Thesis for Fed Day

Everybody is gearing up for Fed day. There will likely be volatility and an overreaction to the decision. Even if the Street gets what it wants, a positive price move will likely be short lived. As Rob at Quantifiable Edges points out, positive reactons to the fed tend to fade over the following two weeks.

Technicals also do not lend themselves to a sustained upside move. The market is overbought (see stochastic levels) and price has made a strong "v" move right into resistance. The market needs a pullback before making a big move higher.

MOS Chart

Long time readers know one of my mantras is to keep on doing it until it ceases to work. Once I see a pattern emerge, I will continually go after it.

Let's take a look at the MOS chart to illustrate this point. Over the past 6 months, buying the stock when the stochastic indicator became oversold and hit a price pivot point, then selling once it reached overbought levels has netted some lofty gains. We're talking 10,20 or 30 point gain each time this has happened.

We have reached that point again. The stock is at oversold levels and price is nearing support levels.

Today's Breakout: MA

The street must have liked MA's earnings results. This is one of the few stocks that has defied my volume analysis. Stocks floating up on poor volume are usually setup for a fall, especially around earnings. Think POT for a good example of this. MA is now on my breakout-pullback watchlist.

Monday Breakouts

Here are two breakouts that interest me:

ISYS
I would like to buy this one on a pullback to the breakout point. Nice trending stock with good volume pattern.



ALRP
Similar to ISYS, the only major difference is the overall price trend has been more volatile.

Trade: ANR

I bought 300 shares of ANR at $50.05 based on the trend pullback setup. I had placed a buy stop this morning for the following reasons:

1. The stock has been in a sustained uptrend
2. On Friday it bounced at a major support level
3. Stochastics crossed over at near oversold levels
4. Strong OBV and volume pattern

My stop is at the recent pivot low, around $47.50. My initial targer is the recent high right around $55.

This Week's Focus List

Here are 12 stocks I'll have my eye on this week. Many of the bullish stocks seem to be bouncing at support. I am looking for weak bounces to enter short the bearish stocks.

Bearish Watchlist:










Bullish Watchlist:

Breakouts with Strong Volume Trends

Friday's nightly breakout scan listed just over 100 stocks. An easy way to trim the fat and find good setups to trade is to sort breakouts by obv ranking. This will find breakout stocks with strong volume patterns. Here are Friday's top 25:

35 Important Trading Tips

I have compiled a list of tips that turned me into an above average trader. Feel free to add to this list in the comments section.

1. Enter strong stocks when stochastics are oversold.

2. Make sure volume confirms entries.

3. Analyze the top and bottom 20 sectors every Sunday.

4. Keep a daily list of stock breakouts and breakdowns.

5. Do not let your watchlist get too big.

6. Weed out your watchlist on a weekly or monthly basis.

7. Keep it simple. Complexity leads to wasted time and subpar results.

8. Watch for OBV divergences.

8. Make sure uptrends are on strong volume.

9. Always journal why you entered a trade the same day you enter it.

10. Review completed trades monthly.

11. Pay attention to market sentiment.

12. Check S&P support and resistance levels daily.

13. Do not confuse breakouts of support or resistance with breakouts that are within a range.

14. Manage risk with stops and targets, and stick to the plan.

15. Master a basket of 5-10 different trading setups that will work in different markets.

16. Never chase a stock.

17. Ignore the pundits, news, media and dare I say it, some bloggers.

18. Stick with your own analysis, so long as you have well tested setups.

19. Create a "daily prep report" for each trading day.

20. Become a slave to price, volume and support and resistance levels.

21. Unless you daytrade, do not watch every tick.

22. Let your stops and targets work for you.

23. Do not "micro-manage" trades.

24. Understand your own trading psychology.

25. It gets a bad rap, but I believe in "paper trading" as a learning tool.

26. Read everything, but accept nothing.

27. Do not get discouraged by a few bad trades.

28. Manage risk by position sizing.

29. Only take your best trades

30. Learn when not to trade.

31. Never allow fear or greed to consume your trading.

32. Trust your setup.

33. One last time: PRICE, VOLUME, SUPPORT and RESISTANCE

34. Stocks do not go up or down in a straight line.

35. Study past market winners and losers

Recent Trades

Homepage

Trades: POT, DZZ and NFLX

As noted in comments, I made a few trades.

I covered 100 shares of POT at $194.36 (short entry at $208.77) for a $1441 gain (+6.8%). The stock was 4 points from my target, but today's drop was too good to sit back. I may enter again on a bounce.

I exited 400 shares of DZZ at $29.10 (entry at $26.60) for a $1000 gain (+9.3%). I have to admit, this trade is satisfying considering the criticism I received on entry. DZZ is a leveraged gold short.

I went short 300 shares of NFLX at $32.23. This is a classic earnings breakdown-pullback setup. My stop is above the long bearish candle formed two days ago

Potash Trade

Potash finally posted an extremely bearish day. Although I felt strongly that the stock was ripe for a fall, I have to admit I got a little nervous when the stock started creeping dangerously close to my stop in the $215 range (I went short at $208.77).

I highlighted a few important happenings on the chart below. First, take a look at the bearish candle formation formed over the past two days on heavy volume. This is a classic sign of a short term top (we won't know if it's a long term top until a support level breaks).

I expect to see the stock test support at $190. That is my target for this trade, although I may take partial profits earlier.

Now take a look at the volume pattern. What attracted me to this stock as a short setup (besides the extreme overbought condition) was the fact that the stock rose on low to average volume. That, coupled with the high volume down move, has to concern anybody long this stock.

Just the Charts Please

Have you ever admired an actor to the point of watching all of his movies, but then you hear them say something so stupid it made you never want to watch one of their movies again? This evening I encountered that same phenomenon in the blogging world:

If you are like me and live within your economic means, forcing you to buy and live in a house you can actually afford, you can sign your name as a sign of protest. In my opinion, it is absolutely ridiculous to have taxpayers' money given to people who bought homes that in so many cases they knew they could not afford. This will do nothing but reward the stupidity and greed that got us in this situation, but then again, that's what our government does best.

Today's Trade Entry: ACH

I bought 300 shares of ACH at an average price of $43.08. I usually don't make long entries on beaten down stocks or sectors, but China stocks are due for a bounce and today's strong breakout offers the type of volume catalyst that could be good for a few points. I like the fact that price, OBV and RSI made higher lows (stochastics did not), and we have some room until we hit major resistance.

Stocks to Watch

Here are a few stocks that I am monitoring.

breakouts: MICC, CPO,

breakdowns: DST, MDP, NFLX, BJS,

Bullish: DOX, JOYG, TSL, NKE, STLD, GTLS,

Bearish:CRS, MNST, USM, NVDA, UA, HMSY, MBT

Market Notes

I received a few e-mails today asking if today is an "orderly pullback" or the end of the "bear market rally" that I've mentioned. Well, it could be both. There is still room to move higher and still remain in bear market mode. However, in the short term, all today's move shows up as is a low volume pullback from the recent move higher.

If I were to play the indexes, I would not enter long right here. The markets are way oversold need more of a pullback to provide a good reward-to-risk setup. Take a look at the stochastics on the SPY chart. That's not where I like to enter.

I am focusing more on specific stock setups than playing the market. Since we are in earnings season, I will be playing the earnings-pullback setup for longs. See my recent CAT entry for a good example.

On the short side, I am looking for broken stocks that have bounced with the market, but remain weak. Be careful to identify stocks that are still short candidates versus stocks that have reversed and are now longs.

From Long to Short: NFLX

NFLX (Netflix) is a good example of a stock that can change from a long to a short setup on the turn of a dime. Apparently the street did not like the earnings call, as the stock gapped down and broke major support levels. I may short in a few days on a low volume pullback.

Trades: POT and CAT

I am short 100 shares of POT at $208.77. This trade is similar to the failed trade I made in HAL. Basically, I set a short-limit order to go short at $208 this morning. The idea is the stock is so extended that a strong open would likely pull back. Considering the market is also overbought, I will likely keep this trade open for a few days. With these types of speculative trades that go against the trend, I use a tight stop and small position size.



I am long 300 shares of CAT at $83.07. This is a classic breakout-pullback play. The stock could still pullback a little more, which is why I went with only 300 shares. I will likely buy 200 more if it pulls back to $81-82.

Market Prep Notes

Here are my notes for Monday, copied from my personal journal:

It looks like we are in the midst of a powerful bear market rally offering long opportunities. However, no evidence that the primary trend has changed.

Wait for a pullback for long entries. Markets are oversold with SPY showing high stoch. reading and t2108 at 72.

Chart: SID

SID looks like many of the charts in my longs watchlist. A bit extended but attractive on a low volume pullback to support.

Take a look at the stochastic reading. I don't like to enter on overbought conditions, and the has reached that level with the fast line above 80.

Trades: MTL, HAL, ANR, RRC, CSX

I exited 300 shares of CSX at $60.64 (entry at $56.10) for a $1362 gain (+8.1%).

I exited 100 shares of MTL at $154.40 (entry at $143.46) for a $1094 gain (+7.6%).

I exited 200 shares of HAL at $47.10 (entry at $44.83) for a $454 loss (-5.06%).

As noted in yesterday's update, I made a few entries on pullback:

I bought 300 shares of ANR at $49.74.

I bought 200 shares of RRC at $69.57.

I may exit these two positions today.

I hope to have analysis of all of these entries and exits posted over the weekend. Entries can be viewed via the "trade" label below.

4-20-08 update: Fixed some typos in this post. Expect chart later today.

Why Would I Be Interested in What I Can Already Do?

Over the years I have learned to appreciate those who do things counter to my own "way" or style. A few years ago I was visiting with an successful artist friend who draws heroes in a dark, gothic style (think Batman Begins versus the old campy Batman TV shows of the '60s). We went to an art gallery, and to my surprise the only thing he would look at were Japanese inspired pieces that were cartoonish (for those in the know--Manga).

I asked him why he wasn't looking at the dark stuff. His response:

Why would I be interested in what I can already do? If you want to grow, learn to appreciate other ways of life, styles, cultures and values.

I've learned to incorporate this type of thinking into my own mental framework. While I am an amalgam of chart, pattern and technical trader, you'll never see me put down a "fundamentalist" or value investor. In fact, these days I read more blogs on fundamentals than anything else. I appreciate what these guys do, even though I probably will never do it myself.

Bill Rempel, who authors The Rempel Report, recently made some comments after my gold post. He is a mechanical trader--a style I appreciate but could never practice. Still, I enjoyed the following post:

Rotational Portfolio Is Overweight Commodities

Focus List

The stocks in my focus list for the next few days all have broken out and I'm looking for pullbacks for entry.

RRC, SID, ANR, RDC, FDG, MTL, STLD, GTLS, KSU, NFLX, RSX.

Not much has changed in the short watchlist.

11:30 am (central) update--I have taken positions in a few of the focus list stocks. More details later today.

Today's Thoughts

Relax guys, HAL was only up 1 percent today. Considering what the market did, I'd say I still have a good chance of making some money on this short play. You can say "I told you so" if I exit with a loss. For those that missed it, here is my HAL short entry and analysis. My stop has not been hit yet.

I have not exited my gold short either, although I do admit I am a bit nervous. Again, I ask the bulls, where is the volume?

Lots of bulls out in full force today, but where is the money flow? Volume today was not the type you want to see for a trend reversal. Combine that with the fact that we are still trading within a range (1320-1400 on the S&P), and you've got a classic bear market rally. Fun to play for a quick trade, but don't let it fool you.

I do wish I had placed more money in steel and some of the independent oil stocks. I got out of GTLS a little early. Should have taken partial profits.

My plan for now is to ignore the indexes and just trade good setups from both sides, long and short. There are some great long plays on pullback, and some equally fine short setups that just got better with this rally.

Today's Trades: NFLX, FWLT, SSO, DUG, SKF

I exited 400 shares of NFLX at $37.44 (entry at $36.20) for a $496 gain (+3.4%). My target was higher but the stock seems to be trading within a range and earnings are coming up soon.

Yesterday I covered 400 shares of FWLT at $58.34 (entry at $62) for a $1464 gain (+6.0%).

I exited 100 shares of SKF at $111.40 (entry at 100.68) for a $1072 gain (+10.6%).

I exited 300 shares of SSO at $69.08 (entry at $62.23) for a $2055 gain (+11.1%).

I exited 300 shares of DUG at $32.75 (entry at $38.13) for a $1614 loss (-17%). Needless to say, I let this one get away from me by not adhering to my stop.

Today I went short 300 shares of FWLT at $61.25. Same setup as before.

Entries can be viewed by clicking on the "trade" label below.

How Can You Not Bet Against Gold?

I am hearing a lot of bullish chatter amongst bloggers and media about the near future for gold. This seems to always happen when a former leader (momo stock) breaks down and prints a dead cat bounce. I love it when this happens.

Let's ignore the talking heads and take a look at the chart. First, we see a head and shoulders top that is in the later stages of forming. Many traders like to wait for price to break the neckline, which is the line drawn on the chart below around $85. I don't take this conservative approach when a stock is clearly showing distribution--heavy volume on the initial breakdown. Once I see a weak volume bounce up towards resistance, I enter.

The neckline is my initial target, where I will likely take partial profits and move my stop to protect the profit. If the neckline breaks, the remaining shares will likely give me a huge gain. If I get stopped out, I will usually still make a nice 5-10 percent gain.

Back to the chart. Take a look at the squares drawn over the volume bars. It is clear that the volume pattern is bearish. Huge volume on the initial drop and overall heavier volume on down days signals distribution. The smaller rectangle highlights the volume on the recent bounce. The putrid volume tells me there's not much conviction right now and the ETF is not ready to reclaim its momo status (heavy volume on the bounce would tell me the bounce was just a deep pullback within trend).

Finally, the stochastic confirms the theory that the bounce has created an overbought condition within a down move that provides for a good entry.

Today i added to my bearish gold position, buying 400 shares of DZZ at $26.60. While I use GLD for my gold analysis, I like use DZZ to take a short position, since it provides extra leverage.

Main Page

Pioneer Trade: HAL

I usually do not short extended stocks unless I see a major divergence signal or at least one distrubution day. However, I decided to take a small short position in HAL today.

Technically, the stock still looks great and there are no major divergences. The 52 week high in price is confirmed by RSI, OBV and stochastics. So why am I making an exception to my "don't short strong momo stocks" rule?

The answer is the stock has gone too far without a pullback, is now extremely oversold, and significantly above the 50 day moving average. I recently researched momo stocks going back six years and found this is a good, quick short opportunity.

Looking at this stock over the past year, when it does make a run it lasts 8-10 points (see May, August and February). The stock has currently run up about 10 points. I see a pullback in its future.

Note that I don't go "all-in" with this setup. I use a small position size with tight risk management. For this trade, I went short 200 shares at $44.83. My stop is in the $46-47 range with a target of $40. This gives me a reward to risk ratio of 2:1.

Newsflashr

There's an interesting new blog aggregator called Newsflashr.com, from the founder of InstantBull.com. Here's a Boston Globe article about the site.

It uses Alexa rankings to sort out sites. I am ranked 43. I have never paid attention to Alexa rankings. Probably to my detriment, I've never done any of the things I am "supposed to do" in order to increase blog traffic and search engine rankings.

Anybody have any tips?

Focus List

Today's Focus List:

Long: TSL (bottoming), KSU (38), UCR (31), bke (44), DVN (105), ANR, KEX

Shorts: MON, BG, MR, SU, KGC, DRYS,

Today's Entry: CSX, DZZ and MTL

I bought 100 shares of MTL at $143.46. The strong broke out over $140 yesterday on strong volume. It's one of the strongest stocks in a strong sector showing loads of accumulation. I may be a bit early on entry (I usually don't enter at overbought stochastic levels), as the stock could pullback to $140. That's why I went with a small position size and may buy more at $140.



I bought 300 shares of CSX at $56.10. Another strong stock from a strong sector at the bottom of a high tight flag pattern.



I bought 500 shares of DZZ at $26.55. This ETF is 2X short gold. Gold has setup nicely as a broken momo that is retracing weekly to resistance levels.

What to do about steel and energy stocks

Those that have missed out on the steel and energy run are in a frustrating position. There is the fear of being left out as the stocks continue to run. However, there is also the fear of "chasing" an overbought stock that's ready for reversal. Which "fear" should you listen to?

I'm listening to the latter. As we all know, stocks don't go up in a straight line. Even the best of them pullback, and that's what a prudent trader will look for here.

Take a look at CLF and pay attention to the stochastic readings after the stock has made big runs. In every case, the stock pulled back to a better entry point. I am looking at the 130-135 range, as this is where the stock broke out and we see price support.

6 Bullish Focus List Stocks

Here are six bullish stocks that head my focus list for tomorrow. Note the strong volume pattern on each of the six momentum plays.

NFLX, V, ANR, FDG, ODFL and SWN

Today's Trade: FWLT

I am short 400 shares of FWLT at $62.

The setup: Broken momentum stock rising up to and stalling at resistance in a loose bear flag. Poor OBV and volume pattern, with stochastics showing an overbought sell signal.

I used a "sell short limit order" to place the trade. This type of order is great for part time traders who can't watch the open. The stock closed yesterday at $61.74. I had decided I would enter on strength, so I placed the short limit order at $62. If I had not done so, I would have entered a little after 9 AM (central time) at $61.43.

Private Chat Slots Available

I have some time over the next few evenings to do some private chats. I'm willing to tackle any subject. Thus far the chats have been very successful. The most popular topics have been watchlist development, stocks currently on my watchlist, specific setups and trading psychology.

I am available late evenings, after 10 pm central time.

The Details:

As more people discover my site, my e-mail traffic continues to grow at a blistering rate (which I enjoy). I receive many requests for personal mentoring and specific stock analysis. While I've tried to accommodate all of them, it's getting unmanageable.

My solution is to offer private educational chat sessions. This is going to take out from my personal time, so I am going to charge a small fee. You can ask me questions about my trading strategy, trades I have made, specific stock analysis, your portfolio, market outlook, my watchlist, trading psychology, time management or any other pertinent questions. I strive hard on this free site to provide excellent content, so you can be sure that I will go above the call of duty when a fee is involved.

Fee Breakdown: 30 minutes: $25
60 minutes: $40

You will need to download google talk, which takes less than 5 minutes to download and install. I will take payment via paypal. More details provided via email.

E-mail me at SinghJD1@aol.com to schedule a chat. Be sure to include your name, e-mail address, and times that work best for you. I plan to do 5-10 chats.

The Trade I Did Not Make

There is a lot to like about the breakout in GRA. The stock gapped up 3 points on huge volume over price resistance and had mounted the 200 day moving average a couple of days before. the 50 day moving average is moving up and looks ready to cross the 200 day. RSI and stochastics show significant strength. OBV is breaking out. Looks like the perfect breakout or breakout-pullback play.

What stopped me from making the trade is the fact that the stock did not close near the high of the long bar. That's quite early for profit taking on a breakout, so I decided to pass.

I have never tested breakouts that close near the low of the day, but still gap over resistance. This will likely be my next research project.

Quickie Trade Update

I used the bounce in gold today to go short using DZZ, which is a short leveraged gold ETF.

I exited GTLS for a nice gain.

Looking for a pullback in steel and industrial metals for another entry. Possibly GTLs again. Not gonna chase.

I'll update these trades more in depth later today.

Industry Strength

Here is a list of the top performing sectors of the past week. My favorite technical pattern is Steel.

Some Good Readin'

Here's some good stuff I have recently read"

The best and worst of the first quarter.

What to look for next week. Here's more.

Blue Blood and Mutiny book review.

Malcolm Gladwell on a topic I have studied extensively over the past two years, race and IQ.

More Gladwell on race and IQ.

Bill Maher on biofuels and socializing medicine.

The amazing Potash, a stock that continues to confound me.

Gang Leader For a Day - the best book I have read in a long time, and I read a lot of books.

Notihng to read here, but if you haven't seen it already, check out the trailer to the new Hulk movie. One word: Damn!

Time to Reload Shorts?

Some beaten sectors have retraced to levels that make for attractive short entries. High on my list is education services.














As for individual stocks, my watchlist includes CPLA, APOL, DV, EDU, LTRE and CECO.

The Daily Prep Log

I cut and paste notes from my personal daily prep log:

Bullish consolidation after big move. These types of moves have been a precursor to sell offs in recent past. This indicates a classic bear with strong rallies.

Consolidating gains on low volume-bullish. However, until S&P 500 breakout over resistance-1400, no change in longer term bear trend.

There may be some rotation into tech. Study recent gold breakdown and USO. Also homies strength. T2108 close to overbought. Look for more setups like NFLX for longs and fallen momo stocks for shorts. Watch for pullback in strong sectors like railroads and shipping.

Trading Portfolio Update

I exited 300 shares of DZZ at $28.90 (entry at $25.85) for a $915 gain (+11.8%). Hold time 5 days.

I exited 300 shares of NKE at $69.75 (entry at $65.90) for a $1155 gain (+5.8%). Hold time 5 days.

Both exits were the result of hitting targets. I setup a trailing stop on DZZ last night in case it kept going up--protecting my profit with a stop at $29. NKE had a sell limit order placed just under my target level.

I bought 400 shares of NFLX at $36.20. This is a breakout trend pullback setup.

I bought 100 shares of SKF at $100.68.

I am still holding GTLS and DUG, which is very close to my stop-loss.

One important new development. I have decided to ditch the "virtual" trading portfolio idea. I still am going to focus on educational aspects of trades, so hopefully I can appease both sets of my readers (those who want more of a focus on education and those who want to know what I am doing).

I am running short on time, but will detail the NFLX entry tomorrow.

NFLX Trade

I'll detail the NFLX trade later today. In the meantime, leave a comment if you know why I entered or have a contrary opinion about the stock.

The Short Watchlist

Yesterday I gave you the bullish stocks I am watching, and today you get the bears. At the moment I do not have a directional bias, although my gut tells me to be ready for a down move.

GLD KDC GG MOS TRA DE BG MON SU SUN STP DRYS TBSI CI BOOM INTU DECK DKS ALXN BLUD FCSX MTL FCL BHP LEH NOV DSX FWLT

I made some updates to the trading portfolio, which I will post later today.

Stocks on the Radar

Here are some bullish plays I am considering:

URBN GTLS RAILS SWN ANR SID STEEL EOG ODLF TRUCKING STOCKS OFG RBCN BZP TITN ZUES HOMIES, DVN TUP GILD NFLX

KSU is setting up quite nicely. Strong OBV and RSI readings indicate accumution, which is not a surprise since the entire raiload sector is under accumulation.