that creates the doji.
Traditionally, dojis are known as “indecision” patterns, or sometimes that the market is “confused” or even “tired.” In terms of the ’struggle between bulls and bears,’ a doji would represent a sort of ‘tie’ between the two ‘armies.’
Doji candles often gain significance when they appear after a long trend move up or down, or if they appear at a support or resistance level (such as a trendline).
Dojis can appear on any timeframe, but the pattern gains significance if it occurs on longer timeframe charts, especially if there is a true ‘battle’ between supply and demand.
In the recent crude oil chart I posted, there are a few examples of the doji candle at key turning points in the market:
http://blog.afraidtotrade.com/wp-content/uploads/041108-0252-whatisadoji3.png
A word of warning – dojis may have powerful predictive power, but they are never to be traded in isolation. Always check the price structure and any indicators you follow for confirmation/non-confirmation. They can be one more tool in your trading arsenal, but – like everything else – they are not the Holy Grail pattern.
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Just When You Thought the Commodity Bull Stumbled
April 11th, 2008 by Corey Rosenbloom
Commodity prices, as measured by the CRB Index, staged an impressive recovery after it seemed all hopes were lost on the shorter timeframes. Actually, in the grand scheme of the weekly chart, it was just a simple, elegant pullback.
http://blog.afraidtotrade.com/wp-content/uploads/041108-0209-justwhenyou1.png
Notice how the ‘collapse’ as some called it of March was just a mere pullback against the steepness of the weekly trend. Stocks in strong uptrends often find key support about their rising 20 period moving averages, just as this example demonstrates.
No, the commodity bull is not dead yet. Commodity prices are creeping ever so slightly higher, raising renewed fears of inflation and causing potential economic uncertainty as prices for goods and services are potentially on the rise as well.
Let’s look at the daily chart to see how dual time frame analysis is necessary to capture the larger picture:
http://blog.afraidtotrade.com/wp-content/uploads/041108-0209-justwhenyou2.png
Price has recovered back above its 20 and 50 period moving averages, and there was no crossover (which would have been a long-term sell signal). Instead, price has found support after forming a triangle consolidation pattern between the key averages.
Pullbacks are normal in strong uptrends, and actually give traders a clean entry for those who are nimble enough to recognize them.
Keep an eye on commodity prices to broaden your awareness of intermarket relationships.
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Crude Oil Notches First Close above $110
April 10th, 2008 by Corey Rosenbloom
For the first time in the contract’s life, Crude Oil prices have closed above $110 per barrel.
http://blog.afraidtotrade.com/wp-content/uploads/041108-0150-crudeoilnot1.png
Price has completed a consolidation pattern, and this is the critical level which will determine if price remains above this consolidation ‘value’ zone, or if it has built a sufficient base to trade higher and seek value at a higher level.
A positive momentum divergence preceded the most recent up-move, as the contract has stayed in a solid and confirmed uptrend.
Let’s look at the structure of the weekly chart:
http://blog.afraidtotrade.com/wp-content/uploads/041108-0150-crudeoilnot2.png
Price appears to be headed higher, if a sufficient base was formed at the $100 level. Higher oil prices drag down consumer and business spending, putting further pressure on an already potentially weak economy.
Traditionally, reduced economic expectations will serve to decrease demand, and decreased demand drives down oil prices. The chart seems to be denying this reality at the moment and it is uncertain which ‘reality’ will play out in the end.
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Even if you are an ‘equity only’ trader, always keep an eye on what commodity prices, especially crude oil prices, are doing and where they might be headed.
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The Yahoo Saga Deepens
April 10th, 2008 by Corey Rosenbloom
Recently, to counter Microsoft’s (MSFT) offer to acquire Yahoo (YHOO) at $31 per share, Yahoo is now in talks with both Google and AOL Time Warner (TWX) to determine if a more favorable offer can be generated.
According to a Business Week article entitled Yahoo’s New Strange Bedfellows, “Yahoo is showing just how far it’s willing to go in efforts to fend off an unwelcome takeover attempt from Microsoft—or at least extract a few more dollars from the software giant.”
Not to be outdone by this development, “Microsoft is in talks with News Corp (NWS) to make a joint offer for Yahoo.”
What would the new potential Yahoo deal entail?
“Step one in Yahoo’s plan is a freshly announced test to team up with Google (GOOG) to make its Web-search business more profitable. Moreover, Yahoo is discussing a possible combination of operations with Time Warner’s AOL (TWX). Under terms being considered, Time Warner would merge much of AOL’s operations with Yahoo”
Moreover “pairing with Google could give Yahoo a way to cut costs and boost revenue—and demonstrate that it has options besides acquiescing to Microsoft.”
It appears to be a story that keeps getting interesting.
Previously, I addressed earlier developments in this topic in my post “Charting Microsoft and Yahoo” and here I wanted to update developments, and throw in two additional stock charts that are now part of the ongoing saga of acquisition and strategic compromises.
First, let’s look at Time Warner (owner of AOL – America Online):
http://blog.afraidtotrade.com/wp-content/uploads/041008-1744-theyahoosag1.png
The stock has positive momentum going into a potential right triangle consolidation pattern, forming as the stock languishes beneath its two key moving averages. The stock is currently in a confirmed downtrend and may be forming a reversal pattern. Recall that companies offering to buy other companies often experience lower share prices as the deal develops, while the stock of the company being acquired frequently rises (Yahoo’s stock is up for the day, after an overnight gap).
Finally, let’s look at impressive stock Google (GOOG):
http://blog.afraidtotrade.com/wp-content/uploads/041008-1744-theyahoosag2.png
Google is slowly ‘creeping’ higher with extremely shallow retracements, which is a sign of strength. There has been a lengthy positive momentum divergence which is currently resolving as expected. Price is trapped beneath its two key moving averages, but is finding support from the rising 20 period. A break above the 50 (blue) average and above ’round number’ resistance at $500 would be a boon for the bulls in this formerly high-flying stock. Google has significant support beneath $425.
Will there be any new companies to join this ongoing story? And what will the effect be for the overall market as investors continue to pay more attention to these developments? Time will tell!
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VIX Settles Into a Channel
April 9th, 2008 by Corey Rosenbloom
The VIX (Volatility Index) has now formed clear and distinct channels from which to assess current conditions.
http://blog.afraidtotrade.com/wp-content/uploads/041008-0256-vixsettlesi1.png
I found drawing trendlines on this chart to be difficult, and you may have your own method for drawing a trend channel, so be aware of this when looking at this chart.
Right now, the VIX seems to be contained within 32 to the upside and 23 to the downside. If this is correct, then the VIX has either broken slightly to the downside of the channel, or is set to reverse back to the upside.
Keep in mind that the VIX is said to measure ‘fear’ in the marketplace, as it measures the implied volatility of index options (specifically the S&P 500). Higher VIX prices correlate with lower prices in the index, but more specifically large volatility (often downside) moves.
What this means is, IF the VIX is testing the bottom of its trend channel, and IF the VIX reverses to the upside after testing this level, THEN we would expect to see higher volatility and (potentially) sharply lower US Index prices.
Keep in mind that the Markets have bounced up against resistance and are forming a potential consolidation triangle, meaning a large volatility move is not out of the realm of possibilities.
I recommend studying and learning more about this important index and what it might mean for the broader market.
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What Would You like to Hear in a Podcast?
April 9th, 2008 by Corey Rosenbloom
http://blog.afraidtotrade.com/wp-content/uploads/podcasticon.pngI’d like to ask you a quick favor - What would you like to hear in a podcast?
I’m toying around with the idea of producing a weekly (free) informational podcast and I would like to know your thoughts on what you would like discussed.
Please take a brief moment and let me know through a comment on the page your thoughts on the following questions (you don’t have to provide your email address or even your real name):
1. What are some ideas for potential segments to discuss (market analysis, psychology, book/product reviews, current trends, interviews, polls)?
2. What would you like me NOT to discuss?
3. What are some examples of other online podcasts (if any) that you enjoy? Also, would you benefit from an audio service/podcast?
4. How long should the podcast be? Also, how frequently should it be released?
I would greatly appreciate any feedback at all to these questions, and any tips, pointers, or suggestions you may have.
Thank you in advance for reading and participating!
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Which Way is Gold Headed
April 9th, 2008 by Corey Rosenbloom
Although commodities recently were recently featured in the news due to their stratospheric rise, you may not be aware now that since that media blitz, these commodities have fallen in price. The “Sell the news” strategy strikes again!
Let’s look at the current conditions of Gold prices and Crude Oil Prices:
http://blog.afraidtotrade.com/wp-content/uploads/040908-1619-whichwayisg11.png
Gold prices peaked above $1,020 an ounce, and the news was full of stories of gold soaring even higher which caused little gold ‘trade shows’ to pop up to appeal to everyday people. Euphoria and fears of scarcity, along with a compelling story, can often precede large sharp sell-offs that confuse the public who participated or at least felt convinced that prices could only go higher.
Afterwards, gold surged down in two impulse waves down to $880 per ounce (falling more than 10% in 3 days) and then set-up a classic “bear flag” trade which retraced 50% of the impulse (Fibonacci) and also found key resistance at the falling 20 period moving average. That would be a ’sweet-short’ set-up.
Price got its downside target following the bear flag and then retraced to form a potential new bear flag which has set-up currently and may also achieve its target just above $860 per ounce. Notice the key overhead resistance formed by the confluence of the 20 and 50 period moving averages. That would be a logical place for futures (or ETF traders) to place a stop, but it is also unfortunately an ‘obvious’ level so be careful there.
Another word of caution for the shorts â
Intraday Ideal Trades for April 7
April 7th, 2008 by Corey Rosenbloom
Let’s take a quick annotation of today’s DIA action on the 5-minute chart, scanning for ideal trades of the day.
http://blog.afraidtotrade.com/wp-content/uploads/040808-0347-intradayide1.png
First, the market gapped near over 60 Dow Points, setting up the classic “Fade the Gap” trade. Today’s gap fell about 10 cents (points) short of a full gap fade, but the initial action is to play against the opening gap for a retracement.
Gaps serve as momentum impulses, and reactions often follow impulses, while impulse moves often lead to higher prices. My classic “impulse buy” trade set-ups seeks to capitalize on the concept that “impulse follows impulse” but that there is not an infinite loop.
Nevertheless, the impulse buy trade set up just as price cleared the hurdles of the flattening 20 and 50 period moving averages which failed to serve as resistance. I highlighted the positive pull-back that signaled a ‘buy’ trade just after 11:00am which led to higher prices.
A divergence set-up as price peaked for the day going into 1:00pm and I commented to clients that I felt this zone could be the intraday high due to the following developments:
Price reached the upper Bollinger Band
Price formed a key negative momentum divergence
Price formed long upper (candle) shadows (signs of weakness by the bulls)
You never know which price will be the intraday high or low, but you can look to a confluence of indicators to help raise probabilities in your favor.
Nevertheless, a true trend change came around 1:30 (marked on chart) and price made a lower high and lower low and then broke down through the 50 period moving average.
A short term momentum move down occurred, and we never really got any sort of reaction against this downward trend move until a neat bear-flag (one of my favorite patterns) formed which carried price just above yesterday’s close and beneath key resistance from the 20 period moving average. This bear flag trade reached its target, which happened to coincide with the intraday low before recovering (also notice the positive momentum divergence which occurred at the lowest price of the “measured move” portion).
As always, I recommend annotating your charts with the ideal trades based on your understanding of indicators, price behavior, and market structure. Through time, you will improve your pattern recognition skills which should lead to more profitable trading.
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AAPL continues its Ascension
April 7th, 2008 by Corey Rosenbloom
Apple Inc (AAPL) continued its remarkable, almost vertical steady rise today, gaining almost 4% intraday before noon!
http://blog.afraidtotrade.com/wp-content/uploads/040708-1713-aaplcontinu1.png
Since the middle of March, Apple has been traveling upwards at neck-breaking speeds, ascending in a near 70 degree angle.
The angular momentum of the stock is changing, meaning the rapid ascension may be unsustainable in the short term, but nevertheless one cannot deny the strength Apple has shown as of late.
This zoomed in graphic shows the three angular momentum changes as the stock has accelerated to recover 50% of its recent downswing:
http://blog.afraidtotrade.com/wp-content/uploads/040708-1713-aaplcontinu2.png
Also, please note that volume is trending lower as Apple surges higher. This serves as a non-confirmation of higher prices and is a warning sign that things may not be as rosy (short-term) as the impressive price action might otherwise indicate.
Although you might be encouraged by the recent strength of Apple, note that the higher probability trade (or investment) at the moment now with these new technical developments would be to anticipate and wait for a retracement against the current price strength (perhaps down to the $140 level) before joining at these levels.
Check out the Market Club for further analysis, and to join a growing community of traders interacting and learning about the markets and trading opportunities.
Price generally can go down with minimal retracements, but it usually stair-steps up with retracements as price travels higher.
Don’t get too caught up in the hype and always seek to manage your risk in every position.
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Google Search for Recession
April 7th, 2008 by Corey Rosenbloom
Google searches for the term “recession” are on the rise, but have decreased after peaking in early 2008. How might this be of benefit to the average investor?
Bill Tancer of Time Magazine recently wrote an article entitled “Googling the Recession” which compared a few terms related to “recession” that were interesting.
Tancer noted that most searchers likely were not aware of the common definition of a recession, which is officially defined as ‘two consecutive quarters of decline in gross domestic product,’ and noted that investors broadened their search beyond ‘recession’ and also searched frequently for “surviving a recession” and the like.
Tancer also notes a potential caveat to consider: “ the bulk of Internet searches during that period focused on what a recession is, one might assume that the spike in these kinds of searches was driven by media coverage of the topic. Searches focused on “recession” may not be the best indicator of an economy in trouble. If we compare searches that contain the term “cheap,” “discount” and “budget” during the same time period we might have a better understanding of consumer’s economic sentiment.”
Furthermore, “The real indicator might lie in aspirational searches, or those queries for things beyond most consumers reach. Searches for “Ferrari” are down 40% from the same week last year.”
I used Google Trends to see what the results were for the term “recession” and the results were revealing. I have attached the chart:
http://blog.afraidtotrade.com/wp-content/uploads/040708-1625-googlesearc1.png
We see the most results (unfortunately, I was unable to find actual volume statistics) near January 22nd, when the global markets plunged and the Fed jumped in to rescue the markets with a .75 rate cut. The news headline at “B” was “Stocks Dive on Fears of US Recession.” The headline at “A” was “Fed cuts rates to fend off Recession”.
The bottom line represents the news references (news articles) addressing the topic “recession,” which also spiked then but have been in decline.
I recommend playing around with this tool from Google and seeing what insights you might discover.
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Gap Fade Statistics for March
April 6th, 2008 by Corey Rosenbloom
March was certainly the month for overnight gaps in the US Indexes! I list here the results of my monthly study of overnight gaps in the Dow Jones ETF (DIA â
Is Citigroup Waking Up
April 5th, 2008 by Corey Rosenbloom
Citigroup (C) is showing initial strength on the daily chart and may be ready to try for a reversal.
http://blog.afraidtotrade.com/wp-content/uploads/040608-0539-iscitigroup1.png
Price is struggling to break above the 50 period moving average, which has served in the past as key resistance. Price remains in a strongly confirmed downtrend, but a recent increase in momentum may be a signal that this downtrodden stock may be awakening after a major decline.
Before getting super bullish, I would recommend you wait for a potential strong close above the flattening 50 period moving average.
Also, the red ‘trend’ line on the bottom panel indicator has now crossed the zero line, signaling an aggressive buy signal.
Let’s see how far this stock has fallen:
http://blog.afraidtotrade.com/wp-content/uploads/040608-0539-iscitigroup2.png
From a mid-2007 high above $53, the stock recently tested levels beneath $20, falling more than 50%.
A momentum divergence has formed on the weekly chart, which could precede a potential reversal (or at least consolidation phase where the stock will build a base for a reversal).
And how does Citigroup compare with other stocks in its industry?
http://blog.afraidtotrade.com/wp-content/uploads/040608-0539-iscitigroup3.png
Over the last 200 days (since mid-June 2007 before the ‘plunge’), Citigroup’s peers have performed as such:
JP Morgan Chase (JPM): -5.63%
Wells Fargo (WFC): -10.8%
Bank of America (BAC): -17.63%
Wachovia (WB): -46.4%
Actually, Wachovia’s chart and pricing looks very similar to Citigroup’s.
Keep an eye on some of these key stocks, as it’s been said Financial Stocks lead the market up and down.
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Shanghai Exchange Resembles NASDAQ Bubble
April 5th, 2008 by Corey Rosenbloom
In case you don’t follow global markets, I thought I’d show you the amazing, euphoric rise of th Shanghai ($SSEC) Stock Composite Index (China) and its precipitous fall and compare that to the US NASDAQ Composite blow-off of 2000.
http://blog.afraidtotrade.com/wp-content/uploads/040508-2218-shanghaiexc1.png
The monthly chart shows a wild ride for investors, including the stratospheric rise from 2,000 to 6,000 in less than a year.
The precipitous fall from 6,000 to near 3,000 has taken less than a year to occur as well.
What did the NASDAQ look like?
http://blog.afraidtotrade.com/wp-content/uploads/040508-2218-shanghaiexc2.png
It looks very similar, doesn’t it? Bubbles still form today in both stocks and global indexes. In 2007, we heard about how China was becoming a super-power and how their population was growing and their industry was booming. All that is true, but that does not translate instantly into overnight wealth in their stock market. Traders can bid prices up to euphoric emotional levels and eventually prices will revert back either to logical levels, or beneath logical levels, swinging the pendulum to the opposite extreme.
Be aware that overseas markets can affect the US Stock Market, and especially certain sectors of our market. Before concluding, let’s peek at China’s weekly chart:
http://blog.afraidtotrade.com/wp-content/uploads/040508-2218-shanghaiexc3.png
The index even had the little ‘throwback’ or ‘dead cat bounce’ or bear flag that the NASDAQ had in 2000 before plunging starkly to form its bottom in late 2002.
I would guess the Chinese stock market has a little further to go to the downside before entering a period of consolidation in order to build a base for the next more reasonable price appreciation.
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A Little Index Overview
April 5th, 2008 by Corey Rosenbloom
With the exception of Tuesday’s “April Fool’s” 3% stock market move, the rest of the week experienced tame trading. Let’s take a quick look at some of the index charts to see where last week’s action left us:
http://blog.afraidtotrade.com/wp-content/uploads/040508-0131-alittleinde1.png
For the S&P 500, price crested and closed 4 days in a row above the key 20 and 50 period moving average. It’s possible these areas will now shift from resistance into initial support, adding a little fuel to the bullish fire.
On the other hand, volume is declining on the recent market rally, adding doubts â
How to Trade a Bull Flag
April 4th, 2008 by Corey Rosenbloom
One of my favorite intraday patterns is the bull and bear flags. But how do you identify and then trade these patterns?
Let’s focus just on the bull flag for this post.
Why do I like this pattern?
It is relatively simple to identify, only uses price (no complex indicators), and the stop-loss along with profit target projections are clear.
What does it look like?
Graphically, the pattern is comprised of a large volatility upward impulse move (which resembles a ‘flag pole’) which is then followed by a retracement that occurs downward in a near 45 degree angle. After this retracement is complete, a ‘measured move’ component breaks back to the upside which is roughly equal to the original flag pole portion.
I drew this basic graphic to illustrate the pattern:
http://blog.afraidtotrade.com/wp-content/uploads/040408-1732-howtotradea1.png
The first component is the ‘pole,’ which you often can’t detect as it forms. It is the second component that creates the ‘trade.’
Once you see a clean retracement against a large, near vertical price move, this is your clue to begin looking for this trade. If the retracement is bound by near parallel channels which form a 45 degree angle, then this increases your confidence that a flag pattern is occurring.
If the retracement pulls back to the 20 period (or some other) moving average, or some other area of perceived support, this adds confidence to this pattern.
Entry
Generally, once you see price retrace about 50% of the initial ‘pole’ or price comes into a support zone, this would be your entry. If you are an aggressive trader, you can enter as price continues downward in the retracement in anticipation of a reversal. Generally, you’ll fall victim to less slippage and will get a better position if the measured move occurs.
If you are more conservative, you can actually wait for the price to break out of the upper channel and enter at that point. You’ll sacrifice initial trade location, but will put the odds a little more in your favor.
Stop and Target
Where do you place your stop and where do I play for a target? It depends on your style of trading.
The stop should go a ‘comfortable’ distance beneath the lower trend channel of the flag portion. Again, if you are conservative, you can place it just beneath the support zone or bottom trend channel.
If you’re more aggressive, you can place the stop lower than this zone, or even beneath the initial pole (of the impulse).
Keep in mind that you have a clear target once you establish your trade, and so you can easily cut that target in half to establish a clean 2 to 1 reward to risk ratio.
The target is an equal distance of the pole which is added to the bottom of the lower trend channel in the flag.
Example: If the ‘pole’ impulse is $5.00 (taking price from $40 to $45), and the retracement takes price down $2.50 to $42.50, then the ‘measured move’ target would be $42.50 + $5.00 or $47.50. Your stop could be placed where you are comfortable beneath $42.00.
Where does it occur?
This pattern occurs on any of the intraday time frames and the daily timeframe of ETFs, indexes, and futures contracts. Unfortunately, this pattern occurs less frequently on the weekly charts (though the targets are larger) and especially the monthly charts. Classic technical analysis books say that a ‘flag’ portion of the daily chart must unfold in 4 weeks time.
Where can I find examples?
I’m sure I will be discussing this pattern in more detail in the future, as it is one of my favorites. To find all the times I’ve discussed a bull (or bear) flag pattern, feel free to type in the term “bull flag” or “bear flag” in my search box at the top of the blog homepage.
http://blog.afraidtotrade.com/wp-content/uploads/040408-1732-howtotradea2.png
Also, I have selected a few posts to get you started, which show examples on the daily chart and intraday charts:
Ideal Bull Flag on 60-min Chart (DIA)
Summarizing the Day’s Trades (Mar 31, ‘08)
POT â
Smooth Gap Fill this Morning
April 3rd, 2008 by Corey Rosenbloom
The US Indexes opened this morning slightly lower via an overnight gap, yet as of 11:00 EST, all had virtually filled this gap, creating a profit opportunity for nimble traders.
Let’s look at two different chart views to see the difference:
http://blog.afraidtotrade.com/wp-content/uploads/040308-1628-smoothgapfi1.png
StockCharts.com reports yesterday’s close as a hash-mark around $126.20 (in the DIA) but it appears that the market filled the gap based on the way the service reports the data.
Nevertheless, the first play when there is an overnight gap of less than 100 Dow Points is to play to fade the gap back to yesterday’s closing price. How you play the trade is up to your method, but I generally give the market 10 to 15 minutes to shake-out overnight excess and to wait for a little confirmation before entering (looking for initial price movement into the gap direction). I typically place a stop ½ the distance to my target (if my target is 80 points away, my stop is 40 points ($0.80 and $0.40). Experience will allow you to develop your own strategy.
Today’s gap did not fill completely (yet), but the resistance (and price failure) via the 50 period moving average was enough for me to exit due to the two ‘long upper shadows’ on the candle bars was enough for me to exit.
The S&P 500 and the NASDAQ actually completely filled their gap this morning.
http://blog.afraidtotrade.com/wp-content/uploads/040308-1628-smoothgapfi2.png    Âhttp://blog.afraidtotrade.com/wp-content/uploads/040308-1628-smoothgapfi3.png
Now, let’s view the Dow Jones’ (DIA) data via TradeStation:
http://blog.afraidtotrade.com/wp-content/uploads/040308-1628-smoothgapfi4.png
TradeStation and other vendors show data a little differently, in terms of where you ‘cut off’ the price action for the day. Although the day closes officially at 4:00 EST, some vendors show you the post-market chart which can skew your prices a bit.
Nevertheless, here is the pure price action and the gap fill trade zoomed in on the chart. Notice that the 200 and 50 period moving average (on the 5-minute chart) provided initial support and resistance, which also could have served as decision support for your trade idea.
Gap fade trades are popular and well-known strategies that try to take advantage of order flow and price movement that goes counter to most newer traders’ expectations.
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UBS Writes Down $19 Billion â
Gap Fill Probability Study
April 1st, 2008 by Corey Rosenbloom
I just discovered this interesting graph from Finviz.com (under the Services section) regarding probabilities of a daily gap filling.
While they don’t discuss their methods or the period observed, the main idea of the study is two points:
The probability of an overnight gap being filled increases as days progress;
The larger the gap, the lower the probability that it will fill.
Let’s look at their chart (courtesy Finviz.com Services):
http://blog.afraidtotrade.com/wp-content/uploads/040208-0548-gapfillprob1.png
Therefore, the probability of a gap being filled is a function of the size of the gap and the time after the gap occurs.
To show the extremes in the data, a gap of size 5-10% move has a 70% chance of filling within 5 days, but a near 90% chance of filling after 50 days.
A gap size of 35-40% has a 15% chance of filling within 5 days and a 40% chance of filling after 50 days.
Again, please be aware of the caveats of this study:
We do not know which stocks (or groups of stocks) were used; we do not know if these were upside or downside gaps; we do not know when the study was created; we do not know the number of occurrences per each percentage range; and other concerns.
This chart may be enough to get you thinking about how to view a gap, but I would encourage you to test your own data for a more accurate probability of the gap filling strategy.
I assume this graph is used to get you familiar with the kind of service or research this company does, and is just a sample only. As such, don’t take this chart as absolute certainty â
Microsoft Builds Potential Base
April 1st, 2008 by Corey Rosenbloom
Microsoft Corp (MSFT) may be building a potential chart formation base (or platform) of consolidation and may attempt a rally from current levels.
http://blog.afraidtotrade.com/wp-content/uploads/040108-0434-microsoftbu1.png
A positive momentum divergence is forming as the swings narrow and the price stabilizes around the $27.00 level.
Recall that price alternates between range expansion and contraction, and the expansion has been to the downside in the stock, so a base formation is not surprising as the stock consolidates its recent losses.
Buyers have been stepping in to support the stock around $27.00, which also corresponds with major support via the 200 week moving average (see chart below):
http://blog.afraidtotrade.com/wp-content/uploads/040108-0434-microsoftbu2.png
In reality, there is significant chart resistance around the $30 level both on the daily and weekly charts which could impede upside progress unless a major fundamental or news-based report is released.
Also, the $27.00 zone appears to be containing price to the downside. Until one of these barriers is broken, Microsoft will likely be rangebound between these levels until there is enough of a momentum burst or catalyst to tip the supply/demand balance that currently exists.
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Summarizing the Day Trades
March 31st, 2008 by Corey Rosenbloom
The intraday index action today provided some ideal opportunities within the price structure that could have led to profits. Let’s check out the Dow Jones:
http://blog.afraidtotrade.com/wp-content/uploads/040108-0215-summarizing1.png
First, the day started out with a relatively small overnight gap, and the first play of the day was to fade the gap back to yesterday’s close.
Once that downside impulse was erased, it was time to switch to play back in the direction of the gap to target the day’s opening price â
Gap Down into Positive Divergence
March 31st, 2008 by Corey Rosenbloom
The Dow Jones Index this morning (along with the S&P 500) formed an ideal ‘gap fade’ play which then set up a positive momentum divergence. Let’s see the chart and figure out how we could have taken advantage of this situation.
http://blog.afraidtotrade.com/wp-content/uploads/033108-1642-gapdowninto1.png
The overall structure is in a strong downtrend, but the most recent price swings have created a momentum divergence which often limits further bearishness. Keep in mind this is the 5-minute chart, which is very short term in nature.
Nevertheless, let us see the two trades that set-up via the morning gap and how we could have played them.
Chart zoomed in:
http://blog.afraidtotrade.com/wp-content/uploads/033108-1642-gapdowninto2.png
First, when there’s an overnight gap (of less than 100 Dow Points), odds favor a close of the gap, so your first trade would have been to buy to target yesterday’s close. I often give the market 10 to 15 minutes to shake out the excess of the overnight session (especially on Mondays) which actually can give you better entry positioning.
For me, I place a stop ½ my target, so in this case the target was about 40 points ($0.40 in the DIA) so my stop would have been 20 points ($0.20).
I don’t care that the price exceeded the open for my exit, I just offer my position there (using a bracket strategy) and exit.
Once the gap is filled (this one filled very easily) then I often shift to find an area to play the impulse back in the direction of the gap (get ’short’ in this case). I would expect resistance to come from the declining 50 period moving average (we didn’t even make it there) and so I would place my stop there (again, about 20 points or $0.20 from entry) and then play for the morning’s opening price (about $121.80).
This trade also worked out quite nicely with minimal distraction.
That makes two simple trades you could have taken with high odds this morning that provided minimal risk and were created using the price structure only (I added the moving average for confirmation).
At this point, the positive divergence could limit further downside movement and cause the market to consolidate or actually reverse back to the upside on this time frame. It wouldn’t surprise me to see the market go higher from here, actually but always following the developing structure for new clues throughout the day.
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Charting Sirius and XM Satellite Radio
March 30th, 2008 by Corey Rosenbloom
While radio listeners and investors are anxiously awaiting word from the FCC on the approval for the recent proposed merger of Sirius Satellite Radio (SIRI) and XM Satellite Radio (XMSR), I thought it would be prudent to look at the charts briefly to see where these stocks have travelled and what may be in store.
Business Week reports that the FCC is close to making a decision regarding the merger of the only two satellite radio companies into one company. The Justice Department recently “green-lighted the deal, declaring that the $13 billion combination would not create a harmful monopoly.” The authors write “Although the FCC traditionally does not block mergers after Justice Dept. approval, neither company wanted to celebrate prematurely.”
Unfortunately, fundamentally speaking, these companies have both reported fiscal losses for 2007. According to the Business Week article, “Sirius reported operational losses of $327.4 million for 2007, which was an improvement over its $513.1 million in operational losses for 2006. XM reported 2007 losses of $682 million, a roughly $37 million improvement from the prior year.”
And now, on to the weekly charts:
http://blog.afraidtotrade.com/wp-content/uploads/033108-0654-chartingsir1.png
XMSR appears to be building a base, and investors/traders have been ’scooping up shares’ whenever the price tested near the $10.00 zone, indicating strong support at that level. Bears step in and provide resistance around the $16 level.
Last week, 91 million shares were traded, due to the announcement of the legal approval of the merger. Nevertheless, the stock fell back quickly following the announcement.
Sirius Satellite (SIRI) did the same:
http://blog.afraidtotrade.com/wp-content/uploads/033108-0654-chartingsir2.png
The charts look similar, only the support zone for SIRI is near $2.60 per share while resistance comes in at $3.80 per share.
The dominant technicals (downtrend, chart patterns, indicators) will be overruled by any major news components in these stocks, and we do expect major news ahead, so don’t hang your hat too securely on any price patterns you might see in either of these stocks.
Trying to trade on news can be risky, but lo and behold if you get on the right side of the announcement, major profits can be made quickly. Newer traders should probably steer clear of betting on such random events with unknown outcomes that can swing price wildly in both directions quickly. Try to accumulate gains slower, rather than trying to hit it out of the park overnight.
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Weekend S&P Glance
March 30th, 2008 by Corey Rosenbloom
Before we start the upcoming trading week, let’s look at the S&P 500 Index from a brief technical perspective.
http://blog.afraidtotrade.com/wp-content/uploads/033008-1624-weekendspgl1.png
A few quick observations:
[*]There is a positive momentum divergence forming[*]The 1,260 â
lows that over-rule other ‘technicals’ at the moment. A quick glance at the weekly chart confirms the potential bearishness:
http://blog.afraidtotrade.com/wp-content/uploads/033008-1624-weekendspgl2.png
Notice the two recent ‘long upper shadows’ which failed to retest the falling 20 month moving average properly. Both developments reveal weakness on the part of buyers to force a close at the top of the weekly range, giving more ground to the sellers (bears).
Should price solidly break the 200 weekly average and make new lows beneath 1,250, I would consider that an extremely bearish development and would note that there would be few immediate levels to support price action (with the exception of the June/July 2006 price lows).
Check out INO TV (free), or join up with the Market Club to learn more insights to enhance your trading education.
Keep the larger structure in mind even when trading the intraday charts.
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Current Sector Returns to Date
March 29th, 2008 by Corey Rosenbloom
Let’s take a quick look at the nine major AMEX Sector SPDRs to determine what’s happened so far in 2008:
http://blog.afraidtotrade.com/wp-content/uploads/033008-0148-currentsect12.png
With the S&P 500 down 10.5% for 2008, only two sectors have performed worse than ‘the market:’
Technology has fallen almost 16% for the year (thanks to Google, Apple, and others â
Dollar Reflects Off Resistance
March 28th, 2008 by Corey Rosenbloom
The US Dollar Index continued its downtrend recently, by failing to overcome resistance via the 20 day moving average.
http://blog.afraidtotrade.com/wp-content/uploads/032808-0339-dollarrefle1.png
The 20 period moving average (especially along with the 50 period moving average) has provided a barrier that is too significant for the ‘dollar bulls’ to overcome with any lasting success.
The recent rise (counter-trend swing) was a little surprising, given the timing, and further complicates the news/profit relationship. The Federal Reserve cut interest rates .75 last Tuesday, which is a move that is traditionally bearish for the US Dollar Index because it makes our currency less attractive to foreign investors. Nevertheless, the dollar rose sharply following this announcement. Of course, this news was already factored into the price by the market participants, so it should have been surprising to the astute market trader.
Nevertheless, until proven otherwise, the US Dollar Index continues its pathway to new lows.ÂShort-term, however, a positive momentum divergence has formed on this recent price swing down which could temporarily contain a bit of severe bearish action.
The weekly chart is a picture-perfect example of why trends have greater odds of continuation than of reversal, and how moving averages can structure trades and risk-management points:
http://blog.afraidtotrade.com/wp-content/uploads/032808-0339-dollarrefle2.png
Notice the structure of the moving averages â
Smooth Swing Action Trading Today
March 27th, 2008 by Corey Rosenbloom
Today’s intraday price swings were smooth, pronounced, and stable. It was an ideal day to be an intraday ’swing’ trader.
By ’swing’ trader, I mean simply trying to capture the market’s most probable sustained price action in one direction until that direction is reversed by the opposing force. The trend was down overall, but there were amazing swings that the nimble traders were able to capture both up and down.
http://blog.afraidtotrade.com/wp-content/uploads/032808-0054-smoothswing1.png
I know I’ve said this 100 times but the first play of the day when the market gaps is to trade against the gap to “Fade the Gap” back down to the opening price. That trade working out instantly today, giving you almost 70 points of potential profit right off the bat.
The market continued its swing lower before forming a new momentum low and then ralling up to find resistance near yesterday’s close (a common phenomenon). Rather than continuing downward, bulls found prices attractive and then forced prices to eject upwards at key support (from the confluence of the 50 and 20 period moving averages) which completed the “measured move” portion of a bull flag that most people â
Signs of Life for General Electric
March 27th, 2008 by Corey Rosenbloom
General Electric (GE) is showing strong relative strength over the past month, and could be waking up from a long downward slumber. Let’s check out this surprising new development on the charts:
http://blog.afraidtotrade.com/wp-content/uploads/032708-1554-signsoflife1.png
Price underwent a “Power Buy” swing, which took out the most recent two prior swing highs, showing signs of sudden and powerful life.
Momentum carved out a new high, suggesting that higher prices are yet to come. Odds would say “buy the first pullback” following this formation, especially if price can retrace to the solid support zone of the confluence of the 20 and 50 period daily moving averages. That development would set up a “super buy” opportunity (what I call the “Impulse Buy” Trade) similar to the “Super Short-Sell” trade in late December which occurred for the same reason (notice the triple combination of the major averages).
There also was a two-swing momentum divergence (shown) that hinted that a more powerful bull rally was ahead. The momentum divergence only projected prices to return sharply to the falling 50 period moving average, but buyers became more aggressive.
Also, volume is strongly confirming this move to new highs via a large increase in activity â
Also, volume is strongly confirming this move to new highs via a large increase in activity â
Also, volume is strongly confirming this move to new highs via a large increase in activity â
Why Might a Stock Fall on Good News?
March 25th, 2008 by Corey Rosenbloom
You’ve had it happen to you.You want to buy a stock you’ve been studying for a while, and finally they announce a surprise bit of good news and the price rallies sharply higher and so you jump in, not to be left out.
You have a sudden profit on your hands but suddenly, the stock reverses.It has retraced back to your entry price.Wait - actually it has gone beyond your entry price and you’re now sitting on a loss!You decide that it’s just “market games” and “shaking out weak hands” and so you hold on, knowing that patience is a trading virtue.Eventually, you’re down further than you expected to be in the stock.
If you were ultra convinced of the upside potential, you may see this as an opportunity to buy more shares at a better price.Alternatively, you may panic and sell as you continue to watch the price trend further against you.What happened?!
Recall that the stock market is a rather efficient “discounting”mechanism that discounts all known (and some unknown) news.Academicians have even developed the “Efficient Market Hypothesis” which states that stock prices instantly discount all news so that there’s no possible way for an ‘at home’ trader to profit from news releases (or - they say - from trading in general).While I don’t plan on discussing that concept here, it pays to be aware that some scholars feel that strongly.
Trying to trade news can be an extremely perplexing and frustrating exercise for even the most logical person.Personally, I have been frustrated endlessly when I would hear a certain piece of market or stock-specific news and then become bewildered when the price traded violently in the opposite direction than the news indicated it should.
“XYZ reports profit 100% greater than last year - stock falls 8%”
“Today’s report showed less supply of oil than expected - oil prices and oil stocks fell hard today”
One reason this occurs is that those “in the know” anticipate conditions before they happen and further anticipate most news reports before they become public.It starts with the very informed insiders, then trickles out slowly until the ripples get to you when the financial media reports the story.By that time, those in the know (or those with good guesses about what’s likely to happen) have been accumulating shares quietly.
By the time of the actual news event, they use the interest (and excitement) driven by the public (which are often the last to know) to unload (sell) their shares which have risen in value, and are now spiking greatly due to increased demand.Once the people who heard the news that day have established their positions (many of which do so very quickly), there are fewer traders to push the market higher and overcome the supply that’s flooding the market.
As a perverse result, the price falls and traders who bought due to good news are confused why they are sitting on a loss.
Recall two key facts:
[*]News does not reach all market participants equally[*]All participants do not interpret the news the sameAs sad as it is, by the time the ‘at-home’ trader has heard the news on TV (unless it’s an “Act of God” or event that was impossible to foresee), it’s probably too late to profit in the direction the news might indicate.
In fact, if news is overwhelmingly good for the day, yet price reverses and closes on its low, then that’s usually a big signal of institutional distribution, and that prices could begin a downswing lower.
It’s much more of an art than a science, but do be careful next time a report comes out and you feel compelled to buy - wait to see how the price (and the market) reacts to the event, rather than acting on the news event itself.
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Curve Ball
March 25th, 2008 by Corey Rosenbloom
The most recent intraday price swing on the indexes was amazingly smooth and I had to highlight its recent development:
http://blog.afraidtotrade.com/wp-content/uploads/032508-1521-curveball1.png
It’s almost as if someone threw a ball into the air, watched it slow down before its ultimate peak, and then is watching it returning back to earth.
Typically you see deeper swings in the market rather than one virtually continuous pathway.
The 15-minute chart makes this a little clearer:
http://blog.afraidtotrade.com/wp-content/uploads/032508-1521-curveball2.png
There may be a continuation move up near the 50 period MA support at $124.50, which would set up a most interesting bull flag, but this little swing may just retrace a little larger percentage of the ‘pure swing’ or ’round swing.’
Either way, it is an interesting price development, and one we don’t see often.
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Is Google Headed Higher?
March 24th, 2008 by Corey Rosenbloom
Google (GOOG) stock has been beaten down by the bears since last November, when the stock made an all-time high near $750. Recently, the stock traded to a recent low of $425, but may the stock be forming a base?
http://blog.afraidtotrade.com/wp-content/uploads/032508-0616-isgooglehea1.png
The Daily chart shows a recent positive momentum divergence, following a bear-flag continuation patter which recently achieved (and exceeded) its price projection target. Markets usually attempt counterswings following a successful ‘measured move’ out of the pattern, which could be what we’re having right now.
Price broke strongly above the 20 period moving average, increasing over 6% on Monday, but price has a little further to go to the upside to resolve the divergence properly.
In fact, I would project a potential target resolution near $500, which would be just beneath the falling 50 period moving average. One might even consider this a ‘magnet’ trade that would eliminate a large percentage of ’shorts’ in the stock, while simultaneously drawing in ‘bottom-fishers’ searching for value.
We can’t forget that the trend is still strongly downward sloping, and the moving averages are in the most bearish orientation possible.
Nevertheless, a counterswing up is probably overdue and is most likely occurring at this moment. There could be a $25 upside target to play for if you’re rather aggressive â
Wow, what a day in the financial markets! The NASDAQ (QQQQ ETF) rose 3% today while the other major markets rose 1.5%. Let’s look at a few key charts and see if we can determine what may happen next.
First, the Dow Jones daily:
http://blog.afraidtotrade.com/wp-content/uploads/032508-0138-mondaysmark1.png
The market action today was very impressive, and rounds out a
also can’t help but show the powerful NASDAQ chart and its 3% advance today:
http://blog.afraidtotrade.com/wp-content/uploads/032508-0138-mondaysmark2.png
[ 本帖最后由 hefeiddd 于 2009-3-23 06:03 编辑 ]
Wow, what a day in the financial markets! The NASDAQ (QQQQ ETF) rose 3% today while the other major markets rose 1.5%. Let’s look at a few key charts and see if we can determine what may happen next.
First, the Dow Jones daily:
http://blog.afraidtotrade.com/wp-content/uploads/032508-0138-mondaysmark1.png
The market action today was very impressive, and rounds out a recent ‘buy’ swing which was a counter-trend move against the prevailing daily downtrend.
We can’t get too excited until price solidly breaks the 12,800 key resistance level, which is about 250 points away. I suspect that area could be a virtual magnet that will draw price up to test trader/investor conviction at that level. Can demand overcome supply at this level? If so, it would be an important short-term turning point in the market worth further attention.
The market has been helped by rampant negative sentiment (through polls, etc) and also a positive momentum divergence which has resolved itself to the upside with great force. The Fed rate cut definitely helped the market, as did the recent sharp correction in commodity prices.
Also, note that price has breached (crossed above) both its 20 and 50 period daily moving averages. Bulls can’t help but like that fact.
I also can’t help but show the powerful NASDAQ chart and its 3% advance today:
http://blog.afraidtotrade.com/wp-content/uploads/032508-0138-mondaysmark2.png
The price action was impressive, but sellers stepped in and supply overtook demand right at the declining 50 period moving average. This still isn’t a ‘higher high’ price swing as of yet. Bulls need to clear this resistance level.
Also, note that the price objective of the symmetrical triangle was been achieved, and so a market reversal was unsurprising. This is a classic example of a symmetrical
March 23rd, 2008 by Corey Rosenbloom
Let’s quickly look at the charts of some of the indexes to see what may happen next week!
First, the Dow Jones Daily:
http://blog.afraidtotrade.com/wp-content/uploads/032308-1549-eastermarke1.png
There are significant levels of resistance for the bulls to overcome, the first of which is the falling 50 period moving average; the second is the horizontal line beneath 12,800 which has sustained numerous price reversals previously.
To help the bulls potentially overcome these levels, there is a positive momentum divergence which is resolving itself.
Last week was extremely volatile, as we saw a complete swing of over 600 points. On to the weekly chart:
http://blog.afraidtotrade.com/wp-content/uploads/032308-1549-eastermarke2.png
We see similar resistance on the weekly chart around the 12,500 and 12,750 area (from the moving averages and that seemingly nasty horizontal line which has served as both support and resistance since last year.
Again, we see a weekly positive momentum divergence which mirrors the daily positive divergence, which could give the bulls some enhanced strength.
Volume also picked up the last two weeks (keep in mind that Friday was a holiday, and the markets were not open).
Finally, I wanted to show this chart also of the US Dollar Index:
http://blog.afraidtotrade.com/wp-content/uploads/032308-1549-eastermarke3.png
The Index has been under so much pressure lately, yet has rallied in a strong counter-trend swing last week which places the index also near key resistance from the falling 20 period moving average.
The major Commodities Markets were not spared the rampant volatility of last week’s price action. Let’s take a look at some of these key markets:
Let’s look at the broad-based $CRB, a widely followed Commodity Index (weekly chart):
http://blog.afraidtotrade.com/wp-content/uploads/032208-0519-commodities1.png
I have drawn three blue lines which are indicative of the “Three Push” pattern which can precede a trend reversal. The pattern is indicative of strong buying power and consists of three waves of buying pressure that occurs in strengthening momentum. Notice the ferociousness of the recent price retracement in the index, which took the value down to the rising 20 week moving average for a test of that level.
We can’t call a trend reversal yet without a lower high and a lower low. Right now, we simply have a strong momentum higher high following a momentous rally. It would not be surprising to see consolidation at least at these levels.
Crude Oil prices fell $10 from its intraday high of $110 last Monday and recently tested the rising 50 period daily moving average just beneath $100 per barrel.
http://blog.afraidtotrade.com/wp-content/uploads/032208-0519-commodities2.png
Notice the power of the recent ‘power buy’ swing which took prices out of the consolidation rectangle onto new highs. It’s not at all surprising that the market would need to ‘rest’ after that major development (and un-checked swing from $85 to $110).
Like a coiled spring that is stretched too far, the market will often snap back quickly after a lengthy power swing that doesn’t have a clean retracement.
Gold is not much different than Oil recently. The precious metal fell 10% from its intraday high Monday of over $1,020 per ounce. Price is currently testing the rising 50 period moving average.
http://blog.afraidtotrade.com/wp-content/uploads/032208-0519-commodities3.png
Notice the momentum divergence that preceded the snap-back retracement. You shouldn’t be surprised that a move of this magnitude could occur following an obvious momentum divergence, especially with the two doji candlesticks that preceded the two-day drop (doji patterns are often signs of potential market reversals).
Also, commodity prices (especially gold and oil) were being featured prominently on the news and in the conversations of everyday people, and
InTrade Raises US Recession Chance to 78%
March 21st, 2008 by Corey Rosenbloom
Traders expressing themselves through the InTrade Prediction Market today raised the chance of a US Recession in 2008 up 8% to 78.5%.
The way the market works is that traders invest real money and buy contracts that allow them to express their opinion. Here is a quick explanation:
http://blog.afraidtotrade.com/wp-content/uploads/032108-2327-intraderais1.png
If you’re interested in seeing the lifetime contract percentages of this particular item, here is a chart below:
http://blog.afraidtotrade.com/wp-content/uploads/032108-2327-intraderais2.png
This means that, in aggregate, people are expressing their opinions by using real money in anticipation to profit from their views, and whether their views match reality or not.
As with the stock market, an overabundance of buyers will push the contract higher and vice versa. If you feel we’re headed into a recession, you could make some quick money by betting on this idea (or lose money if we don’t!).
On an unrelated note, InTrade participants also currently give Barack Obama an 80% chance of winning the Democratic Nomination against Hillary Clinton’s 20% chance.
If you think Hillary will win, you could stand to win $80 per 10 contracts you buy for a risk of $20.
I like to use the service to watch as current events are reflected virtually instantly into the ‘prediction’ price, which filters much quicker than standard polls or surveys.
Either way, it’s an interesting service and you may want to keep an eye on these markets (percentages) if you’re unfamiliar with them.
Â
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Cool MA Consolidation in Apple (AAPL)
March 20th, 2008 by Corey Rosenbloom
I wanted to point out a quick little pattern in Apple (AAPL) on the 5-minute chart today that I found very curious.
http://blog.afraidtotrade.com/wp-content/uploads/032008-1854-coolmaconso1.png
I zoomed in on the area of interest. Notice how the 5-minute bars respond virtually perfectly to the falling 50 period moving average and the rising 200 period moving average.
What’s interesting to me is that the moving averages are almost trend-lines that drew themselves! You may be thinking, “I didn’t know my software drew trendlines for me automatically!”
In reality, it was just an interesting ‘fluke’ that I wanted to spotlight. The pattern formed a symmetrical triangle that served as a continuation pattern, complete with a ‘throw-back’ test trade.
Recall that today is the last day to unwind options contracts (as well as “quadruple witching”), and so it’s not surprising to see such massive consolidations and seemingly random movements.
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Trader’s Whiteboard: Theory into Practice
March 20th, 2008 by Corey Rosenbloom
INO.com released a recent video in their Trader’s Whiteboard Education Series that puts simple trading ‘theory’ into practice.
The video is entitled “Keep it Simple and Straight” and discusses specific examples of how to apply trendlines and turn trendline analysis into actual trades with high reward to low risk (stops are placed just beneath the trendline).
President Adam Hewison analyzes Google (GOOG) and how trendline analysis could have alerted you to some potential dangers prior to the recent sharp decline.
Recall that you must have three valid touches or “tests” to confirm a trendline, but at that point, Adam teaches how to apply simple trading tactics to the price structure.
To delve a little deeper, Adam also discusses how to use Fibonacci retracements with your trendline analysis.
If you’re unfamiliar with the Market Club Service , check it out and see how it may be a benefit to you as a developing trader.
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Gold Loses Some of its Luster
March 20th, 2008 by Corey Rosenbloom
Gold plunged almost 6% yesterday, falling $59 as hedge funds unwound positions and speculators took profits in the precious metal. It’s an interesting development that warrants further attention.
http://blog.afraidtotrade.com/wp-content/uploads/032008-1756-goldlosesso1.png
I’ve drawn in two symmetrical consolidation triangles on the graph that highlight these patterns and the continuation move that occurred as the contract broke free from these zones to make new highs.
Much has been written about how gold is a hedge against inflation, and how both gold and crude oil have been making new highs, but that doesn’t mean the ride will be easy or smooth.
There were hints that alerted savvy traders to this potential development ahead of the major one-day plunge.
Notice the key negative momentum divergence that set-up as price made new highs but were not confirmed by new momentum highs. That was an initial warning sign that the bulls may be losing steam.
Second, notice the two long legged dojis that preceded the one day plunge. The doji on March 17th came close to forming a ’shooting star’ pattern or a gravestone doji, both relatively bearish. Dojis tend to mark turning points in the market after a large rally or decline, and are said to be signs of “indecision.”
The candlestick just before the decline was also a doji, but more akin to a ‘dragonfly doji’ which also signaled ‘pause’ or indecision. Finally, the large volatility move signaled that the bears won the ‘battle’ and swiped prices lower, shocking latecomers who saw an easy profit because everyone said gold was making new highs.
Nevertheless, the structure still shows an uptrend, and we may have support coming in from the rising 50 period moving average.
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Bearish Engulfing Pattern in the Dow
March 19th, 2008 by Corey Rosenbloom
Today’s near 300 point Dow Jones decline also printed a potential “Bearish Engulfing” candlestick pattern at resistance, which could signal more bearishness is ahead.
Let’s look at the Daily chart and drill down to the smaller time frames:
http://blog.afraidtotrade.com/wp-content/uploads/032008-0045-bearishengu1.png
The Bearish Engulfing pattern occurs when the second day completely overtakes the previous day’s high and low. Technically, only the ‘real body’ must engulf the previous day’s ‘real body,’ but today’s high is greater than yesterday’s high and also today’s low is lower than yesterday’s low, meaning this pattern has increased significance.ÂKeep in mind that yesterday’s gap meant that the market increased more than it fell today, but the actual ‘body’ (intraday price movement) formed the engulfing pattern, so this is a caveat to watch.
The fact that this pattern occurred at key resistance (the falling 50 period moving average) helps increase the odds of potential follow-through to the downside. Recall that there are no guarantees in trading.
Let’s view the 15-minute chart and look at some key divergences which set up recently:
http://blog.afraidtotrade.com/wp-content/uploads/032008-0045-bearishengu2.png
Notice the Positive Divergence on the left side of the chart which resolved nicely to the upside. Now, notice the negative divergence that resolved itself today sharply to the downside. Recall that momentum often precedes price action.
Finally, let’s view the intraday 5-minute chart for some hyper-signals:
http://blog.afraidtotrade.com/wp-content/uploads/032008-0045-bearishengu3.png
Notice that I am mainly using price and the key averages to set-up the simplest trades possible.
The first green arrow represents a “buy” trade which is a simple retracement in a trend entry. Target = Prior Swing (which failed to reach the goal).
The text “Market Losing Steam” isn’t actually a trade, but is a warning sign that the bulls can’t push the market higher. It’s a “market structure” observation that lets you know that momentum is decreasing to the buy side, much like a ball being thrown into the air first slows down before stopping in mid-air and then reversing to come back down to earth.
Finally, there were two “Confluence Short-Sell” trades which set-up due to a retracement to the dual resistance levels of the 20 and 50 period moving averages. One could have classified the 1:30pm trade as a type of “Bear Flag” short-sell trade, but the market didn’t give us a good enough 45 degree angle to increase our confidence there.
Finally, aggressive traders could have played the “Counter-Trend Support Trade” which was good for a very small target only, due to the fact that the trade was countertrend. The test of the 5-minute 200 period moving average set-up this trade.
Finally, another high probability retracement trade occurred at the end of the day when price rallied to $123 (Dow 12,300) and found significant resistance there.
I recommend taking the daily action (or intraday action) and annotating where your ‘ideal trades’ would have been so that you can increase your skills in pattern recognition and trade set-ups in a calmer environment.
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Corey’s Interview with StockTickr!
March 19th, 2008 by Corey Rosenbloom
http://blog.afraidtotrade.com/wp-content/uploads/stocktickrinterv2.jpgDave Mabe at StockTickr recently interviewed me and posted the interview at his StockTickr Trader Interviews site, and I wanted to share the link with you!
I was very excited and honored to participate, and I really had to do some soul-searching on some of the questions.
As a teaser, he writes:
For the next interview in the StockTickr Interview Series (RSS feed), I spoke with Corey Rosenbloom of the Afraid to Trade blog. Corey has a background in psychology and touches on those topics on his site. Trading psychology is a popular theme in the interview series (see the interviews with Van K. Tharp and Brett Steenbarger).
Read on for more about how Corey trades, how trading is a balancing act, and a couple light-bulb moments for his trading.
For more information, check out the complete interview.
While there, check out the features of StockTickr, which is an excellent service which provides trader metrics designed to help you analyze your trading more deeply. The software allows you to keep an almost automatic trading journal, where all you do is input your trades and the service provides you with a plethora of information on your performance.
Thank you again to Dave at StockTickr for this opportunity!
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A Quick Look at the Financials
March 19th, 2008 by Corey Rosenbloom
The Financial Sector (XLF) has been featured majorly in the news recently, so let’s take a quick fly-by of this sector and see where we’ve come.
First, the shocking monthly chart:
http://blog.afraidtotrade.com/wp-content/uploads/031908-1734-aquicklooka1.png
Very rarely do you see declines of this magnitude occur this quickly (in about one year) in a major US Sector. The Financial sector is such a significant portion of the economy and stock market, and weakness here is chilling for the broader economy and market. Notice how volume has exploded since 2007, reaching sometimes above 3 billion shares in a given month.
Next, the weekly chart:
http://blog.afraidtotrade.com/wp-content/uploads/031908-1734-aquicklooka2.png
I added the volume readings to this chart (on the left) to indicate that over 1 Billion shares were exchanged last week alone â
The previous massive rally (late January) simply terminated at the falling 20 period moving average. How far will this rally go? I suspect we’ll get a test close to the $28 level, but it’s up to the bulls to take it from there.
Finally, the Daily chart:
http://blog.afraidtotrade.com/wp-content/uploads/031908-1734-aquicklooka3.png
I pointed out some key short-term divergences (one of which has just resolved) and also pointed out some simple trading entries as price mounted counter-rallies to the falling 50 period moving average. The last three days (including intraday Wednesday) has revealed massive urgency to shift positions (whether bailing out of short-sale trades or scooping up cheap shares to the long-side).
I would wait until price completed a true trend reversal (by making a higher high, and higher low and then taking out the higher high) before getting too excited.
Also, recall that a large portion of this action is due to major percentage increases in Bear Stearns (BSC) at 23%, Goldman Sachs (GS) at 17%, and Lehman Brothers (LEH) at 46% Citigroup (C) at 11% among others. The broader market, and of course the XLF sector, was helped immensely by
March 19th, 2008 by Corey Rosenbloom
Tuesday’s volatile rally was impressive, amassing over 4% for almost all major US Market Indexes. Where does that rally take us on the charts?
First, let’s look at the returns:
http://blog.afraidtotrade.com/wp-content/uploads/031908-1715-resistances1.png
Now, let’s view a few charts, noting the potential overhead resistance that must be cleared to be able to get more bullish:
http://blog.afraidtotrade.com/wp-content/uploads/031908-1715-resistances2.png
The level just beneath 12,800 would take remarkable buying pressure to overcome. Also, the market is currently failing (intraday) at the declining 50 period moving average, which as served as resistance two times previously.
The NASDAQ (and QQQQ) have some significant resistance to overcome as well:
http://blog.afraidtotrade.com/wp-content/uploads/031908-1715-resistances3.png
Resistance comes in the form of the declining 20 period moving average, which has contained price numerous times previously. Also, the 2,275 level has provided recent resistance and must be cleared.
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[ 本帖最后由 hefeiddd 于 2009-3-23 06:08 编辑 ]