Failure to cut losses: Pride, ego, or stubbornness prevents the trader from selling.
Not knowing “how much” to trade on each position: Overtrading positions can kill your account and take you out for good (risk of ruin). (Learn to position size)
Average down in price: Placing good money after bad is a loser’s game.
Listening to rumors: Forget the talking heads, rumors and tips as they are nothing but garbage and a sure way to substantial losses
Lack of patience: It takes years to master trading as an advanced skill; even then, you are never done learning or adapting
Not knowing when to sell: Determine your price objectives and risk-to-reward ratios prior to entering the trade; never allow emotions to make this decision.
Buying 52-week lows: Don’t be afraid to buy stocks making new highs. The garbage sits at the bottom along with weakness and downward momentum. Buy strength and the momentum moving higher.
Pure Fundamentalist: Technical analysis is a must! Use candlestick charts that show the price, volume and major moving averages – this is all you need, don’t complicate the process.
Making trading decisions based on taxes: Never buy or sell based on taxes alone.
Buying based on dividends: Don’t buy based solely on dividends; most growth stocks will never give out dividends
Buying familiar names: Yesterday’s leaders are not likely to be tomorrow’s stars. Look for solid new companies with great earnings, sales and a product in demand.
Don’t buy a stock based on a popular household name.
Lack of action: Be able to move on a dime. Time is money, don’t procrastinate or hope for something that may never happen.
Lack of Consistency: Develop a method suited to your personality; stick to it and don’t trade blindly.
Emotions: CONTROL EMOTIONS - RULES ELIMINATE EMOTIONS!
The secret to winning big in the market is not to be right all the time but to lose the least amount of money possible when you are wrong. As long as you win larger than you lose, you will become a consistent winner at the end of each year.
Thursday, January 31, 2008
Thursday, January 24, 2008
ADDICTIVE TRADING
Are you an addicted gambler who attempts to puchase the market or a stock because it appears cheap after being "down too much"? Or do you trade only when you have a perceived edge. Trading for the sake of trading is a dangerous addiction which can lead to massive losses in a bearish environment. The path of least resistance is lower which means any rally should be viewed suspiciously. This is not a new message, I'm just typing it instead of saying it in a video. I remember the last bear market, and this one seems no different in terms of the psychology of the average participant. Confidence becomes temporarily bolstered by phrases like "don't fight the Fed" and CEOs who say "we are looking at weakness in the first half, but expect things will pick up in the second half of the year." In July and August, those same CEOs will say "we are seeing a bit of a rough patch but expect things will pick up in the first half of next year" and on and on... The market is broken, it will take time to heal before it can sustain a move higher again. Do not listen to people who boldy say "that was the bottom", listen to the market. It is said that the average bull market lasts for 39 months and the average bear market lasts 18 months, we could be in for a much longer stretch of selling than most people want to admit. Maybe this one bottoms in just six months, we will only know when prices turn, not when PE ratios get to a certain level or when the Fed cuts by a certain amount. A bear market is the time when the phrase "suspend what you believe and trade what you observe" means the most. Look at Apple Inc (AAPL), they have great products, management, etc. For a long time it has been a great stock and now it too is broken. In bear markets all stocks fail, all stocks.
Wednesday, January 23, 2008
AAPL
AAPL earnings afterhours got hit hard. Although estimates were beat, market didn't like its guidance...although they always guide conservatively. Folks on the tube is saying IPOD sales losig momentum. I-Phone sales is the new product to continue momentum but since in recession, folks are not willing to buy.
It got as low as 33 last night. I expect it to bounce up to 145-150...area of previous gap. Will need to see how stock reacts when it gets into that level which can be resistance/support.
Monday, January 21, 2008
TRADER'S MANTRA
Beliefs and Attitude of successful Traders and Investors
" I have a carefree, confident state of mind. I don't trade to be right, prove anything, win, or avoid losing. I don't trade to get money back or take revenge on the market. I have no agenda than to let the situation unfold in any situation it chooses and I simply take advantage of the opportunities it makes available to me.
" I don't expect the market to make me right. I don't expect the market to make me a winner. I don't expect the market to keep going in my direction indefinitely. I don't expect to get every bit of the profitable trade that is available. I don't expect to take advantage of every opportunity just because it presented itself.
" I am a consistently successful trader
" Everything the market is about to do, the market will show and demonstrate to me without me having any thoughts, beliefs, or perceptions about what it likely to do.
" The market doesn't do want I want, it does what it wants. I perceive what the market is offering from its perspective. Therefore I am flexible in my expectations.
" The market can do anything it wants, when it wants. Anything can happen, at anytime. We can't read the minds of all the other traders and institutions so anything could happen. There are no exceptions to this truth.
" I don't need to know what's going to happen next to make money overall.
" Every moment in the market is unique.
" The market has no responsibility to give me anything or do anything that would benefit me, regardless of my position, risk or desire. The market does not care, it presents its information in a neutral fashion. It has no meaning other than the meaning I give it.
" More market analysis will not improve my results, only improving my perspective, behaviour, beliefs and attitude will.
" Patterns repeat themselves in the market, but not every time.
" Making money consistently and keeping it is a by product of acquiring and mastering certain mental skills.
" Prices move based on traders and investors future beliefs and present value, thus the price move is unlimited at any given moment. Support, resistance etc. are only constructs and not reality of what the market will do.
" I trade with a systematic way of winning not to prove anything to any one or myself. It doesn't matter if I'm wrong or right. I trade with a "lets see what happens" perspective and focus on winning.
" I always, no matter what, stick to my trading, money management, position sizing rules
" I predefine the risk of every trade
" I pay myself as the market makes money available to me
" I do not need to understand how the markets work to be a consistent successful winner. It a probability game and I don't know weather the next trade will be a winner or looser, and how much the market will offer me when I win.
" I know that based on the markets past behaviour, the odds of it moving in the direction of my trade are excellent, at least in relationship to how much I am willing to spend to find out if it does.
" I am certain that I do not know what the market is going to do next, but I do know without a shadow of doubt that I have a great edge. My edge is nothing more than an indication of a high probability of one thing happening over another.
" The odds are in my favour before I put on a trade. Trading is a probability numbers game.
" Every loss put you closer to a win.
" I know what my edge looks like and thus what I am going to do, but I do not know what the market is going to do this time.
" I am solely responsible for my profitable or limited loss trades and take full responsibility. I am responsible for my success or failure.
" I act on my edges without reservation or hesitation
" I do not know the outcome of my next trade, as the outcome of the trade is unpredictable.
" There is a random distribution between wins and losses for any given set of variables that defines an edge
" I except all the risk of each trade without emotional discomfort or fear. There is not anything to fear. Being wrong, losing, missing out or leaving money on the table is part of the game. I just make myself available to what I perceive as an opportunity and act on it to the best of my capabilities.
" Losses are only part of the game if I want to win overall. Like a restaurateur must buy food to sell it, and some off it will be wasted in order to make an overall profit.
" I focus on the now as how the situation unfolds is unbeknown and thus anything could happen
" I know without any doubt at all, before I get into any trade l know how much I am willing to risk, and I am willing to let the market move against my position. There is always a point at which the odds of success are greatly diminished in relation to the profit potential. At that point, it's not worth spending anymore money to find out if the trade is going to work. If the market reaches that point I know without any doubt, hesitation, or internal conflict that I will exit the trade
" Losses are simply the cost of doing business or the amount of money that I need to spend to make myself available for the winning trades.
" When I put on a trade, all I expect is that something will happen. Regardless of how good my edge is, I expect nothing more than the market to move or express itself in some way.
" I have a carefree, confident state of mind. I don't trade to be right, prove anything, win, or avoid losing. I don't trade to get money back or take revenge on the market. I have no agenda than to let the situation unfold in any situation it chooses and I simply take advantage of the opportunities it makes available to me.
" I don't expect the market to make me right. I don't expect the market to make me a winner. I don't expect the market to keep going in my direction indefinitely. I don't expect to get every bit of the profitable trade that is available. I don't expect to take advantage of every opportunity just because it presented itself.
" I am a consistently successful trader
" Everything the market is about to do, the market will show and demonstrate to me without me having any thoughts, beliefs, or perceptions about what it likely to do.
" The market doesn't do want I want, it does what it wants. I perceive what the market is offering from its perspective. Therefore I am flexible in my expectations.
" The market can do anything it wants, when it wants. Anything can happen, at anytime. We can't read the minds of all the other traders and institutions so anything could happen. There are no exceptions to this truth.
" I don't need to know what's going to happen next to make money overall.
" Every moment in the market is unique.
" The market has no responsibility to give me anything or do anything that would benefit me, regardless of my position, risk or desire. The market does not care, it presents its information in a neutral fashion. It has no meaning other than the meaning I give it.
" More market analysis will not improve my results, only improving my perspective, behaviour, beliefs and attitude will.
" Patterns repeat themselves in the market, but not every time.
" Making money consistently and keeping it is a by product of acquiring and mastering certain mental skills.
" Prices move based on traders and investors future beliefs and present value, thus the price move is unlimited at any given moment. Support, resistance etc. are only constructs and not reality of what the market will do.
" I trade with a systematic way of winning not to prove anything to any one or myself. It doesn't matter if I'm wrong or right. I trade with a "lets see what happens" perspective and focus on winning.
" I always, no matter what, stick to my trading, money management, position sizing rules
" I predefine the risk of every trade
" I pay myself as the market makes money available to me
" I do not need to understand how the markets work to be a consistent successful winner. It a probability game and I don't know weather the next trade will be a winner or looser, and how much the market will offer me when I win.
" I know that based on the markets past behaviour, the odds of it moving in the direction of my trade are excellent, at least in relationship to how much I am willing to spend to find out if it does.
" I am certain that I do not know what the market is going to do next, but I do know without a shadow of doubt that I have a great edge. My edge is nothing more than an indication of a high probability of one thing happening over another.
" The odds are in my favour before I put on a trade. Trading is a probability numbers game.
" Every loss put you closer to a win.
" I know what my edge looks like and thus what I am going to do, but I do not know what the market is going to do this time.
" I am solely responsible for my profitable or limited loss trades and take full responsibility. I am responsible for my success or failure.
" I act on my edges without reservation or hesitation
" I do not know the outcome of my next trade, as the outcome of the trade is unpredictable.
" There is a random distribution between wins and losses for any given set of variables that defines an edge
" I except all the risk of each trade without emotional discomfort or fear. There is not anything to fear. Being wrong, losing, missing out or leaving money on the table is part of the game. I just make myself available to what I perceive as an opportunity and act on it to the best of my capabilities.
" Losses are only part of the game if I want to win overall. Like a restaurateur must buy food to sell it, and some off it will be wasted in order to make an overall profit.
" I focus on the now as how the situation unfolds is unbeknown and thus anything could happen
" I know without any doubt at all, before I get into any trade l know how much I am willing to risk, and I am willing to let the market move against my position. There is always a point at which the odds of success are greatly diminished in relation to the profit potential. At that point, it's not worth spending anymore money to find out if the trade is going to work. If the market reaches that point I know without any doubt, hesitation, or internal conflict that I will exit the trade
" Losses are simply the cost of doing business or the amount of money that I need to spend to make myself available for the winning trades.
" When I put on a trade, all I expect is that something will happen. Regardless of how good my edge is, I expect nothing more than the market to move or express itself in some way.
MLK
In honor of MLK, I've decided to go to videos on chart patterns. What does MLK have to do with patterns?
In his words...."Nothing in all the world is more dangerous than sincere ignorance and conscientious stupidity."
Head and Shoulders
Double Top
WEDGES
FLAGS/PENNANTS
TRIANGLES
In his words...."Nothing in all the world is more dangerous than sincere ignorance and conscientious stupidity."
Head and Shoulders
Double Top
WEDGES
FLAGS/PENNANTS
TRIANGLES
Wednesday, January 16, 2008
THOUGHTS
1. Deeply oversold cycles. Going back to the August low, we achieved some of the most oversold conditions that we've seen this decade. Considering we've had quite a few intermediate term pullbacks, that's saying a lot. When we get the kind of oversold readings that materialized last summer, its going to take some time to work them off. This is important because there are those out there with extremely bearish agendas will tell you it is precisely these oversold readings that are necessary to 'kickoff' the great new bear market.
Nothing could be further from the truth.
The lesson here is the more oversold the readings, the more they are going to have to be worked off. That's why our big pivot on the weekly scale didn't kick in until the very last high probability date. I'm bringing this up now because there were a lot of emails at the time wondering why the market wasn't dropping in September.
2. Don't assume a long term bear market. I know some of you will dispute this and you do it at your peril. You did it at your peril in 2002. This happens to be part of my background not to trust the ultra bearish agenda. I've come to look at these markets more from a supply/demand equation that anything else. I'm not talking about number symmetries here. But the simple fact of the matter is the smart money likes to buy support and sell resistance. As it turns out, there was a lot of buying interest in the middle of August. The way I understand it, money managers with lots of clout were buying after the market turned in August. These are the kind of people (at least they say they are) who have 5 year horizons and can wait out intermediate term corrections. Well, good for them. That doesn't apply to most of us. What does apply to us is whether or not these people have the courage of their convictions to hold on at times like this week. If they start fleeing, (which they are) the NASDAQ is going to drop 300-500 points and the Dow possibly a couple thousand. If they hold the line, you can say they at least are true to their word. Our job, as short to intermediate term players is to piggyback along with the trend. You can see the way this has played out but my point is until we got to this level, nobody who is telling the truth knew exactly what was going to happen.
3. Be patient. In the middle of all this mess came the Christmas holiday season. The bears had a very decent November but there comes a point in time where things are going to line up the other way. Traditionally, December is a seasonably favorable month for the stock market. Why is that? If you believe the stock market is nothing more than the true scoreboard for a rising or declining social mood, than Christmas should be a time of euphoria. People are not usually in the mood to sell stocks over Christmas. This year we had some added importance. Those of you who believe in things like the PPT, we had a low and a bailout plan just as the holiday shopping season was picking up steam. Why bet against it? Even in a hurricane, there will be the calm of the storm. That's what December was all about. I think there is a lot to be said for seasonal factors.
4. Some things are inevitable. This could be called be patient part 2. After the vicious November, it was a high probability the August lows were going to be retested. In some cases, like the SOX, taking out the August low was only the end of the beginning. Markets really don't like hanging out in the middle of trading ranges. Why? Remember, these charts are nothing more than technical representations of our hopes, dreams and desires. We, don't like uncertainty. Given the fact that highs came in on some really definitive time calculations, the markets had no where to go but down.
5. Everything is a process. Things usually take longer than we think they will. One thing I've learned is money is attracted to good ideas. It also doesn't like being lonely. This is why the very best setups are C or 3rd waves. What is a 3rd wave? Technically its nothing more than what comes after a secondary pivot. A secondary pivot is usually right near important support or resistance and sometimes a double top/bottom.
A good idea in terms of technical analysis is a setup that confirms technical evidence. It could also be a positive or negative divergence. If smart money gets the idea prices won't go lower, they'll take the relative safety of a low risk entry. But the point is you rarely will see smart traders as the first one in off the bottom.. This is something I learned from Joe DiNapoli. Its the 'wash and rinse' cycle. The smart traders wait for that SECOND thrust, no matter the time frame before pulling the trigger. Getting there requires time and patience. Its a process. Act impulsively and its like flushing money down the drain. IF you happened to be a person waiting patiently on the sidelines wanting to go long, you had to wait this week out to see if the positive divergence was going to work. Obviously it hasn't. That's not the point. The point is those who are waiting with a strong discipline know what they are looking for and will jump on it when the pattern is recognized. It will happen at some point.
6. Cycles are king. Markets are going to turn on time windows. They did so 100 years ago and are likely to do so in another 100 years. We see it time and again in all degrees of trend. Markets will react to our windows even if an outright reversal doesn't materialize. Case in point: last week. Those of you who are new to the time element should not come to the conclusion the cycles don't work because last week's 62/47 day cluster faded. Time support/resistance works the same as its price cousin and a failure is an important bit of new information. Another thing, many of the MACD divergences also tend to pay off around support/resistance at some time frame.
7. This methodology is better than I think. As Yelnick stated last week, my book and the methodology involved is still evolving. I'll just go back to what was simply stated as far back as April 2007. I believed the pivot in the fall had the potential to be the "most important of the decade." I already said that I didn't want to assume what would happen beyond a test of the August low. Part of the reason for that is for the number of times bear phases ended earlier than many anticipated. Another way to look at it is since 2002, none of them have really lived up to bearish expectations. But, with the coverage we gave the 261 week cycle last year, we are finally getting the kind of price action that is living up to the hype. Personally, I think its happening because of the way the cycles lined up last year and I don't see any other methodology out there that comes close to explaining why these things happen. I have a lot of confidence in this work but every time we come to an important turn and get the expected results we learn from the experience and helps make it better for the next time. These markets are very tricky and certainly not the tooth fairy. But I think there are times when all of us, especially me, should trust in what we are seeing even more than we do.
Nothing could be further from the truth.
The lesson here is the more oversold the readings, the more they are going to have to be worked off. That's why our big pivot on the weekly scale didn't kick in until the very last high probability date. I'm bringing this up now because there were a lot of emails at the time wondering why the market wasn't dropping in September.
2. Don't assume a long term bear market. I know some of you will dispute this and you do it at your peril. You did it at your peril in 2002. This happens to be part of my background not to trust the ultra bearish agenda. I've come to look at these markets more from a supply/demand equation that anything else. I'm not talking about number symmetries here. But the simple fact of the matter is the smart money likes to buy support and sell resistance. As it turns out, there was a lot of buying interest in the middle of August. The way I understand it, money managers with lots of clout were buying after the market turned in August. These are the kind of people (at least they say they are) who have 5 year horizons and can wait out intermediate term corrections. Well, good for them. That doesn't apply to most of us. What does apply to us is whether or not these people have the courage of their convictions to hold on at times like this week. If they start fleeing, (which they are) the NASDAQ is going to drop 300-500 points and the Dow possibly a couple thousand. If they hold the line, you can say they at least are true to their word. Our job, as short to intermediate term players is to piggyback along with the trend. You can see the way this has played out but my point is until we got to this level, nobody who is telling the truth knew exactly what was going to happen.
3. Be patient. In the middle of all this mess came the Christmas holiday season. The bears had a very decent November but there comes a point in time where things are going to line up the other way. Traditionally, December is a seasonably favorable month for the stock market. Why is that? If you believe the stock market is nothing more than the true scoreboard for a rising or declining social mood, than Christmas should be a time of euphoria. People are not usually in the mood to sell stocks over Christmas. This year we had some added importance. Those of you who believe in things like the PPT, we had a low and a bailout plan just as the holiday shopping season was picking up steam. Why bet against it? Even in a hurricane, there will be the calm of the storm. That's what December was all about. I think there is a lot to be said for seasonal factors.
4. Some things are inevitable. This could be called be patient part 2. After the vicious November, it was a high probability the August lows were going to be retested. In some cases, like the SOX, taking out the August low was only the end of the beginning. Markets really don't like hanging out in the middle of trading ranges. Why? Remember, these charts are nothing more than technical representations of our hopes, dreams and desires. We, don't like uncertainty. Given the fact that highs came in on some really definitive time calculations, the markets had no where to go but down.
5. Everything is a process. Things usually take longer than we think they will. One thing I've learned is money is attracted to good ideas. It also doesn't like being lonely. This is why the very best setups are C or 3rd waves. What is a 3rd wave? Technically its nothing more than what comes after a secondary pivot. A secondary pivot is usually right near important support or resistance and sometimes a double top/bottom.
A good idea in terms of technical analysis is a setup that confirms technical evidence. It could also be a positive or negative divergence. If smart money gets the idea prices won't go lower, they'll take the relative safety of a low risk entry. But the point is you rarely will see smart traders as the first one in off the bottom.. This is something I learned from Joe DiNapoli. Its the 'wash and rinse' cycle. The smart traders wait for that SECOND thrust, no matter the time frame before pulling the trigger. Getting there requires time and patience. Its a process. Act impulsively and its like flushing money down the drain. IF you happened to be a person waiting patiently on the sidelines wanting to go long, you had to wait this week out to see if the positive divergence was going to work. Obviously it hasn't. That's not the point. The point is those who are waiting with a strong discipline know what they are looking for and will jump on it when the pattern is recognized. It will happen at some point.
6. Cycles are king. Markets are going to turn on time windows. They did so 100 years ago and are likely to do so in another 100 years. We see it time and again in all degrees of trend. Markets will react to our windows even if an outright reversal doesn't materialize. Case in point: last week. Those of you who are new to the time element should not come to the conclusion the cycles don't work because last week's 62/47 day cluster faded. Time support/resistance works the same as its price cousin and a failure is an important bit of new information. Another thing, many of the MACD divergences also tend to pay off around support/resistance at some time frame.
7. This methodology is better than I think. As Yelnick stated last week, my book and the methodology involved is still evolving. I'll just go back to what was simply stated as far back as April 2007. I believed the pivot in the fall had the potential to be the "most important of the decade." I already said that I didn't want to assume what would happen beyond a test of the August low. Part of the reason for that is for the number of times bear phases ended earlier than many anticipated. Another way to look at it is since 2002, none of them have really lived up to bearish expectations. But, with the coverage we gave the 261 week cycle last year, we are finally getting the kind of price action that is living up to the hype. Personally, I think its happening because of the way the cycles lined up last year and I don't see any other methodology out there that comes close to explaining why these things happen. I have a lot of confidence in this work but every time we come to an important turn and get the expected results we learn from the experience and helps make it better for the next time. These markets are very tricky and certainly not the tooth fairy. But I think there are times when all of us, especially me, should trust in what we are seeing even more than we do.
Wednesday, January 9, 2008
GAP PLAY
Dip, Pop and Pop
When the first move is a “dip,” I look for the first support level. Remember, if a gainer is going to hold its strength, we won’t see much profit-taking at the open, and plenty of buyers will be lined up to carry the stock to higher highs. So the pullback should remain shallow, meaning I am looking for support to form at the very first level down.
Gainers are usually opening far above any pivots, so for support levels, I will be watching things such as the premarket low, any nearby whole numbers, moving averages and sometimes the previous day’s intraday high. If the gap is large, first support should come in well above the previous day’s closing price. The opening price is the “make or break line” and is the most important pivot to either overtake or fail on.
I want to see a move up and over the open price — and a break above the premarket high — to confirm that the uptrend is continuing.
Pop and Pop
When the first move is a “pop” from open, I will wait for a pullback before going long, and I might even short the pop, depending on the size of the gap. The reason is a large gap, plus any early buying, creates a lot of incentive for profit-taking, so the first climb in that case will usually be more of a short-lived pop before a deeper pullback comes in.
For first resistance levels, I will be watching things such as the premarket high, any nearby whole numbers and any previous resistance levels on the daily chart that might be nearby. Remember, if a gainer is going to hold its strength, we won’t see many people taking profits. Any short will be a small scalp against the trend, but the safest trades with the most potential will be with the trend on a counter move with its reaction(make or break line) to the opening price.
From off that first top, the pullback should remain shallow if the uptrend is continuing, and it often bottoms at a higher low, near the open. Sometimes the premarket low might also act as a support barrier. That bottom is your best long opportunity or moves counter to the trend and catalyst sentiment. The next climb should then hit higher highs. We need that higher high to confirm a continuation of the uptrend; otherwise, we could have a double top, which could be a short opportunity.
Every catalyst news stock is different, but they do follow similar patterns. Knowing those patterns prepares us with an instant game plan when we recognize them occurring which is retained as implicit knowledge for use and helps recognition when in the zone(Yoda State). And even when they break from a pattern, we can use those red flags to create new opportunities.
*The patterns could present themselves in different timeframes and could be seen in the 3 min, and/or 10 min and/or sometimes the 60 min.
* On GAP DOWN you reverse the rules. J
*A breakdown of either formation is bearish and should be shorted
*The bigger the pullback(drop) the weaker the trend.
Watching what type of pullback-shallow bullish; deep bearish
*Watch Open price reactions-the opening price is very important and should be a major pivot line(the make or break line)
* Create pivot lines for pre-market low, nearby whole or strike numbers, moving avg., previous day’s intraday high and analyze using Google Finance “extended trading” charts.
*Sentiment analysis with TRIN and TICK indicators as well as overall market indicators(VIX) are an important factor in analyzing the risk/reward ratio
*Draw trendlines and try to catch the contra- move on a trend (i.e. buying a dip on a bullish report and a bullish trend formation)
*If flat lining with confirming volume occurs this portends strength. Watch for the sharp sell off breaking technicals.
Manage risk through asset allocation and formulating and adhering to stop losses
When the first move is a “dip,” I look for the first support level. Remember, if a gainer is going to hold its strength, we won’t see much profit-taking at the open, and plenty of buyers will be lined up to carry the stock to higher highs. So the pullback should remain shallow, meaning I am looking for support to form at the very first level down.
Gainers are usually opening far above any pivots, so for support levels, I will be watching things such as the premarket low, any nearby whole numbers, moving averages and sometimes the previous day’s intraday high. If the gap is large, first support should come in well above the previous day’s closing price. The opening price is the “make or break line” and is the most important pivot to either overtake or fail on.
I want to see a move up and over the open price — and a break above the premarket high — to confirm that the uptrend is continuing.
Pop and Pop
When the first move is a “pop” from open, I will wait for a pullback before going long, and I might even short the pop, depending on the size of the gap. The reason is a large gap, plus any early buying, creates a lot of incentive for profit-taking, so the first climb in that case will usually be more of a short-lived pop before a deeper pullback comes in.
For first resistance levels, I will be watching things such as the premarket high, any nearby whole numbers and any previous resistance levels on the daily chart that might be nearby. Remember, if a gainer is going to hold its strength, we won’t see many people taking profits. Any short will be a small scalp against the trend, but the safest trades with the most potential will be with the trend on a counter move with its reaction(make or break line) to the opening price.
From off that first top, the pullback should remain shallow if the uptrend is continuing, and it often bottoms at a higher low, near the open. Sometimes the premarket low might also act as a support barrier. That bottom is your best long opportunity or moves counter to the trend and catalyst sentiment. The next climb should then hit higher highs. We need that higher high to confirm a continuation of the uptrend; otherwise, we could have a double top, which could be a short opportunity.
Every catalyst news stock is different, but they do follow similar patterns. Knowing those patterns prepares us with an instant game plan when we recognize them occurring which is retained as implicit knowledge for use and helps recognition when in the zone(Yoda State). And even when they break from a pattern, we can use those red flags to create new opportunities.
*The patterns could present themselves in different timeframes and could be seen in the 3 min, and/or 10 min and/or sometimes the 60 min.
* On GAP DOWN you reverse the rules. J
*A breakdown of either formation is bearish and should be shorted
*The bigger the pullback(drop) the weaker the trend.
Watching what type of pullback-shallow bullish; deep bearish
*Watch Open price reactions-the opening price is very important and should be a major pivot line(the make or break line)
* Create pivot lines for pre-market low, nearby whole or strike numbers, moving avg., previous day’s intraday high and analyze using Google Finance “extended trading” charts.
*Sentiment analysis with TRIN and TICK indicators as well as overall market indicators(VIX) are an important factor in analyzing the risk/reward ratio
*Draw trendlines and try to catch the contra- move on a trend (i.e. buying a dip on a bullish report and a bullish trend formation)
*If flat lining with confirming volume occurs this portends strength. Watch for the sharp sell off breaking technicals.
Manage risk through asset allocation and formulating and adhering to stop losses
GAP PLAY
Dip, Pop and Pop
When the first move is a “dip,” I look for the first support level. Remember, if a gainer is going to hold its strength, we won’t see much profit-taking at the open, and plenty of buyers will be lined up to carry the stock to higher highs. So the pullback should remain shallow, meaning I am looking for support to form at the very first level down.
Gainers are usually opening far above any pivots, so for support levels, I will be watching things such as the premarket low, any nearby whole numbers, moving averages and sometimes the previous day’s intraday high. If the gap is large, first support should come in well above the previous day’s closing price. The opening price is the “make or break line” and is the most important pivot to either overtake or fail on. I want to see a move up and over the open price — and a break above the premarket high — to confirm that the uptrend is continuing.
Pop and Pop
When the first move is a “pop” from open, I will wait for a pullback before going long, and I might even short the pop, depending on the size of the gap. The reason is a large gap, plus any early buying, creates a lot of incentive for profit-taking, so the first climb in that case will usually be more of a short-lived pop before a deeper pullback comes in.
For first resistance levels, I will be watching things such as the premarket high, any nearby whole numbers and any previous resistance levels on the daily chart that might be nearby. Remember, if a gainer is going to hold its strength, we won’t see many people taking profits. Any short will be a small scalp against the trend, but the safest trades with the most potential will be with the trend on a counter move with its reaction(make or break line) to the opening price.
From off that first top, the pullback should remain shallow if the uptrend is continuing, and it often bottoms at a higher low, near the open. Sometimes the premarket low might also act as a support barrier. That bottom is your best long opportunity or moves counter to the trend and catalyst sentiment. The next climb should then hit higher highs. We need that higher high to confirm a continuation of the uptrend; otherwise, we could have a double top, which could be a short opportunity.
Every catalyst news stock is different, but they do follow similar patterns. Knowing those patterns prepares us with an instant game plan when we recognize them occurring which is retained as implicit knowledge for use and helps recognition when in the zone(Yoda State). And even when they break from a pattern, we can use those red flags to create new opportunities.
*The patterns could present themselves in different timeframes and could be seen in the 3 min, and/or 10 min and/or sometimes the 60 min.
* On GAP DOWN you reverse the rules. J
*A breakdown of either formation is bearish and should be shorted
*The bigger the pullback(drop) the weaker the trend.
Watching what type of pullback-shallow bullish; deep bearish
*Watch Open price reactions-the opening price is very important and should be a major pivot line(the make or break line)
* Create pivot lines for pre-market low, nearby whole or strike numbers, moving avg., previous day’s intraday high and analyze using Google Finance “extended trading” charts.
*Sentiment analysis with TRIN and TICK indicators as well as overall market indicators(VIX) are an important factor in analyzing the risk/reward ratio
*Draw trendlines and try to catch the contra- move on a trend (i.e. buying a dip on a bullish report and a bullish trend formation)
*If flat lining with confirming volume occurs this portends strength. Watch for the sharp sell off breaking technicals.
Manage risk through asset allocation and formulating and adhering to stop losses
When the first move is a “dip,” I look for the first support level. Remember, if a gainer is going to hold its strength, we won’t see much profit-taking at the open, and plenty of buyers will be lined up to carry the stock to higher highs. So the pullback should remain shallow, meaning I am looking for support to form at the very first level down.
Gainers are usually opening far above any pivots, so for support levels, I will be watching things such as the premarket low, any nearby whole numbers, moving averages and sometimes the previous day’s intraday high. If the gap is large, first support should come in well above the previous day’s closing price. The opening price is the “make or break line” and is the most important pivot to either overtake or fail on. I want to see a move up and over the open price — and a break above the premarket high — to confirm that the uptrend is continuing.
Pop and Pop
When the first move is a “pop” from open, I will wait for a pullback before going long, and I might even short the pop, depending on the size of the gap. The reason is a large gap, plus any early buying, creates a lot of incentive for profit-taking, so the first climb in that case will usually be more of a short-lived pop before a deeper pullback comes in.
For first resistance levels, I will be watching things such as the premarket high, any nearby whole numbers and any previous resistance levels on the daily chart that might be nearby. Remember, if a gainer is going to hold its strength, we won’t see many people taking profits. Any short will be a small scalp against the trend, but the safest trades with the most potential will be with the trend on a counter move with its reaction(make or break line) to the opening price.
From off that first top, the pullback should remain shallow if the uptrend is continuing, and it often bottoms at a higher low, near the open. Sometimes the premarket low might also act as a support barrier. That bottom is your best long opportunity or moves counter to the trend and catalyst sentiment. The next climb should then hit higher highs. We need that higher high to confirm a continuation of the uptrend; otherwise, we could have a double top, which could be a short opportunity.
Every catalyst news stock is different, but they do follow similar patterns. Knowing those patterns prepares us with an instant game plan when we recognize them occurring which is retained as implicit knowledge for use and helps recognition when in the zone(Yoda State). And even when they break from a pattern, we can use those red flags to create new opportunities.
*The patterns could present themselves in different timeframes and could be seen in the 3 min, and/or 10 min and/or sometimes the 60 min.
* On GAP DOWN you reverse the rules. J
*A breakdown of either formation is bearish and should be shorted
*The bigger the pullback(drop) the weaker the trend.
Watching what type of pullback-shallow bullish; deep bearish
*Watch Open price reactions-the opening price is very important and should be a major pivot line(the make or break line)
* Create pivot lines for pre-market low, nearby whole or strike numbers, moving avg., previous day’s intraday high and analyze using Google Finance “extended trading” charts.
*Sentiment analysis with TRIN and TICK indicators as well as overall market indicators(VIX) are an important factor in analyzing the risk/reward ratio
*Draw trendlines and try to catch the contra- move on a trend (i.e. buying a dip on a bullish report and a bullish trend formation)
*If flat lining with confirming volume occurs this portends strength. Watch for the sharp sell off breaking technicals.
Manage risk through asset allocation and formulating and adhering to stop losses
Wednesday, January 2, 2008
THE FIRST 10 DAYS
Looking at data back to 1962, if the SPX closes higher after the first 10 days’ trading in January then historically there has been an 82% probability (23 of 28 iterations) that the index would work its way to a still-higher close at year-end. And the overall average gain beyond that mid-Jan close has been 10%. The average mid-Jan to year-end gain in the years that continued higher was 14.5%. The average loss in the down years was 10.8%.
Conversely, if the first 10 trading days of January lead the SPX to a close that’s lower than the end of the prior year, then the odds have been just 56% (9 of 16 iterations) that the index would work its way higher at year-end, with an average gain of just 3%. After a down mid-January close, however, the years that rebounded to higher year-end closes showed an average +16.4% mid-Jan to year-end rally while the years that closed lower than the mid-January close averaged a 12.8% decline.
So, if the first 2 trading weeks of this year generate a positive trend, then there’s a very high probability that the balance of the year will be pretty strongly positive. If the first 2 weeks of trade generate a negative trend, then it’s basically a crap-shoot as to whether the year will show a net positive or negative trend.
Conversely, if the first 10 trading days of January lead the SPX to a close that’s lower than the end of the prior year, then the odds have been just 56% (9 of 16 iterations) that the index would work its way higher at year-end, with an average gain of just 3%. After a down mid-January close, however, the years that rebounded to higher year-end closes showed an average +16.4% mid-Jan to year-end rally while the years that closed lower than the mid-January close averaged a 12.8% decline.
So, if the first 2 trading weeks of this year generate a positive trend, then there’s a very high probability that the balance of the year will be pretty strongly positive. If the first 2 weeks of trade generate a negative trend, then it’s basically a crap-shoot as to whether the year will show a net positive or negative trend.
ISM INDEX
ISM Index-December was 47.7 vs est of 50.5 consensus.. And 52.0 by Briefing.com.
The ISM Index has been down for 6 months in a row.. from June high of 56. Below 50 is Contractionary. New Orders were down Hard at 45.7.. Lowest since October 2001. Export Orders fell to 52.5 from 58.5... This is a first sign of what we looked for.. with the Euro at record highs.. and thus Europe slowing. Prices paid fell to 48.0.. from 67.5.. suggests more weakness. Prices paid... from another source reads 68 .. up from 67.5... That suggests less weakness than the Briefing.com numbers. New Orders index fell to 45.7% from 52.6%.. lowest since Oct 2001. Slower demand .. more of a problem than excess Inventories. Remember.. in Q3.. the GDP growth was boosted a lot by Inventory growth... so that is a concern now. The Prices paid will put pressures on Profits.. since manufacturers generally have not much pricing power.
Overall.. the ISM Index report today was such a shock to markets.. since it came just after the string of low LEI numbers.. and the ECRI WLI at lowest growth rate in over 5 years. Also.. the Initial Claims have been inching higher.. though not yet saying Recession as yet. The talk is of more layoffs coming in Financials. Corporations have held off laying off workers.. because of strong balance sheets .. and they don't want to let go qualified workers.. unless they see significant slowing. Qualified workers are still in short supply. The strong balance sheets are probably the difference. In Y2000 they first tried holding onto workers.. but then started laying off big time... once the slowdown became evident. Balance sheets were not in such good condition then. And the ones who held on too long suffered Losses.
Initial Claims will be reported tomorrow. We will get more evidence; probably not much change over the Holidays. ADP will also give estimates of New Jobs tomorrow. Last month they estimated way too high. That's for last week.. so workers may take a few days to file Claims.
The ISM Index has been down for 6 months in a row.. from June high of 56. Below 50 is Contractionary. New Orders were down Hard at 45.7.. Lowest since October 2001. Export Orders fell to 52.5 from 58.5... This is a first sign of what we looked for.. with the Euro at record highs.. and thus Europe slowing. Prices paid fell to 48.0.. from 67.5.. suggests more weakness. Prices paid... from another source reads 68 .. up from 67.5... That suggests less weakness than the Briefing.com numbers. New Orders index fell to 45.7% from 52.6%.. lowest since Oct 2001. Slower demand .. more of a problem than excess Inventories. Remember.. in Q3.. the GDP growth was boosted a lot by Inventory growth... so that is a concern now. The Prices paid will put pressures on Profits.. since manufacturers generally have not much pricing power.
Overall.. the ISM Index report today was such a shock to markets.. since it came just after the string of low LEI numbers.. and the ECRI WLI at lowest growth rate in over 5 years. Also.. the Initial Claims have been inching higher.. though not yet saying Recession as yet. The talk is of more layoffs coming in Financials. Corporations have held off laying off workers.. because of strong balance sheets .. and they don't want to let go qualified workers.. unless they see significant slowing. Qualified workers are still in short supply. The strong balance sheets are probably the difference. In Y2000 they first tried holding onto workers.. but then started laying off big time... once the slowdown became evident. Balance sheets were not in such good condition then. And the ones who held on too long suffered Losses.
Initial Claims will be reported tomorrow. We will get more evidence; probably not much change over the Holidays. ADP will also give estimates of New Jobs tomorrow. Last month they estimated way too high. That's for last week.. so workers may take a few days to file Claims.
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