Archive for October, 2007
Time For A Top?
October 16, 2007 at 6:09 am
So, is it time for a market top? Is this the start of the big one? Has the run ended and now the only place to go is straight back down?
Honestly, I don’t think so yet. I’m never one to make predictions, but let’s hash this out for a bit and see what kind of logic we can come up with.
First, the case for the bulls. They have the momentum, the charts and new highs. That might not sound like a ton, but in this game momentum is everything. With higher highs in place, uptrends intact, prices well above key moving averages, and buyers oozing with confidence, the bulls could hang around for a while before they feel compelled to really raise excessive cash. Although they might stumble a bit by way of profit-taking, some major changes are going to need to occur before they actually break a leg and fall, and I’ll be keying off the charts to make that determination.
Now, the case for the bears. I could simply say “China” here and that would be enough I know, but that’s not all there is to the story. Obviously, stocks with virtually any ties to the Far East (including their names alone) have made incredible runs, as have the solar stocks. In fact, speculation has run rampant in a great number of the smaller stocks, which in itself tends to raise some eyebrows from traders who know that they can’t provide leadership for a lasting run. We also have a bull market which just turned 5, so there are plenty who can argue that perhaps the advance is getting a bit long in the tooth. Furthermore, there’s the debt crisis, economic concerns, and a host of other fear factors which are pointed to regularly as potential causes for meltdown. At the end of the day though, these are simply arguments which I should note that the market is largely shrugging off.
The verdict? Of course the market always has the final say, and I will definitely defer to the price action when it comes to my trading decisions, but I’ve gotta go with the bulls based on the limited evidence we have of the selling we’ve seen in recent days. We’ve seen some distribution taking place, but so far no major technical damage has been done, and everyone can agree that even strong trends have bouts of profit-taking (just as downtrends have bounces) along the way. Will we go up forever? No, there will be bear markets in the future. I simply am not convinced that the past few days of selling is marking the beginning of a new bear market, as there’s no technical reason to call for an end of the trend.
Earnings season is just getting underway, and that could certainly have an impact on not only prices but market psychology as well, impacting the motives of both bulls and bears alike. Ultimately though, price has the final say and right now the long-term and intermediate-term trends are pointing up, in spite of some short-term profit-taking.
I believe prices simply got too extended in the short term and that some profit-taking is warranted. At TheStockBandit.com, we moved to cash last Wednesday and are letting this corrective price action play out without us while we wait for new bases to build. We’ll be looking to get active again before long, but for now the market weakness is causing us no pain.
Stay vigilant with your trading capital and don’t simply throw caution to the wind. Respect the pullback. Be wise in not only cutting losses quickly but also in booking profits along the way. If you’re playing the momentum game, be careful and keep one finger on the eject button. Let the charts guide your decisions, from entries to exits, and as long as you do that, you shouldn’t even be concerned which direction things go from here.
Trade well out there!
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]
Bulls Taking A Breather
October 14, 2007 at 5:08 pm
The bulls posted another gain last week, but overall they’re allowing the major averages to put in some needed rest. Last Thursday’s intraday reversal to the downside caught many traders offguard, but it’s action like that which will ultimately allow the charts of individual stocks to begin building new bases and not get too extended to the upside.
This week should be interesting as we wait to see how much more rest the market can get while the focus begins to shift slightly from such an economy-sensitive environment to the action in individual stocks. We have earnings season really starting to get underway, so be sure to keep an eye on the earnings calendar so that you can avoid any surprises in stocks you might hold.
Also, be sure to check out this week’s Market View page over at TheStockBandit.com before you start your trading week for a closer look at the indexes and some chart comments which were posted this evening. This info is provided every night for members at TheStockBandit.com along with individual stock plays, but the market commentary is posted on Sundays as a free resource for those of you who may be interested.
Trade well this week and stay patient out there!
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]
Sluggish Breakouts Can’t Be Trusted
October 9, 2007 at 7:16 am
I love to trade breakouts, and we’re seeing a lot of them in the current market environment. Many stocks have rallied back up near their summer highs, built new bases, and are starting to move higher once again. In general, there has been no shortage of breakout candidates in recent weeks, and if the bulls keep running then we’ll only see more in the coming weeks.
I’ve talked before about gauging the character of how a stock moves, and that certainly holds true on breakout plays. Ignoring things like weak volume on a breakout, late-day selling to come down from the highs, or simply the way a stock might clear resistance and yawn, are all ways to deny an underlying lack of strength which should really be monitored closely.
Let’s look at an example. Last week, I really liked the setup in SYNO. The stock had been in rally mode for a few weeks, and more recently had settled into a nice consolidation phase to digest the gains of the past few weeks. As the stock rested, it built a well-defined bullish pattern in the form of an ascending triangle. Volume had slowed during the rest phase, and I set up a trade to go long once resistance was cleared. My buy point was $23.25 as the upper horizontal trend line was cleared. Here’s a look at SYNO’s chart the day before entry:
(Click for full-size image, courtesy of TeleChart)
On Friday, I got my entry signal and went long. However, the stock wasn’t acting the way I would have expected it to as it got back on the move. The buying was sluggish and upside traction was short-lived. Although the stock closed higher on the session, it fell back into its base, finishing on a weak note to end up right back below the trend line.
Over the weekend, I raised my stop on the trade. This is quite common for me as a trade progresses, particularly when I’m facing a potential failed breakout like this was setting up to be. The best breakouts will trigger and rarely even look back, but that isn’t what this one did. On Monday, the stock gapped lower and never turned back up, so I was stopped out right after the opening bell. Here’s a look at SYNO’s failed breakout:
(Click for full-size image, courtesy of TeleChart)
While the failed trade cost me money, it certainly could have been worse. I could still be in the stock having to babysit a losing trade. I could have left my initial stop intact and taken a larger loss than necessary. I suppose I could have decided it’s now an “investment” and cling to hope that it will turn back up.
But I didn’t.
Sluggish breakouts can’t be trusted, it’s as simple as that. When you enter trades as stocks clear key levels, it’s difficult to know just how far a good move can carry. However, it isn’t too difficult to know when a stock is stinking up the joint and sending smoke signals that it lacks the gusto to keep going. Pay attention to those signals!
Keeping close tabs on the character of moves will let you hang onto more of your trading capital on those occasions when you’re wrong, which is the name of the game. Small losses are very manageable, but stubbornness isn’t. So the next time you notice a breakout play starting to falter, cut it quick and move on to the next setup.
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]
Per-Share Commission Pricing
October 4, 2007 at 7:21 am
Having founded a subscription-based trading website, I get the chance to interact with quite a few traders each day. Whether by email or through the community forum on the site, it’s always nice to visit with other traders about a variety of topics. Some of them have lots of experience and have been in the game much longer than me. Others are new and fresh and inquisitive. I enjoy dealing with each of them, but the newer traders often ask questions which I ought to cover here more often. One in particular deals with commissions.
Pardon the pun, but as an active trader, I do pay my share of commissions each year :-D. Some years I pay more than others, and it just boils down to how much of my trading volume that year comes from swing trading vs. day trading. When holding stocks for a few days at a time, or swing trading, obviously the share turnover is much lighter than when scalping for a few cents at a time with a day trading approach. Each style can be lucrative, but the higher your activity level is, the more it can benefit your broker if you aren’t careful.
The majority of part-time traders I run across are on a per-trade (or per-ticket) commission structure, which means they pay a flat rate whether they’re buying 100 or 2000 shares. This can get costly fast. Partial sales will add to the commission bill quickly. The smaller trader begins to see his precious capital erode faster if he’s very active at all, and unfortunately this can soon lead to him passing up good trades out of the simple fear of it costing too much to enter and exit the trade. That’s too bad, especially considering that trading is a numbers game.
Enter per-share pricing. Rather than a flat rate per order, you simply pay a flat rate per share, which means you pay for what you trade and nothing more. In dealing with many newer traders, not enough of them are aware of the per-share commission structures which many brokers offer. And although each broker is different, often times it’s as simple as requesting that your commission setup be changed to a per-share structure.
My broker offers per-share pricing, and I’ve had my commissions structured that way for several years now. Their standard per-trade rate is $9.99 per trade, but very active day traders can even negotiate lower rates based on high volume levels.
Commissions are truly a cost of doing business in the stock market, particularly if you want access to a sophisticated trading platform, but you can still reduce those costs if you go about it the right way. Regardless of which broker you trade through, find out if they offer a per-share pricing structure. Making the switch should save you a little money in the short term and a lot of money over the course of the year.
Trade well today!
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]
Trading With Indicators
October 2, 2007 at 6:32 am
I’m often asked why I don’t always apply stochastics or MACD or moving averages to my charts. To that question, there’s a simple and a complicated answer. The simple answer is that I prefer to focus on price and volume. My charts are cleaner and I can focus on the real buying and selling forces that are at work in a market without confusion or obscuring the most important indicator – price. The complicated answer requires a closer look at indicators.
Knowledge is Power
Indicators can be useful, but the trader must know when to apply them in order to get something useful from them. Applying the wrong indicator will only cause confusion, and trading is hard enough without adding more doubt to the picture! I have witnessed a number of traders frustrated with getting stopped out of trades when trying to buy moving average crossovers during a choppy, range-bound market. Taking trading signals from indicators must be done with the proper market conditions for which those indicators were created.
For example, a stock may be about to penetrate a key moving average, but if the stock isn’t trending then most likely you’re taking a false signal, as moving averages are rarely helpful in a non-trending environment. By definition, a moving average measures something on the move. Therefore, they are best used in a trending market. On the contrary, a stock with momentum may have an overbought reading according to oscillators, but oscillators are rarely helpful in a trending market, as they can stay overbought or oversold for long periods of time. Oscillators are subsequently best used for range-bound stocks and markets.
Selecting Your Settings
When in doubt, I will on occasion look at a trending stock and apply a moving average. However, a quick look through any trading magazine will show you that there are very few moving average periods with a wide following. For this reason, I place little weight in arbitrary numbers like 25 or 40 period moving averages which a great many number of traders supposedly follow. A stroll through any trading floor will show you the wide variety of time periods being sampled for moving averages, all of which produce different values. The 50-day and the 200-day moving averages are probably the most widely watched, but they trail price so far that most of the time a stock is some distance from either of these two moving averages, diminishing the usefulness of either for a short-term trade on most occasions. When I want to see a moving average, I prefer to apply a faster one of 10-20 days(2-4 weeks), which will often give me a better glimpse of where a stock may find recent support or resistance.
A range-bound stock will generally ignore moving averages though, which is the time to apply an oscillator such as stochastics. Oscillators help identify reversal opportunities, and are therefore better applied to stocks or markets which are stuck in trading ranges for a fade play. Anticipating reversals within trading ranges or channels is a trading style which can benefit from overbought or oversold levels as measured by oscillators, so consider these tools the next time you are contemplating an entry in such a trade.
Keep The Main Thing The Main Thing
At the end of the day, price is the most important element in any trade, and no indicator is the magic bullet that your trading has been lacking. Price is the sole indicator which is telling you right now whether you are right (profitable) or wrong (losing), and it doesn’t get any simpler than that. When you need a little extra help determining entries or exits, be sure to consider which indicator best fits the price action in question before you apply all that are available to a chart. Only then will you find value rather than confusion in the additional information that indicators can provide.
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]
