Stretched is an Understatement
July 8, 2011 at 9:19 am
To say the run of the past two weeks has made the market stretched to the upside is clearly a major understatement. It’s been a face-ripping rally for anyone caught on the short side, while underinvested bulls gnash their teeth in nearly equal frustration.
It’s been a tricky environment in recent weeks, yes, but there is still opportunity if you search for it. The momentum run has offered some nice day trades, even if it has left many stocks overbought on the daily charts. Even a few days of rest would do wonders for those charts.
Speaking of rest, this market is poised for it, but will we get it?
The reaction to the jobs number this morning offered the perfect sell-the-news scenario as extremely overbought readings (no matter how you gauge it) left the market badly in need of some profit-taking, some lateral price action, or both. While the result of the turn lower this morning remains to be seen, we do know this: the buyers are finally standing aside to take a breather at the very least.
Thankfully, as short-term traders we don’t have to predict what’s going to come of this market in the next few days. What matters is that we continue to work the charts and trade what’s right in front of us.
With that said, a pullback here for a few days or even some short-term trading range price action would help to establish some new patterns and bases from which to take multi-day plays, one way or the other. That may not mean excitement for a few days (if we do get a rest), but it would certainly mean greater opportunity on the other side of it. I, for one, am excited about that possibility.
Those who have walked away for the summer have already missed considerable movement, and yet the market promises more going forward. Are you ready for it?
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
The Naked Truth About Your Trading
July 5, 2011 at 1:18 pm
If I asked you how your trading was last week, or actually even if I let you pick any other week of June, what would you tell me? Something along the lines of:
“…well, last week wasn’t really a good week to do that because I had (this or that) going on…”
That would be a typical response, and it’s one I’ve been guilty of answering with in the past. Excuses about your trading only delay the inevitable truth though, so they’re really not worth making. The fact of the matter is that your performance last week is the naked truth about your trading.
Uncomfortable? That’s what you’ll have to face if you want to get better. Your call.
You’re going to have to confront reality, and take a “typical” week and see if the results are anywhere close to what you’re wanting. If they aren’t, then your trading doesn’t look good naked and needs some help!
Your profitability as a trader is the bare naked truth about how you’re doing. Get equipped if you need to in order to improve. Get committed to cutting losses better or planning with greater precision. Get inspired if that’s what you need to move beyond mediocrity. But don’t sit there idle and expect your results to magically change.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
FCX 7% in 3.5 Days, Time to Lighten Up
July 4, 2011 at 12:56 pm
Last Tuesday I pointed out FCX as not only a potential market tell (since copper has proven to be a leading indicator many times), but also as a breakout play through a trend line after holding key support. That post was published as the stock threatened to break $50.
Fast-forward 3 1/2 trading sessions, and FCX now sits at $53.50, or 7% higher. That’s a quick pop (which I hope you caught a piece of at the very least), so the fast money has been made. While the stock looks great for an intermediate-term position play, for short-term traders it’s time to lighten up.
A pullback is going to come, so for those only interested in grabbing the initial move, this is it. Ring the register and move on to the next play.
Here’s a look at FCX, showing the push through the descending trend line and a rally past the previous high from May 31. Not bad for a freebie:
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Tricky Times
July 1, 2011 at 11:08 am
I’ll begin this post with a plain and simple statement that is always true, including now: the market is tricky. It is never easy, and anyone who tells you it is easy is either lying or an ignoramus.
With that said, if you’ve struggled of late, you have company. Traders of many timeframes have found these past several weeks to be quite challenging. During the past 6 weeks, here are a few phases we’ve witnessed:
Swift move lower. June kicked off with total abandonment of stocks as the indexes shed several percentage points in the opening days of the month. It was flat-out hard to get on board if you missed the initial turn. It rewarded chasing.
Whippy trading range. Following the initial slide, the market settled into a trading range marked by volatile shifts of direction and frequent reversals. It offered zero follow through. Chasing rallies or selloffs resulted in immediate pain as prices turned on a dime to revert back to the other end of the range. It rewarded fade trades.
Aggressive ascent. After a selloff and indecision, in recent days we’ve seen the market ramp relentlessly higher with upside gaps and rips inviting bulls off the sidelines while forcing bears to cover their shorts. Again, chasing has been rewarded.
Chasing strength or weakness isn’t inherently wrong, and you can make fast money if you’re good at it. Likewise, fade trading within ranges isn’t wrong either, so long as you know what you’re doing and you stick with your discipline. But for the trend-following trader who prefers to see stocks run, base, then run again, this market has offered little for you. It has been tougher sledding of late, regardless of whether you’re a bull or a bear, a momentum trader or a continuation player, a day trader or a swing trader. It has been a mess, so if you’ve struggled, that’s part of the reason.
Here’s a look at SPY showing the three phases of the past 6 weeks:
Good News
There is good news.
First, from a technical standpoint we know that the further this rally carries, the more likely the March & June lows are to hold. It just gives the market more breathing room for the next pullback (and we will see one).
Second, conditions are always changing. Just as in recent weeks we’ve seen nonstop selling, complete indecision, and then aggressive buying, going forward we’ll see a variety of conditions as well. That’s good, because it means at some point your ideal trading environment is going to arrive again. But you’ve gotta be ready for it. You can’t have your head down and be busy bemoaning the fact that you’ve missed a couple of moves.
Finally, this is a reminder to step up your game. It’s an opportunity for growth – a wake-up call. Missing out is only partly the market’s fault – the rest is in your hands. Learn some new methods, learn to assess conditions better, and understand which strategies are best suited for the environment you’re facing. Don’t be stagnant, or else you’re going to continue to find frustration anytime the market doesn’t cater to your current skills. Build your skills and become a more complete trader.
Attitude Matters
At all times you can complain and look back and wish you had seen a move coming or had the courage to join the momentum crowd. That’s always something you can choose to do, but honestly, it’s not going to help you. That’s not a winning attitude.
But take heart if you’ve struggled lately. Things will smooth out and when they do, you’ll have experienced a few more market moves to file away in the mental vault – ideally to serve you again later – and that means you’ll more readily identify opportunities you used to miss out on.
Stay on your toes, the market gives nothing away.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
RVBD at Key Resistance
June 30, 2011 at 9:32 am
Trading ranges or channels tend to stay in effect until, well, they’re no longer in effect. One name right now caught between support and resistance is RVBD.
This computer hardware maker rallied huge from last summer into the first part of 2011, and has since then been basing in a high channel. Rallies to resistance have predominantly been sold, while pullbacks to support have consistently been bought during this time. That’s the routine for a channeling stock.
With the stock currently at the top end of this range, you have to wonder if this is an opportunity for a downside reversal (particularly with the broad market short-term overbought), or perhaps a breakout failure and a subsequent pullback into the lower end of the range. No predictions, just an observation.
Here’s a look at RVBD, showing the trading range it has spent essentially 6 of the past 7 months inside of, with the only time outside the range between mid-Feb to mid-March:
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
FCX On the Move
June 28, 2011 at 1:05 pm
Copper is an important market tell for many, so it’s certainly worth noting that the copper poster child FCX is getting going here as it threatens $50. The stock has repeatedly found support in the $46’s in recent months, and in recent weeks has pulled back quietly beneath a descending trend line.
Today, that trend line is getting crossed, indicating this stock may be ready to leave this congestion pattern behind. There’s room to climb higher, not only for this stock, but potentially for the broader market. We have yet to know if the market pullback has ended, but if copper proves a leading indicator, this could be a bullish sign to pay attention to.
Here’s a look at FCX, showing both lateral support around $46 as well as today’s attempt to push beyond the descending trend line:
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Obscurity and Opportunity
June 28, 2011 at 8:57 am
Prolonged market rallies have a way of pulling obscure stocks off the sidelines and getting them involved in the action. It’s the effect of “a rising tide lifts all boats.”
And that’s entirely fine. It’s nice when new names are added to the mix of active stocks.
The market turned higher in March 2009, and since then we’ve seen considerable progress. Tons of little names have entered the fray, paying astute traders along the way (unintentional rhyme).
While I do have some restrictions on what I will and will not trade, I don’t mind trading some of the more obscure names when they’re set up for moves – so long as they exhibit the proper traits:
Size Matters
Dirt-cheap, thin stocks are not worth trading. They carry much greater potential for pain than profit, despite their inexpensive price tags. But growing stocks (price & volume growth, not necessarily earnings growth) are another story. Every big run starts somewhere, right?
There’s often a relationship between ‘unknown’ and ‘underowned’ and that can spell exceptional opportunity. Under-the-radar stocks often times begin to exhibit technical characteristics worth noting, raising interest in them in such a way that they’re the up-and-coming stocks. Naturally, they’re little-known, and that means they’re underowned by institutions (the ones who really move stocks). As they exhibit some staying power, interest in them grows. That brings both price and volume up to tradeable levels, placing them squarely on the watch lists of traders like you and me.
(I’m talking to mostly guys here, so ladies please bear with me on this next analogy. I want these guys to “get it” so they know what I’m talking about.)
Think of that co-ed in college who returned from summer looking far better than the previous semester. What happened? Suddenly she has the attention of many more guys, has more dates, and as competition for her time expands, so does her confidence. Now that she’s being noticed, she’s unlikely to regain the 15 she lost and return to the sweats-with-no-makeup look again. (Nothing against the natural, casual look… just stating that a change is likely to last in this case). She’ll quite likely take care of herself better, and interest in her will be maintained as a result.
Stocks sometimes follow a similar path.
Beware the Flash in the Pan
As the phrase states, “one day does not a trend make.” Therefore, it makes sense to make a stock prove itself – at least for a little while – before taking a position.
The single-day spurt higher on news will bring no-name stocks into view on a regular basis, but most of those are just having their 15 minutes of fame. If what you’re seeing is just a knee-jerk response to a headline, there’s limited opportunity and that stock is likely to drift right back into obscurity. Avoid those.
Instead, as a stock begins to earn respect (and attention), watch for the key characteristics that it’s starting to trend: expanding volume, higher highs and higher lows, and a good price/volume relationship. These stocks are much more likely to stick around and offer you multiple opportunities to participate and profit.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
