Sunday, February 27, 2011

Chart of the Day

Let's make it Chart(s) of the Day today. The first one is DVN. Consolidating nicely for over a month now with MA(20) providing good support. The close above 90.1 was important on Friday. Would like to see some volume come in now.

BHI - Another stock that has been consolidating nicely with MA(20) as support. Like it on a break of 71.84.

Here are some more stocks that I like heading into next week.

Take care and good luck!


Here are some stocks I like heading into next week. All these stocks have been pointed out in this blog in the last week or so. Some have moved up nicely since then and some are still setting up but all of them are in play heading into next week. The important levels have been marked on the charts itself.

Some new picks coming up later in Chart of the Day.

Take care and good luck.

Saturday, February 26, 2011

My story.....Part 4

Last time, I had left you readers at the point where I had been badly battered and bruised by the markets but was not willing to admit defeat. I read everything I could lay my hands on in search for something that would give me an edge to succeed in trading.  If you have missed the earlier parts of my initial experiences with trading, I highly recommend reading Parts 1, 2 and 3 first before continuing with this post.

I had mentioned at the end of the post last time, that a combination of technical and fundamental analysis seemed to be the way to go forward to me and CANSLIM seemed useful in that regard. I would love to tell you readers that it is all one happy story from now on but that's wasn't the case. My initial experiences with CANSLIM were encouraging but at the end of the first few months of trying my new found knowledge, I was just a little over break even. Clearly, the only person who was benefiting from my trading endeavors was my broker. 

Something wasn't right. Something was clearly missing. I had read a lot, studied a lot and learned a lot but success was still proving illusive. I had tried various technical indicators, browsed through tons of old charts using these indicators but that something was still missing. Looking back, it is quite easy for me to say what the missing ingredient was, but back then, finding the missing part of the puzzle was proving difficult. In case you readers, haven't already guessed it, the missing part of the puzzle was me.

I was trying too hard to find a system that worked and made me consistent profits, searching for answers in books, blogs, basically everywhere except within me. Looking back, my search for that stock pattern that would give me 80% hit rate was bound to fail. Reading even all the books in the world about market strategies and patterns was not going to be useful. But in the end, it was a book only that came to my rescue. But more on that in the next part where I shall try and wrap up this series.

Take care and good luck!

Friday, February 25, 2011

The holy grail of trading

There is no holy grail of trading. So, if you landed at this page looking for one, now would be a good time to stop searching for one. Perhaps the only thing that comes close is finding a strategy that works best for you and proper money management. So, the answer, as it does for most important things in life, lies within you.

Take care and good luck!

Thursday, February 24, 2011

Stocks and Strategy

My overall market strategy remains the same as yesterday. If I had to describe it in two words, I would say cash and 1275. When the markets were choppy, it was time to ignore the overall indices and concentrate on individual stocks. Now is the time to concentrate on the overall markets and then pick your stocks. That being said, here are some high volume movers whose charts are setting up nicely. Not surprisingly, most of them are oil and energy names.

Take care and good luck!

Wednesday, February 23, 2011

Give the bulls a chance

You readers don't need me to tell you that the bulls got crushed yesterday. You get enough of that from people proclaiming a top at the start of every pullback. Yes, yesterday was bad for the bulls. I am not arguing with that. Perhaps, the only consolation for the bulls was that SPX managed to close above MA(20). All I am saying is that seeing the dominant performance by the bulls in the last few months, they deserve a chance. Don't panic. No market can go straight up forever. 

I am willing to side with the bulls for now and will take short positions only as trades, using cash as a hedge for more possible downside. But no one can get the benefit for ever, and so must be the case for the bulls. Looking at the chart below, there is strong support for the bulls at the 1275 area with the MA(50) providing further support above this level. 

Until this level is breached, I am siding with the bulls. Cash remains my choice of hedge until 1275 is broken. The plan is not to chase momentum stocks, but see how they behave during pullback and look to take small starting positions in case they do behave well. The small positions would allow make it possible to give these positions room to run, thus avoiding the futile task of calling bottoms.

Take care and good luck!

Monday, February 21, 2011

Chart of the Day

Today's Chart of the Day is SCI. Been consolidating very well since breaking out earlier this month. Volume showed signs of returning on Friday. 11.25 remains the key. Will be interesting to see how it fares in a possible down market tomorrow.

P.S.: Here is a watchlist for tomorrow as well as some short squeeze candidates. With the futures as they are, I would probably not be chasing any momentum stocks tomorrow but will be stalking them to see how they behave on a pullback. Tomorrow will be a good opportunity to see where the relative strength in this market lies.

Three for the watchlist

Here are three setups that I like heading into tomorrow. I have commented on the charts itself. Having been away from the markets for a week, I am running different scans to see where the opportunities lie and to get back in tune with the markets. Here is a list of short squeeze candidates that I posted earlier in the day.

I will be back later with Chart of the Day.

Take care and good luck!

Short squeeze

Here are some charts that are setting up nicely. All these are highly shorted stocks with over 20% of the float short, making them prime short squeeze candidates if they manage to cross critical levels. One should always honor stops, but even if you are undisciplined, you must honor your stops while playing highly shorted stocks. They are probably highly shorted for some good reason, but as a short term trader I couldn't care less about what those reasons might be. Also, it being earnings season, be sure to check when a stock is reporting before taking any position in it. I have commented on the charts itself.

Take care and good luck!

Saturday, February 19, 2011

Natural gas ETF

Well dear readers, your favorite blogger (for those of you who are new to the blog and dont know it yet, that's me ;) is back after getting married. Having been out of touch from the markets for a while, I started by doing an industry scan to get an idea of the broader picture and see which industries were setting up well. That's how I came across the following chart, which I admit has snuck up on me. Natural gas index has been in a sweet uptrend ever since it bottomed in August and has been moving in a nice well defined channel of late. Strong support at the lower trendline which is also joined by the MA(20).

One way of playing this is FCG - the natural gas index ETF. Notice the bullish volume pattern in the last few days.

Also like the way the Brokers and Networkers are setting up here. 

Take care and good luck!

P.S.: Here is a watchlist for tomorrow as well as some short squeeze candidates.

Wednesday, February 9, 2011


There comes a time in every man's life when he finally runs out of excuses and has no choice but to get married. Well dear readers, that time for me has come and I get married this Sunday. I don't claim to be an expert on marriage, but I highly doubt that the new ball and chains will be too pleased with me trading or blogging during our honeymoon. So, the blog will take a break for ten days or so and I will be back next weekend.

Take care and good luck!

Tuesday, February 8, 2011

Technical Analysis or Fundamental Analysis

This post is the result of a question from a reader who asked me if I could elaborate on why I chose technical analysis over fundamental analysis as I had mentioned in My Story: Part 3. More qualified men than me have fought long and hard over the relative merits and demerits of technical analysis and fundamental analysis and never reached an agreement on which is the more successful method. Discussing this topic is like opening a can of worms and almost always generates passionate responses from both sides. So, let me start by adding a disclaimer that the following are just my views on why I personally trade using technical analysis rather than fundamental analysis.

My main problem with fundamental analysis is that it assumes that you know better than the market. You take a position in a stock that you feel is undervalued or at the very minimum, the market is not discounting the future growth or value of the company properly. Whereas as a follower of technical analysis, I assume that the market knows best and all the news regarding the company, past , present and, even future is reflected in the current price of the stock. All I do is follow the price and volume of a stock.

I am in no way qualified or knowledgeable enough to read the books of the companies but the more basic question is, how much trust can I place in the balance sheets etc of the companies in general. I don't have to give you readers examples of companies coming up with novel methods to cook their books. 

You can find a lot many more advantages of technical analysis over fundamental analysis in any technical analysis book (or vice-versa in any fundamental analysis book!). But perhaps the most important reason for choosing one method over the other is that your style of trading should complement your personality. Personally speaking, I have no patience to stay put in a growth story that might take years to develop. While value investors might see a falling stock as a golden opportunity to add some more at a lower price, I am very impatient with my losing trades and can't wait to get out of them. 

To wrap things up, we can argue about the demerits and merits of technical and fundamental analysis all day long and both sides can come up with examples of great traders who have been very successful using one method over the other, but the bottom line is the best method is the method that works best for you. And the method that works best for you is one that best suits your personality. Go discover yourself!

Take care and good luck!

Monday, February 7, 2011

Three setups to watch out for

DOLE - Bullish volume pattern since December. Nice move on strong volume off MA(20) on Friday. Watch out for a break of 14.92.

ONNN - Nice move off MA(20) on Friday. Has had a nice run since December. Watch out for a move above 11.70.

ARCC - Worth watching over Friday's highs.

Take care and good luck!

Sunday, February 6, 2011

My story.....Part 3

I started writing about my initial experiences with trading around a couple of weeks ago and this is the third part of the series. The response of the readers to this series has been simply amazing and even a tad surprising as I did not expect so much interest in my humble beginnings. I guess many of you readers are able to relate to my initial experiences as a trader. In case you have missed the first two parts of the series, I highly recommend giving those a read first. Here are the links to Part 1 and Part 2.

Last time, I had left you readers at the point where the markets had left me battered and bruised. Over half of my investment gone in a matter of months. But I don't know what hurt more, the monetary loss or the shattered ego. It is the first time that I had really faced failure in my life and it wasn't pretty. Also lay shattered my dreams of easy money. But looking back, I see that the initial failures weren't entirely useless as I learned some less lessons from it that still stand me in good stead. These are some things that I learned in my early days as a trader and the market didn't have to tell me twice. Some of these lessons, and some of these have now become rules, are:

1) Never hold a stock during earnings. Ever. No exceptions.
2) Don't think a stock is "cheap" just because it has fallen a lot.
3) You will never be the first one to get any news. Somebody is always trading that news before you even came to know about it.
4) Good earnings doesn't equate to higher stock prices. Similarly, bad numbers doesn't mean lower stock prices. Trade the reaction to the news, not the news itself.

More such lessons are given in the post - Know when to sell, one of the most read posts of this blog. Yes, that post was written from my own experiences.

Coming back to my story, I know I had a lot to learn. At least, I knew know that trading wasn't easy. Quite possibly the toughest challenge I had ever encountered. So, I did what I guess most people would do in such a situation. I hit the books. I tried to learn as much as I could. And the only way I could do that was by reading all that I could get my hands on. I didn't trade for almost six months. Didn't even look at my account, or what was remaining of it, for days at a stretch.

One of the first books that I read was the book on CANSLIM by William O'Neil. It seemed to be a strategy that worked. So, I got down screening for stocks that fit the above-mentioned system. One of the other books I remember reading that time is the one by Darvis. Reminisces of a Stock Operator was another fabulous read that I would recommend to all you readers. Back to CANSLIM, if I remember correctly, the way the author developed this strategy was by studying long time charts of successful companies. That idea appealed to me. My thinking at that time was that all these books were fine and I was learning something from all of them, but in order to be successful, I had to come up with a strategy of my own. Something that tilted the odds in my favor.

Sometime during this period, the technical bug also bit me. I was already "using" charts but had little clue why I was doing what I was doing on them. Now, I got introduced to a whole new world of technical indicators. There were so many of them! I was slowly getting an idea of what kind of trader I wanted to be. I didn't have the patience to be a purely fundamental trader and besides, the arguments in the favor of technical analysis made sense to me. So, I decided I would screen for stocks on the basis of CANSLIM and that sort through them using technical analysis. Surely a mixture of technical and fundamental analysis was a touch combination to beat!

I think I will end this post here now. I will leave my experiences with my newly acquired knowledge for the next post. These posts are a lot more draining compared to the regular posts! But if you readers are expecting a happy ending in the next post, you are sadly mistaken. If only it were that easy!

Take care and good luck!

Thursday, February 3, 2011

Two to watch out for

Couple of earning plays tonight. Both posted good numbers, but more importantly, from a trader's point of view, the market responded well to the numbers. Both managed to close above previous highs and in case of ERTS, there was even a good follow through day today.

Take care and good luck!

Tuesday, February 1, 2011

Some tips on playing markets such as these

Despite the one-way traffic in the markets today, the last week or so have been a tough week to trade with the momentum continuously shifting between the bulls and the bears. For example, the  market action on Friday was definitely bearish and I don't have to tell you readers what followed that. So, here are some tips for playing markets like these.

1. Trade what you see, not what you think: Forget your biases on the overall markets, and trade what the market is giving you. The market doesn't care about your opinion, and so shouldn't you.

2. Focus on the individual stocks rather than the indices: Unless there is a huge down or up move and important support or resistance levels are broken, just focus on how individual stocks are doing rather than the indices. The term "stockpicker's market" is actually relevant sometimes.

3. Prepare to get stopped out: If you are trading choppy markets such as these actively, be mentally prepared to get stopped out often. There was no disgrace in getting stopped out on a lot on days like Friday. I certainly did in all but two of my positions.

4. Don't go for home runs: Don't get greedy. When you don't have a definite trend in place, take profits when you can rather than going for the big winners.

5. Be prepared: The regular readers of this blog would have noticed that I have been putting up short setups too along with the usual long setups during the last week. Be prepared for a move in any direction.

6. Don't get complacent!: Everybody is an awesome trader on days like today. How Friday's action proved to be a nothing but a fake is obvious in hindsight. But that doesn't mean every dip must be bought. Most traders lose months of profit from an uptrend in the first week or so of a downtrend. Don't be one of those traders!

Take care and good luck!