Portrait of a Short Squeeze
January 9, 2012 at 10:47 am
WTW was in a clear downtrend. The stock had failed in early-November to clear late-October resistance, and subsequently reversed lower. Each bounce was sold since then, with a series of lower highs and lower lows.
Last week, the stock broke to a new correction low by undercutting the December lows on heavy volume. What followed, however, was obviously both shocking and painful for the shorts.
Wednesday’s arrival delivered upbeat news for Weight Watchers as U.S. News & World Report put it at the top of the list for best weight loss diets in 2012. Consequently, Wednesday’s bar was a bullish engulfing bar as Tuesday’s low was undercut before a close above Tuesday’s high on even heavier volume with a 7% pop. Then we saw near-record volume Thursday on an 8% advance, and further upside continuation Friday with nearly a 9% gain.
Change of character? Absolutely. Value-buyer accumulation? Hardly. This is the portrait of a short squeeze, and it’s one reason shorts require absolute stop losses. The sudden shift can rip the faces off of shorts who panic and rush for the exits while opportunistic bulls get long. The combination can be explosive, as seen here in WTW.
The lesson? Watch your shorts and don’t give them more leeway than they deserve. Keep stops in place and be mindful of what’s possible when the tide shifts. This is one kind of move you don’t ever want to experience from the wrong side of the trade!
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Follow TheStockBandit on Twitter or get our free newsletter to keep up!
Week 1 Trades Review (Video)
January 6, 2012 at 5:30 pm
The first week of trading for 2012 is now behind us, and overall it wasn’t very exciting. A big gap up on Tuesday kicked off a positive week, but after that we saw the market essentially make no progress as it spent the remainder of the week moving laterally with mixed and minor net changes.
Personally, I took a number of trades and saw mixed results as well. Some trades worked great, others failed quickly, and some didn’t go hardly anywhere. Nonetheless, it was a good week of trading because of how my trades were managed.
As a trader, I need to be able to diversify by way of different timeframes and direction (long/short) in order to keep maneuvering efficiently. So to help explain this concept and the value of doing it, here’s a video walking through the trades I took last week. (Note: I do have 2 open swing positions which are not outlined in the video since I’m still discussing my management of them with members).
(Direct video link is here for those interested in embedding it elsewhere to share).
Be sure to view in HD (720P) and full-screen mode for best quality in the video.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Follow TheStockBandit on Twitter or get our free newsletter to keep up!
6 Candidates for Position Trades
January 5, 2012 at 9:49 am
At the beginning of the year, everyone’s out to make a prediction. Ignore them! The only way to trade is to weigh your risk/reward at any given time (whether January or June or November), and make your moves based on that.
Today I want to point you toward 6 stocks which look to have some promise in the months ahead. This is not a prediction of where they’re headed, just a list of setups which look to have some potential.
I published the post over at MarketWatch, so here’s the link (complete with charts).
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Follow TheStockBandit on Twitter or get our free newsletter to keep up!
Burrito Time!
January 3, 2012 at 10:19 am
Don’t look now, but CMG is back on the move – and potentially in a very big way. The chart below outlines the large, multi-month ascending triangle that’s been forming, and currently we’re seeing a breakout attempt in the stock.
But can it stick?
That’s always the million-dollar question, but with a solid uptrend in place and prices now pushing to new highs, I certainly wouldn’t bet against it. In fact, I like it for a push to the $425 area, which is the projection of this pattern (add widest portion of triangle to breakout zone).
Here’s a closer look at the chart:
An aggressive stop would be a gap fill to the 12/30 close of $337. Nice setup.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Follow TheStockBandit on Twitter or get our free newsletter to keep up!
A Look Through the Goal Posts
January 1, 2012 at 3:31 pm
It’s that time again…time to reflect on the previous year, see what you can learn from it, and then determine how to apply it in the year ahead.
I’ve talked quite a bit about goals here, so rather than reinvent the wheel, I’m going to review goals posts from the past. Get your clicker ready and hit the links at will!
Trading shouldn’t be everything, so have some off-the-screen goals to go alongside your account-related objectives.
If you go about it the wrong way, goals can actually impede progress, but done correctly they can provide big incentive and some satisfaction.
Your dedication and preparation in the year ahead can deliver impressive results, but keep in mind that making big progress in trading requires patience. It’s a process, so it’s all about making good trades and trusting that the results you want will be there.
Stay in the game and believe that the opportunities will be there if you’re around to identify them. You’ll need to take these 5 steps to reach your goals, but a year from now just imagine the difference it could mean to your trading.
Know where you’ve come from, yes, but also where you’re going. So say what you will about goals, but I think they are a must.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Follow TheStockBandit on Twitter or get our free newsletter to keep up!
Always Look to the Left
December 28, 2011 at 2:46 pm
A friend of mine recently mentioned that the area to the right of price is the only place on a chart where you make money. He’s absolutely right. But I’d add that by also looking to the left, you can save money as well.
Take for instance CXO. Right now the stock is sitting in a short-term bearish formation. The stock recently declined for a couple of weeks, then has attempted to bounce – without success. That has created a small rising channel, or bear flag, which is quite likely to be resolved to the downside when taken at face value.
So am I going aggressively short here? No, and here’s why:
Short-term, this looks like it wants lower. But by looking to the left, I see more than just the selloff and feeble bounce attempt. I see that just about $3 lower is a major level which has served as both support and resistance in recent months. That could again provide buyers with a spot to take a stand, and it poses a threat to this setup as a bearish play – a roadblock for the trade.
Here’s a closer look at the chart:
Always take the short-term pattern you’re seeing in context. With that in mind, this bear flag isn’t a high-probability trade given support isn’t far below. Furthermore, the overall trend in recent months hasn’t changed, as this is really just a range-bound stock heading back toward key support. It might not hold, but trading is about probabilities, and they aren’t real favorable in this case for a move of more than about 3%.
In other words, always look to the left.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Follow TheStockBandit on Twitter or get our free newsletter to keep up!
I Don’t Care How Fresh Your Fundies Are
December 20, 2011 at 1:28 pm
I’m a trader, so what I care about is catching short-term moves in price. I’m not an investor who’s looking for long-haul appreciation or locating the next ORCL. For that reason, the health of a business doesn’t matter to me. It’s unlikely to change during the course of a trade that lasts anywhere from a few hours up to a couple of weeks (barring scheduled earnings reports or conference calls).
Some traders fixate on fundamentals. They might use the fundies as a starting point for trade ideas, which is alright, but is not necessary for short-term positions. They might use the fundamentals as a logic crutch to defend their losing trade, telling themselves “it’ll come back” because of the business. We know how that usually ends for them when opinions are allowed to interfere.
If you haven’t already done so, make this all-important distinction: there are good companies and there are good stocks, and they do not necessarily overlap. Sorry if that bursts your bubble, but many great businesses have a stock that’s going nowhere. Some stocks are making excellent, clean moves even though their business may not endure the test of time. The correlation between good company and trade-worthy stock is not at all guaranteed.
Here’s the point in case you’ve missed it so far… If you are a trader, focus on the price action and place importance on it alone. Trading is about compounding money by turning capital over frequently. It’s not committing to a long-term relationship with a stock…that’s investing and it’s an entirely different topic (not found here).
So if you are a trader, and if your timeframe is less than a few weeks, consider the likelihood that the health (or lack thereof) of the company behind the ticker symbol you’re trading just isn’t going to change that quickly. Business growth or attrition takes time. With that in mind, all you’re left with is the price action – right where we began.
Simple and straightforward.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Follow TheStockBandit on Twitter or get our free newsletter to keep up!
