Saturday, March 31, 2007

Second Quarter Forecast

End of the quarter time for the guess for the next quarter. First I remain largely a Bull on the market - of course I was born to be a Bull - forever optimistic - just as other people are born to be Bears - forever pessimistic. Of course sometimes there are good reasons to be short the market especially after you see something like #3 on the chart below -

That's a good reason to be short the market (or be out of the market) because that particular candlestick generally bodes ill for the market. So when you see something like that on the weekly charts of an index fund - duck - at least for the near term.

Unfortunately at the time I missed it completely which is why I'm now doing a continuous weekly study in my own lab and maybe, next time, I'll see it and let everyone else know too.

The last thing I actually looked at was #2 or that neat ascending triangle breakout at the end of January. Last quarter I did a post regarding the flatness of the market and once we had that breakout in January I was thinking that we were on our way again. This is why you have to use the weekly charts to forecast the months coming and forget the daily charts except to forecast the next day or couple of days ahead.

The main emphasis on this chart however is indicated by #1. You can see where we were last year in June/July and how once the ATR started rolling over and going down again we began a steady ascent. You can see by the current ATR slope that it hasn't rolled yet so we are in for some choppy going still. And while we should have another major drop on the weekly basis it could happen as a sequence of smaller drops over a several week period. Regardless the volatility has to come out of the market and it can't come out all at once.

So I'm forecasting further choppiness with the potential for one or two modest weekly drops until we actually bottom and the ATR rolls over and begins coming down.

This story is told on every large cap index chart. Here is the DJI -

But the good news is that that small cap index - the RUT - seems to be rolling over already and may lead us out of the morass.

So I wouldn't get too defensive - just be cautious and keep an eye on the weekly charts.

Also keep in mind we start the silly earnings announcements again and nothing hurts P&L worse than earnings.

QT Code for BOB and Tweezer

Here is the code I use for the BOB which I call "Enhanced BOB" because it includes the constraint "and bar close[1] < EMA(21)" - I use that to ensure that the BOB is happening at a bottom and not at some intermediate point.

If bar low[1] < bar low[2] AND volume[1] > volume[2] AND bar open[1] >= bar close[1] AND bar open[2] >= bar close[2] and bar low >= bar low[1] and bar close[1] < EMA(21) and bar close > bar open set color to Red

And here is Tweezer. You will note in the BOB code that the requirement for bar low is to be ">=" bar low[1] this permits a BOB to include a tweezer bottom. I think that is a very powerful combination.

If bar low = bar low[1] and bar close > bar open and bar open < ema(21) set color to $70106D

Note that "color $70106D" is just my preference - you can set the color any way you prefer.

Again the constraint to be below ema(21) is to ensure it is a bottom and not an intermediate condition.

Needless to say but say it I will - either of these near or on a pivot point just adds value to the indicator.

Friday, March 30, 2007

Friday Wraps

Took it easy today - the market wasn't doing anything special and I thought I'd just sit around and catch up on some reading and take care of some gardening - have to get it ready for the planting coming in a couple of weeks. So for all practical purposes I put the old account on cruise control and kicked back and enjoyed a day in the sun.

I checked in every once in awhile to see if anything was shaking but it was a typical last day of the quarter. Who wants to guess what next week brings? Tune in this weekend and I'll show you.

My trading portfolio remains the same - GGB and OI although I did cut loose some OI this morning as I'm getting sick of it hitting its head against the ceiling and dropping back. I'll use the funds for something better once they clear. That's the trouble when you are hitting 52-week highs over and over again for weeks on end - eventually the stock has to rest. It could go sideways for a number of weeks now and I won't hold it back.

MSFT remains trapped in the 27-28 trading range and I just don't know what could make it break out short of Gates announcing a massive buy back. APPL broke 95 again and instantly pulled back. It formed a "weekly" version of the "cathedral of dead money" I hope when it crashes that everyone is out of it - of course everyone getting out of it will be what makes it crash.

Finally, my personal favorite for tying up trader's cash - GOOG. It went nowhere this week and since everyone who must own it does own it and since it doesn't pay to own it I don't know why anyone does own it. I suppose it could sit in this groove for years - I mean why should it go higher - it hasn't got anything new to offer the market place - there is absolutely no way short of a massive buy back or firing 90% of their work force that can make any sort of additional revenue stream for this stock appear. And every penny of revenue from now until the year 2020 is currently in the price. If the market discounts the future - I think the story on this one is clear.

The model portfolio lost a couple to 6.59% and the benchmark (the SPY) printed 1.16. In the shootout between ANGO and TAG - TAG won with a 2.29% return v a .24% return - of course that was 3 cents on a 1.31 stock v 4 cents on a 16.89 stock and the fact that the 16.89 stock stopped going down is a good sign.

This guy remains in neutral - it almost hit -.005% today but at the last minute the market surged by a couple of cents to take it out of range.

That's really special - the market refuses to drop so it can climb - sometimes I wonder.

The VIX stays in neutral and the up/down ratio stays in mid-range - neither up nor down. With New MoMo in neutral I guess the market is going nowhere next week but more sideways.

My forecast for Monday - down. The coin says .... tails - down.

Another tie today - I have never seen so many in-determinant days in years. I guess it just means that the world is catching up and eventually everyone will be on the same page again.

Anyway the score is now: Marlyn 24 - 20 and 9 and the coin is 24 - 20 and 9.

FOREX Reaction

Consumer spending was up, personal income was down and inflation rose at the fastest pace in 6 months. The only thing the FOREX spot market heard was "inflation" and that means interest rate hikes which means that the US buck is going to become more valuable -

This is the 5-minute USDJPY chart which I find most interesting because the Yen has the lowest interest rate currently available (and it has remained low for years and years and years). There are some neat things on this chart -

I see tweezer bottoms and tops, FOREX BOBs all over the place and something you seldom see - a gap-up between the 3rd and 4th bars from the right. Those of us who play stocks for a living are used to gaps - there are seldom gaps in FOREX, at least not during the week. I'm watching the live charts as I'm typing this and the run up is already coming down.

There is almost always an overreaction to the news as people just buy or sell immediately without thinking it through. Inflation = USD getting stronger because the Fed will have to raise rates - someday. Not today, not this morning, but someday. But the reaction is in the first seconds following the announcement. Isn't that stupid? Yes - but get caught on the wrong side of a couple of these stupid reactions and your trading account can go up in smoke in no time at all.

RATE - Watch It

Notable Calls is out this morning with an article on RATE and as is my custom I always look at a stock's chart on several time frames whenever I read about it on Notable. So I pulled up RATE and what I saw was yet another illustration of my many points and I wanted to share it with you.

In the previous post I spoke about dull days and two moves and RATE proves th epoint with a move down and a move up. Interesting enough the move up was off a BOB (red circle) that included a tweezer bottom (arrow) - I like these kinds no matter where they appear on the chart but the fact that it was a bounce off the pivot point just adds to the excitement.

Watch for BOB, watch for the tweezer and keep an eye on the pivot points.

Needless to say I was out playing golf when all of this activity was taking place - but, who knows - today is another day.

Read Notable Calls every day - if you don't you are just pretending.

TAM - A Pivot Point Lesson

There were a whole slew of gap-ups on Thursday but this one, TAM, really stands out for two reasons.

On a dull day you often get two moves. They could be two moves down, of course, or one move up and one move down or reverse, or. as in the case of TAM. two moves up.

It is here where Pivot Points earn their living.

The chart shows a conventional gap up and Return to 4(EMA) play in the first hour. The fourth candle crosses the R2 pivot and is where the trade begins. A bit later it hits R4 at 26.03 and you could take your profit off that "cathedral of dead money" (9th bar) you see just before the long red bar down. If you kept this one on your screen though you could take a second bite of the apple at 14:45 when it once again ascended through 26.03 and came to rest with a double steeple at 16:00.

This trade was completely informed by the pivot points.

The Rocket Filter - Unmasked

In case you don't follow the comments, slotmonkey, supplied the missing code for "The Rocket" filter which Mike over at Stockmonster wrote. See the link list for his address - a good site.

show stocks where count(RSI(2) 2 day ago above 90,60) is above 0
and RSI(2) is below 20
and average volume(10) above 250000
and close one day ago more than 8% below close 2 day ago
and close more than 4% below close 1 day ago
and close above 0.99
and 60 day slope of close is above 0
and market is not otcbb

The first line by the way is designed to find an unknown moment in the past when the RSI(2) was greater than 90. Because Mike didn't know how far back that would be he used an ingenious construct that ensured that he would catch one. Why 60 days was required I don't know but it works and that's all that counts.

Unfortunately using my standard test method this approach yields negative ROI in both the current and last periods. (The same periods that my derivation yielded 200+ and 500+ ROI. The interesting thing is that the win percentage of 47 and 52% respectively is better than mine. But no win percentage that produces more losses than profits is going to entice me to use the code.

Slotmonkey mentions that the "reverse rocket" is even more impressive (used for shorting) since I don't short it doesn't matter to me - but if the code is provided I'll supply it as a public service to my readers.

I'm going to stick with "Dead Cat Bounce" and see if I can make a buck or two off it.

Today's Rocket selection is TAG - it's ugly but cheap.

Today's Dead Cat Bounce (Marlyn's Filter) is ANGO which showed at the top of a 6 stock list - the 6th stock on that list was TAG.

We can now have a shoot out.

Thursday, March 29, 2007

Thursday's Wrap

It was an up day but not by much. I expected a lot more and didn't get it although the stocks I'm in currently did well. Those are GGB and OI - AGIX was stopped out. Candidly as I said in the Dead Cat Bounce post - they are going up or they will probably stop out so set the stop close - I did and it did. I added to OI. My day trade BMR also stopped out but that was this morning.

Since I missed most of the day this will be brief this evening. I see that MSFT made a few cents today as did AAPL. I would have expected AAPL to have done better but it is still considered a "tech" stock and as such it follows the market up and down. GOOG on the other hand is an internet stock and it went down today by a few cents. That kind of describes the market thoroughly - totally random lurching around with no direction. It wants to go up and it wants to go down. Best thing to do is wait till it picks a solution to its problem and then go along with it.

The model portfolio went up to 6.91% from 6.02 and the benchmark went to 1.13%. We're going nowhere fast - I didn't make a portfolio for those stocks I isolated yesterday yet - maybe tomorrow.

The INDU ATR went back up again and that is not good - it printed 112.61 at the end of the day. We need it to continue down in order to have the market go up. Then after it gets into the 90's or so we want it to sit there and stay above 80. That would be perfect.

The VIX is now 7% over its 10-period moving average and the up/down ratio is 51% - a lot of neutral going around all of a sudden. The New MoMo is still looking good and has transitioned to under the line but not yet at -.005% which is the target for sustained upward movement -

I'm going to forecast tomorrow as another up day.

The coin says that tomorrow will be ... heads - the coin thinks it will be up as well.

The score now stands at Marlyn 24 - 20 and 8 and the coin is 24 - 20 and 8.

Break Out Filter Code

Here's the break out filter for anyone who doesn't have that code yet -

show stocks where close is between 15 and 35
and average volume(90) > 500000
and the close is above the upper ascending triangle(40)
and the close 1 day ago is below the upper ascending triangle(40) 1 day ago

Once more I'm using the old keeping it simple approach.

The market seems to have turned as I suspected it would after all the exuberance this morning - I'm going to play golf - see you this evening with the Wrap.

Don't Fight the Tape

I'm watching the USDJPY on the 5-minute charts and I saw a brief breakout so I took a day trade in BMR. It doesn't look like we're going to have a boomer of a day though - one shot up and over. No sense in fighting the tape - if it happens it happens if not it doesn't - keep a close stop.

I did take advantage of this morning's chaotic opening to sell off a bit of my trading portfolio - RSH, IN, SPF, MDRX, and KNOT were all sold - enough winners to offset any losers and I feel better holding just OI and GGB. I have significant profits and shares in both of these. I'm holding both for a while longer.

I took my first Dead Cat Bounce trade this morning - AGIX - if there was ever a down trodden piece of crap that is it. Anyway I'll hold it for a couple of days or until it goes up a quarter or down 15 cents which ever comes first.

Thursday Pre-Market

Looks like it might be a good day - here is the 5 minute charts from the USDJPY and we can't help but notice as soon as the US NASDAQ premarket opened it started going up.

But I've seen these things turn on a dime so don't start counting your profits just yet. If it is going to be an up day it is probably going to start with a bang and end with a whimper. It will be an awful day for day trading except for a few Return to 4 opportunities - maybe.

Have a good day trading.

AAPL Core - Once More

Apparently the Ipod has dried up as a revenue source and everyone is waiting for the phone. Notable Calls .

I wrote the other day that I thought AAPL was not looking well and that it might hit 90 before it gets to 100 and apparently Piper Jaffray believes the same. Now I might not believe in analysts and you might not believe in analysts but there are a whole lot of lazy dumbasses out there who do -

Besides it was running away from its averages and probably needs a bit of a breather. But I still think today will be an up day so maybe it catches a bounce.

Wednesday, March 28, 2007

Dead Cat Bounce - The Filter

The "dead cat bounce" is price action after a panic drop over one or more periods - generally price jumps and then resumes the decline soon after.

One of my readers - IIO - pointed me to another site where a guy is using a filter he calls the Rocket and on first glance it appeared to be similar to my BOB. But it isn't.

The difference between the "Rocket" and BOB is that the Rocket was founded on a price basis including percentage decline and BOB was developed on a volume basis. That's why I'm always insistent that volume on the second day of the triad be higher than on the first, and for a set-up - significantly higher. The BOB was also designed for a sustained rally because it was originally conceived to support swing trading. The Rocket was designed to catch the proverbial dead cat bounce and as such works extremely well.

There is a great difference between price based filter and a volume based filter so while the two filters may appear to be similar they are as far apart as night and day. I discovered BOB when I was doing an extensive analysis of the effect of volume on the next and subsequent day price changes.

The guy on that Blog keeps his code secret so I derived a filter from the several charts he had on the site containing stocks he attributed to the filter he named "the Rocket". I call this one - what else - Dead Cat Bounce -

show stocks where close is between 1 and 35
and average volume(90) > 150000
and close 1 day ago is more than 8% < close 2 days ago
and close is more than 5% < close 1 days ago

For the current test period (11/06 - 03/06) the back test saw 67 stocks (based on taking the highest volume stock when two or more were selected on a single day) and produced a win rate of 41% with a 263% ROI and a 4-day net of 4.23 and a 30-day net of -1.71%.

Except for the win rate that's impressive. Then for the known good period 10/06 - 02/06 the back test saw 66 stocks and produced a win rate of 42% with a 509% ROI and a 4-day net of 6.33 and a 30-day net of -.01%.

This period was also a little lacking in the win rate department but if anyone were to use this filter and actually play the stocks that are output I suggest you set the stop close - the stock is either going to go up immediately or decline immediately and in the later case you want out quickly. Also this ROI is based on the fact that the highest volume stock each day of all stocks output was used for the test. I suggest that you adopt that approach also.

The code is clear - it is looking for deep declines in the stock market and it wants them over two days. I'm sure there are ways to modify this to raise the win percentage some but I have to say - for that kind of ROI I'll take a few stop outs.

I'm going to play with this for awhile and if I can find a lower risk solution I'll let you know.

Also stop by Stock Monster - I read some yesterday and even if the guy doesn't share his code he does share his picks, writes well, and writes often.

Some Thoughts For Thursday

I'm going to give you a couple for Thursday - I know something about all of these but not enough to recommend any of them.

Finally got a breakout - on a day when everything was going down one stock poked its head above the trench and looked at blue sky above - that would be -


These next ones come from the ATR + RSI Filter (the ones with the "*" also come from BOB set-up)


Do your own DD and remember - I never recommend playing the stock market - I'd much sooner recommend that you go to the nearest casino, find a craps table, put your money on the line and toss the bones - much better odds.

Wednesday Wraps

I planted a rose bush - and that was good. A beautiful hybrid flora bunda called Purple Passion. The one I had to replace - a real old timer just a while past its prime scratched me up something fierce and I guarantee I made sounds like purple passion.

This morning right after the market opened I bought some KNOT and it actually finished up a few bucks. I also grabbed SPF off the BOB set-up filter. Turned out not to be a great selection but I'm going to hold it for a bounce tomorrow. RSH round-tripped from 0 to 0 again and if that is the worst thing that happens to you be grateful. OI round-tripped and added a penny. IN went up a quarter (again against the market) and the rest held their ground. I'm expecting a huge bounce tomorrow morning and we'll get to the reasons why presently. If I get the bounce I'm going to rebalance the core portfolio, get rid of the dogs, and put the proceeds into as many stocks as I can on the following list.

This is a list of stocks that have gone up since Friday - that's right - gone up while the market was collapsing. These are stocks I want to own. The list is in Average True Range Order because when faced with choices I want to take the most volatile first.

And it is not without a touch of sadness that I note that the first one on the list - GRA - I actually owned several weeks ago and dumped it because "it wasn't going anywhere" - what a maroon. See, what do I always tell you - Rule 1 - after Rule 1 you don't need any other rules.

The three amigos, GOOG, AAPL and MSFT all dropped a bit today with MSFT doing the best of all and AAPL doing worst. Can't expect much different given the kind of day it was.

The model portfolio lost a bit more to 6.02% which isn't that bad and the baseline is down to .93%. I'm going to start model portfolio 2 with the stocks on the list above and we'll see where that goes over the next couple of weeks. I'm going to simulate a buy at the close today.

The INDU ATR went down some more to 109.40 and the VIX is now 6% over its 10-period moving average. The up/down ratio actually got a bit worse but only to 29% and this guy split the line today.

The last time it did that the market turned and started going up immediately.

I'm thinking that there are a lot of good stocks sitting on the "buy me at a discount" table right now and we might see some of the fund managers step in tomorrow and start taking some off with an eye on next quarter. The numbers above all say that we are do for a reversal of fortune and I find myself well positioned to take advantage of any bounce that comes. I'm forecasting tomorrow up.

The coin, after being beaten up today, calls tomorrow ... Tails - bear market.

The score is now - Marlyn 23 - 20 and 8 and the coin is 24 - 19 and 8.

Wednesday Pre-Market

Doesn't look good - Asia and Europe are down, futures are down and NASDAQ pre-market is down. The USDJPY is down as well.

Sometimes this kind of a start to the day doesn't follow through. I don't know - NewMoMo suggests that we should have another flat to down day so I guess we'll just have to wait and see.

I might take the day off and plant a couple of roses that I have waiting for me.

BOB Set-Up Filter

I was asked to provide the code for the BOB Set-Up Filter and here it is

/*This filter finds the first two days of the triad - you have to determine the third piece in real time*/
show stocks where close is between 15 and 35
and average volume(90) > 500000
and close 1 days ago < ema(8) 1 day ago /*this line helps ensure I'm looking at distressed stocks*/
and close 1 day ago < open 1 day ago
and close < open
and high < high 1 day ago
and volume is more than 20% > volume 1 day ago
and low < low 1 day ago
and draw ema(8)
and draw ema(21)

Use at your own risk - no further warning necessary.

Tuesday, March 27, 2007

Day Trade 3 - TAM

This is a trade I didn't take - It was a valid trade but I limit my market participation on these kinds of days to selling day trades and buying swing trades only after noon. But it would have been a good one - and nothing difficult about it.

Another RSI(2) all day long with a couple of tweezer bottoms, but this is where you have to be disciplined. With no pivot point to base this trade against you are taking a big risk on a down market day. However, you could take it as an RSI(2) trade at 14:30 because it just crossed S1 and held it from there to the end of the day.

Why not jump out on those two red candles? Have you never seen a return to 4? The crossover at 15:00 informs this trade and mandates that you hold it to the end of the day. Watch for the crossovers - they are powerful indicators of a trending stock.

Day Trade 2 - SIRF

I like trading SIRF - I don't know why except that it is a volatile stock (98 cent daily ATR) so whenever I get a BOB set-up on it I watch it carefully.

This was a simple enough trade a straight-up pivot point affair - it dropped below S1 on the open and then rebound right back through again. I took it after 10 on the 4th candle at 27.15. My stop was set at 27.00. It was either going up or I was out.

At 1300 we started to get some ugly looking candles and I was gone at 13:30 near the high of the day. In at 27.15 out at 27.73 - 58 cent net - only one trade.

Day Trade 1 - MAS

I got MAS from the BOB set-up filter. That filter is very prolific in finding only a few trades a day to watch. That's the best thing about it. There were about 10 yesterday afternoon and I winnowed those down to about 6. Among these were MAS, TAM, and SIRF. I'll do three posts - one for each of these stocks.

MAS fired out this morning and immediately rang the RSI(2) < 2 bell. But I didn't like the looks of the market and wanted to wait till after Con Con to take any trades. Con Con came at 10 and suggested that it was going to be a tough day in the old market but at 10:45 with a persistent RSI(2) < 2 signal and now a BOB I took the trade. It went up and went down and my stop loss was at the low of the 5th candle (10:30) at 27.40. It nearly hit it but drew another BOB along with a tweezer bottom at 12:30 and so I doubled up. I stayed with it until the dummy spot at 15:00.

You can see that it was beyond the pivot point at that time, had spiked volume two periods before and I felt that it was time to pull the pin. I was in at 27.50 2X and out at 27.78. 56 cent gain based on the fact that I was in twice.

Is KNOT Done?

I know, I know it's not grammatically correct - it should be Am Knot Done?

It looks that way to me - half as many shares today as average a little pull back yesterday - I think we are seeing an end to the relentless sell down of KNOT for which there still is no story. I will always believe that some fund was selling a bunch to make their number for the quarter and will now have the green light to buy back the shares. Any sign of life tomorrow in the first 15 minutes (as long as it isn't a gap up) and I'm back in. If it gaps up I'll wait for the pull back to whatever pivot point and get in then.

Tuesday Wraps

Oh wow let me count the ways - none - now that was another boring day. Of course stocks went up and stocks went down but down was kind of the key to understanding the day.

The fund managers now have one day left to get their act together - Wednesday - because everything settles on Friday and counts in this quarter. Because of that I think tomorrow will be an up day and then we fail into April or fall into April - take your pick. Fortunately because the end of March is so weak April is setting up to be one hell of a month. But first the news -

I mentioned this morning that I lost CRVL to a stop and replaced it with MDRX based on the fact that MDRX was going up when the rest of the market was going down - and that's what happened MDRX went up and stopped and went sideways the rest of the day. Along with everything else. I added to my OI position this afternoon because that was another stock going up against the flow.

The model portfolio lost a little and sits at 7.39% which isn't too bad for 20 days. The Benchmark is at 1.70% which is awful.

GOOG caught a bid at the end of the afternoon which cut the loss a bit - MSFT didn't disappoint - at least not those of us who are calling it a "range-bound pig" (not to its face of course). From 1:30 yesterday afternoon to 4 P.M. today it went - nowhere - but round-tripped 60 cents in the effort. What a piece of crap. AAPL lost a few cents today and I still think it sees 90 again before it hits 100.

My FOREX friends - I hope you kept records on this morning's Con Con effect which was disappointing low. This should suggest some pressure on the Fed to lower rates and the various spots acted exactly as they should have if the Fed lowers rates on the buck - they became stronger against the dollar getting weaker. So now you have Con Con in your book.

The INDU ATR is way down this afternoon to 115.75 - that suggests that the exuberance for selling is waning and it's possible that it will support a boost tomorrow.

The VIX has already pulled back into the neutral zone and the up/down ratio sits at 27.86% and that is oversold to a capital "O".

This guy keeps sinking which is good -

So I'll repeat my forecast for an up day tomorrow.

The coin meanwhile, having another winner today calls tomorrow ... heads - up day also.

That makes the score Marlyn 23 - 19 and 8 and the coin is 24 - 18 and 8. The coin is all of a sudden doing better than Marlyn - imagine that.

Tuesday Follies

Stopped out of CRVL - what's new - I think I'll have to wait a bit for a breakout on that one.

Added MDRX in its place. I took MDRX off the fact that the market is going down today and it is going up. That is sometimes a good indicator of a "must have" stock. Of course I set a very close stop in case it changes its mind.

Watching the 5 minute USDJPY chart and it appears as if the world is trying to reverse. We'll see.

Pre-Market Tuesday

Asia was down, the USDYEN is sliding sideways, Europe is looking weak, the futures are down a bit - looks like another choppy day.

Consumer Confidence (or Con Con) comes out at 10 A.M. and my FOREX buddies should start watching the charts beginning at about 10 minutes to till 10 minutes after. Con Con is expected to be low which is a Fed stimulus to lower interest rates which makes the U.S. dollar cheaper (think of lower interest rates as I can borrow more for the same monthly payment and since all money is created by borrowing more money means cheaper money). If the USD becomes cheaper (again) that means a drop in USDYEN and a rise in EURUSD, GBPUSD, and so on. Just guessing - not a fact.

So if the USDYEN drops then we expect the Q's to drop along with much of the rest of the market.

Have a good trading day.

Another Good Trade - Another Good Lesson

Philip took a good trade on MRX yesterday - one which I would have taken in an instant - and he held it correctly to the R1 point and then took his profits. Excellent trade, brilliant execution. Something all of us can do every day if we have the patience to wait for the set-up and don't try to force it.

Let me go over this with you - a classic BOB set-up coupled with a crossover - coupled with, as we already know, a market turn and reversal (see previous post) and you must have the highest confidence in this trade. While I don't recommend it you can almost take it without a stop-loss (although one placed right below the tail of the previous red candle would be appropriate).

As far as I'm concerned Philip did the right thing by taking profits at R1 and I would have as well but there is another indicator on this chart that we sometimes overlook.

Take a look at the DEI chart, the trade from the previous post - this time with annotation -

Frequently, not always but almost always a top is accompanied by a volume spike (1). This is followed by a lower volume (2) and then an exit candle (3).

If you look at MRX you will see that the first contact with R1 resulted in a return to 4 and then a launch off of that into the 1 - 2 - 3 exit scenario described above.

But it takes real courage not to book profits and a lot of practice to wait for that kind of exit.

Keep An Eye On The General Market

I found DEI on the BOB set-up filter Sunday Night and had I been around on Monday I could have played it.

First there is the BOB at 10:30 and even though the previous two candles don't appear to fit the software is set-up to output a BOB when one is found and that's what it did here.

If that wasn't enough then the candle at 10:15 being the second bounce on S1 would have informed your trade. In other words you could have taken this as an S1 trade because two candles had already tried to pierce S1 and had failed. As it turned out 4 candles attempted and failed - so the candle at 11:00 would have said to you "I'm going up - buy me."

If that failed then the crossover at 11:30 might have given one a clue that this was a good buy.

For an exit - we have the DOJI just before R1 followed by a spinner that touched R1 - that's your clue to take the profit and run.

If that wasn't enough then you could have blindly bought DEI based on QQQQ action. In other words seeing it bouncing along S1 at 10:15 you can be fairly confident that it is going up. Then, a quick glance at your QQQQ chart would convince you that the market is turning.

When you trade - keep your eye on the general market for excellent signals of what to do next. And try not to trade against the market - it seldom works. Of course - sometimes the market continues and your trade collapses - also be ready to read the topping signals.

Monday, March 26, 2007

Wrapping Monday

Did anybody see what happened today?

After I saw the Yen become stronger against the dollar this morning I wrote a post "Forex Alert" and said - this won't last long. I was right.

I don't know about you but it looks to me like the USDYEN is almost a dead ringer for the QQQQ - still.

But the neat thing about the Q's is that they rebound from Support 4! and went all the way to Resistance 1. This was poetry in motion folks. See the tweezer bottom at Support 1? Then there's a tweezer again with a BOB a little while later. I love days when the market dips quick and then starts coming back - doesn't do my trading portfolio (swing trades) so good but for day trading it is the best.

Unfortunately I missed it - I was at the hospital taking a test - no problem - I passed - but I sure wish I had been here for the show.

Lost STD to the stop loss - added RSH, IN, and CRVL in place of WEN and STD. Added some to OI on a tweezer bottom near Support 1.

So you want to day trade with the big boys -

Two points off Support 2 and turns around and goes to Resistance 1. AAPL was about the same - MSFT went up but more slowly.

This guy started its move down - still overbought but moving in the right direction -

And that is a good thing. The up/down ratio stayed at 50% and the VIX moved closer to 10 under MA 10. The INDU ATR moved back up again today to 131.28. Not too much but every point higher means more delay on the recovery. We are still overbought and there just isn't any way out of that so I'm forecasting another down day tomorrow.

I'm calling today an up day because two out of the three major indices went up.

The coin, in celebration, calls tomorrow ... tails - down.

That makes the score Marlyn 22 - 19 and 8 and the coin is 23 - 18 and 8.


Housing sales were released and look what happened -

DATA SNAP: US Feb Home Sales Drop To Lowest Since 2000

This won't last long it will probably rebound in no time at all. The best part of the story is the fact that this could indeed be the low point in the housing market - this will cause a lot of inflated prices to come down and that might be the turn around key.

Lost Wendy

I thought I could hold onto WEN but the stop loss is king and she hit it this morning taking her out. Looking at the 30 day chart all I saw was a dead money indicator (despite what the pivot model showed) - so that's the way of that.

You can see the dead money indicator on Thursday and Friday - if she breaks out again I'll buy her again but until then adios MF.

The other thing to notice on this chart is the fact that the "W" is completing and now it looks like the down leg of the "M" might be forming. For trending stocks - before they change direction they usually stop.

The Rest of the Analytical Community Catches Up

To Marlyn -
March 26 (Bloomberg) -- Stocks worldwide are moving closer in tandem than at any time in two decades, reducing opportunities for money managers and forcing investors used to buy-and-hold strategies to trade more like hedge funds.

Remember a post I did a couple of weeks ago about "Recession Proof Your Portfolio" and how I showed using Marlyn's amazing Curve that foreign funds were not the secret - apparently Bloomberg asked a few hedge fund managers about this and they agreed with Marlyn. (Right - if you are in the business and don't know this already you shouldn't be in the business - the clueless financial press is not in the business. - And some people watch CNBC for "investment advice").

I don't usually recommend long articles but this one is full of interesting tidbits of information that you really should know.

Bottom line -
``If we have a recession, it's going to impact Japan and Europe and China,'' said Joy, who helps oversee $156 billion as chief market strategist in Minneapolis at RiverSource Investments, a unit of Ameriprise Financial Inc. ``All things being equal, higher correlations are likely here to stay.''

Trading Portfolio

In my trading portfolio I have 4 holdings - OI, WEN, GGB, and STD. Here are the pivot point models for each of them -

OI -




I see nothing in this picture that suggests that I should off load any of them from the portfolio at this time.

CRVL - About Time

Breakouts are some of the most profitable trading for both swing and long term holders and I believe that CRVL has broken out -

And here is the pivot point model -

It has taken awhile but I think this stock is finally ready for a buy signal. I'm going to add it to my trading portfolio today.

I'm Buying

I don't usually get excited over any stock because in my mind they are all pieces of crap with no redeeming social value - just another way to gamble, but this one, RSH, is amazing. Radio Shack should be dead and gone by now - they are a relic of a bygone day a day when most of us would buy the parts and pieces for various projects from them and we built everything from scratch and repaired everything at home. I built my first computer from Radio Shack parts and pieces.

Have you noticed that there is very little market for that kind of thing anymore? But RSH just keeps on keepin' on -

This guy should have been in both the model portfolio and the trading portfolio from February 28th on. Here is the pivot point model chart -

It will be in the trading portfolio today - because I'm buying. I'm looking for 30 dollars up or 80 cents down.

MOT - A Chart Only a Mother Could Love

Is MOT just another way of spelling toast? Notable Calls has an interesting article on MOT and if you have MOT in your portfolio it would appear, on a fundamental basis, that it is dead money.

Now when MOT finally bottoms then you might want to consider it again. And as we know - before they turn they usually stop going down.

There are a number of good articles on Notable Calls this morning.

Some Nice Freeware

For anyone who is interested in developing your own methods you know that downloading data can be a chore - I've been doing it by hand for so many years it is second nature to me now but it does cut into the fun time.

A couple of weeks ago, one of the readers, Joseph, provided us with a link to a great site full of freeware and one of the items was AnalyzerXL. It is found here.

I've now tried AnalyzerXL (it embeds in your excel spreadsheet as a tool) and I can tell you that once you figure out the quirks it is a joy to use. I can bring dozens of stocks into my pivot point analysis application in the time it used to take me to do a handful. There are a number of features on AnalyzerXL that I haven't tried yet but I will get to them presently.

Thank you Joseph for finding this wonderful tool.

Update - I found out shortly after publishing this that the "free" part only lasts for a short time - this morning they wanted 49.95 from me for the registration key - I like this program so much I gave them their money - it saved me 49.95 worth of time already.

Thank you anyway Joseph - even if it wasn't free per se it is worth the little bit that it cost.

FOREX Kickers

There are several important announcements coming out this week and if anyone is serious about investing in FOREX it would behoove them to put up a chart of the USD + Yen, Euro, and maybe the Swiss Franc and watch them in the minutes before and after the announcement.

Among some of the more interesting ones - ones that might give the spot market a kick are -

A few minutes after each announcement print the chart to file and keep it digitally or on paper with annotations of what the announcement was about, what was expected, and the actual value.

This will serve as a good indicator for future action.

Sunday, March 25, 2007

Good Old Value Investing

Haven't had a post on Jimmy Crack Corn Pone in a day or so and I happened to run across a bunch of his picks on the old tout machine and I pulled three of them out to illustrate his idiocy - if you follow this guy you will go broke -

AAPL - he put the bad mojo on AAPL - said it's going to 100 - meanwhile every young TA follower in the world can see that AAPL is forming a head and shoulders. And I know I don't believe in head and shoulders but what I believe in is the down leg of an M formation - if you are in AAPL - next up is the down leg of an M formation. It will rebound off there, of course - so don't panic.

Now an example of "dead money walking" in CLF -

And finally another example of "dead money" but this time with a second example in the same chart -

Will someone tell me why the 02/20 week is different from 03/19 week? And if it isn't different is it possible that the same thing is going to happen? What concerns me most about this chart is the fact - the absolute incontrovertible fact that all gaps are filled. And if that is the case then this stock will see 64 before it sees 84 - if I remember we'll look back again sometime in the future. Needless to say these are just my opinions and I'm usually right but not always.

Another strange pick from this batch was SUNW. Now SUNW is on a roll - I mean look at this chart -

Let's see - it started collapsing at the end of January and in a month or so it has actually dropped all of 70 cents. It gave back all of its Bernake rally gains on Thursday and Friday and Jimmy says because it has new management it is going places. No - it isn't - it's day trading scalper favorite that every once in awhile returns 10 cents on a trade - anyone who invests in this stock for a long term is nuts.

Anyway Jimmy Crack CP says he "never looks at charts" and he is a value investor who invests in the management of the company - which is well and good but I guarantee you won't make money doing that - and in fact he never did. Yes he did well in the 90's - but so did I and so did my Mom and my Grandma too. And so did my barber, my butcher, my baker, and my bookie. I don't listen to any of them - why should I listen to this shill?

Day Trade Shorting Is Easy

The shorting I was talking about in the earlier post was for swing trading or even long term trading - that is extremely difficult unless you get something like CMGI at 160 for example and manage to short it in Jan 2000. Then you start believing that you are a genius when actually all you are is incredibly lucky.

But for day trading - pick a hundred stocks, any hundred stocks, put them on a set of 15 minute charts and look for one thing - reverse crossovers - here are three examples -

Note from the examples that you can sometimes catch a stock in a slide (KNOT), sometimes carrying one overnight yields even greater dividends (JBL) but most often it's a one day fling sell and cover.

A couple of rules - pick stocks with a large float so that you can be sure to get the shares you need for shorting. Don't be greedy. Pick targets and when you make targets exit. Watch for pauses - before a stock changes direction it stops - when it stops going down set a close stop in case it decides to reverse direction. See how BSX began behaving around 12 P.M. for an example. Also - on BSX - those two candles pulling back to the 4 EMA at 10:45 are the shortists version of Return to 4. Don't let that scare you.

Other than that you're on your own - good luck - and, this is not an invitation to speculate on the dark side - if you lose your butt you didn't learn it here.

NewMoMo - All Indices

The only thing I'm missing is the mid-cap. Mid-cap is the best performing class of stocks this year to date - why is that? I don't know - no one knows - it's just a fact.

What this shows is that three of the four have rolled over the top and are now heading back down which is why I'm calling for a down day on Monday. But I think because this is end of the quarter and the last week at the end of the quarter is usually pretty good (about 60 - 40 up) barring catastrophe this could be an up week overall. Friday is, after all, hedge fund manager bonus day and vacation season is upon us and 90 percent of the hedge funds out there are simple stock funds with a couple of options thrown in and so the market must go up. But first - it must go down.

Shorting Is Difficult

So you want to short the market - you figure I'll just swap around a couple of Marlyn's tools and we'll have it made. Let's see how far that gets you.

Let's start with something simple - RSI(2) > 98 and RSI(2) > 98 + ATR(10) > 10 MA


I guess the RSI + ATR filter might get the job done - with care - the problem is the numbers of selections are slim. Only 52 selections - and the 30 day net change was positive.

That's the problem with shorting - it isn't as easy as it looks. For every winner who bleats his win from the rooftops of the Ville - there are a hundred or more losers that you will never hear about. And options truly aren't the solution to this problem - they only look like they are.

Then I tried using a gap down approach similar to yesterday's gap up approach and the back test (short model) obtained a 52% win percentage, 1.22 Reward to Risk and 41.20 ROI which is the best yet. But there could be problems - here are the results of two days of using the gap down approach -

The biggest problem is we just don't get enough solid days up with solid down stocks to be able to put together a contrarian approach to yesterday's gap up model.

So if you are going to try your hand at shorting it has to be obvious that you need your own special tool set (as I have contended) and it is very difficult to do in a market where the bias is perennially up. Good luck.


Some years back I set up a small account just for trying out a variety of options strategies that I, what else, learned in a book. It only took me 9 months to blow out that account and more. And even though it was small I think in all that time I made maybe 2 good trades and 20 bad ones. And because I believed in multiple contracts (i.e. 10 or more always going for the bulk discount) that was a lot of money blown.

It taught me two valuable lessons - one you can't learn to trade out of a book and two even after reading several books I didn't know jack about options. Since that time I have improved my knowledge level and have discovered that I'm just not willing to play the game in all the innings any more. In other words I have become laid back in my elder years and prefer to just buy some stocks for swing trading, do a few day trades a week and play golf - options and futures and all the myriad other ways to play the market are best left to youngsters who would rather play dodge ball than fantasy baseball.

One of the biggest problems in playing options is that you need a stock that is going to move - either up or down. Nothing is worse than having a couple of dozen contracts on an IBM say and then watching your price degrade while IBM moves in and 80 cent range bound arc for a month. At the end of the time what you paid a buck each for are now worth nothing. If you had bought the same number of IBM shares outright then at the end of the month you would have at least 80 cents in profit per share (1920) and that is a lot more than a 2400 dollar loss not counting the extra fees associated with options contracts.

But if you are insisting on playing options it might be a good idea to have some in depth training and the CBOE provides some good tools that are free for the taking. My favorite was the optionstoolbox which contains an education as well as a method to set-up options positions and see how various changes over time effect the premium - i.e. profit/loss. It is neat to play with and you will be surprised in how much even deep in the money options can lose you if the stock either goes against you or doesn't go at all (which is worse). This is a screen cap of the model once you fill out the set-up screen (easy to do).

You can change days remaining, stock price, and volatility to get a good idea of how many thousands of dollars you are going to make.

I don't recommend options to the casual trader - if you don't have time to devote to your position all day long during market hours then some bad things can happen.

Of course you can use options to hedge a position but that's another story altogether.

Saturday, March 24, 2007

Pray For Rain Part II

And even though I know that you believe me - you do recall that we had a pretty good dive on the 13th of March - here are the 21 stocks that met the criteria on that date -

21 blind selections - 4 losers - what more can I say except - come on rain!

Of course the market has been cooperating - I doubt this is that effective during a steady downpour.

show stocks where close is between 10 and 35
and average volume(90) > 250000
and open is more than 1% > close 1 day ago
and close > close 1 day ago