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While the 14% decline took us from a high of $0.8871 to a low of $0.7673, price only erased gains and returned to the pre-breakout levels seen in April, 2007.
The decline was due to fundamental reasons, and not strict technical analysis, but we do see technical warning signs in the form of a momentum divergence and new momentum lows before the ’shock’ decline from $0.86 to $0.76.
Traders who were long the stock â
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Here is a chart of the DIA, the Dow Jones ETF:
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Notice the previous uptrend which really wasn’t extended beyond reason, but the pattern still emerged.ÂBuying pressure eased (which is evident from indicators not shown above) and price swings consolidated until a lower low was made (condition 1), a peak retest swing occured resulting in a lower high (condition two), and once you identify these two conditions, it is merely a waiting game until price TAKES OUT the low of the most recent swing low.ÂWhen it does, that is your trigger for entry.ÂYour stop is placed just above the trend’s price high (which is logical because you are betting that the trend will not take out that price, and if it does, your trade idea was wrong and you need to exit your position - in this case, a short sell trade).
Let’s see what happened when you entered short close to $44.oo:
http://blog.afraidtotrade.com/wp-content/uploads/2007/08/bzh2.jpg
In my experience, “Sweet Spot” trades often take heat near the beginning when price often makes another upswing test.ÂConservative traders/investors may wish to enter the trade at this price swing instead of the initial “sweet spot” to play for better position.ÂEither way, price never threatened your stop, which should have been placed just above $47.50.ÂEssentially, you are risking approximately $3.00 to play for a longer term position that could yield you upwards of $10 to $20 if you stay patiently with the trade until the reverse pattern occurs.
Another recent example comes to us from Bear Stearns:
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This uptrend did become slightly extended and bulls gave it a last chance breath before rolling over to concede defeat.
The first ‘warning light’ condition occurred with theÂlower low at $155; the second conditioned occurred with a failure retest higher that ended the swing just shy of $170.ÂWith the first two conditions in place, we wait and see if price can take out the $155 lower low.
Price does so with a compelling gap through the zone, indicating blatant strength on the part of the sellers attempting to make their stand.ÂEntry wasn’t perfect, but it was signaled as close as possible to $155 (which would have been filled nearer $150 most likely).ÂThis - again - is a short sell trade.ÂBecause of the gap, your stop is - for some - an uncomfortable distance of $20 away.ÂRemind yourself that your target may be upwards of $40 to $50 or more.ÂOnly take trades your account can handle and practice good position sizing - in other words, don’t bet the whole account on a trade that requires a stop of $20.
What happened to price?
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Price stands now at less than $110.ÂI probably would recommend exiting to take profits due to the possibility of a price exhaustion move - notice the volume spike.
Again, price never threatened your stop and ‘rolled over’ as anticipated after a consolidation period of indecision between the buyers and sellers.ÂSellers had the edge and their dominance played out over the next few months.
As always, two charts do not create overwhelming proof of this strategy.ÂRun through your own chart examples in both directions (uptrend death/birth and downtrend death/birth) to fully understand the concept.
Also, you can use your newfound knowledge as ‘confirmation/non-confirmation’ for trading candidates you are considering.ÂFor example, do not go long a stock which is showing a possible or confirmed “Sweet Spot” short-sell condition.
I consider myself a retracement trader, and I look for the patterns of highs and lows to determine entry.ÂI have greater confidence in the potential of a retest trade in an uptrend when it is not showing a ‘trend death’ pullback pattern. ÂI often play for ’small targets’ which simply are retests of previous highs only.ÂHowever, I’ll almost always have at least one ’sweet spot’ position trade on in my accounts at all times, albeit with very few shares usually.
The “Sweet Spot” pattern occurs across all timeframes; as such, the concept of “Large Target” is relative to your timeframe and normal ‘targets’.
I do want to emphasize the point:ÂDo not anticipate “sweet spot” position trades.ÂLet the market “tip its hand” and confirm direction before entry.ÂDoing so will never allow you to enter at the exact top or the exact bottom, but it will not only greatly increase your odds of success, but also give you a clear exit point if your idea did not play out in the market as expected.
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Who’s Pulling the Strings in this Game?
August 3rd, 2007 by Corey Rosenbloom
I’ll be honest - I am SO relieved the weekend is here. This week has been the most surprising week of my trading career. I have seen many sharp increases in volatility in the market (not associated with a major economic report), but those events tend to be isolated and relatively rare.
This week, we saw the Dow Jones index swing 250 points down last Friday at the last hour (July 27); 250 points down in the last two hours Tuesday; 250 points up Wednesday in the last hour, 150+ points up Thursday in the last hour, and now 250 points in the last two hours Friday.
These volatile events have occurred within the last two hours… and in one case the last 15 minutes!ÂDespite the rampant end-of-day volatility (major price swings), the index really hasn’t moved directionally up or down from the trading range that is being carved out.
http://blog.afraidtotrade.com/wp-content/uploads/2007/08/dow-aug3.png
The S&P 500 showed a similar trading/volatility pattern:
http://blog.afraidtotrade.com/wp-content/uploads/2007/08/sp-aug3.png
Note that in the above examples, each ‘bar’ represents 30 minutes of trading time.ÂEach gray divider line represents the close/open of a day.ÂI am showing slightly beyond this week’s action above.
I wish to call your attention to the large ‘candles’ that occur at the end of each of the trading days - they look rather normal in this context, and are seeming unimportant in the daily or weekly chart views, but if you examine the 5-minute charts of each day, the pattern literally leaps out at you.
I have heard many reasons for the cause of the action - let’s just attribute it to skiddish, uncertain large firms or traders struggling for position in an uncertain economic climate.ÂRemember the stock market is an anticipatory vehicle, where all that can be known is discounted immediately, such that conditions that exist now were forecast in the past, and news items/data that occur now are discounted (price changes) to anticipate what these data mean many months into the future.
This is often the case where a market will plummet on good news or rise rapidly on bad news, or some seemingly nonsensical combination of the two.ÂWhat’s known and available to the public is already in the price as it stands now - there is generally little to no information edge for retail traders.
I recommend scanning the news and blog articles that will be writtenÂthis weekend regarding various perspectives on why we had the week we had in the market.ÂIt was said that last week was the worst week for the market in five years, and that this week was the most volatile for the market in many years.
For those of you who traded actively through this week and came out either unscathed or slightly wounded, my hat goes off to you.ÂI took some minor short-term hits both ways this week!ÂFor those of you who took some major his this week, don’t give up - chalk it up to knowledge and experience.ÂIt is my guess that we won’t have such a wild week in a long time - if you survived, know that the water is unlikely to be so choppy for some time.
Wear your wounds proudly and document as much data as you can from your experience.ÂDon’t get complacent and be aware that the market can always change at a heartbeat’s notice.ÂEven experienced traders took some hits and were surprised greatly this week - that’s what makes this ‘game’ fun!
It would honestly be boring if everything was the same day in and day out.ÂIsn’t that part of what attracted you to trading in the first place?ÂThe thrill of the chase; the anxious heartbeat of racing prices; fortunes being won and lost in a moment’s notice; greed, euphoria, and fear raising their spectres all through the action; traders loving and hating the market simultaneously.
Stay alert, learn from this week’s action, clean the wounds this week no doubt inflicted, and live to trade again (thanks to risk control measures!).
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Focus on the Trade - Not the Money
August 2nd, 2007 by Corey Rosenbloom
We all trade for one reason, right?ÂTo make money.ÂSo why does it seem that achieving that simple goal is so difficult at times?
Also, if we trade to make money, why do many successful trading professionals advise us “not to focus on the money” - doesn’t that seem entirely ironic?
In fact, in my experience, it is true.ÂIn the beginning, I was wide-eyed and money-focused and thought the money would come to me.ÂAfter a few successful trades, that belief was reinforced.ÂIt took only two major losing trades to shatter that worldview and force me back to the ‘market classroom’ for a while to learn as much as possible about the trading endeavor - I realized it clearly wasn’t as easy as I had expected or hoped.
One factor that can help smooth the transition from beginner to more experienced trader is the process of learning how to focus on the trade itself, and not what the outcome means to you monetarily.
Yes, one trade can pay your rent for a month; one or two trades can buy you a nice vacation trip or cruise; a few trades might buy a nicer car, etc.ÂBut professionals have said time and time again that if you focus on the money aspect, you’ll lose because you’ll trap yourself in so many psychological and mental games that you’ll do exactly the opposite of what it takes to profit as a trader.
Some examples of such psychological traps:
[*]Holding on to a loser past your stop-loss level[*]Buying a larger position in a stock you love that has declined (aka - doubling down)[*]Putting on positions (risk) too large for your account[*]Placing stops too tight (with larger positions)[*]Exiting your trade early before it hits your stop (panic)[*]Exiting your trade early before your profit target (again, panic that it will reverse)[*]Exiting your trade before it has enough time to ‘run’ (let your profits run)I imagine the majority of the points are easy to understand, but the final point may be the most difficult.
Say for example you have a set dollar amount in mind, at which point you will exit a trade (maybe you’re trying to pay rent or some other specific monetary goal).ÂNow, assume you entered a strong uptrending stock in a great sector early in its potential trend move.ÂNow assume you capture a $5 move and exit now that you have made $1,000 or more.ÂYou stop trading for the month.
What happens?ÂYour analysis indicated that there may be a potential for a $10 move but you exited far too soon and you knew it - had you held the position, you could have extracted more profits based on what the market was telling you, not what your pocketbook was dictating.
I’m sure you’ve heard it many times that a handful of trades per year can make up your entire year, especially if your system is a trend following type.ÂYou literally cannot afford to sacrifice short-term profits you’ve made at the expense ofÂlonger term, annual performance measures.
In addition, I’ve had it happen so many times where I was too oriented on the money and purposely placed my stop far too close to market action, only to be nipped out of the position and my stress relieved… just long enough to see the stock reverse and the position carry upwards as anticipated.ÂInstead of a 5% gain, I experienced a .25% loss.ÂQuite ridiculous, actually, when you go back and analyze your performance.
Exiting before a stop is hit is actually worse than placing stops too tight.ÂIn the event you place stops too tight, your analysis can show you where you went wrong and how to correct it.ÂWhen you exit on a whim or feeling, you can’t analyze the action properly because there are no objective facts or data points (in terms of stop placement).ÂIt hurts to see a position go against you, but exiting before the plan calls for it can result in “the death of a thousand cuts”.
Focus on the trade itself, why you should enter, and where you should exit, and base it on a technical analysis parameter - one of your choosing and understanding.ÂFollow the position ‘hands off’ until time to exit, or some predetermined condition occurs that prompts exit.ÂYour mindset when you enter a trade, especially if analysis is done nightly, is often better than when you are in a position and making judgments on the fly.ÂHonor your analysis and focus on support/resistance, price, volume, etc.
Focusing on the trade, and not the money, will create the objective data necessary for improvement.ÂFocusing on the money - more than not - will result in losses and disallusionment… which is exactly what you don’t want or expect when you enter a trade.
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Golden Last Hour Trading
August 1st, 2007 by Corey Rosenbloom
The last hour of the trading day is becoming ‘golden’ in the sense that volatility and range become rampant as traders struggle for position before the close.Today’s action was a reverse of yesterday’s down action in the last hour… only this time, the 250 point sudden increase in the Dow took place over the last 30 minutes of trading. For specifics, the Dow Jones Index showed 13,150 just before 3:30pm (Eastern) and if you blinked, you missed the Index reaching 7 points shy of 13,400.
While there will be many posts regarding this action, I thought Arthur Hogan (article link here) summarized the action - as well as the overall market - in his quote:
“We’ve got a tug-of-war going on. We’ve got that dichotomy between fear and greed. This is greed kicking in,” he said of the rush of last-minute buy orders.
“You get to a point where are you more afraid of the fallout from credit spreads or are you more afraid of missing the market bottom?,” he said of investor sentiment. “I think it’s going to be a recurring pattern over the next several weeks,” Hogan said of Wednesday’s volatility.
Analysts attribute the ‘last hour buying’ to various hedge funds, or even simultaneous market buying programs.ÂRegardless of the reason, many day traders (and I suspect even swing traders) were taken by surprise, especially those who were short stocks or market ETFs going into that last hour.ÂI’m not sure the action could have been forecast or predicted by any retail trader - correct me if I’m wrong here.
Just like yesterday’s charts provided an educational example of market volatility, today’s chart does the same:
Dow Jones 5 minute Chart:
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Dow Jones 60 minute (hourly) chart:
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I mentioned the positive momentum divergence forming on the longer term intraday charts and perhaps this a partial resolution of that divergence.ÂBoth the RSI and the 3/10 Oscillator are showing crystal clear ‘textbook’ divergences worth studying.ÂThis indicates odds have shifted to favor higher prices in the short term.
Perhaps the pressures of ‘greed’ in the sense of “I can’t miss out on such good prices while the market goes up!” has overtaken the ‘fears’ of investors worried about lower prices ahead.ÂEither way, the momentum clearly speaks in favor of the buyers now, as selling pressure appears to be drying up in the short term.
Times like these make trading fun.ÂWhat a way to start off August!
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http://blog.afraidtotrade.com/wp-content/uploads/2007/07/dow-intraday-july-31.jpg
Isn’t everything great in hindsight?ÂJust after 1:00pm, a “Bollinger Band Squeeze Play” trade could have been entered.ÂRemember to identify this condition of low volatility and play for the break of the range of consolidation - you can often play for large targets this way.ÂWhen the range was broken to the downside, a trade could have been entered to play for subsequent swings which occurred quicker than anticipated by many traders.
The first pullback occurred and served for entry, a break of the 200 MA allowed for a late entry, and finally a pullback retest of the convergence between the declining 20 period moving average and the 200 period moving average served as a ‘picture perfect’ trade entry for a swing lower.ÂOf course, you would be trading an index EFT such as the DIA, or looking for stocks as ‘vehicles’ to play out the overall market’s posture for the day.
I wanted to post the 30 minute chart of the Dow because I find it interesting from a momentum condition standpoint:
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Notice the developing momentum divergence that led to an upside break and a higher high… yet price swung back a bit too far to create a retest of prior lows.ÂThe 50 period moving average capped the upswing and led to the further pressure created during the downswing.ÂPrice is now retesting prior lows, which have a decent chance of holding.ÂI think without the last hour action, we would have created a type of “Sweet Spot in the Data” trade which would have signaled a change in trend (which is down on the 30 minute charts).ÂWe ideally want to see a higher high AND a higher low… price is not testing and backtesting prior levels.
Pulling the camera back further reveals slightly broken support on the Dow Jones Average:
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Should price not hold at this level, odds will then shift to favor a test of the rising 200 period moving average, which is currently just below 12,800.ÂThis will certainly shock people who bought in the day(s) following the major headline “Dow Closes Above 14,000!!!”.
As stated previously, the overall market is at a critical juncture and buyers and sellers appear to be nervous, unsure of who exactly is in control or who can push prices in their favor.ÂA tipping point seems near - you can feel it in the air almost.
I also wanted to highlight the recent action in Apple (AAPL), which served as a further drag on the market and the Nasdaq especially:
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I wanted to show the increase in volatility, as evidenced through a 10 point drop in two days, a 15 point range in one day (which closed the same as the open), and the recent (almost) 20 point decline in three days.
The Average True Range (ATR - 14 period) for Apple has increased 150% since April, when it was approximately $2.00 per day, to the current value at just above $5.00.
Also note the Apex Buy trade, as well as the Bollinger Band Squeeze Play entry, both of which could have allowed you to play for a large target in the stock.ÂI dare say that large target ($25) has been achieved, as evidenced by a “measured move” and a euphoria climax top pattern (rampant increase in interest and volatility… as well as volume).ÂRemember ‘Trends End in Euphoria’.
I think there are greener (and more profitable pastures elsewhere - it could be time to move away from this stock for most retail traders.
This is an increasingly difficult time to trade the markets (I refer to the last few weeks).ÂI admit that.ÂUse a little caution, trade smaller positions, and consider paper trading new ideas as time permits.
Do not increase your position size to get even with the current market - do not be angry at the market.ÂStep back, take a breather, and return calmly.
Be safe out there.
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Severe Technical Damage
July 30th, 2007 by Corey Rosenbloom
While doing my evening scan, I found the following stocks very interesting from the standpoint of major technical damage that has occurred to them over the following days during the market decline.
Of course, I am not advocating trading these stocks â
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[ 本帖最后由 hefeiddd 于 2009-3-23 11:41 编辑 ]
Weekend Update - Bond, Dollar, Sector Rotation
July 8th, 2007 by Corey Rosenbloom
Here are your major intermarket analysis charts at a quick, timesaving glance for you:
First, the 10-Year Bond Price is reconfirming its downtrend:
http://blog.afraidtotrade.com/wp-content/uploads/2007/07/10yr-note-price.png
This is an example of an “Impulse Sell” trade where price makes a large impulse down, retraces back up, finds resistance at a key moving average, and then turns back down hard to continue its trend.
On the exact flipside, Bond Yields are participating in an “Impulse Buy” type scenario where price is confirming its uptrend (which has been a harbinger of bad news for the overall market):
http://blog.afraidtotrade.com/wp-content/uploads/2007/07/10yr-bond-yield.png
Next, the US Dollar Index experienced a hard sell-off and just stopped short of making new lows.ÂIt could be due for a quick bounce.
http://blog.afraidtotrade.com/wp-content/uploads/2007/07/us-dollar.png
Finally, according to our 30-day sector rotation model, we are right on schedule near the peak of the cycle, yet the ‘money flow’ predicted by sector rotation theory calls for continuation of our ‘bull-market’ scenario we have now, as investors/big funds are currently in Technology (evidenced by new 6-year highs in the Nasdaq), industrials, materials, and (the big one) energy prices.
http://blog.afraidtotrade.com/wp-content/uploads/2007/07/sector-rotate-30d.jpg
On the contrary, investors are currently punishing the sectors that do well in bear markets:ÂConsumer Staples, Healthcare, & Utilities.
Taken together, these evidence a strong case for the current bullish overall market environment.ÂHowever, rising bond yields could throw some confusion into the mix should they continue their recent trends.
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AAPL Triangle Breakout
July 8th, 2007 by Corey Rosenbloom
This week, AAPL, as a likely direct result of the success of its iPhone sales/hype, broke out of a triangle consolidation chart pattern.
Remember the market rule “Price alternates between expansion and contraction” as supply and demand gets imbalanced following a period of quiet (rangebound) trading.
http://blog.afraidtotrade.com/wp-content/uploads/2007/07/aapl-triangle.jpg
Price is now extended short-term above the upper bollinger band, and almost all oscillators are showing overbought conditions.
Use this as a study in the pure triangle consolidation pattern.ÂThe buypoint would be slightly (enough) above the apex, or at least outside the converging trendline.ÂA stop would be placed either on the other side of the trendline (aggressive) or within the trendline following the break (conservative).
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Weekend Index Updates
July 7th, 2007 by Corey Rosenbloom
We managed to survive a light volume, holiday week and end the week higher in all major indexes, yet only the Nasdaq is making fresh new highs (although they are merely new 6 year highs).ÂThis tends to be good for the overall market, as it assumes that traders are taking more speculative risk in technology/volatile stocks rather than value or defensive stocks.
http://blog.afraidtotrade.com/wp-content/uploads/2007/07/dow-july-7.png
http://blog.afraidtotrade.com/wp-content/uploads/2007/07/dow-weekly-july-7.png
The Dow Jones is about 100 points away from fresh all-time highs, and it wouldn’t take much to push the index to a new high.ÂThere is resistance at 13,700, as we have had six tests of this zone so far.
The weekly chart is working off its formerly overextended conditions, while the daily charts are showing stark consolidation and rangebound trading.
http://blog.afraidtotrade.com/wp-content/uploads/2007/07/nas-july-7.png
http://blog.afraidtotrade.com/wp-content/uploads/2007/07/nas-weekly-july-7.png
I am glad to report new price highs and new momentum highs on the Nasdaq index (on the daily charts).ÂPrice is a bit overextended, and odds favor a sell swing coming up to make another higher low to confirm this major uptrend we have been experiencing.ÂAlthough the Nasdaq is making new (six-year) highs, it is just over halfway to its all-time highs (around 5,000).
The weekly chart is showing a momentum divergence, but this is absolutely no cause for panic.
The S&P 500 looks very similar (technically) to the Dow Jones, and the Russell 2000 is making a similar pattern of consolidation (no new highs yet, but they’re not far away).
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Link: Overcoming “Frozen with Fear” Syndrome
July 6th, 2007 by Corey Rosenbloom
Active Options Trader posted a pertinent quote from coach Heather Walter entitled “I Think I Can!”
He references the childhood story of “The Little Engine that Could” and describes how determination and perspective can help you achieve your goals.ÂOften this burning desire comes after a few failures that cause us to dig deeper and realize we have what it takes to overcome any reasonable obstacle.
Here are a few quotes from the post:
“It was when he changed his focus - alerted his perspective - that he felt powerful. In fact, it seemed the more he believed in himself the stronger he felt, and the easier the climb became. His new focus became his new reality!”
“… choose the reality you wish to create, not the one you’re afraid might occur.”
Browse over and check out the entire quote and think about your “hills” in life and in trading and know that you have the power to overcome obstacles if you keep studying, learning, and trying.ÂDo not give up.
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Link: Overconfidence and Underconfidence
July 5th, 2007 by Corey Rosenbloom
Dr. Steenbarger recently posted a source entitled Overconfidence & Underconfidence in Trading: Biases in Processing Emotions.
In the post, Dr. Brett discusses objectivity and how we process and recall experiences which lead to performance issues (usually hindrances) in the present. He shares a personal story of how he ‘felt’ relieved/good when he traded poorly and counteracts that with discussing the notion of feeling bad while trading well.
Read the post and see how it incorporates into your own trading and observations. Keeping a journal can help you, and it is important to have other activities outside of trading so that ‘trading is not life’.
At the end of the article, Dr. Brett provides three bonus links to previous posts that you should definitely read.
Also, Dr. Steenbarger recently compiled resources regarding Intuition in Trading.Â
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Mid-Week Index Views
July 4th, 2007 by Corey Rosenbloom
Happy 4th of July!
The markets are setting up interesting swing patterns and are exhibiting both consolidation (which makes sense) and momentum divergences. Neither bulls nor bears are making significant headway in the last few weeks of trading, and little - except some shock - is likely move investors either way soon.
http://blog.afraidtotrade.com/wp-content/uploads/2007/07/dow-july-3.jpg
The Russell and S&P look most similar (technically) to the Dow recently - all are showing range contraction and (buying) momentum divergences. The indexes are clearly carving out support and resistance zones and traders are becoming aware of these zones (which means they should break when everyone believes they are firmly established).
The only majorly individual chart is that of the Nasdaq, which is making new price highs despite the lag in the other major US indexes. This tends to be good news for the overall market because so much of the Nasdaq is in ‘volatile’ technology stocks. Observe:
http://blog.afraidtotrade.com/wp-content/uploads/2007/07/nas-july-3.jpg
I also could not resist pointing out that we are upon a so-called “Bollinger Band Fade Trade” or for those with a little Irish leaning, it’s a “Top ‘O the Bollinger” Fade Trade. It goes without saying that the expected play occurs when price is exhibiting rangebound characteristics and reaches the upper Bollinger Band (20 period look-back at 2 standard deviations). This would indicate a possible 90% chance of price returning to the mean (20 period moving average) soon. A corresponding stop would be placed a safe distance (you decide how close) above the upper Bollinger Band in the low-probability event price continues through it.
Three of these such trade setups have worked since May in the Nasdaq (QQQQ for the ETF).
Also, take the ‘low volume’ rise in stride, meaning this is a holiday week and thus does not constitute a technical analysis volume deterioration signal. Overlook this reading for now.
Enjoy the holiday, be safe, and come back refreshed!
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Market Index Updates at a Glance
June 30th, 2007 by Corey Rosenbloom
It was a wild week of trading, to say the least!ÂI’m glad we made it to the weekend so we can pause and update our charts and catch a breath!
Next week is expected to be a very low volume week because the 4th of July falls directly in the middle - on Wednesday!ÂSome people may take off Monday - Wednesday, some Wednesday - Friday, and some may take the entire week.ÂI’ll still be trading but it will be small positions and I’ll be trying out new ideas I believe.
As of the close Friday, the Dow and S&P remain trapped between their 50 period and 20 period moving averages and appear to have hovered there for the last few sessions.ÂI’d like to see a clean break before committing larger swing positions - it appears the market is in pause mode (finally) now and volatility shouldn’t pick-up too excessively - if it does, a lot of traders will be caught unawares.ÂDon’t be lulled to sleep in low volatility environments.
I have purposely zoomed in to two-month charts of these indexes to highlight the contraction in swing and volatility - and to show the ‘trap between the moving averages’.
The Dow and the S&P chart are similar (from a perspective of technical analysis)Âin terms of swings and relative price levels:
http://blog.afraidtotrade.com/wp-content/uploads/2007/06/spx-june-30.jpg
http://blog.afraidtotrade.com/wp-content/uploads/2007/06/dow-june-30.png
On these charts, we almost set-up a “Sweet Spot” trade.ÂThese occur when a market has had an extended run, momentum divergences are present, a lower swing high forms (initial warning), a lower-low forms, price swings up to attempt a retest of the highs, failure occurs and price takes out the recently established lower low.
In terms of a swing chart perspective, this has not happened, but the market was dangerously close.ÂLuckily (for the bulls) price only bounced off the recent low and did not create a lower low - rather, we setup a support zone and should be entering a trading range for the time being (which coincides with low volume in the “summer doldrums” which has yet to materialize.
From what I’m seeing, it’s probably best not to put on bold, ‘all in’ swing or position trades just yet, but only you can determine this based on your analysis and your style.
The Nasdaq is also choppy, we was the Russell.
http://blog.afraidtotrade.com/wp-content/uploads/2007/06/nas-june-30.png
http://blog.afraidtotrade.com/wp-content/uploads/2007/06/russell-june30.png
Take some time off to do some study and analysis this week… or just take time off and have fun.
I’m a big proponent of the notion that there is much more to life than trading.
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Markets find Support at Moving Averages
June 27th, 2007 by Corey Rosenbloom
It’s rare when a particular moving average will capture (halt) the price action exactly, but these averages often serve as areas of support or resistance.
Today’s action was no exception; in fact, the Dow tagged the 50 period MA and the Nasdaq ‘tagged’ the average almost to the penny before rallying sharply to close up 1.2%.
Here are unedited charts - focus only on the price interaction on the moving averages (particularly the 50 day moving average):
http://blog.afraidtotrade.com/wp-content/uploads/2007/06/dow-june-26.jpg
http://blog.afraidtotrade.com/wp-content/uploads/2007/06/nas-june-26.jpg
I know there are many critics to using moving averages as support or resistance and that’s fine. What matters is what works for you and what you can interpret and execute in the market.
For example, the S&P 500 closed above the 50 EMA, but not before a significant ‘rinse and wash’ below it.ÂIt’s evidence that markets don’t always do as expected, and those seeking ‘absolute perfection’ aren’t rewarded often.
http://blog.afraidtotrade.com/wp-content/uploads/2007/06/spx-june-27.jpg
Using moving averages on higher time frames for execution/position management on lower time frames can indeed provide low risk/high reward zones when they hold (key word = when).
If you’re not using moving averages in this way, it’s worth pulling up a few of your favorite charts and viewing the 50 period exponential (or simple) moving average, as well as the 20 period exponential (and simple) moving average. Do your own research and see what you discover.
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Dow Observation and Bonus Charts
June 26th, 2007 by Corey Rosenbloom
Monday was an absolutely wild day for traders, with a large volatility price swing. As hectic as the trading day was, an interesting pattern emerged.
The intraday low coincided with the rising 50 EMA and with the round number 13,300. This was a significant support area.
The high of the day coincided with the flattening 20 period moving average (almost) and neared 13,500, a round number resistance. This now establishes a short-term trading range until price can eject from this 200 point range.
http://blog.afraidtotrade.com/wp-content/uploads/2007/06/dow-june-26.png
As for the bonus charts:
Google perfectly completed its Impulse Buy trade I highlighted recently (odds now favor a pullback):
http://blog.afraidtotrade.com/wp-content/uploads/2007/06/goog-june-26.png
Jabil Circuit (JBL) recently surged to a new momentum high, yet its gap is being ‘faded’ and could setup an Impulse Buy trade (or even a “Sweet Spot” trade if it breaks its downtrend):
http://blog.afraidtotrade.com/wp-content/uploads/2007/06/jbl-june-26.png
Finally, Wal-Mart is having a little bit of trouble after its recent surge in price, and may be stabilizing for a ‘buy’ (or at least support):
http://blog.afraidtotrade.com/wp-content/uploads/2007/06/wmt-june-26.png
Wal-Mart serves as another example where buying on news/earnings can cost you when so many retail traders surge in with wildly bullish hopes and dreams.
As insane as it sounds, money is often made more reliably by trading against retail traders’ euphoria for whatever reason.
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Blackstone IPO Causes Pain and Regret
June 26th, 2007 by Corey Rosenbloom
I had to point the Blackstone IPO (BX) chart out to readers, simply for its major irony to me. I watched a television report where it showed a montage of news sources that were literally giddy with excitement discussing the Blackstone Financial Group IPO and how it will make investors so much money and how traders were so excited to invest in the successful fund, and how wonderful it was, and how the Chinese government did so, and how nothing could go wrong.
As you may suspect, something went wrong (in the short term, that is - I’m not speaking of long-term price appreciation here, which I believe will happen).
This story is one of the many instances of ‘retail traders’ or new traders being lured by the Siren song and then dashed among the rocks.
View the chart:
http://blog.afraidtotrade.com/wp-content/uploads/2007/06/bx-june-26.png
Giddy traders rushed out, possibly cashing out positions in long term mutual funds and the like to speculate on this ’sure thing,’ and probably bought in the $37.oo to $38.oo range. Today, we hit a new low at $30.50.ÂThe IPO was initially set at $31.oo.ÂThe good news is that volume is clearly drying up, but please note that over 100 million shares were traded on Friday. Yesterday - 50 million.
There are literally hundreds of thousands (possibly millions) of disappointed traders/investors (in the short-term), and many have bailed out of their positions at a possible 30% loss in three days. Those holding tight are experiencing pain, but it should be temporary. Patience is key, here, as well as allowing the crowd to get ‘rinsed’ before entering (which appears to be happening).
Trading is hard, and what is popular doesn’t always make money.ÂIn fact, how many people could have known that the way to make money with Blackstone’s IPO was to short it?!ÂAnd how many people could have shorted it (psychologically) when literally everyone everywhere was bullish?
That is exactly why it would have worked.
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Weekend Strongest Industry and Index Overview
June 24th, 2007 by Corey Rosenbloom
Here are some daily and weekly views of some of the major indexes for your study:
Daily Charts of the Dow and Russell 2000:
http://blog.afraidtotrade.com/wp-content/uploads/2007/06/dow-june-24.png
http://blog.afraidtotrade.com/wp-content/uploads/2007/06/russ-june-24.png
Weekly Charts of the Russell and S&P 500:
http://blog.afraidtotrade.com/wp-content/uploads/2007/06/russ-weekly-june24.png
http://blog.afraidtotrade.com/wp-content/uploads/2007/06/spx-june24-weekly.png
open/close data to enhance standard EquiVolume Charts.
StockCharts.com provides a simple way to view EquiVolume Charts - simply select it in the “Type” box to pull up stocks in this new view.
http://blog.afraidtotrade.com/wp-content/uploads/2007/06/cat-eqvol.jpg
http://blog.afraidtotrade.com/wp-content/uploads/2007/06/aa-eqvol.jpg
These are just two examples I came across recently.ÂThese charts can also be of assistance to find ‘bottoming’ patterns like a saucer and can even help identify head and shoulders patterns.
They will work just as well on weekly frames - I am showing daily charts above.
If you’ve never viewed one of these charts, it can help you to do so if you have a few spare moments.ÂAgain, how we view and interpret data helps us with our edge and profitability in the market.ÂI don’t think many people use these types of charts and if they ’speak to you,’ then they may be helpful in this regard.
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