Chart of the Day

Today's Chart of the Day is JBHT. I day traded this a couple of weeks ago on the day of the big breakout move and have been waiting for it to set up again ever since. The close over 48 today means it finally looks ready. I had a buy stop order for this set up at 48.10, so I missed getting in today by 1 cent. Would hate to see it gap up tomorrow!

Take care and good luck!

Three Indian stocks

Since the inception of this blog, the third highest number of visitors has been from India. No prizes for guessing the top two countries - US and Canada. So, for all the India viewers, here are three stocks that I like from the Indian markets.

 

Orchid Chemicals - This is still in process of forming a base. Like it on a close over 320.

Arvind mills - Love the volume pattern on this one. A very orderly chart pattern with high volume breakouts followed by a period of consolidation. Stop below Friday's lows for short term traders.

Apollo Tyres - Finally broke out of the trading range last week. 70 should provide strong support.

As always be sure to check when these stocks are reporting before getting into them.

Take care and good luck!

Chart of the Day

Today's Chart of the Day is CYT. It was a big volume mover today but still below the trendline resistance. Not a big fan of the close, but like it on a break of 57.50. I believe it reported yesterday, so one does not have to worry about the earnings.

Below is the weekly chart showing the overall strong uptrend.

Take care and good luck!

1340 still the key

It was a day of consolidation in the markets. Since what I had posted last week still holds true and I am feeling kinda lazy, I am just going to quote from what I wrote after the big rally last week. The momentum now lies firmly with the bulls. Add to that the disheartened bears and there couldn't be a better chance for the bulls to take over 1340. As can be seen in the chart below, its been THE resistance level on S&P for quite some time now. However, I would not like the bulls to take it down straight away, and in the process, get exhausted, and give it up back again. Some consolidation here would do their case no harm.

Here is an updated weekly chart of S&P illustrating the importance of this level.

I will be back with some charts later in the night.

Take care and good luck!

Two short squeeze candidates

Here are a couple of setups I like heading into next week. Both are heavily shorted with over 20% of the float short, thus making them short squeeze candidates. Discipline is essential in trading any stock, and this is all the more true in case of heavily shorted stocks. There might be very good fundamental reasons for these stocks to be so heavily shorted but as short term technical traders, we dont care about these reasons. But the point is honor your stops with these stocks. Also, it being earnings season, be sure to check when these stocks are reporting before you play them.

BBBB - Breakout on huge volume followed by two days of consolidation. The trading range is getting narrower. Watch out for a break of 50.

Below is the 10 minute chart of the same stock showing the consolidation of the breakout. Looking good for another run next week.

CSTR - Another stock that also looks good over the 50 level.

Take care and good luck!

Bear Massacre

I had written in yesterday's post that time was running out for the bears. I must admit I did not expect their time to run out so soon and that too, in such a spectacular fashion! The momentum now lies firmly with the bulls. Add to that the disheartened bears and there couldn't be a better chance for the bulls to take over 1340. As can be seen in the chart below, its been THE resistance level on S&P for quite some time now. However, I would not like the bulls to take it down straight away, and in the process, get exhausted, and give it up back again. Some consolidation here would do their case no harm.

BTW, I did notice some talk on the blogosphere and twitter on the market being overbought. Ignore it! One 200 points up day certainly does not make the market overbought!

Take care and good luck!

Watchlist

Here are a few setups I like heading into tomorrow. It being earnings season, be sure to check when a company is reporting before taking any position in it.

UA - A nice close above resistance yesterday on good volume. Like the odds of this having a follow through day tomorrow.

LNCR -  Very bullish volume pattern. The close above 31 was important. Can it break out of the trading range today.

LBTYA - Broke out of a multi month consolidation pattern yesterday on impressive volume.

HUN - Has been a regular of the blog during the last couple of weeks. Setting up nicely for another run.

ANW - Took a position in this one yesterday. First target - 9.50.

COO - Like it over 75.

Here is the link to my views on the overall market.

Take care and good luck!

The ball is still in the bears' court

The markets bounced back smartly today but surely even the hardcore bears don't expect the bulls, who have performed so well for over a year now, to just roll over and die. In yesterday's post, I had pointed out the number of times the bears had lost wonderful opportunities to gain some momentum just this year. Well, time seems to be running out for the bears once again and the results that came out after hours today are just going to make it that much harder for them tomorrow. But make no mistake, the chart shown below is still bearish. The S&P is still below MA(50) and the ball is still in bears' court.

I still maintain that ending the day cash heavy is the right strategy here. While staying in cash is not the most sexy of calls, say like calling tops and bottoms, sometimes its just the right thing to do.

Take care and good luck!

The ball is in the bears' court

What a day! Undoubtedly, today belonged to the bears. But all is not lost for the bulls, as the market closed well off its lows for the day. That said, the ball is firmly in bears' court now. The bulls have proved themselves time and again over the last year, while the bears have struggled to get even a decent pullback going. As can be seen from the charts below, just this year, there have been some down moves of serious magnitude, but the bulls have managed to recover all the lost ground in the next 2-3 days most of the times. That's what makes the next 2-3 days important in my opinion.

Going through the watchlist I had posted yesterday, I am kinda surprised on how well most of the stocks held up. Was expecting the damage to be much worse on a day like today. But make no mistake, the above index charts have a bearish look to them. MA(50) is the next challenge in front of the bulls and it will give us a good idea of what sort of momentum bulls have left in them. So, how does one play markets like these? The answer is the same as what I have been saying last week. No matter whether you are long or short, end the day cash heavy. Not that I saw the S&P news coming, but this certainly saved me from serious losses today (had a 0.24% down day). Well, sometimes there is just no substitute for good luck!

Take care and good luck!

Watchlist for next week

My strategy for next week remains the same as what I had underlined on Friday. Here is the link to that post. Following are few setups that I like heading into next week. It being earnings season, be sure to first check when a stock is reporting before getting into it.

PDC - Could breakout after 15.

 
PKD - Watch out for break of 7.50. Like the bouncer off MA(20).

HOTT - Like it as a day trade over 6.60.

FL - Like the high volume breakout from the consolidation range on Friday as well as the close close to the highs.

DFS - A financial stock that is holding up rather well. Could be time for it to make a move as MA(20) catches up.

CHKP - Would like to see this one consolidate a bit on low volume next week.

 

 CEF - Watch out for 23.50.

OLN - A break of 25.50 and this could run big. A buy at new highs or on pullback.

COO - Consolidating nicely after the breakout. 75 is the key.

Take care and good luck!

Some thoughts and stocks

Sorry dear readers but I just haven't got time to blog much this week. Life has just been very busy the last couple of days, and add to that some computer problems, and the result is, well, not good. In the last post, I commented that the market was quickly approaching oversold levels. The markets did rally well from the intraday lows but overall signs are not too encouraging for the bulls. The markets did close below the MA(50) on SPX. Generally, if you are bullish, you don't want to see too much consolidation around the major moving averages. These support points should act as a springboard for strong price moves, not consolidation. Too much consolidation or sideways action here is just going to give the bears a chance to catch some breadth, regroup and then attack again. That said, this is not really a great point to initiate new shorts. What I do expect to see, is a short term bounce and chances are that this bounce will most likely get sold off. Selling into strength has been the story for the last couple of weeks.

One can still profit very well in these markets but one has to be very disciplined when it comes to managing risk. Be quick in taking profits and keep an eye on overall indices as well as your individual stocks. I am still ending each day with sizable cash position, so am quite comfortable with whichever direction the market decides to take. Of course, it is earnings season, so some huge surprises in either direction in leading stocks, and all the above analysis gets thrown out of the window. Fun, isn't it?!

During the last couple of days I have pointed out HUN, COO, BLTI and JBHT on twitter. All of these stocks have done well and most of them have broken out since. Hopefully, you readers were able to benefit from these calls. They all look good for some more upside, so I would recommend keeping them on your watchlist.

Take care and good luck!

Approaching oversold levels already

Without a doubt, today belonged to the bears but the move today was not surprising and if anything, long overdue. Hopefully the regular readers of this blog benefited from the repeated calls to be heavily in cash at the end of the day and did not suffer from too much losses today. The market closed just a tad below MA(50) today with no late day bounce forthcoming today. The S&P has been down four days in a row now, something that hasn't happened since November. The area from 1300-1315 is strong support for the bulls. If you are bullish, what you don't want to see is consolidation along the MA(50) level. Important moving averages should act as springboards not as a place of consolidation.

With today's market action, the NASDAQ and NYSE McClellan Oscillators are already approaching oversold levels. Oversold can very easily become very oversold but be careful initiating new shorts here.

Take care and good luck!

Strategy for earnings season

This is from a post I wrote last year detailing my strategy for earnings season. With earnings season upon us once again, I thought it might be useful to revisit this post.

Do keep in mind that it is the earnings season and the big guns start reporting today onwards with Intel reporting after hours. Any surprises and all the technicals get thrown out of the window. I know (and hope) that this is stating the obvious but please do see when a particular stock is reporting before getting into it. Also, do remember that what is important is not the news itself but the reaction to the news. It is very common to see a stock beat the street estimates easily and still fall down hard and similarly, a stock can easily rally on "bad" news.

I personally don't like holding any stock through its earnings. I feel that no matter how much one thinks one knows about a stock, holding a stock through its earnings is basically gambling. A bad reaction and one might not even get a chance to get out with a small loss. If you are great at studying the fundamentals of the company and the particular industry, you will be justified the argue the validity of this point here but again keep in mind, that a stock can fall down hard even on an earnings beat. If you are like me, you will just enjoy the action from the sidelines!

 

Take care and good luck!

Earnings Apr 12-Apr 15

With Alcoa having kicked off the earnings seasons today, here is a list of other important companies reporting during the course of this week.

Tuesday

Adtran ADTN

Wednesday

A-Power Energy APWR

JP Morgan Chase JPM

Thursday

Hasbro HAS

Checkpoint software CHKP

Fairchild Semi FCS

Progressive PGR

Google GOOG

Friday

Bank of America BAC

Charles Schwab SCHW

Infosys INFY

Knoll KNL

Mattel MAT

Take care and good luck!

The week ahead

Take a look at the S&P chart below. There are two reasons you can be short term bullish the below chart: (a) You are heavily invested to the long side, thus making it hard to think objectively (b) You have been seriously hurt going to the short side during this bull rally before. Otherwise, its easy to see that 1340 is presenting some serious resistance to the markets. The market has been in "Though shall not gap down" mode for the last few days, but hasn't managed to close near the highs of the day throughout the week. The MACD has already turned and there is good chance that the hypothesis of a rounded top that I had presented early this week might play out. But that's all it is. A chance. And that's the best you have got while playing the markets. Odds and probabilities.

My strategy for next week is pretty clear. Am not going to go aggressively long until 1345 is broken. At the same time, I have no plans of going short here. MA(50)-1300 is going to be a strong area of support for the bulls. Any pullback would probably be taken as a buying opportunity. Selling into gap ups every morning has worked for me very well in the recent days but it has also hurt me in stocks like CLNE, which continued going up. But no regrets there. When one buys a stock, one does not get in thinking of a gap up, so gaps up are basically a gift that should be made the most of. At least that's my thinking. 

Successful traders will tell you that they make the most of their profits for the year in a few days. Rest of the time, you concentrate on playing defense, taking what the market gives you and protecting your account. It looks like it is going to be a week where one plays defense but at the same time, look for the market to show its hand after over a week of consolidation.

Take care and good luck!

Watchlist

Here are a few stocks that I will be watching tomorrow. The S&P chart is beginning to look bearish with this overextended period of consolidation but the futures are up again as I right this. I am not comfortable holding large overnight long positions until we break 1345.

SD - Consolidating nicely for over a week now. A buy on low volume pullback or on new highs.

DVR - Nice rounded bottom. A buy on break of 7.50. Wouldn't mind to see it rest for a while and perhaps even form the cup and handle pattern.

ANV - Bullish volume pattern. Broke from a bull flag on Friday on decent volume. One to watch out for if gold continues with its recent run.

AUY - Would love to catch this one on a pullback.

BLTI - Consolidating after breaking out. Watch out for new highs.

MMR - A nice move on Friday but a weak close. A buy over 19.

Here is a post with advice for new traders.

Advice for new traders

1. Trading is hard, actually make that very hard. There is a reason why over 95% of short term traders fail.

2. Start trading only with money you can completely afford to lose, not money you need to pay next month's bills with.

3. There is no holy grail for trading. No system can guarantee 100% winning trades. Impossible.

4. The market does not care for your opinion. The market is always right.

5. Do not call tops or bottoms.

6. Don't think a stock is cheap only because it might have fallen 50% in last couple of months.

7. Don't get frustrated by losses. Losses are part and parcel of the game and cant be avoided. Embrace them. Learn from them.

8. Do not average down. That's the easiest way to blow up your trading account.

9. Each day is a whole new opportunity. Each trade is a whole new opportunity. Don't let the old trade influence the new one.

10. Take responsibility for your actions. You can find a million of factors to pass the blame on to in trading but you will never be successful until you start taking responsibility for your own actions.

11. Take care of the risk. The rewards will take care of themselves.

12. Amateurs enter a position thinking about the potential reward. Professionals enter a position calculating the potential risk.

13. Stop loss. Stop loss. Stop loss.

14. The above points might seem a bit harsh but I wanted to paint a true picture for you readers. But let me end my saying that trading is the most challenging and fulfilling endeavor in the world. It can also be the most frustrating and humbling experience. But the great thing is, it is in your hands what you wanna make of it.

You can follow me on twitter here for latest blog updates

Watchlist

With the markets in a "Thou shall not gap down phase", here are some stocks that I like for tomorrow. Also, here is a link to one of the most popular posts of this blog, How to trade gap ups, which I believe is quite relevant in these markets. I had followed up the above mentioned post by an example of how to trade gap ups. Hope these posts are useful to some of you readers out there!

HUN - The only stock I had posted on the blog yesterday. Broke up big on good volume. The close over previous highs means that its looking good for more.

MPEL - There were only two stocks I had posted about on twitter yesterday, one of them being MPEL. Liked it on a break of 8.50 then and still do.

COO - And here is the other stock that I had tweeted about. It was in 70.20s then and finally finished over 73.50. The key was the break of 70 on twice the average daily volume at that time. Hope some of you benefited from the call!

AVL - Day traded this yesterday and sold it, for what I then thought were decent profits, at 9.13.  Sigh! This could very well see 10 tomorrow. Like it more as a day trade stock rather than swing trade due to the volatility.

 

NCR - Like it here with a stop below 19.

SHZ - Love the volume pattern on this one. The close above MA(50) was crucial. Could see 6. Soon.

Take care and good luck!

Rounded top??

Take a look at the S&P chart below dear readers. Does anybody else see a rounded top being formed? I certainly do. It makes sense that a rally so strong will undergo a slow topping formation rather than an inverted V or sudden spike down. It's been five consecutive days of churning on the S&P, with the market not closing at or close to the highs on any of these days. A few days back, I had written that the gold bugs needed to come in soon for the short term bullish momentum to maintain and they responded emphatically the very next day. It might be time for the overall market bulls to do the same. No way I am turning bearish here but no market can go up forever, and this market seems to be entering a decisive stage now. For this rounded top pattern to break, we need to see a big move up.

 

 

 

With my strategy of ending each day with a sizable cash position, I couldn't care less about which way the market finally moves. I enter today with a position in HUN that showed up in my intraday scans yesterday.

Take care and good luck!

Chart of the Day

Today's Chart of the Day, HMY, belongs to the gold sector. Need I say more? 

 

 

Take care and good luck!

Gold at important levels

Just a quick post about gold, which I believe is at important levels and has an important day or two coming up, at least from a technical viewpoint. I like the higher lows being formed here but at the same time, there is a possibility of a triple top being set up. The pattern is quite similar, though less volatile, to that formed in Nov- Jan (marked in the chart below) and that did not end too well for the gold bulls. There is also a negative divergence being formed on RSI and MACD.  For gold to sustain the momentum of the last few months, it needs a big day up. And soon. 

Take care and good luck!

The art of position sizing

Position sizing, along with stop losses, forms the two pillars of risk management, the most  important skill needed in order to be a successful trader. I have already written about the art of setting stop loss points in the days of computer based algorithms designed to run over the usual stops. In fact, I have also already written a post on what makes position sizing so important, but this post is going to deal with how to decide what is the right position size for you.

A lot many trading books and blogs state that one should place 10% or 20% of one's capital in any single position and not more than that. According to me, all these percentage figures are useless as they assume a certain size of trading account. For example, some even recommend that a single position should never be more than 2% of the trading account. But if you have a small trading account like the one I started with, even a 20% position size would be so small that just the commissions would hurt your trading bottom line. (BTW, for those interested, here is the link to a series of posts I wrote about trading with small accounts). Hence, I am not going to give you any magic number or formula for what the perfect position size should be. But what I am going to tell you is a couple of points to consider for finding out what is the right position size for you.

Most of us when we start trading (I know I did!), choose a position size depending on the amount of reward we think we can get from that setup. If you think the potential reward is great, might as well go for a bigger position, right?? Wrong!! Absolutely wrong! Time goes by, one gets knocked down by the markets, and one realizes (hopefully!) that it is not the potential reward that should determine the position size, but the risk involved in the trade. Take care of the losses and the winners will take care of themselves. While amateurs take position sizes depending on the potential reward involved, professionals determine a position size depending on the potential risk involved. Each one has our own threshold of pain (read loss), that our trading account and we emotionally can stand. So, if I my stop loss is 1% away for a particular setup, I will consider taking twice the usual position size than say, if the stop loss was 2% away. Or if I like a position but want to give it more room to run (due to the set up or choppy overall market conditions),  I will take a smaller than usual position size. It all depends on the absolute value of the loss that you and your trading account can take.

Here is another very easy to implement suggestion while considering the position size. Never hold a position so large that it affects your peace of mind! Lighten up when you think you are going to spend a sleepless night worrying about a particular position until you reach a position size/ loss limit that you are comfortable with. No amount of profit is worth it if it affects your family life or life beyond the trading hours.

Take care and good luck!

Related posts:

The art of setting stop loss points in the days of computer based algorithms designed to run over the usual stops.

What makes position sizing so important?