Today's Trades: TWM, CREE, AKS and DECK

I sold 400 shares of TWM at $83.64 (entry at $77.10) for a $2616 gain (+8.4%). I will likely enter again on a pullback or breakout of trading range.

I was stopped out of CREE at $31.90 (entry at $33.53) for a $489 loss (-4.8%). I still like the chart but did not want to increase risk by lowering the stop.

I went short 100 shares of DECK at $118.04

I bought 300 shares of AKS at an average price of $52.89. Steel stocks, while pulling back with the market today, seem to be holding up well. I'll take any chance I can get to play this stock. I am using a pretty tight stop, so risk is minimal.

Here is the DECK. The stock (which I think will be worthless 2 years from now) tanked last night and broke it's weak reaction trend (dead cat bounce after trend breaking down move). It made it all the way down to the $111 range. I used the relief bounce for short entry. If the 200 day moving average breaks, we'll see a big drop.

Friday Watchlist

Here are the stocks on my primary watchlist for Friday:

Shorts: STX, RICK, LVS, ESRX, MBT, AXLN, PSYS, DECK, BLKB, INTU, SPY

Longs: FLS, EOG, KWK, AXYS, CMED, XOP, PBR, XME, BRMN, APA, MEE

A Bullish Divergence in AAPL?

Frequent e-mailer and one of my most loyal readers, Hal B., asked about a bullish divergence setup in AAPL. I don't have annotation capabilities from my current locale, so bear with me as I explain the chart.

I do see a slight divergence that might be used for an extremely short term play. We measure the divergence by taking a look at the two february lows, both of which printed long tail candles. If you measure both RSI and Stochastic readings at those levels, you will see a "higher low" readings. This creates a bullish divergence.

While the divergence could be used for a short term play, the overall trend in both price and volume is still down. OBV stinks. Volume is not diverging with RSI and Stochastics. Today's nice up move was not on "bottoming" type volume.

Thus, until AAPL mounts a major resistance level and has an uptick in upside volume, I'll stay out of the divergence trade.

Today's Trade: PCLN

I bought 50 shares of PCLN at $121.30. I like the chart, but it was tough finding a good entry. We've got support at old resistance, which is $120. However, many strong breakouts pullback to the bottom of the breakout candle. If that were to happen, the stock could pullback to $110 and still be technically sound as a breakout-pullback.

I decided to take a small position size here, place my stop just under $110.



Side note:
I would love to get in on some more commodity related plays, but the sectors are so overbought it's tough to find an entry. I'm trying to be patient, but it's frustrating watching these stocks blow up without me. This is my first big miss of 2008. I'll have to revisit and see where I went wrong.

Today's Trade: TWM and CREE

As I noted in a previous post, I am using individual stocks for by bullish plays and inverse ETFs for most of my bearish plays.

Today I bought 400 shares of TWM at $77.10. The inverse ETF is at the bottom of its trading range which gives me a nice rewards to risk. My stop will be placed around $74.50. Note the positive OBV divergence.



I also bought 300 shares of CREE at $33.53. Strong trending stock that has been a buy on pullbacks.

Agriculture: Now What?

Well, it seems the whole world knows about the ag sector. For me, that means it's time to get the *blank* out. If you take a look at the chart of DBA, an agriculture ETF, it is hitting a level where it typically pulls back from. While there are more complex forms of analysis, just eyeball how far price is from the 20 day moving average. It's probably not a great time to buy if you are not already in. If you are, it's time to tighten stops. Today I sold half of my longer term position in this ETF.

Do not get me wrong, I am still bullish on the sector and this ETF. However, it is time for a breather, and we should be able to find a good entry in the coming weeks. If we get a low volume pullback to the $39-40 range, you can bet I will be back in.

Market and Trading Notes

The market is clearly in "no man's land", as we wait to see if the current market consolidation is going to resolve by printing a bottom or taking another leg down. While I remain bearish, until the market proves itself otherwise, I am seeing quite a few bullish setups. At least more than I had in January.

Therefore, I want to position myself both long and short. Here's how I am playing this market. I am using ultra short ETFs like SDS, QID, SKF and SRS as my bearish play, and going long individual stocks with bullish setups, like my recent WMS trade.

Analyzing Today's Trade: WMS

I bought 400 shares of WMS at $39.05, based on my breakout-pullback trading setup. The stock broke on strong volume earlier this month, while pulling back on diminishing volume. Today's confirmation candle at two tiered support (20 day moving average and price) provide the entry signal. Also note that OBV is in a strong uptrend and stochastics are oversold and turning up.

























Take a look at the chart and note the difference between the current breakout (green arrow) and the December failed breakout (blue arrow). What is the key difference between the two breakouts?

Accumulation. You here me talk about it all the time, and this chart provides a great example of how important it is to monitor accumulation patterns. The December breakout was destined to fail, as up volume barely moved as price climbed. OBV during this period stayed within a mediocre range, further questioning the breakout.

Now look at the current breakout. Not only is price breaking out, but OBV is as well. Volume is motoring higher, and today's confirmation move was on above average volume as well. This leads me to believe we will at least retest the recent high.

Can We Buy CNX's Pullback?

Ronald wants to know if I consider the 3.7% drop in CNX, a stock I highlighted earlier in the week, a buyable pullback.

While I would not buy just yet, the stock is still technically sound. Support has not broke and volume on today's decline was within the stocks normal range. OBV still looks good. Ideally I like to see pullbacks head to support slowly and with small price bars, so I won't buy until I see more evidence that backs the idea that today's decline is nothing to be concerned about.

Another concern for this stock is the negative RSI divergence. This is a sign that momentum is waning. I don't use divergences as a primary tool, but they do go into the overall analysis and let me know that I must exercise caution.

This analysis does not cause me to discard the stock from my watchlist. As long as support holds, it's still a bull candidate. However, it does effect my entry. I enter stocks in one of two ways on pullbacks. When I am supremely confident in a stock, I will enter during the pullback, before a confirmation move like a bullish engulfing or long tail candle at support. My other method, when there are more queston marks, is to wait for confirmation.

Bullish Chart Setup: DVN

Independent oil and gas stocks have been on fire since bottoming late January (that long tail provided a good entry point), and few have done better than DVN (Devon Energy Corp). I like the stock on a pullback to what looks like new support at $95. The stock exhibits a nice accumulation pattern and could make another move higher.

More Bullish Setups

Most of the bullish charts I have posted over the past week are doing quite well. Here are six more that provide interesting long setups: MEE, CNX, JOYG, JBHT, PRXL and CMED

Copper Stocks Breaking Out

Some of my best trades have come when I was wrong about a position and decided to go the other way with it. I am hoping today's trade ends up falling into this category.

I was short PCU as it had presented itself as a good short candidate. I was stopped out on today's breakout, and have now reversed my position, going long 50 shares.

Today's breakout over resistance makes it clear that this stock is now a long candidate. Besides the breakout, we also see recent accumulation and a positive RSI divergence. I am not sure if the stock has truly bottomed, so this is a short term long play. I may add to the position on a pullback to the breakout point.

6 Bullish Metal and Mining Stocks

Surveying the top sectors over the past week, I see a number of bullish charts in the metal and mining complex. The six charts that I will be watching next week are CLF, MTL, SID, ZEUS, CENX and JRCC.

Odds and Ins

Sorry guys, didn't have time to post yesterday and have not had the chance to update my trades. I hope to catch up this weekend.

A number of stocks on my bullish watchlist are pulling back, which is great. However, some of them has gapped down to their buypoints, which is not so great. I may take a few low risk pilot positions, but I won't do much more today.

Off Topic:
One of my new year resolutions is to research and ultimately trade currencies via the forex market. The main reason is I would like to put on short term day trades, but cannot in stocks since I work full-time during the day. The forex market is open 24 hours, which would allow me to carve out an hour or two on my off time to apply some short term strategies I have been working on.

I've done some research and will now start demo trading. If anybody knows of any good demo and trading platforms, please e-mail me. My e-mail is SinghJD1@aol.com

I am not sure who to believe in the Roger Clemens steroid saga. However, there is one thing I am sure of: Congress should not be involved. What a waste of time and money.

The NBA's Western Conference keeps getting stronger. I am going to stick with the defending champ Spurs as my top pick, but the Lakers sure look good with the addition of Gasol. I have no idea how the Shaq deal will effect Phoenix. Even if the trade works out, I still have not idea why Kerr did not pull the trigger on the KG deal this summer. I'd rather have Nash, Marion and KG than Nash, Amare and Shaq.

Lost keeps getting better.

Why don't more people watch Friday Night Lights? It's the second best show on television, after Lost.

5 Bullish Chart Setups

I rarely trade 100 percent long or short, even if trading within the confines of a wildly bullish or bearish market. While my market bias is bearish, there are still some bullish stocks to trade. Here are a few nice looking setups, though few are perfect.

BMRN
The stock broke out in December and has traded in a consolidation range ever since. It looks a bit extended here. I'd like to buy on a pullback to the 50 day moving average.



KWK
Price action has been good, but the volume pattern does concern me. The current price breakout has not moved on tremendous volume. Many independent oil and gas stocks are showing similar patterns.



MTL
Unlike KWK, MTL's volume pattern is confirming the price move. This one's at the top of my watchlist.



CF
I am not as bullish on the ag stocks as some. CF has one of the best charts among the grouping, but still has some concerns. Namely (surprise, surprise), the volume pattern is not confirming the up move. I'd like to see CF break out to new highs on very strong volume before entering.



WMS
Fantastic chart. Price breakout confirmed by accumulation pattern in volume. The stock is extended. I'd like to buy on pullback to support.

Shorts: DECK and PCU

I went short DECK (118.20) and PCU (100.64) today. Both small, 100 share position sizes. Both shot up on weak volume, along with the market, followed by a failure at major S/R levels. PCU closed under the 200 day moving average, which it had mounted earlier in the day.



DECK is speculative short in the sense that I did not wait for a break of the moving average. The technicals stink, but there still may be a bounce left in this fad stock before it ultimately crashes.



I had some technical difficulties with my mic, so the promised video will be delayed until I can get a new one.

Classic Bear Market Action

While I try to stay away from the chatter of market pundits, I do like to keep an eye on what a few select bloggers and "market gurus" that I respect have to say. What surprises me today is that I am hearing, even from those who I respect, that a bottom has been made. I disagree.

What I see are signs of a classic bear market, and today is a great example. We had wonderful news that Warren Buffet, our modern day Stanely Morgan, is coming to the rescue of at risk insurers. The market goes nuts. Everybody is buying. SPY trades up over $136. The Q's trade up to $44.68. The bear market is over . . . not.

We end the day with the Q's in negative terriroty and SPY making a modest gain way off the highs. My friends, this is what happens in a classic bear market. We may still get a bit more bounce, but I have a strong feeling we will come back down.

What would make me change my bear market thesis? If the S&P can breakout over the 50 day moving average (currently 1416) on strong volume, I'll change my tune.

Watch for My Next Video and a Coal Chart

I plan to post a video either tonight or tomorrow morning. It's been a while since my last video.

Coal stocks are taking a hit on a strong day for the overall market, which is a bit of a surprise. Still, there are some nice looking setups out there. FCL's chart looks bullish:

MA's Bullish Pullback

Mastercard, MA, has pulled back to the breakout point and shows a solid accumulation pattern post breakout. It is a bit concerning that the stock pulled back so quickly, but it did come on lower volume and is holding support.

Concerns aside, the stock does offer a well defined reward to risk setup. If entering at the current price ($205), a logical stop would be under the 50 day moving average with the target at the recent high of $220. That would give a 3:1 reward to risk ratio.

How I Made 5 Grand in One Week

As mentioned in the comments section yesterday, I unloaded a number of shorts and entered a few longs:

I covered 100 shares of FSLR (short at $187.33) at $164.67 for a $2266 (+12.1%).

I covered 200 shares of MON at $102.43 (short at $114.27) for a $2454 (+10.7%).

I covered 75 shares of GS at 188.06 (short at $202.55) for a $1086 gain (+7.7%).

I covered 400 shares of DNR at $27.01 (short at $26.01) for a $404 loss (-3.8%).

I exited 300 shares of PAAS at $34.62 (entry at $35.86) for a $372 loss (-3.6%).

I bought 300 shares of ANR at $34.05 (currently at $35.44).

I bought 400 shares of HOV at $9.32 (currently at 8.73).

I am still holding DUG (ETF short oil and gas), ANR (long), PRXL (long) and AGU (short).

February performance on completed trades:
3 wins
2 losses
win rate: 60%
average gain: $1935
average loss: $388
total gains: $5806
total losses: $-776

Total Profit: $5030.

Not a bad haul for 7 days of work. Now lets hope I don't lose it all in the coming week.

While I am not happy about the win rate, at least maximizing gains and minimizing losses. Over the weekend, I plan to analyze a few of the trades I made. This type of trade review will become a regular feature of the site. First up will be FSLR. Take a look at the chart and see if you can get behind my strategy



BTW, for those new to the site, all entries can be viewed by going to the trade label or just scrolling down and viewing my Febuary posts.

Is the Market Speculator Really Long a Homebuilder?

I've been very busy, so I haven't had a chance to update my trades. As stated in the comments section this morning, I unloaded a bunch of shorts and entered a few longs. I would like to add some more shorts on bounce.

My bias is still to the down side, but I don't want to give up the big gains I've already made. I am keeping a few shorts in case we go down more before we bounce.


A lot of you have e-mailed in shock over my long position in HOV (posted entry in comments section), a homebuilder. Todd S. asked a question is representative of most of the emails I received: WTF are you short a homie when you have been shorting the shit out of the sector over the past year?

Good question Todd. Fundamentally, and longer term, I still don't like the sector. I agree with most that credit and housing problems aren't going away any time soon. However, as a technician who lives and dies by trading accumulation and distribution patterns, I cannot ignore what is going on in the sector. Take a look at the HOV chart:



Key points:
1. Strong breakout over downtrend line and 50 day moving average.

2. Distribution pattern shows accumulation during run up, with strong volume on up days and low volume on pullback.

3. RSI divergence (see orange dotted line on price and RSI) shows strong relative momentum.

These three factors lead me to believe we have a short term reversal in play. I expect to see a retest of the recent high. Not sure if we'll get a breakout at the high, but retesting the high alone would give us a 30 percent gain.

Some have pointed out that I may have entered early. The 50 day moving average is at 7.63, so I do understand the criticism. Maybe I could have waited for more of a pullback. Normally I would. The reason I did not is that I am expecting a bit of a market bounce in the coming days. Lately homies have been leading the market bounces, so it makes sense to enter now. I have a decent risk to reward at 2:1.

Winners Trade to Win

As you already know, I am not a slave to conventional wisdom. It is my belief that most popular beliefs held by the masses are not wise at all. This applies to all walks of life, not just the stock market.

The latest bit of unwise conventional wisdom is the idea that one must "focus on not losing money in order to make money". Play it safe and protect your capital has been a popular mantra over the past month. What a load of crap.

You know what happens when you focus on not losing money? You lose it. Either that or you make meager gains (all hail consistency, as in consistently average!). It's akin to an athlete playing not to get injured. That is when you get hurt. The team that plays not to lose rarely wins.

In trading, playing not to lose will cause you to pass up on good trades and scare you out of trading volatile, yet lucrative markets. If you have put in the blood, sweat and tears that accompany hard work and dedication, know what you are doing, and have a sound methodology and edge, don't ever play not to lose.

Note that this doesn't mean you throw caution to the wind. On the contrary, a trader must be vigilant about managing risk, position size and ones emotions. These three factors, along with having an edge, allow one to play to win, rather than lose, and put on winning trades.

Today's Trade Entries: DUG and AGU

I bought 200 shares of DUG at $46.56. DUG is an ETF that is short oil and gas. Looking at the chart, we see major accumulation and a pullback to a major moving average and price support. Note that this is the opposite of what is happening in the oil service complex. What we are really seeing is major distribution and a weak bounce to resistance levels.



I went short 200 shares of AGU at $62.16. My analysis tells me that many of the agriculture, chemical and farming stocks look toppish right now. I am already short MON, and have added AGU as a short. We've got all the classic signails: topping price pattern, break of support and heavy volume distribution.

Note that shorting this sector is not for the faint of heart. Many still think the sector has legs, and will try to get in on dips. They will likely get burned, but we still could see some bounces. When shorting a momo sector as it looks to be topping, you must manage risk and set logical stop losses.

Classic Distrubtion Phase Price and Volume Action

As I expected, last week's bounce was prone to failure and it looks like we are going to test the late January lows. I am weighted to the short side, so you can bet I am giddy about price acton over the past two days.

As we move towards the lows, I will likely start to lighten up on my short positions. Volume patterns don't predict a breakdown, at least not yet. While price and breadth were horrid today, volume wasn't all that heavy. Until we see more distribution, I won't go with a "breakdown of January lows" thesis.



From a technical perspective, this chart is a good example of a classic "dead cat bounce." We had a significant decline followed by a bounce that reached resistance on volume that was lower than during the distrubution phase, finalized by a sharp move down that completely wiped out the bounce gains in less than half the amount time. This is classic distribtuion phase action.

If we get early long side relief tomorrow, I will probably initiate more shorts based on the "retest January lows" thesis.

Monday's Watchlist

Here are stocks that are front and center of my watchlist:

Shorts:
FCX, CPLA, JNPR, DRYS, DSX, NILE, CBI, MBT, FSLR, CHNR, CVD, ESRX, WFR, DBA, DNR, TOT, SU, E, CVX, ARD

Long
ACI, MA, MCRS, CALM, RTP, ILMN, WLT, MEE, SID, CNX, CMED, PBR

Most of the shorts are broken high momentum stocks that are bouncing towards resistance levels. The longs plays are stocks that have held up well during this market, some having recently broken out.

Quick Trade Entry Update: FSLR, MON, GS, DNR, PAAS, PRXL

I am using the bounce over the past two days to start a few more pilot short positions. I went short FSLR ($187.33), MON (114.27, GS (202.55) and DNR (26.01).

I am long PAAS (35.86) and PRXL (54.80).