All Entries Tagged With: "Trading Range"
Lasting S&P Rally Without Banks? Not Gaah Duht
September 16, 2011 at 9:45 am
The notion of the S&P 500 running higher without the participation of banks reminds me of Dana Carvey’s George Bush impression on SNL… “Not gaah duht.”
The financials make up roughly 14% of the weighting of the S&P 500, but they carry possibly more from a psychological standpoint. Traders are conditioned to check the fin’s when the Spoos are on the go, and lately, the participation has been downright pathetic.
Considering that the S&P has rallied within its recent trading range, we’ve seen virtually no lift from key financial names (which I’ll review shortly). With that being the case, an upside exit from the range which actually sticks (no failure) in my opinion is rather unlikely without the participation of at least most of the names below.
Let’s take a closer look at each with some notes on the individual charts, starting with a look at the S&P:
Here’s the deal…Financials need to pull their weight if this range is going to see a lasting resolution to the upside. It might happen without them, but it’s highly unlikely. Don’t take your eyes off the banks if you’re a bull.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Follow TheStockBandit on Twitter or get our free newsletter to keep up!
Which Side Are You On?
September 2, 2011 at 8:22 am
We’re in an interesting spot here, no matter which side you find yourself on. Both the bulls and bears have reason to believe they’re going to win this one, so let’s take a brief look at the arguments of each.
From the bullish perspective, we’ve just carved out a higher (incremental) low compared to the early-August low, which was confirmed by a higher high this week (including multiple closes above the mid-August bounce high). We’re now pulling back after a sizeable short-term run, possibly to fill the gap from 8/29. A change of direction begins with the creation of a higher low and higher high, and we’ve seen both of those get created. The worst is behind us.
Here’s the SPY daily chart with notes for the bullish case:
From the bearish perspective, this is a low-level (albeit wide) counter-trend consolidation following a major decline. Advances have not seen meaningful follow through…the 8/9 to 8/15 bounce was met with nearly a complete retracement, and the bounce which completed August is again coming under some pressure here. This correction is just getting started.
Here’s the SPY daily chart with notes for the bearish case:
Charts don’t lie, but at times like this it’s all about perspective. The next direction is in the eye of the beholder, and that’s exactly what makes a market. What’s your perspective?
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Follow TheStockBandit on Twitter or get our free newsletter to keep up!
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
Trading Scene Still Great
December 8, 2010 at 12:30 pm
On Nov 1, I mentioned the scene was set to improve, and since then we’ve seen exactly that. I didn’t base that post on the notion of higher prices necessarily, because UP does not equal GOOD – just as DOWN does not equal BAD.
I’m a trader, so for me it’s all about the movement. It’s volatility that makes for a great trading environment, especially when the technicals are playing such a prominent role. We’ve seen a pick up in volatility of late, which simply delivers faster moves for us as traders.
Lately, we’ve seen exactly that. Individual stocks and the indexes alike have respected trend lines and important resistance and support levels, allowing for some excellent trading opportunities for the astute trader to capitalize on.
Taking it to the Charts
For example, the indexes have been textbook in their respect of key levels. The S&P 500 has been range-bound between 1173 support (with numerous tests of that level in recent weeks) and 1227 resistance (tagged a few times but no close above it yet). That’s perpetuating the short-term trading range, which could easily serve as a stepping stone for another advance if it’s resolved to the upside.
The DJIA also has been highly respectful of key levels. The mid-May post-flash-crash bounce carried the senior index up to the 10920 area, and since then that level has been revisited. Currently it’s serving as support over the past few weeks, while the early-November high at 11451 was tested and held on Tuesday.
Individual stocks have also made exceptional moves through important trend lines as well as out of well-defined patterns. Here’s a look at a few examples:
So the general trading scene continues to improve, which means there’ll likely be ample opportunity in the weeks ahead to capitalize on. But the market won’t give you money – you’ve got to know where to find it and how to extract it. If you’re preparing daily with several if/then scenarios, and you’re managing your risk appropriately, you’re positioning yourself for continued success.
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?
Don’t Let Opinions Interfere
December 16, 2008 at 7:25 am
It’s been one hairy market out there during the past few months. Over that period, we’ve seen nail-biting selloffs and toe-curling rallies of tremendous proportions. Volatility has expanded to a degree not seen in many decades as the market has grappled with big issues like failing banks, several episodes of government intervention (bailouts), a presidential election, and the prospects of a bleak business outlook for the foreseeable future.
More recently, we’ve seen the major averages settle into trading ranges spanning more than 5 weeks with support preventing downside momentum and overhead resistance keeping rallies limited. Such conditions make for a reversal-prone market, catering nicely to those who are day trading, but requiring those who generally swing trade to remain sidelined and wait for some smoother moves to come along.
Avoid Looking For What Isn’t There
When so many cross-currents are at play, it’s easy to start including some hunches in your decision-making process. It’s an effort made to gain an edge. We all do it from time to time, but we’ve got to be very careful anytime we start including more than what we can see on a chart.
This is a bit of a touchy subject, because I do think that experienced traders should develop some gut feel over the years. It can offer some needed flexibility. That I don’t have a problem with.
The trouble comes along when those opinions (or gut feel) begin to interfere with what the charts are telling you. Having a hunch is one thing, but becoming married to that hunch is a far more dangerous topic.
What we don’t want is to let a thesis we’re operating on interfere with what a stock is actually doing. Opinions can be helpful to stick with a trade, but so long as they don’t interfere with what the chart is saying they can be a help and not a hindrance.
The idea is to stick with what the chart is telling you – make decisions based on the price action when it comes to your entries and exits, even if your overall directional bias is founded on an opinion. Keep those opinions in mind, but only act on the price action!
The Wait Will Be Worth It
Here’s the thing: right now we’re range-bound. That means we’re going nowhere fast, at least until key support or resistance gets broken – preferably, for more than a day. So as long as we’re stuck in this trading range, it’s a time to let others formulate opinions. If you’re trading right now, don’t wear out your welcome. Stop out quick and book profits more aggressively when you have them.
Once the range gets broken, we should then have plenty of technical reasons to be opinionated. Until then, they’ll simply interfere.
Trade well this week!
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
