All Entries in the "Chart Reviews" Category
Parabolic Blowoff Top
May 15, 2007 at 7:20 am
It’s been 7 years since we saw a lot of these chart patterns emerge, but even today there are stocks which get in uptrends at steeper and steeper angles until, POP, the party ends. These moves don’t happen frequently, but when they do there are some big opportunities for pain and gain in both directions.
TNH has been trending higher for many months now, and recently this one went parabolic. As the stock continued to advance, bases were built and breakouts were produced time and time again. Without a sufficient resting phase for the stock, the pace of the climb continued to accelerate until the stock was moving up at a near-vertical rate. Once the ascent reached a climax, the path of least resistance became down.
There is a great deal of psychology at work in a move like this, and it impacts those on both sides of the trade. Buyers see gains stack up at a dizzying pace, and more momentum players quickly join the chase. This produces some stellar gains in a very brief amount of time, which feeds the rush. Those who want to fade the move and short sell into the strength quickly get squeezed, watching their losses mount rapidly as panic sets in. The shorts begin to cover, adding fuel to the fire as the stock reaches stratospheric levels. And once everyone has finally made their buys, the music stops and there’s not enough chairs. There’s nobody left to provide demand for the stock, so everyone rushes for the exits at once, producing a spectacular reversal with record volume.
TNH is a perfect example of what a blowoff top looks like after a parabolic run. This one image shows both fear and greed, and it says “stay away” for the next little while as this stock tries to get its bearings.
(Click on chart for full-size image)
Staying greedy in a big trade or trying to fade a powerful move too early can be costly, so keep your wits about you when you see explosive moves like this. If you don’t, you’ll be padding someone else’s trading account!
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Investing, Trading Psychology, Swing Trading[/tags]
Dip-Buyer Domination
April 20, 2007 at 10:36 am
The DJIA is going for its 15th up day in the last 16 sessions. That’s only 1 losing day in the last 3+ weeks! Have we seen pullbacks? Sure, but they’ve remained very shallow thanks to one phenomenon:
Dip-Buyer Domination.
There seems to have been an amazing amount of cash sitting on the sidelines just itching for virtually any downtick to put it to work in recent weeks. This has kept the market climbing steadily, while simultaneously preventing pullbacks from showing any follow through. As a result, the dip-buyers just have a ton of confidence and they will continue to do their thing until it stops working.
This morning, however, we have a sizeable upside gap which has potential to change things (at least temporarily). After a huge run recently, the market is now up far enough to finally entice some profit-taking. Those who have been buying every dip now have a possible exhaustion gap which is tempting the bulls to line their wallets and book recent gains, and who could blame them?
Technically, this is a good thing. Markets don’t move in straight lines for very long, few would argue that. But the indexes are now up far enough from their uptrend lines to allow them some room to retrace without disturbing the uptrend. That means a breather could set in without panic, and that would be very healthy for this market whether you’re a bull or a bear.
Here’s a look at the DJIA as an example:
(Click for full size.) Chart Courtesy of TeleChart.
Although the odds of a rest have improved after this morning’s gap, don’t be in a big hurry to short sell, because the dip-buyers aren’t likely to run away quickly.
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]
Day Trading: When to Take Profit
April 19, 2007 at 8:00 am
Day trading candidates are often listed in the Bandit Broadcast stock newsletter for the more active traders at TheStockBandit.com, offering some additional opportunities to grab some gains on an intraday basis. With earnings season underway, we’re still swing trading some, but right now is a good time to shorten timeframes a bit until the scheduled news passes.
While most day traders pay close attention to the price action, one of the most important indicators for short-term momentum can be found in the volume levels, particularly in relative volume. I keep a close eye on relative volume via Trade-Ideas Pro, a real-time scanner. Relative volume is the comparison between current volume levels in a stock and what the volume levels typically are for the same time of day. So for example, if XYZ is hitting highs on 2x relative volume, it is seeing twice the volume today as it typically sees for this exact time of day.
On Monday night, GROW was provided for our members as a day trade candidate in the Bandit Broadcast with a $31.50 buy point. The stock had pulled back slightly on the daily chart, but the pattern wasn’t quite clean enough to warrant a swing entry. There was a small descending trend line just overhead which was acting as resistance, and a push up through that level ($31.50) was likely to generate a quick pop to the upside. Here’s the original chart that was shown with the trade:
(Click for full size.) Chart Courtesy of TeleChart.
On Tuesday, GROW cleared the $31.50 buy point not long after the market opened, and quickly shot higher as momentum players jumped into the stock. However, the relative volume was only running right at 1 in my Trade-Ideas filter, which meant it was merely average volume. With the stock up $1.20 past my buy point (a 3.8% move) in less than 45 minutes, I decided it was time to ring the register. I posted my exit on the Bandit Bulletin trading blog for members, and moved to the sidelines with a nice chunk of change. The comment I made at the time of my exit was that it was “too good of a move not to book when volume is only average.”
That proved to be true, and I was relieved to have pocketed the profits as the day progressed, with GROW slowly fading all the way back to the trend line area by the end of the day. Timing really is everything in trading. Here’s a look at the intraday chart which shows all of Tuesday’s trading, including the gradual slide back down after our exit:
(Click for full size.) Chart Courtesy of TeleChart.
Sometimes the simplest things can be the most beneficial to watch. Trade-Ideas offers some amazing tools for day traders, and yet I seem to find ample value in the Relative Volume feature (they have several new features in the works as well). So the next time you’re catching a nice move in a short-term trade, be sure the volume is strong enough to support it. If it isn’t, you’re probably looking at the perfect time to book that gain and move back to the sidelines.
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, Trade-Ideas[/tags]
Beware the Double Whammy!
April 11, 2007 at 8:24 am
Recovery plays are always higher-risk, and while a stock may be closer to $0 than it once was, it can still fall 100% from your entry level. However, there still seems to be some appeal to traders and investors in search of “a good deal.” Be sure you know what you’re getting into when that’s your aim, because as one stock just proved, cheap stocks often get cheaper!
As a trader, I pay very close attention to the recent history of a stock’s behavior. Sure, there are occasional surprises, but stocks which make steady moves tend to keep doing the same. And stocks which have a history of large price gaps are usually prone to more big gaps in the future.
Take ADLR for example. Back in September, the stock lost 52% overnight! Then it cratered again in November, losing 39% overnight. Ouch!
(Click for full size.) Chart Courtesy of TeleChart.But it gets worse….
On Tuesday of this week, the stock did virtually the same thing. After closing on Monday at 8.72, it shed 56% overnight.
(Click for full size.) Chart Courtesy of TeleChart.The lesson here is to avoid stocks with an ugly history! If you dare venture into a stock hoping for a recovery, consider taking a smaller sized position because these rebound plays are far more speculative and you’ll want a lot less of them in the event of a disaster.
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]
When To Use Line Charts
January 25, 2007 at 9:57 am
Most of us use bar charts or candlestick charts, but you don’t see a lot of line charts these days. The reason why is that a line chart is generally drawn using only the closing level of a stock, so it paints the end result and leaves out a lot of the “noise” along the way.
Line charts do have their place in trading, and I’ll give you a good example of a time when I use them. I look through a ton of charts every night, and you might too. What you find when you do that is that you’ll run across stocks which just give you the feeling that they’re about to move a certain way. Typically, I’ll draw trend lines and look for well-defined chart patterns to provide entry and exit levels for new trades. However, some charts just aren’t clean enough to do that effectively, so I’ll switch over from a bar chart to a line chart.
Let’s look at an example of this.
MVIS is in an uptrend, and one look at this bar chart does show higher lows along the way. The problem is, the past 15 bars or so are in sort of a messy area, making it hard to determine a precise entry and exit level without giving the stock too much room. (Click the chart below for full size)
So MVIS looks good for some upside, but we can’t find an exact entry. Switch over to a line chart format and it’s amazing how much cleaner the stock looks now. We have a nice base here with this descending channel pattern, giving us a well-defined entry level and exit level (above and below the channel, respectively). (Click the chart below for full size)
The next time you have that gut feel that a stock might be gearing up for a move but you can’t pick a good spot to structure your trade, try a line chart. You’ll find the levels will often be much cleaner, and you’ll trade more effectively because of it.
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
Slow Movers Can Be Steady
January 22, 2007 at 12:22 pm
Every stock moves differently than the next, and a big part of trading well includes matching your personality with the personalities of the stocks you trade.
After all, if you’re an impatient type-A person, you’re probably not trading MSFT because the thing moves so slowly. On the other hand, you may like the slow and steady type of stock because it fits your trading timeframe.
If the latter describes you and you’re a patient trader, check out IACI. It’s been in a steady uptrend for many months now, and it’s just now trying to break out of a bullish ascending triangle pattern. That should spell upside continuation for the stock if the pattern is confirmed. I see an earnings date set for 2/8/07, and I would be out of this trade by then as that could have a big impact on this stock one way or another. Here’s a look at the chart:
(Click for full size.) Chart Courtesy of TeleChart.Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
The Welcomed Return of Emotion
November 29, 2006 at 12:55 pm
Man, this market has been boring. Up a few points every day it seems! The bulls took control back in the summer and they haven’t relinquished it since. The 4-month gain has been impressive, but it’s occurred in a very dull fashion without intensity.
On longer timeframes, the climb has been incredibly steady, but new buys along the way have been harder to find if you like to buy pullbacks. After all, about the only “dips” we’ve seen these past few months have been a few days of rest before the next wave of buying begins. Finding new buys for the most part has been like jumping on board a moving train like the one pictured at the top of this page – not easy to do.
That’s why this week has been so refreshing to see. Take Monday for example. This market was due for a good shakeout, and it’s already improving the trading environment for us short-term traders. Whether it proves to be a one-day wonder or if it’s the start of a little larger correction remains to be seen, and as usual I’m making no predictions. It will either end up being just a dip within the uptrend, or it will be the start of a change of character for this market. Either one is fine by me, I’m just glad to see a return of volatility and more important, EMOTION!
This has already been my best trading week of the month, thanks to plays like VSE. I noticed this energy stock over the weekend as it recently broke a lengthy trend line and since then has been stair-stepping higher. It had formed a bullish ascending triangle which looked ripe for a pop, and I went long at $23.00. Here are two looks at this stock’s chart, first the original chart given to members at TheStockBandit.com on Sunday night, and then a look at it today as it reached our Final Profit Target for a 14.78% Gain:
(Click for full size.) VSE was poised for a pop as the rebuilding process was already underway. We went long at $23.00 on Monday.
(Click for full size.) VSE wasted no time as it blasted higher by 14.78% in just 3 days to reach our profit target. I love to “Take the Money & Run!”As you can see, there are some great setups out there for the taking, and I think the recent volatility will only serve to create more short-term trading opportunities for those of us who are day trading and swing trading.
I’m excited about the market conditions heading into the end of the year, regardless of which direction things move. Just the fact that some emotion has again entered the equation will no doubt mean more chances to exploit profitable opportunities.
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
