All Entries in the "Technical Analysis" Category
Why I’m Not Trading AAPL
October 19, 2009 at 10:27 am
AAPL is set to report earnings after today’s closing bell. It’ll be the focus of attention at times both today and tomorrow as the dust settles post-news, but truth be told, I have no interest either way.
Obviously it’s one of my trading rules to avoid stocks when they’re reporting earnings, as scheduled fundamental news simply carries with it no edge for me as a technical trader.
But I’ve had no interest in trading AAPL for a few months now. Let me explain why.
The short answer is that AAPL simply doesn’t move enough. For a stock that’s highly liquid (over 15 million shares/day on average) and within sneezing distance of $200, it should move a lot. And yet it doesn’t. On an average day, it’ll see an Average True Range (ATR) of about $3. There are stocks trading at a fraction of AAPL’s price which move that much and are still highly liquid, so why pay up for less movement?
Let’s take a look at the chart.
Over the past year, we’ve seen AAPL’s price rise dramatically, while its movement has shrunken dramatically. ATR is a price-based measurement (not percent), so as price gets higher and higher, often times we’ll see ATR expand along with that. That’s not the case with this stock.
StockFinder Chart courtesy of Worden
Anytime you’re trading the high-priced stocks, do your best to gauge whether there’s enough movement there on an average day to justify an entry. Others like GOOG, CME, and BIDU all are higher-priced than AAPL, but on a relative basis (when comparing ATR) they each move considerably more than AAPL.
At some point, AAPL will be worth trading again, but on an average day right now, the moves are just too limited to warrant an entry.
Thanks for stopping by and I’ll see you here soon with more. Until then…
Trade Like a Bandit!
Jeff White
Are you following me on Twitter yet?
Huge News at TheStockBandit.com
October 8, 2009 at 4:03 pm
Occasionally, it’s my pleasure to get to deliver some great news here on the blog.
At the beginning of this year, I introduced you to the Trading Videos site over at TheStockBandit.TV. Then in the spring, I got to show you the stock trading course at TheStockBanditUniversity.com, a video-on-demand training course for beginning traders.
Well, today I get to do it again with the announcement of a brand new website at the heart of our network, TheStockBandit.com. The new look is indeed cosmetically striking. It’s cleaner, more streamlined, and straightforward. A huge improvement, and I want you to see it.
Along with the new look comes the best part – new functionality.
It used to be on the old site that members logged into a Member Area which was sequestered from the rest of the site. Every feature was found in a different location, which meant it was hard to navigate and easy to get confused!
The new site works more like a blog, with anything new hitting the top of the members-only area – that way, our subscribers are continually seeing what’s new. It’s fantastic. There’s even the ability to interact and comment right there inside The Bandit Hideout. (Catchy name, yes, but appropriate!)
So head on over and check it out – we are excited to show it off! And by the way, all the usual free resources and trading education info made the transition too, so those pages of chart patterns and trading strategy outlines are still there.
One last thing… we dumped our database of former members.
That sounds bad, but it’s actually VERY good because you can start another free trial – even if you already received one on the old site. It’s only logical that with a new site, everyone gets a freebie.
So, I’ll see you in The Bandit Hideout!
Jeff White
Are you following me on Twitter yet?
Understanding the Quiet Rally
September 23, 2009 at 8:32 am
It’s been one impressive rally…by some measures. The indexes have made an about-face from the March lows, refusing to look back as they erase so much of the carnage of the bear market. The move has been persistent and consistent…just a ton of green days.
But very few big days. Have you noticed?
I’ve been amazed at the lack of volatility, especially recently. It seems a huge day for the DJIA has become a triple-digit net change from the prior day’s closing levels. Just a few months ago, we were getting gaps that big to start the day, nevermind the several-hundred-point moves which were commonplace. Needless to say, it has indeed become a quiet rally.
In order to understand it a bit better though, I turned to an indicator to help make sense of it all, and I was surprised at what I found.
Different Directions
In the video below, I’ll walk you through my thought process that led me to doing this, and of course I’ll explain what it is that I discovered. Of equal importance, you’ll understand how and why navigating this market for as long as this rally runs its course will require a different approach than what is ‘typical’ (if there is such a thing in the market).
Here’s a video explaining it. Select the HD option and go full-screen for best quality:
Thanks for stopping by and I’ll see you here soon with more. Until then…
Trade Like a Bandit!
Jeff White
Are you following me on Twitter yet?
Reversal Characteristics & Candidates
August 25, 2009 at 12:30 am
Stocks can reverse suddenly or slowly. Sometimes it takes place in one big bar, and other times it’s a process that occurs over time.
Because there are differences in how downside reversals can happen, after running across a couple of reversal candidates in the charts, I wanted to share a couple here on the blog.
Uptrends will often times be followed by corrective action, which may pave the way for further upside down the road. But a reversal is often a longer-lasting change of direction, and that’s what I’d like to discuss in this post.
When looking for reversal candidates, the thing to watch for is a change of character. Something that’s different from previous dips and stands out as a potential shift in the stock. That might be a lower high, or it might be a sudden decline which proves to be much sharper and faster than previous pullbacks were.
Show & Tell
In the video below, I want to point out 2 stocks which might be undergoing reversals. That means there’s plenty more to prove before they can be considered to be in corrective mode (as opposed to merely a dip within their uptrends), but chart reading is always a work in progress. If the characteristics which we’re seeing now happen to change, then so should our expectation.
For now though, let’s take a look at what’s going on and see if these show us the necessary price moves to confirm what the charts of FUQI and RL may already be saying.
Here’s a video explaining it. Select the HD option and go full-screen for best quality:
Thanks for stopping by and I’ll see you here soon with more. Until then…
Trade Like a Bandit!
Jeff White
Are you following me on Twitter yet?
Momentum Trading – A Different Mindset
August 3, 2009 at 7:17 am
After a lengthy period of indecisive, range-bound price action, we’ve seen the market gather some momentum in recent weeks. The push from the July low was rapid and relentless – clearly a change of character.
The landscape tends to shift like that from time to time. Sometimes key levels serve as steadfast boundaries for price and don’t allow it to gather any steam in either direction. But at other times, we’re in a run-and-gun market where we get trend days after trend days, and follow through is far easier to come by.
Let me be clear though:Â that doesn’t mean it’s easy.
In fact, the momentum game really requires a different kind of mindset for success. Dare I say, it can be much tougher on the experienced trader.
Let me explain why.
Mindsets of the Amateur and the Adept
First, let’s examine the novice. Generally, their approach can be quite simple…
See green, go long.
See red, sell.
Often times, they may not even consider how much green they’ve just seen – all they know is that there’s strength present, so they buy without concern.
This mentality contributes to the momentum, and when it’s particularly strong, they make money without much stress. Soon they’re saying, “I think I might quit my day job!”
On the other hand is the experienced trader. A guy like me finds it particularly difficult to chase stocks, because in my post-beginner trading phases I’ve bought the top or sold the low. It isn’t fun. Experiences like that can leave you a little gun shy, and it becomes a habit to recognize at which point a play has moved too far for a new entry. Thoughts creep in, such as “Is this market ever gonna rest?”
So, seeing a stock which just ran 5% intraday, for example, leaves me far more likely to respond with an I’ll catch the next move mentality. I know how nice it is to have some inventory to flip out to those late-comers after a big pop, so when moves start getting extended, my preference is to start lightening up instead of adding.
This “I forgot my track shoes today, so I won’t be a chaser” mentality might frequently serve to help me protect capital, but during those times when powerful momentum is present, it can actually cost me opportunities.
Shifting Gears
Knowing this, how bout we take a look at 3 ways to identify and trade momentum. That could help us adjust when the conditions warrant hopping on board the train when it’s already in motion.
1. Recognize a change of character. Paying close attention to the environment you’re trading in will make it more obvious that your approach should change accordingly. Perhaps recent advances have been 3-4%, and suddenly a 6% move arrives and shows no signs of fatigue. That’s a change of character, and it’s a signal to shelve your current strategy for the time being. And if you don’t have another style to turn to, then it’s time to seek out another way to profit.
2. Watch the volume. Under normal circumstances, even with a trend, we can compare upside volume to downside volume and notice some patterns emerging. For example, an uptrend might see spurts of strength accompanied by higher volume, and periods of rest accompanied by lighter volume. But when real momentum arrives, the volume may not follow that same pattern. Price simply gets on the move and keeps the pedal to the metal, and volume doesn’t have to play a major role. Market participants are simply caught off guard, and there’s a persistent move as they jockey for position. Many times that results in consistent volume levels which don’t surge and contract like they do during a rally-rest-rally type of phase.
3. Notice when a pause is ignored. If you’ve been trading for almost any length of time, you’ll notice times when price starts to get a little stretched and is getting due for a rest. If that rest is not allowed, then momentum is definitely present. Lace up those running shoes, you’re probably gonna need ’em.
Emotion in Motion
One last note on this topic, which is that support and resistance levels are largely ignored when the momentum train is running.
That means if you’re looking for reversals or pauses at ‘logical’ zones, fugettaboutit! Not likely to happen. Momentum arrives when more emotion is present than logic, and emotion stops for no level.
Those typical reversals near key levels we tend to see during quieter times just aren’t going to happen, so go with the flow and don’t fight it until the tape tells you it’s tired.
Thanks for stopping by and I’ll see you here soon with more. Until then…
Trade Like a Bandit!
Jeff White
Are you following me on Twitter yet?
Psychology of Overbought, Oversold, and Market Extremes
July 28, 2009 at 8:26 am
Ever seen something get just a little overdone?
Perhaps it was that weekend barbecue, or the tattoo collection on that dude you saw the other day.
No doubt, we all run across the occasional extremes, and they’re usually worth a story or two.
It happens in the market too. Bounces get a bit stretched and before you know it, you’re staring at overbought conditions. And sometimes selloffs spark a little more damage than usual, creating oversold conditions.
We don’t see ‘overbought’ and ‘oversold’ every week, but it happens regularly. Emotions are a primary driver of the price action, so it’s no surprise that at times they challenge the boundaries of ‘normal’ and produce market moves with an unsustainable pace.
Every now and then, we’ll see true extremes in the market. Sometimes it’s when the upside momentum runs so hot that it produces a parabolic uptrend. Some of the fastest money on the long side can be made during such times, but high risks are there right along with those rewards. It’s somewhat of a party atmosphere though. Feels like it might not ever end.
And of course at times we do see selloffs become all-out panics, when capitulation prompts everyone and their dog to sell. When it happens, it can be rather spooky to see. Feels like it might not ever end.
What’s the Difference?
There are definitely various degrees of strength and weakness in the market, so let’s take a little deeper look and see what we can pick up and apply going forward.
The fact of the matter is that whether we’re discussing overbought or oversold conditions, or parabolic uptrends or all-out capitulation, the moves in price are happening at an unsustainable pace.
That means it might continue for a little longer, but not forever. Eventually, some kind of recoil or pullback or reversal is going to arrive, ending the move. Another might follow in the same direction, but the point here is that price doesn’t move in a straight line forever.
With that said, the biggest factor in determining exactly which condition we’re seeing is going to be the timeframe being referenced.
For example, on an intraday 5-minute chart, a parabolic uptrend can occur. That same move may leave the daily chart of the same stock hardly even overbought. So looking under the microscope won’t often correspond to the big picture view.
Faces in the Crowd
As we examine these conditions, it’s crucial that we take notice of all parties involved: the buyers, the sellers, and those who are short. Knowing who’s involved and being able to continually evaluate their likely motivations can give us a big edge as traders. It means we’ll be better prepared for knowing if the move might persist, or if instead we need to be on watch for a sudden shift. Let’s look at a few situations and the roles which matter most…
First though, a brief description of how I’m using these terms:
Buyer – a bull with cash on hand who wants in.
Seller – a bull with inventory (shares) on hand who wants out.
Short Seller – a bear wanting to get in and profit from a decline.
Overbought:
Buyers – they’ll be greedy and eager to buy the first dip. In an overbought market, the bulls are correct and anxious to add to their positions. They view it like they’re defending turf, so give them some respect until they show signs of tiring out.
Short Sellers – they’re using strength to initiate reversal plays, but walking the tightrope. Understanding that they’re putting on short sales at the near-term highs means they’ll likely be quick to cover if more strength arrives.
Oversold:
Sellers – they’ve quasi-panicked and dumped when they shouldn’t have, adding some fuel to the fire. Once they see a bounce or some stability, they’ll likely get long again. If the bounce fails, they’ve just compounded their mistake, perpetuating the cycle.
Buyers – they’re trying to ‘buy low’ but struggling, because with each new low in price they get spooked and jump ship again. If a little more pain can be inflicted, they’ll give up. At that point, they’re vulnerable to getting caught very off guard.
Parabolic Uptrend:
Buyers -this is all-out greed. They’re making money hand over fist, and see no end in sight. The upside pace has increased, as has their desire for more, and they have no idea that the edge of the cliff is fast approaching. Once it arrives, they’re in for a shock and they’ll rush for a chair as the music stops.
Short Sellers – early = wrong. They’ve recognized the unsustainable pace of the advance, and they know they stand to benefit big if they can simply time their entry well. Unfortunately, their confidence is battered at this point, as is their account. They’re wounded but staying attentive for an opportunity which will quickly increase their boldness.
Capitulation:
Sellers -regrets, regrets, regrets. Repetitive questions of “why didn’t I sell back at $__” plague this crowd, and they’re absolutely sick of getting beaten up. They’re throwing in the towel, and planning to buy a small used boat with what’s leftover. It’s been a long road for them, but the pain isn’t over because as the low gets established and price rebounds without them, their ego takes one last significant hit.
Buyers – what began as a bold get-in-front-of-the-freight-train move has chipped quickly away at their equity as time after time new lows stop them out. But with some dry powder still available, they sense a chance to pick up some bargains with potential. If they can only endure the foul smell of a sick market and go completely against the crowd, it’ll pay off big so they hang around and keep trying until their ship comes in.
The Biggest Question
Are you in the habit of evaluating not only the conditions you’re trading in, but also the participants at any given point in time?  Understanding what the flip side is thinking will help keep you grounded and more aware of whether it’s time to hold ’em or fold ’em!
Thanks for stopping by and I’ll see you here soon with more. Until then…
Trade Like a Bandit!
Jeff White
Are you following me on Twitter yet?
Clues to Observe for a Market Correction
May 26, 2009 at 8:07 am
Is this market due for a correction?
That’s the million-dollar question right now for many, so why don’t we examine a few clues to watch for just in case. After all, there could be some hints provided by the market before the heavy selling hits – that is, if it’s coming.
Here are 3 technical considerations I’m going to be on the lookout for…
- Weak closes. These tend to signal that some distribution is taking place. We’re all familiar with the phrase “amateurs open the market and pro’s close it,” but I think there really is something to the way in which the market closes. If it’s limping across the finish line with any regularity, it’s usually a sign of at least some short-term fatigue and therefore ripe for some selling.
- Watch key support and resistance levels. If key resistance is turning the averages away or if support levels are breaking, that’s ample proof of some underlying selling. (I highlight these weekly in the Market View videos over at TheStockBandit.TV.)
- Watch for potential lower highs and/or lower lows to be created. While these may take some time to actually confirm, keeping tabs on stalling rallies and areas where bounces look to be failing is a telltale sign that the buyers aren’t in charge.
There are probably several more, but those are the ways I tend to gauge the underlying market strength and weakness. Some traders prefer to watch indicators or sentiment readings, but monitoring the price action and the character of market moves tends to provide enough clues for me.
One other thought… I do flip through several hundred individual stock charts nightly, and that also helps me gauge whether more stocks are acting strong, weak, or are just lethargic. It also helps me determine when to curb my buying. So if you don’t currently use a charting program that enables you to keep watch lists, make notes, and draw trend lines, then get one!
And you know, even if this market does end up correcting a bit, what would be so bad about that?
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]
