一个笨蛋的股指交易记录-------地狱级炒手

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Bonus Educational Charts June 20
June 20th, 2007 by Corey Rosenbloom

Here are a few bonus charts for your education:
Potash (one of my darlings)

We were stopped out of a 7+ day swing trade in Potash today when price was identified as ‘parabolic’ and we began trailing a stop beneath yesterday’s low which worked until today, and this method saved about $2.00 of profit that would have been lost without the stop. As mentioned earlier, Potash has a strong fundamental foundation and beautiful technicals. My only concern - and should be yours too - is that this stock is becoming “too popular” in the media and financial publications. I suggest looking elsewhere for large gains because the “fade the crowd” mentality is becoming too tempting on this stock. I plan to discuss more on how to trail a tight stop in a ‘runaway’ position.
Google (a darling of many option traders)

Google fell just shy of the initial target for the “Impulse Buy” set-up trade. Notice the strong new momentum high and corresponding price high that set-up the entry when price fell to the rising 20 SMA. The initial target was the most recent swing high. Many analysts say that Google will stay above 500 now that it has clearly breached that level. I have friends playing options spreads on this theory (and profiting, as of June’s expiration). Worth a thought.
Wal-Mart (WMT - a darling of many retail shoppers… who don’t mind long lines)

I admit it’s not often we get impulse buy signals from steady Wal-Mart, but we have a potential set-up if you want to consider it for further study. The large buy impulse (momentum) has caught my attention and the pullback has been orderly as far as I can tell. Stochastic is registering a buy and price could find support at the flattening 50 EMA. No matter what happens, you have a tight risk/reward should you enter immediately. You would risk around 50 cents to play for a profit at $51, or $2.50, making your risk/reward 1 to 5. This assumes price retests the most recent swing high, of course. Do you think it’s worth 50 cents to find out?
Ford (a darling of those who love to go short… until now?)

We are seeing massive triangulation (technical term: ascending right triangle) and contraction of price in Ford Motor Company. Price is expected to ‘eject’ out of this contraction zone either to the upside or the downside. I’d bet on the upside, but it’s best to establish a position once price has exited the triangle and retested back for a cleaner entry with less risk. Betting on price ejection is dangerous if you’re wrong (especially if momentum forces strong gaps against you). Often these things resolve in the opposite direction of which most people anticipate, and that’s exactly why failure patterns are more profitable and more violent than ‘proper’ patterns.
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Mid-Week Market Overview for June 20
June 20th, 2007 by Corey Rosenbloom

Today did some technical damage to the major indexes, with the Dow being spared breaking its 20 period moving average, as the other indexes have done.
We are seeing possible unwinding of developing momentum divergences in many of the indexes (especially the Dow). We also see price rejection in the indexes as well as we retest new highs and set-up failure patterns that are wrecking many stocks at the late stages.









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Just a Blip in the Radar
June 14th, 2007 by Corey Rosenbloom

Technically, I should be waiting until this weekend to post weekly index charts, but these look so beautiful (so far) that I couldn’t resist.
With the exception of the Nasdaq and Russel (technology & small cap respectively) the weekly charts of the Dow and S&P are making new all time highs as well as new momentum highs - positive signs. The charts are beautiful for the bulls who have been holding.




Remember the major economic reports tomorrow which - one TV analyst said today - could swing the Dow Up OR Down 200 points.
Here is tomorrow’s expected economic action (calendar) from Briefing.com:

It’s - of course - options expiration Friday. What a great time to be a trader!
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Let’s See Some Green! And bonus charts
June 13th, 2007 by Corey Rosenbloom

Today’s action was nothing less than stellar.  The gap up in the morning led to a bear-flag like correction to the moving average (consolidation) and then it was quite literally off to the races when the Fed Beige Book hit the newswires.
First, two index charts showing price trapped (for now) below the rising 20 period moving average after a bounce off support:


It will be interesting to play the resolution of the ‘box’ in which these two indexes are trapped .
As a bonus, here are two potential impulse buy trades:  Google and Apple.  Remember an impulse buy occurs after a new momentum high is made (along with a new price high) and the price retraces back to the rising 20 period moving average.  You play for a small target, being the most recent price high and place your stop a bit below (depending on your risk tolerance) the rising moving average.  Study these charts:


Here is a bonus chart of PotAsh, a company with a stock in a strong uptrend that has doubled in price since last October and tripled in price since December 2005!
Look at this runaway monster on the weekly chart:

For all of you who love strong updays, here is the polar opposite picture of the industry groups from StockCharts.  Remember, every industry was down - most by 1% - yesterday.  Today, we see the exact opposite picture.

By the way, if you want to see red, look no further than the Bond Yields.  My, this is an inverse of the last few trading sessions:

Remember, options expiration is upon us, so consider your strategies and decide how much (or if all) you wish to trade this wild market.
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Mid-Week Index Overview
June 12th, 2007 by Corey Rosenbloom

Here are a quick charts of the Indexes:

• Holding the Bottom Bollinger Band
• Lurking above the 50 period EMA
• Market making new momentum lows
• Stochastic registering a buy signal
• Volume increased today on the sell-day… distribution
• Clear momentum divergence now unwinding
• Support should be 13,200 until it fails

• Has not reached bottom of Bollinger Band in months
• Market recently bounced at rising 50 period EMA
• We almost registered a stochastic buy signal
• Momentum not making new lows and not clearly diverging
• Price is clearly in a trading range now with support at 2,540 until broken

• 
  
  

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Weekly View of the Indexes
June 3rd, 2007 by Corey Rosenbloom

Here are basic weekly charts of the major indexes at a glance:



With the exception of the Nasdaq, the Dow and S&P 500 are making new momentum highs confirmed by new price highs - a good picture. The technology focused Nasdaq is forming a weekly momentum divergence with price, in terms of swing highs - a caution sign, but no means to panic or doubt the rally.
Price on all indexes is far extended to the upside, which can happen indefinitely in strong trends. I define ‘overextended’ in terms of RSI above 70, Stochastic above 80, and price touching or exceeding the upper 20 period Bollinger Band (standard deviation function).
Notice from October 2006 until the February ‘plunge’ (which registered as a normal correction on the weekly charts) that the price exhibited the same overextended


DJ Utilities: A Lesson in Momentum Divergences
June 1st, 2007 by Corey Rosenbloom

I wanted to point out the recent action in the Dow Jones Utilities Index - it is a lesson on how momentum divergences play out.
First, the chart:

I have not annotated this chart (with trendlines) to show the divergences - note both oscillators making lower swing highs while price makes increasingly higher highs.
Divergences in momentum tend to correct down to where the momentum divergence (on the 3/10 Oscillator - bottom pane) first was observed.  Even the trusty stochastic indicator made clearly visible divergent patterns.
It is a known theorem from the Fathers of Technical Analysis to Linda Raschke and others today: Momentum Precedes Price.
This occurs both in the form of momentum highs leading to new price highs (indicated also on this chart with a new price and momentum high on March 26th) and the form of divergences, which are nothing more than a coming balance of buyers and sellers (and a reversion to the mean type of price behavior). This is evident with the ’snap’ decline and rolling upper peaks in price throughout the month of May.
Now, we are observing new momentum lows and a potential “Impulse Sell” style trade where momentum makes a new low, corrects back upwards, and then makes new price lows. This could happen with a failure test of the (now) declining 20 period moving average.
Study your charts in terms of momentum readings and indicators. They are not the ‘magic bullet’ of course, but they can alert you to some greater than normal probabilities of potential upcoming price movement.
Of note, we are seeing clear momentum divergences just like this in the major indexes. I recommend caution, but I do not attempting to short this market yet.
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Overview of Major Indexes
May 31st, 2007 by Corey Rosenbloom

We have survived this ‘heavily ladened’ week of economic reports, and the S&P along with the Dow Jones have made new lifetime highs.  Such action is impressive when reports indicate that first quarter GDP grew at 0.6%, or the worst reading since 2002.  We still have one trading day ahead of us before the weekend.
Dow Jones

• We are making new price highs, yet momentum (both 3/10 MACD and Stochastics) are clearly diverging now with price
• Volume on the last 3 up-days was clearly decreased - consequently, volume on today’s ‘down’ day was markedly increased

All indexes are showing clear and present momentum divergences.  A divergence is no reason to run for the hills and short, but it is a yellow light of caution.
Here’s a bonus chart of AAPL (Apple) which has absolutely been on a roll since late April.  It is now making new momentum highs.

Study well.
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Weekly Chart Views
May 26th, 2007 by Corey Rosenbloom

Here are some daily charts of recent market action from a momentum-divergence standpoint:

• Momentum is diverging, as buying pressure appears to be subsiding.
• Market is pulling back to possible support at the rising 20 period MA (has it already found support?)
• Chart is extremely bullish
• Resistance (three ’scraping’ candles) at round number 13,600.  If surpassed, expect further strength

This is a daily chart of the Dow since 2006.   

• Notice the steep change in angular momentum in the lengthy price swings
• Ask how much buying power is out there to sustain this lengthy and steep angular rise (angle of 75 degrees)
• Notice the momentum divergence in the price swings at the far right of the MACD oscillator
• Nevertheless, we made annual new momentum highs recently (as well as price highs).

The Nasdaq (Six Months Daily)

• The Nasdaq’s momentum divergence is clearer than the Dow’s
• Price made a new high yet momentum is not making new highs (in terms of swings)
• Traders rejected the 2600 price value to the penny recently - it is resistance that must be cleared
• Volume increased while price sold on momentum on Thursday (only to rebound a bit) = Bearish short term
• Support appears to be at 2520 with the lower Bollinger Band and 50 period MA
• A Head and Shoulders pattern (short-term) MAY be forming, but needs validation

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Regions Financial Chart Speculation
May 26th, 2007 by Corey Rosenbloom

Analyzing financial stocks can be helpful in determining trends in the broad market, but I also like to highlight interesting chart patterns or situations.
Regions Financial (RF) has been swinging in a tight yet relatively predictable swing trading range over the last year and neither has upside or downside momentum.  Most financial stocks provide comfortable dividends if held long-term, as well.
Here is a six-month chart of RF and I am highlighting a momentum buy divergence, as well as support below from moving averages (and a recent possible ’stop-gunning’ price movement).

Notice the ’sweet’ swings in price - normal oscillations.  An oscillator (RSI or Stochastic) might aid you better in calling price extremes if you’re looking to trade this stock with range-bound strategies.
I don’t normally call trade set-ups or entries (I mostly provide overall analysis and want you to use your own thoughts and methods on stocks I highlight) but I wanted to provide a little assistance on this candidate.
From a risk-reward standpoint, you have a favorable swing trade if you desire to take it.  I would place a stop a bit below $35 (a little closer to price action if you are rather conservative, but odds favor giving trades a bit of room) and a profit target around $37 (initial profit at $36.50).  This sets up around a 2:1 reward:risk (which is more attractive if you use the moving average — if so, your stop is $35.50 and your target $37 which provides a 4:1 reward:risk).
Look at longer-term views of this stock and run your own technical analysis (including trendline verification… are we bouncing off a trendline or did we just violate one?).  This could generate trade ideas for you.

This 1 1/2 year chart of RF shows possible “topping” action, so be a little cautious in executing a large position.  Keep portfolio risk parameters primary.
The volume (sell) spike indicates a possible selling climax and reversed trend (back to the upside) which we are seeing from that point (higher highs and higher lows relative to the sell climax).
Note:  Regions recently acquired AmSouth Bank, and the restructuring is currently taking place.Â
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Relative Strength Charts
May 18th, 2007 by Corey Rosenbloom

Although I don’t incorporate stock relative strength charts as much as I should, I am going to begin posting more on this concept as I better understand the implications that can be interpreted from adding this additional tool to the analysis arsenal.
Relative strength charts compare price change relative to another security (or index or asset class).  The concept of relative strength is important because time is money, and while you may be making a decent return on your trades/investments, you could potentially increase your returns by studying sector strength and stock strength within a given sector.
Here are two examples of stock comparison within an industry group.
Both Apple and Microsoft are heavily followed stocks, but quick, tell me which one would have made you more money in the recent past?

The answer clearly is Apple (AAPL) because of the strong move it has experienced recently relative to Microsoft’s move.  This implies that newer technology and an alternative to ‘big Microsoft’ could continue to outperform.
Let’s look at another example between two major search engines.  Between Google and Yahoo, which do you think would have performed better recently?  I suspect most people would say Google because of its behemoth status as a stock and company.  Let’s look closer:

Actually, Yahoo would have been the better choice this year, in that its price appreciated stronger than Google’s (recently).  Of course, these stock prices are dramatically different (Google at $470, Yahoo at $30), yet when compared from a percentage standpoint, you would have been better off in the smaller, less hyped Yahoo (recently).
There is so much to be said on this topic, and I recommend studying more and playing around with as many relationships as you can imagine.
In StockCharts, to find relative strength charts, select Performance (as the chart type) and type symbols in this format:
GOOG:YHOO or DIA:QQQQ
The colon character will set-up the chart and the percentage change will allow you to compare relevant differences.
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Daily Index Charts plus Bonus
May 18th, 2007 by Corey Rosenbloom

While 8 of the 10 items in the index of leading economic indicators registered negative, the market took it in stride and has continued its creeping trend higher.  Here are charts of the major indexes:



Again, the Dow has held up the strongest in terms of relative strength.  To illustrate this point,  here is a relative strength percentage graph of the DIA (Diamonds - Dow Jones ETF) and IWM (Russell 2000 ETF)

Although the Russell outperformed the Dow for most of the year, since May, the large cap Dow has shown considerable relative strength as compared to the smaller cap index.
Relative strength is an illustrative concept studied by many technicians of intermarket relationships.  The technique can also be used to show strong and weak stocks within a given sector or industry group. A market analyst can use basic support/resistance and trendlines to highlight early changes to a particular relationship.
Notice the clear change in dominance that occurred in May with the Dow ‘breaking out’ of resistance and signifying a shift in trend, confirming the flight to quality at least in the short term.
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A few nice educational charts for May 17
May 17th, 2007 by Corey Rosenbloom

Caterpillar:

Caterpillar (CAT) recently pulled back (sharply, might I add) to the rising 20 moving average and found (temporary) support.
It’s still on a down day (currently) with a nasty gap, but aggressive trend traders (and swing traders) could have (or still can) establish a position here with a tight stop should the average be breached on high volume (which would signal a trend trading exit for all those long CAT since February or earlier).
We see a momentum divergence with price (in terms of swing highs) so this serves as a caution point (not enough reason to exit).
Goldman Sachs (GS)

We see consolidation at the moving average and should be expecting an expansion move (in either direction) yet odds favor expansion upwards (because of the trend/price structure).
Here would be a nice place to consider entry IF you wish to trade this stock long and believe in its fundamentals or sector strength (only you can determine this).
We do see a momentum divergence, which is what I’m seeing across many stocks.  Again, this is a warning, not a reason for a counter-trend trade.
Alcoa (AA):

Alcoa has no doubt shown some impressive relative strength recently (in terms of Dow components).
Observe the new price and new momentum high (recently) suggesting a higher probability for higher prices following a pullback (which is occurring).
Now is probably not the time to enter Alcoa if you’re a swing trader - instead wait for the pullback.  Better yet, wait for the “Impulse Buy” trade I describe to set-up (when price pulls back to the rising 20 period moving average following a new momentum high.  Play for only the most recent price high).
AA has increased roughly 30% since the beginning of this chart (January).  For any stock, this is an impressive feat but especially for a Dow Jones component!
Finally, Apple (AAPL)

Apple has been highly praised in the media and by analysts (and traders) and we see its impressive trend-expansion (run-up) of $20 since late April and $30 since February.
Notice that we are making new price and momentum highs in the stock, indicating strong momentum and probability for higher prices later.
I’d still like to see the pullback, but realize that in the strongest stocks, they don’t often bear fruit - sometimes you have to grit your teeth and buy at high prices (buy high, sell higher).
I’d recommend following this stock and seeing if it pulls back and taking a position if the stock fits your particular strategy.
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Dow View May 17
May 17th, 2007 by Corey Rosenbloom

A reader informed me I failed to include the Dow chart in the recent chart analysis so here is today’ s Dow Jones action - the Dow has held up the strongest in the recent environment, perhaps because of capital flowing into larger capitalized securities.  The Russell (small cap) is still showing relative weakness.

We see declining momentum, which is characterized by all the indexes which serves as a warning, and not a reason to exit long positions.
All moving averages have formed a highly bullish angular pattern and continue to rise (look at how nicely the 200 period average is rising - about a 33 degree angle).
A trend is clearly developed, and odds favor continuation, yet trends do end at some point, so I’m not suggesting to bet the farm with new longs in the current environment, but to enjoy the ride and marvel at the recent strength.
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Technical Damage to the Indexes
May 15th, 2007 by Corey Rosenbloom

The Russell 2000 suffered the worst technical damage today (in terms of support/resistance), while the Nasdaq isn’t far behind. The S&P and Dow are still looking comfortable, yet a test of the rising 20 period moving average isn’t far away.
For the Nasdaq, a test of the 50 MA would mean shedding 25 more points (keep in mind we lost 21 points today).
The Russell (and Nasdaq) have violated the 20 period moving average and now rests at the stabilizing 50 period MA. This area could find support, but if not, odds favor continuation to the downside.
S&P (Strongest of the indexes, along with the Dow)

The Nasdaq, which could test the 50 soon (shedding 25 points):

The Russell (small-cap) which has languished the other indexes:

We are seeing momentum divergences (with price - declining momentum) in all the indexes, which is a caution sign.
Keep this in mind when you’re putting on swing trades this week. Most major indexes stand at critical junctures, or what I call “technical decision nodes.”
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Daily Chart Views
May 14th, 2007 by Corey Rosenbloom

Here are the most recent index charts for May 14:
Dow Jones

Nasdaq

S&P 500

Russell:

In almost all indexes, price bounced off (found support at) the rising 20 period moving average.
All indexes are making divergences with price, in that momentum is decreasing while price increases which signals caution.
The Stochastic indicator has pulled back to 50 on all indexes.
The Dow Jones is the strongest index while the Russell is the weakest (from a technical standpoint).
This indicates the big investors are finding protection in the larger capitalization companies as compared with the smaller cap stocks of the Russell.
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Weekly Dow Chart May 12
May 12th, 2007 by Corey Rosenbloom

Attached is the weekly chart of the Dow Jones:

• Â Momentum is confirming new price highs (but this is NOT the case on the Nasdaq)
• Price is clearly overextended in terms of oscillators (yet this isn’t a reason to reverse)
• Price is above the upper Bollinger Band (again, no reason to reverse)

My observations:  We are overextended and due for a correction (how many times have you heard this from others in the financial media or other bloggers?)
Another observation:  The market can remain irrational (beyond odds) longer than you can remain solvant (or run out of capital)
Trading is about odds and probabilities.  People see things differently, in that while some traders (like myself) see this environment as highly risky and are unlikely to initiate new long positions (and in fact, more likely to take profits on open long positions), other traders see this as a breakout and runaway market and can’t wait to get on board and are buying the market aggressively.
Who will win?  No one knows.  We only watch and play the odds, and in this case, with the stochastic above 80 (and possibly crossing), price above the upper Bollinger Band, price well overextended above the rising moving averages, and momentum making new highs, odds favor a correction/pullback/profit taking/etc.
However, just because odds say it will happen does not mean it will happen.  You can’t force your will on the market, and in such an environment (strong momentum move), you are either long or stay out of the way.  Otherwise you - like the bears and shorts out there - will sustain heavy losses, especially in a creeping or runaway trend environment.
Play the odds and be careful.  Control your risk either way.
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Daily Chart Analysis
May 12th, 2007 by Corey Rosenbloom

There was some damage done to the weekly trend on most of the Indexes this week.

The Nasdaq clearly broke its rising trend (some have called this a rising wedge) and could serve as temporary resistance until broken (or resumed).
The 20 period moving average acted as support, and may continue to do so until proven otherwise.

The Dow also broke its breakneck trendline and price found resistance near the bottom of the former trend channel.  Support also is likely at the 20 period MA.
Notice how the slope of the trendline changed (I have drawn two angles as support) which indicates a possibly overheated market due for a slight correction or profit-taking (or shorts suckered in).
Aggressive shorts can initiate new positions, but remember that trends have higher odds of continuation than reversal, so it’s not necessarily a high probability trade to do so.  It is often best to let the market tip its hand and then play off the direction taken.
Technical damage was done, but clearly not enough to call for any bearish action yet.
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Orderly Pullback or Something More Sinister?
May 10th, 2007 by Corey Rosenbloom

The Nasdaq fell 1.7% and the Dow fell 1.1%. Not only is this by no means surprising, it is also not a huge decline given the rally we have experienced.
There is irony I discovered at least in the Nasdaq. Tuesday and Wednesday, the Nasdaq gapped lower, signaling a possible trend down day. Instead, price closed at the highs of the day both instances. The market reversed. Thursday, the Nasdaq gapped UP… but then fell through the rest of the day and closed on its lows. These fake-outs had many traders confused and positioned incorrectly.
Things are not always what they seem… but in the market, things are rarely (if ever) what they seem so it helps to be prepared. As Mark Douglas teaches, be prepared for anything (keep a truly open mind) because anything can happen. In fact, what happens is often what the overwhelming majority of participants least expect.

• Momentum is flattening and declined today.
• Price tagged the rising 20 period Moving Average
• Volume increased on today’s “trend down” day (relative to the past few days)
• The market is still in a strong and powerful uptrend UNTIL proven otherwise

The reason I hint to the ’sinister’ side is that the Nasdaq sits firmly at the 20 period moving average, a key turning point in the battle between the bulls and bears. If this is broken, odds favor a retest of the 50 period moving average around 2500 (a drop of 40 more points). Aggressive trend traders can initiate a new long position (especially in the QQQQ’s) with a tight stop and play for a retest of the most recent high. Note my usage of the word aggressive.
At the firm this afternoon, a trader popped his head in and informed us “This is it! This is the top of the market!” I don’t know that yet, and I don’t think anyone would be wise to try to nail the exact top. I do know that there is still a lot of bearishness and people are celebrating this snap decline. Let the market tip its hand and confirm before celebrating, I warned.
Remember, making money is not about being right and not about 100% accurate predictions or observations. It’s about playing the highest probability set-ups, taking small losses when wrong, and larger profits than losses within a system/structure of money management.
Be safe!
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Link: Own the Zone - T. Lo
May 10th, 2007 by Corey Rosenbloom

Teresa Lo posted recently regarding insights from Mark Douglas, one of many traders’ favorite authors.
In it, she discusses fear, biological responses, pain, edge, seven principles for consistency/success, and other insights. I have attached two key points:

I recently finished reading The Disciplined Trader (Mark Douglas) and was completely impressed, especially with its constant handling of fear and beliefs. I recommend it as well.
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Link: TraderFeed - What Makes a Professional Trader
May 9th, 2007 by Corey Rosenbloom

Dr. Steenbarger recently discussed five major differences between professional traders and novices based on his experience in working with professional traders.
Here are a few highlights:

• Pro traders think about the big picture - they monitor intercorrelated markets and observe relationships between them (and trade them!).

• Pro traders also think ’small,’ in terms of returns. Do you see any professionals who achieve consistent 100% or 300% returns? They carefully control their risk and know what to expect (hint: it’s more realistic than doubling your account in a year). They set goals and the goals are reasonable.

Dr. Brett: “The best traders I know spend significant time generating trade ideas, researching markets, and staying on top of developments world wide.”

The underlying point is to approach trading professionally, like a business and take a multi-faceted approach (one that goes well beyond picking great stocks).
Check out the entire article for deeper insights.
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Can the Rally be Stopped?
May 8th, 2007 by Corey Rosenbloom

“Make hay while the sun still shines” or so the saying goes.  It’s not often we see such strength in the market, especially with dark clouds on the economic front upon us.  Maybe that’s exactly why we see market strength, from a contrarian perspective.
The Dow Jones Industrial Average has risen 24 out of the last 27 trading sessions, which ties the record set in 1924!  Folks, that’s amazing.
Today, we had a morning sell-off above 60 Dow points which rallied to close just under 4 points where it opened.  To me, that’s amazing.
Folks trying to short this market keep getting buried.  Price action is key, and we must follow it.  Nevertheless, I am amazed at the recent action.

My hat’s off to you, bulls.  It’s very rare when either the bulls or the bears win so decisively, as we have seen within the last few weeks.  When will it end?
Why try to anticipate the end?   Many shorts have been stampeded trying to do this.  Join the bull crowd and stop doubting this move.  When it’s over, it will end, but until then, odds favor continuation and it is nearly impossible to predict the absolute top so my advice is not to try.
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Multiple Momentum Divergences in SHLD
May 6th, 2007 by Corey Rosenbloom

Readers, I know I discuss momentum divergences very frequently but they work (are effective) on so many levels.
Primarily, they set up trade ideas, and I take many of my swing trades based on momentum divergences. They work better than average for day-trading but not as well as swing trades off daily charts (in my opinion).
Second, they can provide warning signs for a trade you are managing - momentum divergences can be an early warning sign that the profit potential for your trade has eroded and price is likely to reverse on you.
Third, they can give you basic idea of the market structure in terms of supply and demand.
View this chart of Sears Holding (SHLD) and focus only on the highlighted momentum divergences. Click to view the full-size image.

Also, ignore the most recent action (the severe gap down through the moving average). We had a strong momentum divergence forming that may have kept longs out of the recent slaughter if they heeded the signal of declining momentum.
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Sell in May and Go Away? A look at the Dow since 2001
May 6th, 2007 by Corey Rosenbloom

Many articles have been posted regarding the axiom: “Sell in May and go away,” which is in reference to studies that show that the market’s worst performance begins in May and ends in November. While performance is mixed on various years, it is helpful to study the last 5 years of market action (as evidenced by the Dow Jones) and determine whether this was an attractive strategy in recent history.
2006

2005

2004

2003

2002

2001

Results:
2006: Yes in the short term and No in the long term (would have been better to buy in June)
2005: No. Market highs were made in March and not retested until November
2004: No. Market high was made in February and exceeded in December
2003: Absolute no. Selling in May would have left enormous profits on the table.
2002: Yes. This year would have worked wonderfully to Sell in May.
2001: Yes. Perfectly. The high of the year was made in May and low was made in October.
Cursory results: 50% effective, IF that high.
It is still best to study and analyze the market daily or weekly, and not rely on old market wisdom, at least as it regards to actively trading the market. Investing is not simple - not by a long shot. The profits go to the diligent, not the lazy.
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Declining Dollar, Rising US Stock Market - Danger?
May 5th, 2007 by Corey Rosenbloom

Is it possible the recent year’s rally in the US Stock Market is in part due to a falling dollar and rising inflation, rather than economic conditions?
Consider the following. Many people are ‘bearish’ the US stock market and cannot believe the strength of the creeping uptrend in the US Indexes because they believe a recession is ahead based on various interpretations of economic data and future projections.
Consider also that the US Economy is experiencing inflation readings slightly above the Federal Reserve’s “comfort zone” of 2%, yet economic growth (evidenced by GDP) is slowing, causing some to cry for calls of possible ’stagflation’ ahead.
While this post will not address those issues, consider also the following: The stock market tends to lead the economy by six months, making the market a forwardly anticipating mechanism. The implication here is that the economy will strengthen in the future, yet signs on the ground now are not showing it convincingly.
Finally, consider the possibility that economic conditions are deteriorating, and that the rise from July 2006 to present is due in part by inflation and the declining US Dollar value. The market discounts all known information, which means it discounts these variables as well.
The implication is that, while US indexes continue to make new highs (Nasdaq and S&P excluded), actual purchasing power is declining relative to the new highs in the equity markets. To put it another way, conditions ‘behind the scenes’ are so bad that the inflationary and dollar declining mechanisms built into the stock market are causing the market to rise as a result of the poor conditions, (relative value) while absolute value declines.

Here is an illustration. How would you feel if the US Stock Market suddenly surged 600% this next quarter? Wonderful, wouldn’t you? I bet there would be celebrations nationwide about how wonderful the economy is and how rich we are as Americans and CNBC will be parading all the time.
But what if the inflation rate for the same period was 1,000%? This exact scenario actually occurred First Quarter 2007 in Zimbabwe’s economy. While their stock index made astounding new highs and record-breaking increases, it was a direct result of inflation and little else. Wouldn’t you argue that inflation rates that high indicate a terrible, abysmal economy? So why didn’t their stock market index break to new LOWS instead of record HIGHS? It’s because the market index has to keep up with inflation, and when inflation rises, so must everything else tied to that currency (in terms of purchasing power).
So an apple might cost $1 today and the next month will cost $1,000. Of course, your salary would increase from $30,000 per year to $30,000,000. Would you like to have a salary of $30 MILLION per year? I would! But what if a house cost you $200,000,000? What if a car cost $15,000,000?
Does it make sense now why the Zimbabwe stock exchange gained 600% now? The truth of the matter is that the relative value of the stock market DECLINED precipitously, but you can’t tell that if you’re only looking at the index itself.

The US Economy is no different. While the stock market may be making new highs, is it is partly due to inflation and the declining dollar being factored into the complex mathematics that is the market discounting mechanism.
So while the average American focuses on new price index highs and celebrates, those who look beyond the data realize the meaning behind the numbers and realize we’re in a lot of trouble unless the US Dollar begins to rise and inflation begins to subside.
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May 1st Market Commentary
May 1st, 2007 by Corey Rosenbloom

The Dow Jones made yet another all-time closing high today, while the Nasdaq failed to confirm.  Although both indexes ended higher, the day’s action was choppy at best.

• Notice the creeping and solid uptrend
• Notice New Momentum Highs confirming New Price Highs, heralding higher prices are likely to come
• Notice the solid uptrend on the red 3/10 MACD oscillator
• It would appear we are ready for a sell-signal, yet oscillators fail in strong recent trend action

Chart of the Nasdaq:

• In the most recent swing high, the 3/10 oscillator failed to make a new high - it’s just a warning
• Price recently ‘tagged’ the rising 20 period moving average - a buy signal
• Most recent support is confirmed at the rising 20 period moving average
• The Nasdaq had a strong sell-day yesterday, rinsing out some of the excess and clearing for possible new highs
• The trend still creeps higher, warning shorts to stay out

As a bonus, here is a recent chart of market leader Apple (AAPL):

• We had a euphoric price move that gapped up higher with New Momentum and Price Highs
• Â Odds favor greater continuation to the upside after a fresh retracement
• Support ‘held’ at the rising 50 period moving average recently
• We appear ready to experience a corrective downswing for a possible trend entry signal

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Cotton down 50% - anatomy of a downtrend
April 30th, 2007 by Corey Rosenbloom

Cotton futures recently declined more than 50% from their 2004 swing high at $110, and have declined 67% from their 1998 price swing high of $150. If you study and analyze this chart, you can experience the anatomy of a downtrend with clean price swings and consolidation patterns (I have indicated a triangle pattern in the most recent chart).

Here is the weekly price of cotton futures since 1998.

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Sugar’s Wild Ride
April 29th, 2007 by Corey Rosenbloom

I don’t frequently review commodity futures charts, but in doing so, I couldn’t resist posting this weekly chart of Sugar.  The price doubled and then fell back to the previous price.  Talk about a wild ride!
We are seeing momentum buy divergences, meaning selling is likely drying up from a momentum standpoint.  Also, we are testing previous lows.

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Lumber - Weekly Chart of Decline
April 29th, 2007 by Corey Rosenbloom

Lumber (future) has experienced a rapid and sustained decline, as evidenced by its weekly chart.

We are seeing weekly momentum buy divergences that indicate a slowing of the selling pressure, but the trend remains in tact until disconfirmed by a higher high and a higher low.
Until then, odds favor successful trades on the short side, with tight stops because of the developing divergences.
UPDATE:  February 9th, 2008
A reader requested an update to this chart, which terminated April 29, 2007.
My call was on, in that ‘odds favored the short side’, as lumber made new recent lows at $217.
Here is the weekly chart:

By the way, the divergences I referenced did resolve with a quick ’short squeeze’ almost after I posted the article.  The ’short squeeze’ is represented by the green bars which soon turned back to red as the trend resumed.
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Shock Volatility in Silver
April 29th, 2007 by Corey Rosenbloom

In Wall Street, there’s an old saying, “The Market takes the escalator (or stairs) up and the elevator down!”  This statement is exemplified by the action in the Silver futures contract.
We have a slight and creeping uptrend followed by a quick shake-out downthrust to cause all those who bought in to be underwater instantly.  This happened not once, not twice, but three times since last July!

Notice the grinding upwards action that was completely erased within two or three days.  Absolutely insane.
Also, this is one of those instances where stops may not protect you because the move was so swift and violent to the downside each time.
Commodities and futures may be able to make you lots of money quickly, but their volatility issues are probably best left to the professionals.
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Sector and Industry Strength and Weakness with Stock Ideas- April 28th
April 28th, 2007 by Corey Rosenbloom

Here is a chart of the most recent update concerning the last three months (ranking) Industry strength and weakness, as viewed from Prophet.net:
Top Industries

• Money is flowing into Oil and Gas equipment, as well as Foreign Telecom Services (as evidenced from the right to left ‘red to green’ flow).
• Opportunities for continued growth may lie here.
• Uptrends to examine (Oil and Gas): BTJ, CAM, DRQ, FTI, GMRK
• Uptrends to examine (Foreign Telecom): MICC
• Metals Fabrication has stayed strongest over the last 3 months, andcontinues to be the #1 industry
• Opportunities for continued growth may be decreasing soon (given its dominance at the top)
• Uptrends to examine (Metals Fab): PCP, RS, X, RYI

Bottom Industries:

• Money is flowing out of Cigarettes in a meaningful flow. This is in part by a recent large gap in MO (Altria), a Dow Component
• Residential Construction has been weak for the last three months.
• Downtrends to examine (Res. Const): LEN, MTH, KBH, CTX

Here is a graph of the most recent Sector Rotation (30 days) from StockCharts.com:

• Energy dominated the last month, marking a 6% increase. That’s generally bad for the economy and the consumer.
• Healthcare and Utilities were the only two sectors to be positive the last 30 market days
• This bodes poorly for the overall economy, and suggests that “big money” is being more defensive with their posturing
• This suggests we are in a Late Bull/Early Bear environment, yet the major indexes do not confirm this

Keep checking back, as I will be adding weekend sector and industry analysis, in addition to my daily postings.
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Daily Chart View - CME
April 26th, 2007 by Corey Rosenbloom

I highlighted Chicago Mercantile Exchange (CME) here as a study on trendlines and support. It is a ‘very expensive’ stock, and one I recommend playing options (particularly credit spreads) if you desire to trade this stock that is priced higher than monster Google (GOOG).

Of quick note:

• CME recently broke its triangle consolidation to the downside
• All oscillators are oversold (in chart)
• Support zone is likely at the 200 period moving average
• Should the MA break, then support may be found at the price low highlighted with a horizontal line
• Should price break significantly here, all bets are off (thus, stops should be placed here)
• A credit spread (bull put credit spread) could be entered close to the market to take advantage of the support zone
• A debit spread (bull call spread) could be entered also to play for the bounce
• Of course, you could buy long calls here… but the edge typically comes from selling premium, especially with volatile stocks

These are just a few observations, and I hope to challenge your thinking to step outside ‘pure stock’ trading and explore other possibilities.
Either way, it’s still an odds game and there are various ways to ‘play the odds’ with options in addition to stock transactions.
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Amazon AMZN Chart Apr 25
April 25th, 2007 by Corey Rosenbloom

With so many charts showing ‘euphoric’ gap patterns (often based on earnings releases/momentum), I couldn’t pass up posting today’s action in Amazon (AMZN) which increased 27% in one day!

By the way, the Nasdaq made a fresh 6 year high and the Dow closed comfortably above 13,000, making yet another all-time closing high. Headlines and statements like this are becoming more common and are less exciting to the general public.
I’ve said it every time I close a market post - do not attempt to short creeping uptrends in the market. Creeping uptrends continue because of various reasons, one being short-covering.   Leave it to the professionals. Either go long or stay out when the market is making new highs.  Wait for the market to tip its hand before attempting a short, otherwise you attempt to buck the trend.
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Some Dow Components Go Euphoric
April 25th, 2007 by Corey Rosenbloom

I must admit I am impressed with the strength of the recent rally, especially in the market leading Dow Jones Index (which is still just comprised of 30 large-cap stocks). The Dow came within 10 points of touching the psychological 13,000 mark today, and it appears likely we will test this high soon.
What people are not seeing is euphoric gaps and strength under the radar in certain Dow Jones components, which is creating an almost ‘false’ index reading (in terms of few stocks making significant contributions to the index). This has always been a criticism of the Dow, and I wanted to point out a few of these “anomalies” of recent price action.






Although this is not a complete list of the Dow Components, it may seem like it because so many of them have experienced radical price movements (radical as compared to recent price action).
One has to wonder where the strength is coming from, and what forces are driving this market dramatically higher (even into record territory as an index).
I glance at least weekly and assess the technical picture of the Dow 30 components and many of the leading S&P 500 components to assess trend and the ‘health’ of the stock, as well as possible discretionary trade ideas based on patterns/indicators/momentum.
It is very rare that frequent gaps occur, and rare for sustained unidirectional price movement (the market pulses in swings - usually small swings).
Realize that there is either underlying, dramatic strength in the market… or panicking bears rushing as fast as possible to cover their short positions.
Some have said that the rally is in part because of tax refund checks and inflows to mutual funds after the April 15th tax date. Maybe. The facts of price movement are clear, but the reasons may not be.
View these charts and determine what conclusion you think for yourself as to what’s happening and what the most likely upcoming movement will be.
(Disclosure:  I hold no current positions in the mentioned stocks, but recently exited a swing trade on CAT on April 20th and have day-traded IBM April 24th and before).
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Three Educational Charts
April 23rd, 2007 by Corey Rosenbloom

Here are three charts that show past opportunities and some possibilities for the futures. All charts are for educational purposes and have minimal annotation.
US Dollar Index - Weekly

Comments:

• Downtrending and may make new price lows
• Potential support at the 2005 low - if broken, few levels of support below
• Head and Shoulders pattern led to dramatic price decline
• Note annotated momentum divergences which led to small targets
• All Three Moving Averages are clearly sloping lower and aligned bearishly

Net Flix - NFLX - Weekly

• “Squeeze Play” led to possibility for playing for a large target - note momentum divergence building during squeeze
• Consolidation currently taking place. Watch for break of triangle formation. May be months ahead.
• Notice the pure swing action in the chart

Sears Holding - SHLD

• Notice the “Squeeze Play” that led to a large target
• Note the “Impulse Buy” trade that occurred after price expansion and New Momentum High
• Note the “Three Swings” or “Three Pushes” that occurred after volatility/price expansion and the trades at the moving average pullbacks
• Notice the momentum divergence forming as the “Three Push” pattern completes itself
• Very bullish action, as confirmed by the alignment and slope of the moving averages

(Disclosure - I have no current positions in the highlighted stocks, but have traded positions in SHLD)
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Link: Lauriston Letter - Golden Trading Rules
April 23rd, 2007 by Corey Rosenbloom

Lauriston at the Lauriston Letter recently polled readers to send in their responses regarding what would be the top ten fundamental (or core) trading rules to follow.
The responses are compiled here (at this link) and include not only critical insights into the highest probability activities, but insights from traders helping other traders.
The Lauriston Letter always has excellent participation in terms of comments of readers, and you can gain insights from reading post responses as well.
Study the list and see what you would add or take out of the list and drop Lauriston a line if you have personal insights.
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What Happened?! Earnings Fade in GOOG and MCD
April 21st, 2007 by Corey Rosenbloom

How is it that a company reports higher profits, yet its stock price declines intraday?
This phenomenon is quite common, where what a new investor expects (or even common sense expects) to happen does not materialize, and in fact, the opposite occurs.
Consider two examples from Friday, April 20th, where the Dow set new highs and rallied over 100 points (a clear up-trend day).
McDonalds posted Quarter 1 earnings that were 22% higher than last quarter. With such a surge in profits, wouldn’t you expect to buy the market (go long) at the open and ride your way to profits?
This was not the case, and in fact, had you bought the open, you would have grossly overpaid for your shares (open at $49.60 and close at $48.35, a loss of $1.25).

Here is McDonald’s (MCD) impressive daily chart:

This is a classic case of “buy the rumor (of good earnings) and sell the fact (of reported earnings).” The professionals who took part in this “trade” bought in anticipation of the earnings release and “took profits” and sold to those who bought after earnings were released. And note I’m not saying price won’t go higher - I’m saying that if you bought the open, you’re likely confused and disappointed because your expectations were not filled.
The same event occurred in Google (GOOG) yet with 10x the potential loss.

Google’s daily chart:

The same logic can apply to Google with the “buy the rumor” logic. New investors got temporarily burned by buying Google’s soaring profits. How’s this for unbridled bullishness: Google’s first quarter profits soared 70%, handily beating analysts’ estimates. Why not buy the open and ride your way to financial freedom? Because you would have lost $10.00.
After releasing earnings, Google’s price behavior opened at the high of the day and closed at the low. Not surprising behavior for the professionals, but befuddling and confusing (and fear inspiring) in beginners and those who lost money Friday.
Do not believe everything you read and be very cautious when all signs point in one direction (up or down). Chances are, you can make more money by fading news and earnings reports than by trying to profit when they are released.
(Disclosure:  I have no positions in, nor did I trade these stocks on Friday.)Â
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Weekend Annotations and Charts - Apr 21
April 21st, 2007 by Corey Rosenbloom

Every day last week, we saw price advances in the Dow Jones Index, and we witnessed new intraday and closing highs in the Dow.  I mentioned last week that if we broke resistance at 12,800 (likely), then we would see a hard rally off this point to the upside.  After “scraping” it last week, we had the hard rally Friday.

The Dow also made a New Momentum High, as well as a confirmed New Price High, indicating that (from a momentum standpoint) new price highs are yet to come (following retracement swings, of course). In fact, a potential “Impulse Buy” pattern is setting up when we get a corrective wave in place. The Red “trend-line” on the MACD 3/10 Oscillator is clearly pointed higher, and any pullback of the black signal line to the trend-line is likely to set up a trade.
HOWEVER, before you get too excited, realize that the large price thrust on Friday (and strong volume surge) was due mainly to three of the 30 Dow components: Caterpillar (CAT), American Express (AXP), and Honeywell (HON).



So before you celebrate unbridled bullishness, view the technical pictures of the other Dow 30 components, as well as other leading stocks before rushing out to bet the farm on this market. Earnings season is registering “better than expected” results from major companies, most likely because the sentiment is so fearful/bearish on the Street (low expectations can result in large price moves in stocks that beat estimates, and short-covering exacerbates this process).
AXP and HON are setting up potential “Impulse Buy” Trades when their price corrects to the rising 20 period moving average. We see new price and momentum highs with these components.
To temper your bullishness, observe the charts of the Russell 2000 (small-cap) and Nasdaq (technology):

Both of these indexes, which compromise many more stocks than the “narrow” Dow, are failing to make new highs and - in fact - appear to be faltering to make new price highs and could be setting up a double-top pattern.
Notice the price divergence with the momentum oscillator - on the most recent swing to higher prices, the oscillators failed to make new highs. This is a red-flag for these indexes, yet the Dow is making new highs. This would be a more complicated divergence, known as an “Index Divergence” where larger (broader) indexes are failing to make new highs while narrower indexes are indeed making new highs.
This doesn’t mean “run out and short the market” but it does temper the bullishness and should cause you to be more cautious, yet still play the bullish side (as that is what the most recent trend has confirmed, and the trend is in tact until price proves otherwise).
In my analysis, odds do favor a slight retracement or lower prices temporarily next week, as it is unlikely price can continue to make new highs unabated. Wait for the retracement before committing new capital into the market, unless your particular stocks (swing trade candidates) are showing irresistible patterns.
Best of luck and skills out there!
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Bulls on Parade
April 20th, 2007 by Corey Rosenbloom

The Dow and S&P 500 just made new and impressive highs above the February swing high and seemingly continue unabated, despite temporary overbought oscillator conditions.  In trending markets, oscillators are useless (RSI, Stochastic, etc) and people can get very whipsawed using them in positive feedback environments (where higher prices lead to short covering and new buyers which lead to higher prices and the cycle continues).

S&P 500

In these indexes, the bulls are (currently) in complete command, and we have experienced 8 commanding up days (7 in the S&P 500).  The last time we experienced 8 positive closing days was a few weeks ago and the time before that was four years ago!  This is impressive movement for the market, given the amount of pessimism still out there from a sentiment standpoint.
It seems like only yesterday, I was discussing whether or not the Dow could break resistance at 12,800 and now commentators are discussing “Will the Dow soar to new highs at 13,000?!” and the answer is that it is possible and perhaps likely, but there probably will be a few consolidation or down days before that happens.  It would be extremely rare for the market to experience 10 or more straight up days with no down days inbetween.
Also, just because something isn’t likely doesn’t mean it will not happen.  Traders must be open to all possibilities and closed from none - it’s still not about being right but about odds and making money.
If you are a bull, enjoy this stampede.  If you are a bear, get out of the way - there’s no sense trying to fight this rally.  A sell signal occurred yesterday by most people’s standards (oscillators, swing movement, etc) but was quickly erased/faded by the large gap up this morning and trend-day style price movement.
Keep up with the big picture and try to enjoy the action.
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Squeeze Plays in Google (GOOG)
April 19th, 2007 by Corey Rosenbloom

Rule Four of the Guiding Principles of Market Behavior states “Markets Alternate Between Expansion and Contraction”, meaning that there are a variety of trade ideas you can develop based on this principle.
A weekly chart of Google (GOOG) illustrates this concept very nicely, with “Squeeze Plays” that could be entered with the volatility contraction easily identified by “Bollinger Band Squeezes.” Remember, Bollinger Bands measure volatility and are standard deviation functions, and so when these bands greatly constrict around (flat) price movement, a breakout is often imminent (though it is often impossible to predict the direction of the expansion).

Allow me to illustrate the point with a weekly chart of Google:

I have annotated the “Squeeze” plays with arrows. Because the trend is up, one can assume the breakouts will occur to the upside, but it is best (from a probability standpoint) to wait until the break occurs and then enter with a tight stop (although entering before the break also provides for a tight stop, but lowered odds of success).
Also, the triangle consolidation provided a clear technical price pattern from which to base trade ideas and price assumptions, and required no indicators to identify.
Price breakouts - if your style is identifying them - provide little in the way of price targets, but do provide clear stops if the breakout fails. This is a key to the success of trend following, where many breakouts fail, but the profits from the ones that succeed far outweigh the small losses when they fail.
Trading breakouts from consolidation also provides an excellent means to play for a large price target, as moves out of equlibrium often tend to be strong and sustained.
Think of this concept when you analyze charts and you see strict volatility constriction - you can often expect a price expansion is nearby.
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Dow at New Highs
April 18th, 2007 by Corey Rosenbloom

My hat is off to the Bulls and Buyers - the Dow reached not only a new intraday high, but a new closing high.  The psychological barrier of 12,800 is now breached (officially closed at 12,803).
The psychology of investors and traders ranges on disbelief and relief. I’ve read a few accounts of traders using ‘four letter words’ to describe the recent market advance, and have either sat on the sidelines or attempted shorting.  Some are euphoric and hopeful.  Nevertheless, there are enough disbelieving bears out there that the market can continue creeping higher against them.

Unfortunately, the Nasdaq has not yet reached highs above its February 2007 swing high, and is still 50% below its all-time high above 5,000.

Both the S&P made a new multi-year high and the Russell 2000 made a new lifetime high.
Odds still favor long (buying) in this market, yet notice that the market is currently overextended and odds favor a slight pullback or consolidation before advancing higher (notice the previous swing patterns that have lead us to this point).
Keep studying, analyzing, and trading to build experience.  Trust the charts and the pure price over indicators and TV news and sentiment.
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Will the Dow Make New Highs?
April 17th, 2007 by Corey Rosenbloom

The last two times the Dow Index has approached 12,800, it has failed. We had a failure today, as the number served as resistance, but the mere fact that we are testing resistance for a second time might indicate that it will be broken this time. Should the resistance zone (by price) be broken, there will be no above resistance for the price index.
Despite the testing of resistance on the Dow, the S&P 500 index rallied above and broke its most recent high, but has not yet made all time price highs.  The same is true for the Russell 2000 index.
A few charts with minimal annotation:

S&P 500

It would be difficult to imagine the indexes going higher without a brief pause or swing low (before moving right back up).  Be conservative about committing new capital where the indexes are at this very moment.  Wait for a slight pullback before entry into new trends.  Odds favor going long (buying) over shorting.
As I warned before, PLEASE do not try to call a top in this market and attempt to short.  That is a very low-odds proposition.  Do not fight the trend no matter what the TV or other bloggers are saying about how the market is about to implode.
Follow price action and stay independent.
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Three Quotes on Overcoming Fears
April 17th, 2007 by Corey Rosenbloom

I recently read a few simple quotes on overcoming fear that I wanted to share:

“I have not ceased being fearful, but I have ceased to let fear control me.” — Erica Jong
“Your fears are not walls, but hurdles. Courage is not the absence of fear, but the conquering of it.” — Dan Millman
“The key to success is for you to make a habit throughout your life of doing the things you fear.” — Brian Tracy

(Quotes located at Fear Quotes at JournalingTools.com)
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Emerson: Quote - In Pursuit of Success
April 17th, 2007 by Corey Rosenbloom

I found the following quote by Ralph W. Emerson inspiring:

Success
To laugh often and much;
to win the respect of intelligent people
and the affection of children;
to earn the appreciation of honest critics
and endure the betrayal of false friends;
to appreciate beauty; to find the best in others;
to leave the world a bit better,
whether by a healthy child,
a garden patch
or a redeemed social condition;
to know even one life has breathed easier
because you have lived.
This is to have succeeded.

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Market Strength - Afternoon Commentary Apr 16
April 16th, 2007 by Corey Rosenbloom

The market is showing renowned strength over the last few sessions - my guess to the surprise of so many people.  I have been commenting that the technicals and price action ‘trump’ news and sentiment, and this is indeed the case.  With so many people openly bearish on the market, it is little surprise that the market continues to “confound the majority” and continue to rally with increased strength.
While it hasn’t happened yet, we are nearing all time highs again in the Dow, so this is to be watched and this area will absolutely serve to trigger a media frenzy should we make new lifetime highs on the Dow (which, ironically, will create new overwhelming optimism and bullishness, which … likely will lead to lower prices if sentiment strongly shifts to the bullish camp).
Here are a few daily charts updated as of 10:30 CST April 16th.
Here is a Swing Chart of the Dow (recall I mentioned earlier that we had high odds of ‘tagging’ the upper Keltner Channel and we achieved this).

Here is a candle chart of the Dow (daily):

Observations:

• Â The short term trend (higher highs and higher lows) is still in tact and confirmed
• The presence of the market at the Upper Keltner Channel (Swing Chart) and Bollinger Band (candle chart) say that odds favor a pullback
• Clear momentum divergences are forming and could be confirmed with a price reversal or consolidation.
• The Momentum Divergences are currently just a warning and NOT a call for shorting.
• The market is making a new swing high on decreasing momentum.  Odds favor a slight pullback based on the “swing” structure of the price.
• The Moving Averages are now in ‘bull’ mode with 20 over the 50 and both rising (indicating likely ’support’ when the market retraces to them)
• The Dow Average is merely 85 points away from lifetime highs - this area will bring great media spotlight if breached
• Overall sentiment - as far as I can tell - is still negative on the market (probably a major factor for the rise)

The Swing Structure of the market is still behaving as expected and normally, with price surging and retracing in an orderly uptrend following the ’shock’ decline.  We continue in ‘bull’ mode and odds favor long trades (buying) until we make a lower low or until we significantly breach our lower (rising) moving averages.
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Markets Close the February Gap
April 15th, 2007 by Corey Rosenbloom

Friday market the official “closing” of the gap created by the “shock” decline in late February ‘07. The market is now at a technical decision node, and will either reverse off the gap closure or continue higher. Either way, there may be a technical pause at this level if traders who were trapped by the gap now use the return to this level as a “gift from God” to exit their positions, as they just suffered through pain as an investor. Of course, they may not think of this at all and continue holding unabated and relieved at the recent market strength.
The Dow closed the gap ($INDU does not officially record gaps in its price weighting)

The Nasdaq Closed the Gap (April 13)

I also wanted to include a couple of Weekly Charts which still (currently) show rather healthy technical uptrends.
Dow Jones Weekly Chart (April 13th)

NASDAQ Weekly Chart (April 13th)

Even swing traders benefit from studying the basic price action on higher time frames and sector analysis. Day traders are helped by knowing intermediate trends, but also longer trends often drive daily movement.
Best of luck this week.
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Sector Rotation Chart Apr 15
April 15th, 2007 by Corey Rosenbloom

I wanted to introduce a few sector rotation analysis charts.  Sector rotation - once understood - can provide clues as to the future of the broad market, as well as opportunities for both investment, trading, and hedging decisions.
I recommend learning more on Sector Rotation, but I will be providing brief possible implications based on the graphs (all graphs courtsey StockCharts.com).
Sector Strength Line Chart - 3 MonthsÂ

Energy, Materials, and Utilities all increased 10% from January 1st.  From a sector rotation model, this is a negative sign for the economy, as these sectors tend to outperform directly before or during a market top.  The theory states that the market cycle leads the economic cycle by three to six months, and if this is correct, we are achieving a possible peak in the business cycle.
Sector Rotation Bar Chart - 3 Months






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Daily Commentary - April 12 - Reversal
April 12th, 2007 by Corey Rosenbloom

Today’s action was surprising in the degree and reliability of the (intraday) trend, especially given the down trend (intraday) yesterday and its smoothness. Today’s trend swung with reliable entries and position addition points, which could have resulted in a rather large profit.
First, the Dow reversed course when it reached support at the daily convergence of the 20 and 50 period moving averages (remember, traders cause action, not indicators).

Daily Chart - DIA

Dow Jones Swing Chart - Daily

Observations:

• Confirmed (short-term) uptrend
• Support found at moving averages, stopping the down-swing
• Momentum divergence is occurring (see bottom panel indicator) - this is ok and is not a concern yet
• The technicals of the market appear stronger than the “doomsayers” and “recession predictors” indicate

Today’s intraday action yeilded a near textbook trend with the 20 period moving average as entry signals (again, simple signals are often preferable)

DIA Intraday Chart - 5 minute

Observations:

• The Trend signal (signal line) crossed zero at 9:00am and indicated the likely end of the down move.
• The Low of the Day occurred at the support zone created by the daily moving averages, triggering a longer term trade
• A “Sweet Spot in the Data” trade (playing for a larger target) occurred with a new higher high around 10:30
• An “Impulse Buy” trade set-up occurred with the 10:0am pullback after the New Momentum High (and new price high).
• Following trades could be taken to the long side when price pulled back to the rising 20period Moving Average
• The Momentum Divergences should be a warning signal, but not enough to keep you from trading long (just not on leverage)
• The Trend became a “Creeping Trend” which punished anyone trying to short it (trade countertrend)

With the market still chugging higher, odds still favor continued upside, especially following the quick counterswing which was terminated at the moving average support.
We are looking similarly (in terms of data and price action) as we did after the “shock” decline of May 2006. So many people doubted the market, yet it continued to rise in an “oozing” or creeping trend which also punished those who fought it, yet few people rode the trend because of all the ‘doubters’.
Realize that Bull Markets climb a “Wall of Worry.” Until price falls below support AND makes a lower low, we are still in a technically confirmed uptrend and odds favor long (buy) trades.
If anything, do not fight this creeping trend by betting against it. That behavior is exactly what keeps the trend oozing (by shorts covering).
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hefeiddd

Chart Analysis - Apr 11
April 12th, 2007 by Corey Rosenbloom

Yesterday was a wonderful day for trading, as the market signaled a daily short-sell set-up and the intraday action unfolded beautifully with pure price swings and clear resistance/support levels.
Rather than muddy up a chart, I thought I would indicate the pure action using the 15-minute chart with nothing but price and moving averages. Moving averages are not magical - when they work, it is because other traders were watching them and sentiment shifted when the market reached these levels.
Nevertheless, using moving averages in a trending environment can give pure price entry/exit signals as well as define your risk (stop loss placement) to a very small and acceptable level as compared to the possible reward of the trade.

This is a 15 minute chart of the DIA - Dow Jones ETF. With the exception of the choppy counter-rally from 10:00am until noon, the price smoothly trended with few ‘hiccups’ along the way - something many traders wait a long time to see but rarely do with consistency.
Another point I am making is that simple ideas, rather than complex technical analysis, can work just as easily with less effort and mental anguish (or confusion, particularly if technical indicators are conflicting at times).
Best of luck throughout the week.
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For Fibonacci Lovers: Recent Dow Action
April 10th, 2007 by Corey Rosenbloom

Hey Fibonacci Enthusiasts: An interesting pattern occured in the Dow Jones Index that I thought was worth showing.
Since March 19th, we have had (in order):

• A 5 day rally
• A 3 day decline (counter-rally)
• An 8 day rally

These not only constitute perfect Fibonacci sequence numbers, but evidence of greater (recent) buying pressure in the short-term.

When people think of Fibonacci numbers, they often think of retracements/support/resistance/price projections. Also recognize that - at times - Fibonacci patterns are evident in daily price action and in trends (up days vs. down days). This would be a difficult way to trade, but it is worth analyzing and seeing if there is a possible edge. If for nothing else, it provides good market trivia.
Another interesting bit of trivia:
According to aWall Street Journal Article, the Dow rising eight days in a row has set a record not achieved in the last four years!
This is further evidence of the lack of “trendiness” in the last few years of market action (and higher odds for mean reversion, than sequential price continuation on subsequent days).
If Fibonacci is correct, and if our Stochastic sell signal is correct, and if prior resistance is correct (two days of failure at 12,600), and if the prior gap serving as resistance is correct, then we should see short-term lower prices (a counter-wave or corrective price wave).
If not, then the market just did more than set a record - it beat high odds of a temporary (but brief) decline.
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hefeiddd

Impulse Buys in Dow and THE Dow
April 9th, 2007 by Corey Rosenbloom

We survived the Jobs data to the upside, with positive surprises higher than expected. Perhaps the economy is doing better than expected?
The Jobs Report is a lesson in how good news can be bad news for the market, and that a deeper level of analysis is required for proper market study. While there are other blogs more suited for Economic Trends and analysis, suffice it to say that the news is not nearly as important as the interpretation and reaction to the news. After all, people placing trades (calculated ‘bets’ on the future) move prices, and not news itself.
In fact, news releases are quickly digested and priced into the market. While it is best to combine fundamental and technical analysis, it is far easier to analyze techncial data (focusing on price and volume) than fundamental.
As such, here is a chart of the Dow Jones Index, which just fulfilled an “Impulse Buy” trade.

Notice the New Momentum High on March 26th, followed by a reaction against the impulse, and the buy condition occurred when the market found support at the 20 period moving average. The trade’s goal was to reach the most recent swing high, which was achieved. We appear to be ready for a counterswing to bring price lower temporarily before swinging back up to a higher high.
Let it be stated that the market is reaching the gap area created by the February decline, and this likely will serve as a temporary resistance area as the supply of sellers come back into the market. This is probably not the time to be initiating new money into the market - be patient for a quick pullback before entering. We do have a confirmed, technical uptrend still in tact.
I also wanted to illustrate the “Impulse Buy” pattern with a recent chart of DOW. Dow Chemical Company, that is.

Stops would be placed conservatively below the 50 period moving average… but if the stop was too close, it would have been another instance of the “perversion trade” where the stop was rinsed (taken out) and then the move occurred quickly after the stop.  This is another case of tolerating a little “heat” (volatility) in price in expectation of the anticipated price move.
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hefeiddd

Dow Breakout of Range
April 3rd, 2007 by Corey Rosenbloom

We finally got the range expansion as expected in the major market indices, and the market has broken (again) to the upside as was also forecast, especially in light of the rampant negativity on the general state of the market. Is it surprising that, with all the negative sentiment around, the market rose yet again today?

From a technician’s standpoint, we are still in a confirmed uptrend, and thus higher probability plays come from trading the upside, especially given the recent pullback into “support”.

Viewing a swing chart of the Dow and S&P 500, we see the market may be making a new swing higher, as confirmed by the recent new momentum high in the oscillator. This would hint that new price highs are yet to come. I can see the market testing the upper limit on the Keltner Channels (about 12,650 on the Dow and 1,455 on the S&P). The “Impulse Buy” setup has already achieved its objective, with entry near moving average support and first target being the most recent swing high).

When the fundamentals or the news/commentators are telling you one thing (that the market will go down and the economy is heading into a recession) yet price and chart analysis tells you another, a dichotomy exists, and it is difficult to anticipate the next move with confidence, given so many conflicting signals. StockBee recently posted a timely post regarding “Methods Trump Markets” that addresses the issue of headlines/conventional wisdom already being reflected in the price of stocks.

A great quote from the post: “While majority are busy waiting for the doom to take the market down, the market acts contrary to expectations and offers bullish opportunities.”

Also analyze the Swing Chart of the S&P on the weekly time frame (notice the momentum divergence as price creeped higher and the eventual correction):

This is where trading your own system and not being influenced by others becomes crucial to success as a trader.

Despite the volatility that occurred at the beginning of the month, price still is making reliable swings and allowing for opportunity, provided you have a system and emotional stability (confidence) to take advantage of the movement and not get carried away with outside analysis or second opinions of your own analysis.

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Dow… still trapped. Someone save it?
April 2nd, 2007 by Corey Rosenbloom

I am sounding like a broken record, yet so is the market.
We have reached a clear equlibrium point and soon price will break one way or the other out of the consolidation we are experiencing. Remember, the longer the consolidation, the larger the move, yet it is difficult to predict which direction price will eject when it is trapped in a range.
Gutsy traders can take a position now and place clear stops if wrong… or you can place a buy (or sell/short) stop to draw you into the market when this range breaks. Either way, my prediction is for a clean, clear break out of the recent indecision zone.

The “Mighty” Dow is still Trapped

The Nasdaq is also Trapped.

If you must take a position, go Long SPY (S&P) with a tight stop should it break below moving average support.

Sometimes, the best play is to wait for the market to tip its hand and then enter, but beware a “wash and rinse” which means the market may thrust initially in one direction, then shake back and take out the weak hands and stops, and then rally (or fall) hard in the original direction. Beware this, to those who keep stops too tight to the market.

Either way, be prepared and best of luck, regardless of your trading style.

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