Game Plan and Free Trade Report

Here is my game plan for the rest of the week and free trade report. Watch for the key SPY support levels. A continuation of the down move would setup some nice "oversold bounce" trades.

http://docs.google.com/Doc?id=d5z8q8w_1296ffhsmdfn

September 2, 2009

Note: I will not have access to a computer Thursday and Friday while on vacation, so there will be no Reports or intra-day notes for those two days. The next report will be for the first trading day next week.

Market Notes:

Today's welcome continuation down move (for those of us net short) broke through last week's support zone and sets up a possible move to the next support zone at $98.

If looking to add short positions, look for a weak bounce to former support. If looking to get long, wait until the $98 support zone is reached. This would setup a nice oversold bounce trade, with stochastics reaching oversold conditions.

Trade Tracker:

I am still holding all of my short positions but LMT, though using profit taking strategies to lock in profits and still benefit from a possible down trend.

I took partial profits in AAPL and VPRT. I am still holding SNDA and POT, which are now partial positions after profit taking.

I exited LMT. It has not been cooperating. The fact that it has not participated in the market down move, even with a nice short setup is what got me to give up on the trade.

I was stopped out of my SSO and SPY long partial positions at my entry levels. Profits had been taken earlier at the top of the trading range (see past reports). I am happy with this SPY trade as it allowed me to make some profits while waiting for my short positions to work.

Game Plan:

Keep and eye on index and focus list stocks. Shorts can be added on a weak bounce. Longs can be added on weakness, when SPY reaches support.

If the market continues to drop, keep the "oversold bounce" and "rubber band" setup handy. Look for stochastics that reach below 10, price moving far from resistance and big drops to support.

Keep an eye on key support and resistance levels, along with stochastics. This should make for some easy, slam dunk trades.

Trading Strategy:

While I don't have my full setup, I will have my iphone and will monitor the index ETFs and core focus list stocks. This is a good strategy when away from your usual trading setup or on vacation. SSO and SDS will be the main trading vehicles, with focus list stocks as possibilities.

Monday Game Plan and Free Trade Report

To see the report with charts, click here

August 24, 2009

Market Notes:

In the law there is a term called "de novo", which means to consider a matter anew. It's commonly used when an appeals court reviews a lower court decision. The appeals court can review the case with a fresh pair of eyes.

I like to think of my weekend review of the markets as a "de novo" review. I throw out my previous analysis and biases, and start from scratch. Let's do that with the market.

On the short term chart, SPY has broke out over recent highs on decent volume. This looks to be a good breakout-pullback setup. While I entered on breakout Friday, I'd like to add more on a dip.

My previous bearish take has been invalidated, as the dip turned out to be a pullback rather than start of a deeper pullback. This is surprising, as last Monday and Tuesday were very bearish moves on strong volume. If we were stubborn here, we'd hold onto the past and say to ourselves, "the market has to go down". We cant play that game.

However, note that if the recent highs are pierced to the down side (especially on a close), that would invalidate the breakout and the "failed breakout" setup would emerge.




Now let's look at the longer term 1 year chart. We see a really nice looking bottom pattern that's take a year to form. We are now near a major resistance level, the gap down zone in the $105-110 range. This will be a good area to take some short positions.




Game Plan:

Buy the dips. Look to get short on a rally into the $105-110 zone.

Trade Tracker:

I entered SPY on the breakout. As I noted on Thursday, we were in a trading range and a break in either direction would clue is in on how to position ourselves. A good strategy when waiting for a level to break is to place a buy entry at that level. I had buy entires placed at the bottom of the range for a short trade and the top of the range for a long trade.

I entered 500 shares of SSO at $31.80 , and 200 shares of SPY at $102.

I was stopped out of my SDS position. I am still short LMT, AMZN, POT and VPRT. Note that while SPY is breaking out to recent highs, my short positions are not. They still could get taken up with the market, but this does tell me that these were good short positions.

Focus List:

The easy trade right now is to just focus on the indexes. You can gain volatility by trading the leveraged ETFs.

SSO, DDM

The only non-index trade I am looking to make tomorrow is LUV. It looks like it may be done pulling back after a strong uptrend. The moving averages are about to cross and the trade is easy to manage with a stop placed at the pivot low.




Shorts: Focus list stocks BCSI, AAP and SNDA

Disclaimer: All information and opinions expressed in this report are to be used for entertainment purposes only. The author of this report is not an investment adviser and does not give buy, sell or hold recommendations. Trading stocks is a risky undertaking, and due diligence is required before making a trade. Consult an investment professional before making a trade. The information in this report is not verified and may be incorrect. The author of this report may or may not hold a position in stocks mentioned in this report.

Quick Hit Game Plan

1. SPY has decent long entry here at support. Tight stop.

2. Short SPY and watchlist stocks on bounce.

3. Many watchlist short setups can be entered long as snapback trades if we get major weakness in the coming days.

4. Tech looks bad. Short Qs on stength.

Monday's Free Trade Report

Here is the report I sent to subscribers to start the trading week.

http://docs.google.com/View?id=d5z8q8w_1145dtxkzjcp

A lot more longs than shorts, which is a clue for the overall market.

Coal and Solar

I like the Coal and Solar sectors. I will probably enter one or two stocks from these sectors on a pullback.

Game Plan For Monday

Here is my detailed plan for Monday and the coming week, as sent to subscribers in today's Trade Report:

May 18, 2009

Market Notes:

The market has pulled back close to the entry point we've been watching (87-88).  The pullback is not ideal, as price has not pulled back in an orderly fashion.  Also, while volume is not significant enough to show distribution, the pullback was not on below average volume.  

These two consideration decrease the probability of a successful trade, and could point to a deeper pullback to the 50 day moving average.  However, the setup does offer a good reward to risk ratio.  An entry at $88.50, with a  stop at $87 and target at the old high around $92.50 gives us a 2.5 to 1 ratio.  This ratio makes the trade acceptable, even if the probability has decreased.

Another factor that concerns me about the long trade is that my focus list is starting to show more short setups.  I am still willing to trade SPY on the long side since the risk ratio is good.

Game Plan:

Get long SPY if it hits my target entry area.  Balance this trade with short setups from the focus list.

Sectors:

Here are the top performing sectors that also show good price patterns:  Dairy, Ag, Internet Service Providers, Drug Manufacturers. Beverages.

Banks, real estate and auto related fields lead to the downside.  

Trade Tracker:

I am still holding NTRS short and SDS. 

Focus List:

shorts: bke, rrgb, cpla, ntrs, brcm, gme, rl

BKE broke it's uptrend and now shows a distribution volume pattern.  Bearish flag is forming.  

RRGB is similar to BKE.  Broken uptrend with consolidation under new resistance.  

GME shows distribution and is pulling back up to moving average support.

BRCM is not as clean cut as the above chafrts, but does show negative distribution and the possible start of the second leg down.

RL shows more of the same.  A pullback to the 200 day moving average would be ideal.

Longs:  IBN, MTN, PPS, MRVL, ACL, MSTR, ERTS

Extreme oversold setup:  DHI.  It's not ready quite yet.  I'll detail this setup tomorrow.

Disclaimer:  All information and opinions expressed in this report are to be used for entertainment purposes only.  The author of this report is not an investment adviser and does not give buy, sell or hold recommendations.  Trading stocks is a risky undertaking, and due diligence is required before making a trade.  Consult an investment professional before making a trade.  The information in this report is not verified and may be incorrect.  The author of this report may or may not hold a position in stocks mentioned in this report.

Thinking Out Loud (both on and off topic)

1. The overall market looks good, but resistance is looming.

2. A few more points down and I will start letting go of my short positions (already got rid of RTP).

3. I will likely enter SPY around $87-88

4. Most stocks are pulling back with bullish undertones (low volume, orderly price movement).

5. Lots of good looking breakout stocks have emerged over the past few weeks.

6. I am extremely short term bearish (though this condition is being worked off), intermediate term bullish, but longer term we are still in a bear market.

7. Point 6 is a good example of how important time frames are to trading.

8. To actually call a bottom, I'd need to see more volume

9. However, the price pattern looks good for bottoms, especially if SPY mounts the 200 day moving average.

10. New leaders are emerging. Get those relative strength scans and filters going.

11. Lebron is the best since Jordan

12. Manny Pacquiao is the best since Ali. He will destroy Mayweather.

13. This Minnesota Vikings fan to Favre: Please go away.

14. Why do so many poker players go all in pre-flop with AK? Against any pocket pair you will lose money over time (55/45 with QQ or lower, dominated by KK and AA). And who is going all in against you with AQ or lower?

15. Smallville, yes Smallville, is the best show in television. If you are even slightly a comic or comic movie fan, get the DVDs and watch all 8 seasons.

16. What was the big deal about Wanda Sykes Limbaugh jokes? Rush has said far worse, and nobody says boo.

SPY Chart Analysis

I posted the SPY chart that I sent to subscribers last night without any annotations and a few blog readers weren't quite sure what the chart meant.

The key is the two line drawn and support and resistance. If SPY gets close to the top line (around $93-95), that sets up a great short entry. The market will go from overbought to extremely overbought, the moving average comes into play along with price resistance. Obviously this is the move I am hoping for.

If we don't get more bounce, but rather a pullback, long entries can be made near the support line.

At this moment, I am only managing positions. I dont' see good entries, especially long entries.

Spy Chart

I currently have only one positions (SPY at $84.03). The chart below show looming resistance levels, which correspond with my targets.

Monday's Game Plan

Here is the report I have sent to subscribers laying out my plan for Monday:

Market Notes:

Let's go over the state of the market on different time frames.  

The long term trend is bearish.  We are still in a bear market.  While I have not posted a long term chart, notice that the 200 day moving average (which comes into the chart in the top right corner and is red) is still sloped downward.  The slope of a moving average is an easy way to identify trend.

In the intermediate term, the market has reversed and is bullish.  There are three clues that identify this time frame as bullish.  First, the strength of the recent price trend.  During this trend volume has been positive, which signals strong accumulation.  Finally, the 50 day moving average is no longer sloped down and looks like it's about to turn upward.

On the short time frame, the market is slightly overbought.  The stochastic readings are 80 and 74, which signal overbought markets.  However, in strong uptrends I look for a stronger reading for shorts.

How do we use this information?

Since I do not trade on the long term time frame, I pretty much ignore this information (though I do use it for my longer term portfolio).  I am focused on the intermediate and short term trends.  With a bullish intermediate term trend, but an overbought short term trend, I wait to initiate shorts.  I look for a pullback to support and moving averages.  For shorts, I wait for extreme overbought readings to initiate shorts.

Bollinger Bands and Extremes:

I don't post bollinger bands on most charts because they tend to confuse many of my readers.  The reason for this is much of the published material on Bollinger Bands contend that touches of the bottom or top of the bands should be used for reversal trades.  I disagree with this.  Bollinger Bands are very complex and act different in different markets.  In a strong trend, a touch of the Bollinger Band can signal continuation of trend.  We only need to look at the band from February to March to see this.  

I use the band for "extreme" reversal trades.  In trending markets, I only use Bollinger Bands for reversal trades when the band is strongly pierced (rather than just touched).  My own backtests have shown a 15-20 percent increase in win rate when using this method (though trade frequency decreases, and identifying trend for this trade is subjective).

Right now, we are moving along the upper band but it has not been pierced   A strong move to the $90 range would not only likely pierce the bollinger band, it would also create an extreme stochastic reading and move right into strong resistance.  This would be an excellent shorting area.

The bollinger band can also be used as an entry for trend pullbacks.  The BB mid-point is the 20 day moving average, which many traders look to for support.  A pullback to the $82-83 range would provide a good entry level.

Game Plan:

Short strength, Long on pullback.

Trade Tracker:

I have no open trades.

Focus List:

Since we are not near any long entries, I am not putting any charts up tonight, though I am posting the entire focus list.  The only charts are for short entries.

Longs:  

Financials, residentials, industrials, metals (not including silver and gold), retail and select tech all show strong relative stength, price and accumulation patterns.  Stochastic readings are included in the list below.  I'll narrow the list as we get closer to entry points.  

Shorts:

Setup:  Triangle Breakdown-Pullback.  Enter on pullback to the top of the breakdown bar, which also corresponds with moving average resistance.

Disclaimer:  All information and opinions expressed in this report are to be used for entertainment purposes only.  The author of this report is not an investment adviser and does not give buy, sell or hold recommendations.  Trading stocks is a risky undertaking, and due diligence is required before making a trade.  Consult an investment professional before making a trade.  The information in this report is not verified and may be incorrect.  The author of this report may or may not hold a position in stocks mentioned in this report.

 

www.themarketspeculator.blogspot.com

Poker, Trading and Making Adjustments

In my Thursday report to members, I talk about the current market, making adjustments and poker:

Before we begin, let me compare what's going on now to poker. In Texas Hold'em, the best hand pre-flop is pocket Aces. Most players try to get as much money into the pot as they can when they are dealt this hand. While this is a great hand before the flop (the three community cards that are dealt to everybody), a flop that leaves open the possibility for a flush, straight or trips (hands that beat pocket aces) can spell disaster. Great players can lay down pocket aces or control the betting in order to limit risk. Amatuers can't adjust and end up losing their bankroll. The ability to adjust the game plan as more information presents itself is what seperates the men from the boys.

With the poker analogy in mind, let's analyze what's going on with the market. Originally I planned to start shorting as low as $87.50. At his level I expected stochastics to reach 90, which would give an extremely overbought reading. However, we've had enough consolidation to drop stochastics enough that the $87 price level will probably only give us a mild overbought reading. Thus, it's time to adjust.

I am raising my short entry level to $89-91. If stochastics are still not near 90, I'll raise the price entry to $93-95. These price level correspond with the resistance lines on the chart below.

I am not looking to enter at these levels. Basically, we are at a level that is too overbought to enter, yet not overbought enough to enter short.

10 Things I Think I Know

1.  I am waiting for a pullback to enter long

2.  A bottom may be in, but pay attention to volume for clues of a pattern failure

3.  Tech is showing relative strength vs the market.  Could be a clue for the next leaders.

4.  NFLX bottomed in December and is now trending.  I thought DVDs were dead?

5.  Lots of good looking bottom patterns.  

6.  Four words that have been the key to trading this market: support, resistance, overbought and oversold

7.  Financials, real estate and retail are showing signs of life and accumulation.

8.  The Vikings pulled a double whammy by passing on Jay Cutler.  

9.  Props to Michigan State for making it as for as they did.

10.  Why has nobody signing Tory Holt?

Monday's Game Plan and Market Notes

Here is my plan for the market this week. The member only "Trade Report" also included my focus list, consisting of the stocks I plan to trade if we get a pullback.

Market Notes:

As I noted last night, the cup and handle pattern emerging from a bottom formation looks good. While it may not be a true bottom, it at least gives an intermediate term clue. The market is nearing short term overbought, so I do not feel comfortable adding longs here. I am waiting for a dip.

If the market continues to inch higher towards near term resistance, I may enter a quick short trade in anticipation of a pullback. If the pullback does come, I would expect a move to support and then resumption of current trend (higher). Thus, my stop on any short trade would be tight, and target near support.

If we get a pullback before becoming extremely overbought (we are currently only slightly overbought), I'd like to start adding positions once SPY hits the 79-81 range.

If we get extremely overbought, I would add shorts in the 85-86 range, with a stop around $88.

How overbought is this market?

Take a look at the T2108 indicator (stocks above 40 day ma) and the answer is clear: we are nearing extreme overbought levels. A little more bounce would get is near 90, which is where I would look to short.

Breakout Stock: CTRN

During big down days, it pays to watch for stocks holding up well. CTRN, a recent breakout stocks, is doing just that.

On Probability, Trading and Current Market

What do I mean by high probability?  In trading, I define a high probability setup as one that gives me a significant edge over an average trade.  For instance, in my back tests, when stochastics hit 90 (extremely overbought) in a bear market, coupled with a few specific trading setups, the success rate of shorting is above 75 percent.  This is a very high probability setup.  Obviously, it doesn't occur often.  When it does, I usually get very aggressive with the trade.  

Adding volume and paying attention to accumulation and distribution patterns can add or subtract to the probability of a pattern setup.  For instance, in the bottoming price pattern, strong accumulation (positive volume pattern) underlying the price pattern increases the probability that the trade will be a winner.

Currently their are no high probability setups.  However, if the market pulls back to support, or ramps higher toward resistance levels and become extremely overbought, well see high probability setups emerge.

Another Bullish Signal

With so many stocks showing bullish patterns, I spent the better part of three hours today just trying to narrow down my focus list.  This is another sign that this market has legs.  If not a reversal, we should bounce towards another resistance level in the coming days or weeks.

Game Plan for Friday

Here is the game plan for Friday, taken from today's Trade Report:

(See this post for a free seven day trial and 30 minute private chat)

Market Notes:

 

The market drifted up today on decent (but not great) volume, and is nearing the $85 resistance level.  Stochastics are very overbought right now, which leads me to believe a pullback is in order.  From a trading standpoint, I hope there is a pullback.  Entry will be easier once overbought conditions are worked off a bit. 

 

I may consider a short trade if we bounce towards $85 on average volume.  This would be a quick "against the short term trend" trade with a tight stop probably around $87. 

 

 

Increasing the odds of a pullback soon is the fact that the T2108 indicator, which measures the number of stocks above the 40 day moving average, is reaching overbought territory at 75.  I like to see the indicator hit 80+, which should happen if we get another day or two of bounce.

Trade Tracker:

I am still holding SSO and FAS.  I thought about unloading half of my SSO position today, but decided against it since my target has not yet been hit.  I am concerned that FAS has not kept pace, but ill still honor my stop.

 

 

Game Plan:

 

I continue to wait for a pullback for entries.  I also may think about shorting if we get more bounce on average volume.  Any shorts will be quick trades.

 

Focus List:

I continue to wait for pullbacks in focus list stocks.  There were a few good breakouts today (solar stocks like FSLR were on fire), which I'll post over the weekend.  There's no need to post then since it will take a multi-day pullback for entry.

See focus list stocks in Monday report:  http://docs.google.com/Doc?docid=d5z8q8w_842c2357xhj&hl=en

All focus list stocks are over-extended.

If I decide to short strength for a quick trade, I'll use one of the following inverse ETFs: SDS, QID, FAZ or SRS.

The Game Plan

Today's move was unexpected and has changed the character of the market and for the moment, it looks like the reversal is in. Take a look at my post right after the market close:

http://themarketspeculator.blogspot.com/2009/03/definate-change-in-market-character.html

It's not time to add shorts, even with the big move. However, I'd like to see a pullback before long entry. A pullback close to the 50 day moving average on SPY sets up a good long entry. Unfortunately this pullback might not happen. The reason is there are a lot of scared shorts right now, and they may continue to cover positions tomorrow.

A day or two of bounce will setup "oversold" extreme or rubber band setups in some inverse ETFs, like FAZ and SRS, possibly at 15 for FAZ ann 40 for SRS.

Look for pullbacks in the indexes and focus list stocks.

Remember, we are now in a short term uptrend, so we look to enter long pullbacks and short once we see extreme overbought conditions. This is the opposite of what we had been doing.

I was stopped out of the remainder of my short positions (inverse ETFs) at entry levels. This locked in my initial profits. I currently have no positions.

Definite Change in Market Character

Today marked a change in character for the market. SPY has now convincingly mounted the 50 day moving average, the volume pattern shows accumulation, RSI is steady above 50 and the price bar is of the "breakout" variety.

I'll be looking for a pullback to initiate longs.

Game Plan: Play the Pullback, Then Buy

My current game plan is to play the expected pullback (based on overbought conditions, volume, price candles and resistance levels) with inverse ETFs (currently in SRS and SDS). Once stocks on my bullish focus list pull back to support levels, I'll reverse and start buying.