Wednesday, June 30, 2010

1040 just had to break

No charts today dear readers. Not much technical analysis either. Instead, I will just put some thoughts out there and hopefully, give you readers something to think about. Well, here goes nothing.....

1040 just had to break. Why, you say?? Well, because it was a very strong and very obvious support. Wait a minute! That's counter intuitive, you say. Exactly dear readers. It was a very strong support and that's why it had to break. Hear me out before proclaiming me crazy. 

The key word in the above paragraph is obvious. 1040 was a very obvious support. Why does it being so obvious matter, you ask? Well dear readers, we live and trade in times where most of the trading is done by computer algorithms. The objective of these algorithms is to cause maximum pain or in other words, to take money from small traders like us. The markets don't work on the obvious any more. Now, I am not saying that technical analysis doesn't work anymore. If it didn't, I would certainly stop trading and you would have to bid farewell to this blog. My point is that technical analysis doesn't work the way it used to work in 80s or the 90s. With the advent and dominance of these computer algorithms, things are not as easy and straightforward any more and one has to think a bit outside the box.

Consider this. A lot of traders, going purely by TA, had their stops just below the 1040 mark. If you were looking for some easy money or cheap buys, it makes perfect sense to spike the market down and run over these stops and then go back up again. Seen stocks fall through MA(50) easily recently and then go back again, with you getting stepped out? Well, its the same thinking here again. You just got owned by these computer algorithms. I wouldn't be surprised to see the markets bounce from here now that these stops below the 1040 mark have been taken out.

But all is not lost. There are ways you can fight these algorithms and come out on top. You just have to realize that the obvious doesn't work anymore. Adaptability is the key here. I could give my thoughts on some of these ways but I see a bottle of bourbon with my name on it calling out to me. 

Take care and good luck! I will be most interested to know what you readers think about the above.

Tuesday, June 29, 2010

Are we oversold yet?

And the answer to that is no. Not yet anyway. Check out the McClellan Oscillator charts below for the oversold levels.

I am sorry but I will have to keep this post short dear readers as I have things to do and places to go to, but needless to say, any bounces here will be opportunities to get out of existing long positions or go short rather than start new long positions.

Take care and good luck!

Monday, June 28, 2010

Stock market today

Another day where the markets went nowhere. The only thing these markets are good for in my opinion, is to check your discipline as a trader. If you are anything other than a day trader, I don't think you have a good enough reason to trade these markets or to predict or speculate in which direction the market is headed next. There is no shame in being in cash as a trader and you don't have to try to catch each and every move, or in these markets, try to make something out of nothing at all. 

Looking at the S&P chart below, only two things seem obvious to me: (1) strong support at 1040 levels. (2) plenty of resistance up ahead in the form of MA(50) and MA(200). We might see a bearish crossover of these moving averages sometime in the near future. That's it. That's all I can tell from the chart. Or maybe I am missing something? Free feel to chime in case you readers are seeing something that I am not. By the way, in case you were wondering, the markets are no way close to being oversold yet.

Take care and good luck!

Sunday, June 27, 2010

Stocks to watch

Here are a few setups I like heading into next week dear readers.

AJG - Nice volume on Friday. Watch out for a break from the range. Nice support from MA(20), MA(50) and the bottom of the range. 

ALKS - Coming off a nice bullish flag formation. A close above important resistance level on Friday with good volume. Bullish MACD formation too.

ANV - Love the bullish volume pattern on this one. New highs might be in play the coming week.

ENZN - Coming off a period of nice consolidation. 11.53 is the key here. A break of that and higher we go.

FNSR - Nice volume on Friday. Watch out for a breakout from the marked trading range.

WAL - Gotta like the odds of a breakout here.

Take care and good luck!

Saturday, June 26, 2010

How to play gap ups? Part 3

I thought, it being the weekend, I would complete the series I started earlier this week on how to play gap ups. The first two part of the series which deal with the psychology behind chasing gap ups can be found here (Part 1) and here (Part 2). If you often find yourself buying at the top, I would recommend reading these early posts in the series.

Now, let's finally get to playing stocks which have gaped up. The following comes from my experiences in playing gap up stocks, or to be more specific, from what I have learned by my mistakes in my early days of trading in playing gap up stocks. Now obviously, all gap up stocks are not created equal. But in my experience, successful gap ups stocks mostly display some similar characteristics and I will try and go into these characteristics.

To me, first and foremost, the most important thing in successfully playing gap up stocks is closely observing the stock in the pre-market. I am sure you readers haven't read about this point anywhere, but like I said, this post comes from my own experiences. Now you might ask, why is observing the pre-market so important in case of gap ups. Variety of reasons dear readers:

(1) Technical - Say, this particular stock was in your watchlist for today and you had a particular buy point. Now, the stock is gapping up above that point in the pre market. So, its important, to know the new immediate support and resistance points for the stock in the pre market. The resistance point in the pre market can be an important entry point as described later. You also should be paying very close attention to volume in the pre market. If the volume is not relatively very high, forget about chasing the stock. In fact, it might make a good short on open.

(2) Psychological - Say, you don't follow the pre-market and open your broker terminal at 9:30. Now, you see that the stock which you were planning to buy today has gaped up well above your buy trigger. As I had mentioned in the previous posts, now the feeling of frustration and anger at missing out on profits starts setting in and you might find yourself buying the stock just to get rid of these emotions. You have no plan in this case as you are not prepared for the gap up. Odds are you are buying at the top and will lose money. So, observing the pre market is extremely important in getting yourself physiologically prepared for the gap up.

(3) News - Observing the stock going much higher in the pre market will give you enough time to look for and digest the news behind the gap up, if any. If the stock is gaping up because it was highly recommended by a newsletter or a tv show last evening, avoid it. The chances are its most probably people who don't know any better chasing the stock thinking its the next big thing and making it go higher. Smart money will soon take their money. Also, if the stock is going up for speculative reasons, like say some pending FDA news, it is best to avoid it or at least know at what time the news is going to come out, so that you can get out before the actual news. Buy on rumors and sell on news is a common adage that mostly works.

So, that's the reason for closely observing the stock in the pre market. Now, let's say you have closely followed the stock in pre market and everything seems good - high volume, positive news etc. Now the question is when to enter the trade?

(1) I would just enter an order just above previous close just for the heck of it. You will be surprised how many times a stock will quickly spike down just for a few seconds so that there is no gap and go back again.

(2) If the stock gaps up above an important resistance, wait for a successful test of this resistance, which has now become support, and then enter the stock. For example, the chart was forming an ascending triangle until yesterday and today gaped up above the horizontal line, wait for a bounce off this horizontal line before entering the stock.

(3) As you were observing the stock closely during the pre market, you know the price level where the stock was facing resistance in the pre market, enter on a break of this resistance with heavy volume.

Discipline is very important in any kind of trading, but especially important in case of gap ups. Your stop should be below the gap support or the previous days close, depending on your risk tolerance. Remember to respect your stop as the gap may very well be an exhaustion gap.

I hope this series of posts was of some help to you readers. I will be back tomorrow with some stocks worth keeping an eye on next week. Take care and good luck!

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Wednesday, June 23, 2010

A look at the market leaders

A day with some interesting intraday action but where we ended up pretty much going anywhere in the end. Often, we can tell about the state of the market by looking at how the market leaders are behaving, so I thought it might be worth it to have a look at some of these market leaders today.

NFLX - Still holding on to the MA(20). A doji formed today. I am leaning bullish on this one but the low volume today compared to the previous two down days makes me call this a tie.
Bulls 0.5 - Bears 0.5.

AAPL - Holding up the 270 support level. If forced to buy or short here, still a chart that I would rather buy here than short. Bulls 1.5 - Bears 0.5

AKAM - Looks more bullish than the previous two charts. But resistance right up ahead at 46. Again, if forced to buy here, would rather buy than short here. Bulls 2.5 - Bears 0.5

DECK - Nice intraday recovery but it has broken an important support level in the past few days. Would short it as 160 rather than go long here. Bulls 2.5 - Bears 1.5

VMW - Another decent looking chart with the fly in the ointment being the low volume today compared to the previous two days. Bulls 3 - Bears 2

Well, there you have it dear readers. No clear signals here but at least according to the insights gained from the market leaders, I would not want to go short here - at least, not until the MA(20)s are broken.  If anything, going by the dojis formed in many of these charts, one could expect a short term bounce here. I hate to sound so boring but cash remains the best option here until there emerges a clear sense of direction regarding where the market is headed.

Take care and good luck!

Tuesday, June 22, 2010

How to play gap ups? Part 2

So dear readers, let's continue from where I left yesterday. Yesterday, I talked about the mentality behind chasing gap ups and ultimately left buying the stock almost at the top and then watching it go down immediately afterwards. Like I had mentioned, all this was coming from my own experiences when I first started trading. If you haven't read that post, I highly recommend reading that one first. Here is the link.

Well, hopefully we are all on the same page now and I can continue. So, like I barely hinted at yesterday, the improvement in my trading came from understanding the nature of the markets. Why do we chase gap ups? Firstly, we had that stock on our watch list, so obviously we were right about that stock moving up. Yet, we were not able to get in at our intended buy point, due to the gap up. That is obviously disappointing. This feeling only gets worse once frustrating starts creeping in due to the missed profits. How do we get over these emotions? By understanding the nature of the markets. See, dear readers, the markets do not exist to make money for you or to take money from you. The market doesn't care a damn about you. That's not the market's job. The markets only exist to provide us with opportunities. And that's exactly what they do. Provide us with opportunities everyday. And the last word is very important to understand and believe in here. EVERYDAY. So, what is really the big deal if one particular stock gaps up and we miss out on potential profits? The important thing is not to get carried away in the heat of the moment and stay true to your trading plan. The next day, the market will provide us with more opportunities that we can take advantage of. The important thing is to stay true to your trading style and plan. To give due credit where it is due, I learnt a lot about market psychology and similar matters from the book shown in the beginning of the post - Trading in the Zone. Its a must read for any trader in my opinion. Check it out if you haven't read it already!

In the final part of this series, I will talk about the importance of keeping an eye on the pre-market trades and how to actually enter stocks that have gapped up with different trading strategies for momentum, swing and day traders.

 You can follow me on twitter to get the latest blog updates.

Monday, June 21, 2010

How to play gap ups? Part 1

Sorry for the late post dear readers but I have had an extremely busy day and that's how its probably going to remain until the weekend. You guys out there don't need me to tell you that the action today was bearish. So, let's talk about what happened today from a more general perspective. Yes, I am talking about gap ups.

As the regular readers of this blog know, I had posted over a dozen charts yesterday and they all were setting up nicely. I am sure you picked your own favorite or two from all the charts and then saw it gap up big in the pre market. Some of you might have been disappointed at seeing the stock go up without you and open way above your intended buy price. A few of you might have been frustrated too and must have been calculating the missed profits in your head. You didn't want to buy so high, but seeing the stock just keep on going higher, you finally caved in and bought the stock. Within minutes of you buying the stock, it reversed hard and you ended the day quite a lot in red. It turned out you bought the stock at or quite close to the top.

How do I know this? Well, when I was a newbie trader, this used to happen to me more often than I would like to remember. How did I overcome this mistake and get over the frustration of missing out on a big move? Well, my dear readers, what I did was try and understand the nature of the markets. But more on that, and what to actually do on gap ups, in the next post. I am simply too exhausted tonight to continue with the post.

You can follow me on twitter to get the latest blog updates.

Take care and good luck tomorrow!

Sunday, June 20, 2010

Watchlist for next week - Part 2

As I said in the first part of this series dear readers, I am seeing a lot of plays beginning to set up here, so had to split the watchlist for next week into two part. Without further ado, here is the second part. For more plays and the general idea on how to play these setups, see here.

Take care and good luck!

Watchlist for next week - Part 1

So, I was just going through my screener dear readers looking for stocks for the coming week. There are so many stocks setting up that I haven't had time to go through all the stocks, hence I will be presenting the watchlist for next week in multiple posts. 

Most of these stocks are setting up to break through their ranges and head for their 52 week highs. There is always a danger of multiple top pattern being formed when you play patterns trying to break out of the range, so I would recommend to let the stock breakout of the resistance market on good volume before getting into it. 

I have commented on the charts itself. Lot of set ups here, take your pick!

Part 2 of the watchlist some time later today. Take care and good luck!

Saturday, June 19, 2010

A pullback in gold on the cards??

As the regular readers of this blog know, I was very bullish on gold the entire last week and put my money where my mouth is. Well, gold did indeed make a big move up and broke to all time highs on good volume. Make no mistake dear readers, I still like gold here but at the same time, the charts are telling me that a short term pullback might be on the cards here. Watch out for the volume on any pullback as it will most probably be a good buying opportunity. 

Well, here are my reasons for not chasing gold over here. Firstly, a shooting star was formed on Friday. For all of you who don't know, shooting star is a candlestick pattern that signals a reversal. More information on it can be found here. Secondly, I am not seeing a similar scale up move in either RSI or MACD. See for yourself and draw your conclusions with the chart below.

Thirdly, the dollar, which has had quite a move to the downside in the last couple of weeks, is beginning to show signs of a bottoming process beginning to take shape here. More details are noted on the chart below. Again, I know I am jumping the gun on the call here but as I was so buoyant in writing about gold last week, I see it as my responsibility to point out the warning signs I see beginning to develop here.

Lastly, you would think that with gold at all time highs, most of the gold miners would be having very bullish charts. Well, I have pulled up some charts of gold miners that I like here and it was harder work than I had imagined. If you are a momentum trader, you might think about just going with the trend here but if you are a swing trader, I would suggest waiting for a pullback here. I have commented on the charts itself.

Well, there you have it dear readers. I am still bullish on gold but I think that it has got a little ahead of itself here and fancy the chances of a pullback here. Let me know what you think!

I will be back tomorrow with some more picks. Enjoy the weekend!

Friday, June 18, 2010

Another good day for the bulls

This is going to be a short post dear readers since its Friday evening and actually, there is not much to say either. I can't remember when was the last time we had an options expiry week with such little volatility. It was another solid day for the bulls and I see a lot of charts setting up nicely. I will post about setups during the weekend.

S&P is consolidating quite nicely here. And it certainly needs the pause to refuel as if the things go the bulls way, they will be facing tough resistance in the form of MA(50) soon.

Nasdaq chart looks a lot more interesting as it is already fighting with the MA(50) and got rejected at it today. So, this is the important number to keep in mind when we resume trading next week.

Personally speaking, I made just one move today and I regret doing it. Seeing my gold play, NGD facing resistance at 6.60 yesterday and earlier today, I set a sell limit order at this point and went away. Well, it got hit, leaving me with a 4.5% gain. The stock finished at 6.83. Oh well, shit happens and a profit is a profit anyway. That apart, I am pretty pleased with the way I traded this week. As the regular readers of this blog know, I didn't fancy the odds of going long earlier this week but I didn't become a prisoner of my own mind and went long as soon as I saw the market showing strength. I am even more pleased with the patience I have shown with NR so far. More on that and other stocks later this weekend.

Take care and have a great weekend!

Thursday, June 17, 2010

How overbought are the markets now?

Another impressive day for the bulls where a late surge helped the market finish in the green. Any time when the market shrugs off bad news, as the it did today, is a bullish sign indeed. In case you are wondering how overbought the markets are now, well the answer is that, after two days of consolidation, the markets are not overbought anymore.

The big story of the day was the all time highs in Gold. GLD got rejected right at the resistance and the volume was impressive today. Watch out for 122.50.

Personally speaking, I didn't do anything today. As the regular readers of the blog know, I had been quite bullish on gold this entire week and had actually just posted about it yesterday.  I had even started a position in NGD, a junior gold miner, two days back in anticipation of the move we had today. Well, dear readers, on this glorious day for gold, my gold miner went up by whooping two cents! This "hurts" more than a loss, being so right and not making any money off it. Oh well, stuff happens.

Take care and good luck tomorrow!

All that glitters

GLD - Watch out for a test of 122.50.

Wednesday, June 16, 2010

Oil spill play

Company profile - Newpark Resources, Inc. and its subsidiaries provide fluids management, waste disposal, and well site preparation products and services primarily to the oil and gas exploration and production industry. The company operates in three segments: Fluids Systems and Engineering, Mats and Integrated Services, and Environmental Services. The Fluids Systems and Engineering segment offers drilling fluids products and technical services to drilling projects involving subsurface conditions, such as horizontal, directional, geologically deep, or deep water drilling. This segment also provides completion fluids and equipment rental services. The Mats and Integrated Services segment offers mat rentals, location construction, and related well site services to exploration and production customers in the onshore U.S. Gulf Coast, western Colorado, and northeast U.S. regions; and mat rentals to the utility industry in the United Kingdom. It also installs access roads and temporary work sites for pipeline, electrical utility, and highway construction projects. This segment manufactures and sells DuraBase composite mat systems for domestic and international markets, as well as for use in its domestic rental operations. The Environmental Services segment processes and disposes waste generated by oil and gas customers, and provides onshore drilling waste management and reclamation services. The company provides its products and services primarily in the United States Gulf Coast, west Texas, east Texas, Oklahoma, North Louisiana, Rocky Mountains, and northeast region of the United States.

A few for the watchlist

Some stocks for the watchlist. I have commented on the charts itself.

One more coming right up....