All Entries in the "Chart Reviews" Category
Trading Against Key Levels
June 9, 2011 at 8:17 am
Pattern traders, technicians, and active traders in general love to watch for key levels. To some, it’s obvious to expect a reversal if that level is reached, while others expect a break.
Both sides have their case, and frankly, that’s what makes a market!
Today I wanted to point out an example of a stock I’ve been watching which has yet to do either. A key level – which has been tested multiple times not only in recent months but also in recent days – is the focal point right now, and one way or another I think there’s going to be a play. Here’s the setup:
DOW is clearly not in great shape here, as we’ve seen a steady slide from the May highs with every little bounce attempt getting sold. Plenty of distribution too as volume has spiked numerous times on recent selloffs. For the past 2+ weeks, the stock has lingered right near key support, looking like it could crack any day.
And yet it hasn’t.
The market overall has been very weak. The stock itself has yet to bounce, but it’s also ignoring a textbook breakdown opportunity here to really crack. And that has my attention.
At the start of this post, I mentioned how some traders are predisposed to watch for reversals and others watch for breakouts/breakdowns. I’m in the latter camp most of the time, and especially when the stock is consolidating against that level. DOW has been on my watch list for a breakdown in recent days, but I have yet to take an entry (since it hasn’t happened yet).
Currently, with the market oversold and this stock hanging tough like a NKOTB, I’m now open to a trade in the other direction (upside reversal). Isn’t that one of the huge advantages of trading the market? It’s like putting money on a horse when it’s running the back stretch, well after the race has started. The willingness to switch directions or modify (or reverse) an opinion is something flexible traders must have. This is one of those chances.
How I’ll approach this one is to use $35.50 (multi-day high) as a pivot for getting long, and $34.50 (breakdown) as a pivot for going short.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Timeline of a Short Squeeze
June 3, 2011 at 11:17 am
Active traders couldn’t help but notice the moves in VHC over the past couple of months.
Coming from relative obscurity in the 12’s, the stock caught fire from late-March into early-April, running to nearly $30 in just a few weeks. It then settled into a wide congestion zone as it did a good job of digesting that massive run.
We ended up with a very broad symmetrical triangle pattern, which also resembled a huge bull pennant when the preceding rally was included. Here’s a look at the run it made, along with the pattern I’m referring to:
Now, symmetrical triangles can break in either direction, but when found within the context of a trend, it never hurts to watch for an upside resolution. After all, these triangles are simply areas of indecision, and given the prevailing trend was up in this case, many were looking for that trend to continue once the period of indecision was resolved.
In mid-May, however, the stock began to falter as it undercut the lower trend line of the triangle. It appeared as though some further profit-taking was about to kick in, so the tide shifted. A hard breakdown was quickly embraced by short sellers aiming to profit from a move to lower levels. Volume picked up with the distribution, and multi-week lows were made. Here’s a look:
But as the stock began to bounce, the selling never resumed. Bulls sensed a failed pattern in the making, and they pressed the long side for another run. Bears, meanwhile, recognized they were trapped, and quickly began to cover their shorts. The resulting melt-up was quite impressive, as the stock tacked on more than 48% over the course of just 7 trading sessions. Here’s a look at that run:
As you can see, the day it peaked (June 2), it also reversed lower. Thanks to an exhaustion gap in an already very extended stock, we saw a last-gasp attempt at a push higher before the inevitable pullback kicked in, brought about by profit-taking.
Since then, the stock has corrected a bit further, and may have more room to rally in the days and weeks ahead – who knows. Rather than guess at what happens next out of this non-pattern, let’s consider some useful lessons from this short squeeze of the past couple of weeks and see what we can learn.
3 Takeaways:
- Obvious patterns don’t always play out as expected. The massive symmetrical triangle / bull flag setup had a ton of eyes on it, and had it broken out initially to the upside, it may have produced another ramp higher. Instead, it broke down first, catching many off guard – ultimately in both directions. Wait for your signal, and never underestimate the importance of keeping an open mind, and be ready to react to whatever comes along.
- When you determine you’re wrong, get out. That might sound elementary, but simply doing that could have avoided a lot of pain for those adding to their shorts as VHC reversed higher or simply not covering until the pain was too great. There is room in this game only for those who exhibit discipline, all others will fund the ventures of those with that trait.
- Always consider the other side of your trades. This is important on the front end, before you enter, but it’s equally important during your trade. Those caught leaning short in VHC needed to consider the opportunity the bulls were facing once the breakdown level was reclaimed ($23 broken on 5/16 and reclaimed on 5/26). Don’t take your eye off the ball, even after you’ve made contact with it. The home-run you think you’ve just hit might only be a single, and that’s alright. Weigh the alternative, and if you find yourself on the wrong side of the balance, call it a trade.
The next time you’re caught in a short squeeze or you see one developing, keep in mind how far they can go – it will either give you an opportunity to exit your short sale with less pain, or hop on board for a quick momentum ride.
What experiences or thoughts would you add to this?
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Pivot Points to Watch 5-25-2011
May 25, 2011 at 12:42 pm
Working the charts today, I’m seeing a ton of stocks sitting just beneath descending trend lines, all of which are potential pivots for bullish moves.
In the video below, I take 5 minutes to run through a couple dozen setups to keep an eye on, highlighting the setups and pivot levels to take note of.
Thanks for joining me for today’s video, until next time…
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Trade Review: BIDU Breakdown
May 18, 2011 at 11:56 am
One setup I recently had success with was found in BIDU. Although the money’s been made on this trade, there are still some lessons we can take away, so let’s take a closer look at the trade as it evolved and see what we can learn from it.
The entire Chinese internet stock group had been weakening of late, with names like SOHU, SINA, NTES, and others beginning to struggle. This followed months of leadership, as these stocks made big upside runs by building bases upon bases. The momentum shifted a few weeks ago, and in every case these stocks topped prior to the market’s pullback. (That’s why they call them leaders).
BIDU did the same thing, having peaked in late-April ahead of the major averages like the NASDAQ. Once the overall market began to pull in, these stocks accelerated to the downside, providing further evidence of an important change of character. Having become oversold, they rebounded, but in a lazy fashion. This set up quite a few bearish patterns, with the rising wedge being found in BIDU. I highlighted this pattern for premium readers on the main site, looking to short BIDU upon a break of the lower trend line at $139.50.
BIDU broke that rising trend line, a day after its counterparts NTES & SINA. That offered not only a clean entry for a short sale, but also a stock which had potential to play catch-up on the downside.
I set a pair of targets for booking profits at $132 (yellow line in chart below) and $127.50 (red line on chart below), respectively. Target 1 was reached on day 3 of the breakdown, which was just slightly ahead of the 2/14 high in case it were to be tested. Target 2 was reached on day 4, and that level corresponded with the lower end of the same mid-February congestion zone.
While this stock eventually overshot my $12 per share profit target, it became oversold. Anytime a stock moves too far, too fast, it’s time to watch for a snapback. BIDU has done that in the past 2 sessions, but remains technically damaged. Here’s a current look:
This stock and the others in the group are currently bouncing from their lows, but they remain in a bearish series of lower relative highs on their daily charts. That is to say this bounce may get sold into again, so although this short sale is long since over, we have no evidence yet to support a lasting trend change. Until we do, these are stocks to watch for new short-sided entries to emerge.
A few takeaways:
First, clean patterns are the place to focus. They make it simpler for me to recognize when to be IN a trade, and perhaps most importantly, when to be OUT of the trade. Tighter, more well-defined patterns help me be decisive, and in this game, that’s huge.
Second, stay on top of the sectors. While it’s a bit harder these days to play follow-the-leader when it comes to sector moves, it can still be done with success. Take note of which groups are shaping up for advances or declines, and work the charts for favorable candidates.
Third, when you get your move, ring the register. Greed could have kept me in this trade for a little bigger move, but it also could have kept me in too long, leaving me now to wonder what to do on the current bounce. Blend the info you get by looking left on the chart along with the pattern projection to come up with an exit strategy. Then stick to it!
Fourth, (and this goes hand-in-hand with the previous note), sharper moves are more prone to reversal. When your targets are in sight (or already hit) and the move is getting a bit stretched, expect the rubber band to snap back at least part way. Tighten your stops, book gains, and generally start expecting an imminent exit. Pigs truly do get slaughtered.
Here’s to your next trade, whether a winner or loser, and your commitment to take from it what you can – whether it be profits, a lesson, or both.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Are you following me on Twitter yet?
Archived Webinar
April 20, 2011 at 12:47 pm
Good news! Last night’s webinar in conjunction with Worden was recorded and is now available. If you missed out in real-time, there are still a TON of ideas worth taking note of.
The run time is under 1 hour, and I promise you’ll learn something on top of all the trade ideas presented. Here’s the link to the archived webinar.
Enjoy!
Trade Like A Bandit!
Jeff White
Producer of The Bandit Broadcast
Are you following me on Twitter yet?
Webinar: Tuesday, April 19
April 15, 2011 at 2:49 pm
I wanted to be sure to invite you to the webinar I’ll be presenting on Tuesday (April 19th) with the folks from Worden – there’s no charge and I hope you can join us!
Locating Trade Candidates with TheStockBandit
It’s scheduled to be a 45 minute webinar, the first 30 minutes of which I’ll be going through my watch lists, pointing out to you what I’m seeing in the charts for both the overall market and individual stocks.
There will be 15 minutes of Q&A time at the end where you might want to bring forth your favorite stock and we can take a look at those too.
It’s going to be a chance for me to convey what I’m seeing out there and hopefully not only teach you a few things, but also put many stocks on your radar which you may find of interest.
I’ll also be covering some of the latest developments in how stocks are moving, helping you avoid some of the “obvious” setups which are trapping traders frequently in today’s environment.
Oh, and the best part about it is that this event will be FREE, so be sure to register at this link for details (and access to the recorded version if you can’t attend live):
Locating Trade Candidates with TheStockBandit
Remember: this Tuesday night, 45 minutes of charting reading with you and me – I can’t wait!
Jeff White
Producer of The Bandit Broadcast
Are you following me on Twitter yet?
What Are the Leaders Doing?
April 13, 2011 at 11:15 am
The market has been resting for a couple of weeks now – and who could blame it? After a run of more than 7% off the March low, some kind of digestion was in order.
Initially, we just saw indecision as the indexes flip-flopped around key levels (NAZ 2802, S&P 500 1332, DJIA 12400, etc.). Since then, however, they have weakened a bit. That isn’t bad, and the pullback could quite easily result in a higher low on the daily charts (vs. the March lows which are well beneath current levels).
While the broad market grapples with where to go next, perhaps a more pressing issue is what are the leading stocks doing? Let’s take a closer look and see how they’ve fared of late, as well as some key levels to keep an eye on in the days ahead.
The best thing to do right now is allow the market digestion to continue and allow the chart patterns you’re watching to fully mature. Forcing entries out of boredom isn’t the secret, so maintain your discipline and let the market generate signals before you take action. If you choose to play at the wrong times, it’ll cost you. Once somebody else starts the move, then you can hop on board for a ride.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Are you following me on Twitter yet?
