All Entries in the "Chart Reviews" Category
Are Sellers Looking for a Catalyst?
September 21, 2010 at 8:44 am
Anytime we see market streaks emerge, we know someone’s been caught on the wrong side.
Monday’s session marked the 12th advance in the previous 13 trading sessions for the NAZ, including nine straight. Breakouts happened across the board, with the summer highs being cleared on solid volume. It almost feels like stocks may never decline again – and that’s a dangerous way to think.
The market will humble traders of all kinds, including bulls who become overconfident. It may not be a life-altering lesson, but in a tape like this, it could be one slip that brings a sudden pullback – even if it’s a brief one.
The technical picture is positive, there’s no doubt about it. We just established higher lows in August relative to July, and we just made higher highs. That’s a shift of trend, not only in the short term of the past couple weeks, but in the intermediate term of the past few months. The bulls are sitting pretty.
Things start to get really tricky though when momentum begins to run a little too hot, which is where we are right now. All news has been good news of late, and the buyers have dumped cash into this market relentlessly since the start of September. It’s been an impressive run, no matter how you slice it.
For a reality check, however, it’s safe to say that all the easy money has been made for this run. The pace is unsustainable, plain and simple. We could push higher from here, there’s no rule to prevent that from happening, but it’s far more likely that we’ll see some profit-taking kick in sooner rather than later. Those who are sitting on profits will be quick to lock them in at the first sign of weakness.
When it comes to excuses, the market is excellent at finding them. Right now, my hunch is that the bulls are needing an excuse to satisfy their urge to lock in at least some of their gains. And with a few key events on the horizon, it’s important that you and I stay on our toes.
Today’s FOMC meeting may be the first possible excuse for some profit-taking. It may not even matter what the Fed does or says – what matters is how the market responds to the news. And if it isn’t today, then there’s plenty of economic news slated for this week which could prove to be a market-mover.
So, I’m on the watch for a possible pullback. If I were predicting, I’d already be short – and I’m not. Instead, I’m watching carefully to see if some selling kicks in, which would then set up a favorable risk/reward scenario for a little round of selling. Here’s my game plan:
The QQQQ has rallied big, not only in recent weeks, but on the intraday chart as well. We have steep uptrend lines on both the daily and intraday charts, and I’m watching them both for downside breaks. First, let’s take a look at the intraday chart. Monday’s advance was smooth, and a break of the rising trend line at $48.70 would likely spark some selling. I’ll go short there with a stop in the $49 area, just above yesterday’s high.
On the daily chart, there’s also a steep rising trend line. A break of that wouldn’t necessarily mean price goes straight down, but it may be a worthwhile short for the nimble to catch the first move. The rising trend line currently stands around $48.30, and a break of that level could bring into play a multi-day pullback. Traders watching the daily chart should keep that level front and center today, and it will climb daily should this market happen to continue advancing. Once it’s broken though, the move could be a swift one to the downside for a quick trade.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Watch JKS for a Lower High
September 16, 2010 at 7:17 am
The run in solar stocks has been an impressive one, although some have gone too far.
One name in particular, JKS, has become rather extended in the near term and is starting to show some telltale signs of fatigue and exhaustion.
Having run from the single digits in July to over $30 last week, this one has plenty of room to correct. The parabolic uptrend may have ended with the combination last Wednesday of new all-time highs and a reversal to finish negative on the day with heavy volume. We then saw downside follow through Thursday and Friday, with the stock dropping a quick 23% off its high.
Since then, it’s been able to rebound slightly, but there are a few issues with how it has happened.
First, price has only recovered a portion of what was given back. Those who bought near the peak are still under water, and therefore could rapidly become sellers if this bounce fails to continue.
Second, the upside volume of the past 3 sessions is still only about half of the heavy downside volume which accompanied the Wed-Fri pullback last week. That’s a negative price-volume divergence, and with this stock possibly topping, it’s definitely worth noting.
Finally, although the stock has recorded advances in the past couple of sessions, the finishes have been weak. Looking closely at the daily chart, the closing level on both Tuesday and Wednesday was well off the session high, indicating a lack of vigor on this bounce.
The Plan
With JKS in danger of creating a lower high on the daily chart, I’m watching the rising trend line like a hawk. This one has ample room to come in, should some selling arrive, and therefore it belongs on the radar for the next day or two in case the reasons for caution listed above causes another round of selling to materialize.
I’m looking to short sell this one if it undercuts the rising trend line, which currently stands near $26.90 and climbs daily. A break of that level could invite additional selling to enter the picture, and we could see the air get let out of this one rather quickly if last week’s slide is any indication.
Here’s a closer look at the JKS chart for you:
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Are you following me on Twitter yet?
A Good Time to Lighten Up
September 13, 2010 at 11:32 am
As I watch the action today, there’s reason to be impressed. Heading into today’s session, the market had posted gains in 6 of the past 7 sessions, and had moved right up to (or through in some cases) key resistance zones.
That would have been a very logical spot for some profit-taking, or at least some rest to kick in, but so far today all we have is more strength as the market tries to make it 7-of-8. Each of the major averages have pushed through their respective resistance levels. The NAZ has filled its gap to 2277 from 8/11 and the August high isn’t much of a stretch from here. The S&P 500 has motored well beyond 1107 and is just a few points from big resistance near 1130. The DJIA is through 10,480 and only a short distance from former resistance and the broken uptrend line at 10,600. And the RUT is now well past former broken support at 639. Needless to say, the longer-term technical picture is looking far better than it was just a couple of weeks ago.
Look to the Left
But that doesn’t mean the bulls are in the clear. Not in the intermediate term, at least until the August highs are cleared. And not in the short term, given that this move is becoming extended.
Momentum in the market is a funny thing, because it can be completely absent and then suddenly dominate the tape. The buyers have momentum right now, and I’m not in a hurry to fade that. But at the same time, I’m also in no hurry to chase it. In the past several months, we’ve seen plenty of moves of similar magnitude to that which has occurred since August 31st, and a number of them have delivered at least short-term reversals. Piling on in expectation of immediate continuation has not been a strategy that has paid well.
As a technical trader, I let the charts guide me. I watch for patterns and trends, yes, but I also must monitor the overall behavior of the market – the habits of the price action, if you will. At some point, continuation beyond multi-day moves will become more commonplace, but if recent history is any gauge – and particularly with major levels looming just overhead – my inclination here is to be more cautious than aggressive.
A Little Caution Goes A Long Way
For those who are bulls, I think better prices will arrive for getting long. For those who are bears, there is no proof yet that this bounce is over. And all of that leaves me feeling that doing less here is best – at least until some rest is seen.
If you’re seeing some good trading opportunities out there for the shortest of timeframes, there’s probably no harm in taking them. But for a multi-day timeframe, I am not a buyer in these conditions and would much prefer to see a pullback or some rest before considering longer-lasting trades on the long side.
Here’s a look at the NAZ, which has moved more than 8% off support in just 8 sessions – is that really sustainable?
Be careful out there.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Are you following me on Twitter yet?
Why I’m Buying Financial Sector ETF’s
September 1, 2010 at 9:13 am
Financial stocks have been hideous. Banks, brokers, you name it and it’s been taking it on the chin lately. Shorts are getting cocky.
What’s so interesting though is that, like the market, many of these stocks have a shot at establishing a higher low on their daily charts relative to the July low – if this pullback finds buyers.
I should clarify, I was once told that “IF” is a really big word for only 2 letters. That’s true, but let’s look at the financial sector ETF’s, starting with XLF.
By the way, the points stated below also apply to FAS and UYG, which I’ll review as well.
As a technician, I realize perfection isn’t to be expected when looking at a chart. Algorithms and savvy traders alike recognize that the head fake breakout or breakdown can be a fabulous way to establish reversal positions. And this is one such candidate.
With the July 1st low of $13.34 getting broken by a nickel just last week, XLF has stabilized (for now anyway). I like that for a few reasons…
- First, it shook out some traders on that ‘breakdown’ through support.
- Second, it’s frustrating those who got short on the break, providing no follow through yet.
- Third, there’s a downtrend line just overhead which was established throughout August, which if crossed, would provide another technical reason for buyers to enter (or re-enter) the picture.
That leaves 3 potential trader types as would-be buyers if an advance begins…
- Shorts would need to cover.
- Shaken-out longs would want to re-enter.
- New longs would want to establish positions.
So there is some appeal here, on both technical and psychological grounds. Well-defined pivots like this from key zones can produce explosive moves – particularly when multiple groups of traders may be poorly positioned.
The Plan
With XLF churning over 70 million shares on an average day, this thing is not a fast mover. Plus, it’s range-bound with the $15 zone offering formidable resistance over the past 3+ months.
I’m establishing a long position at current levels with an initial stop stop in the $13.20 area (1/2 position beneath last week’s low), and a final stop just beneath the $13 level. That would be favorably offset with a potential move back up to the $15 neighborhood where key resistance resides.
The aforementioned $13 zone offered a multi-month peak back in May of 2009, and there’s an unfilled breakaway gap from August 2009 which could get filled on a continued slide from here. So, I view that as an adequate loss-cut area for this trade.
If this thing is able to gather some traction, I’ll then lighten and tighten (peel off pieces on the way up and adjust my stop accordingly). I’m expecting to be in it for a few weeks if it works, so I’ll be patient along the way.
Here’s a closer look at the XLF chart for you:
Not to be forgotten are the leveraged ETF’s, which offer more bang for the buck. UYG is the Proshares Financial ETF, which is essentially the 2x levered version of XLF. Using the same rationale, I’m looking for UYG to return to the $58.50 resistance area while using a stop of $46 should support happen to get broken solidly.
Here’s a closer look at the UYG chart for you:
Finally, the title of “most slippery” of the levered financial sector ETF’s goes to FAS, which is the Direxion Financial Bull, which is 3x the movement you’d expect to see in XLF. Like the other charts, I’m looking for FAS to return to resistance, which is in the $24 area. Should it happen to break down, a gap fill from August 2009 down to the $16.50 area would be my cue to exit.
Here’s a closer look at the FAS chart for you:
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Are you following me on Twitter yet?
How and When to Use Moving Averages
August 22, 2010 at 5:42 pm
Price action provides me with chart patterns to trade from, and usually, that’s enough. However, occasionally I’ll see a situation where adding a basic indicator can really help out.
Many traders rely heavily on indicators, and while it’s my style to keep my charts nearly bare, indicators can be helpful. I think where traders tend to get into trouble is when they rely solely on the indicators, rather than seeing how they confirm or deny the overall price action.
If you’re looking for a one-size-fits-all indicator to rely on in all market conditions, or which all stocks will respect, you’re going to be looking for a very long time! However, if you’re willing to learn when, why, and how to apply indicators to your charts, they can be an aid to your trading process.
In this post, I want to show you how and when I use moving averages when eyeing potential trades. It’s a very basic indicator, but when there’s a trend present, it can help you gauge momentum, as well as help you decide on entries and exits.
Let me suggest going full-screen with the ‘HD’ option for best quality in the video.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Are you following me on Twitter yet?
July 2010 Swing Trades – Video Review
August 17, 2010 at 12:57 pm
July started out with new correction lows, elevated fear, and charts which looked awful. It ended much better, with a solid rebound taking place throughout the month. That spelled opportunity, which was nice.
Over at the main site, we posted another good month of trading to build even more consistency as we took a stick-and-move approach. That involved both long and short-sided plays, most of which worked out quite well. We took just a couple of hits, both of which were kept to a minimum, and easily overshadowed by all the other profitable trades.
So in this post, I just wanted to give you a look at how each trade unfolded and walk you through not only the entries and exits, but also the rationale behind each play.
Let me suggest going full-screen with the ‘HD’ option for best quality in the video.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Are you following me on Twitter yet?
Ashland Still Has Room
August 5, 2010 at 6:52 am
We’ve seen persistent strength in this market since the July 1st low, and while the long side has been the one to trade on, it’s still important not to chase extended names.
Fortunately, looking through hundreds of charts each day can still yield several opportunities, particularly if you know what to watch for. Too many traders fail to recognize the value of rest for a stock, and if it hasn’t moved in several days they tend to forget about it. My take is that those rest phases can be the pause that refreshes, especially if there’s been some recent momentum present.
Today I’m bringing you one such stock. It’s been climbing very well since turning the corner several weeks ago, and has also done an excellent job of digesting advances with these rest phases. There’s still some room for this one in the short term, so it’s on my radar.
I’m watching ASH for a push through short-term resistance at $53.10 for a trade. One higher low has already been established, and the stock has been basing for the past 8 sessions after a solid advance. This one looks like it may make a push toward the downtrend line which has been in place since April, which also offers a logical spot to book gains (if reached) in the $55.50 area.
Here’s a closer look for you:
Trade Like a Bandit!
Jeff White
Swing Trading & Day Trading Service
www.TheStockBandit.com
Are you following me on Twitter yet?
