When Should I Enter a Trend - 2

I ran across another BLOG, Dogwood Report, where the proprietor also does back testing and appears to use a more sophisticated set-up than I use. I added his site to my list and I will be visiting frequently and hope you do too.

Anyway regardless of the back testing methodology we both seem to agree that "down 2 bars" is a good entry position. That is goodness.

But my biggest problem is once I have a filter testing well I keep tweaking at it and tweaking at it trying to make it better.

This morning I managed to make "Down 2 Bars" a bit better. I simply added two lines one that required the close 3 days ago to be greater than the close 5 days ago and a second requiring the close 2 days ago to be greater than the close 4 days ago. Then the rest remained the same - 2 down days in a row. (For filtering purposes I count the last element in the filter as "0" as in "0 days ago" or "today").

By doing this I was ensuring that an uptrend was being interrupted for whatever reason and then resumed. It returned 29800 and change so that is about 18% better than before.

If you look at the MAMA chart in post MAMA Mia you will see this filter clearly.

MAMA Mia

I just saw this today – happened to be looking at some 30-day charts and ran across MAMA. Do you see what I see – that’s right a kiss of the 4 EMA after that huge run up earlier this month – then it doubled off that. If I keep missing these jewels and taking trades in dogs like WFC I’m going to trade in my kit for a tin pan. I’d be better off panning some cold creek somewhere looking for gold.



Anyway, congrats to all who saw this classic set-up which goes like this –

1. A brisk rise in price in either one or several days,
2. A pull back to the nearest EMA (or MA),
3. Kiss the EMA and then rebound, or,
3a. Drop through that EMA to the next and then rebound, or,
3b. Drop through that EMA to the next and then rebound.

One way or another it is either going to rebound or keep going down. When you see the set-up developing you should put the stock on your watch list and return to it at least once a day towards the close watching for the rebound. Note that I said “you” – I obviously am immune to these rules. What’s worse I even played this guy the other day for a day trade and didn’t bother to bring up a longer-term chart. What a Duma (the middle b and the trailing s’s are silent).

Also might review this chart in the context of the previous post - When Should I Enter a Trend.

Wrapping Crappy Wednesday

Man I’m getting sick of these boomerang days. Up we go, down we go – around we go – nobody knows where we want to go. I want the market to go down and go down hard. I want that to happen in the next 10 days. That will give us a good set-up for the next year. It won’t of course – don’t know if you’ve noticed or not but there just isn’t any volume in this market. All of the indices ETFs that we follow are at half speed if that.

I’m still holding SYMC although I wish I had sold this morning early and I picked up some DHI and was probably a day or two too early on that one. Dumped out of WFC – a 9-cent gain off a three-day hold. Could have had 9-cents after the first three minutes. Sometimes you just waste time although a profit is a profit. Sometimes they are so boring you just have to kick them out of the portfolio. WFC fit that profile to a T.

I took a day trade in CRVL. That chart's below – I took it on the fifth bar where it "kissed the 8" and dumped out right at 48 – that was my target and I had to go shopping again. Good thing – looks like everyone else had to go shopping too. MAMA would have been a great trade again today – as I mentioned in my post on cheap stocks – MAMA and MVIS both were showing some support on the monthly charts. MVIS hasn’t been doing much but MAMA has been running pretty well.



I’m getting sick of shopping. I read a column by Barry Ritholtz this morning on Seeking Alpha containing anecdotal evidence that the season is lacking in the retail sector and I’ve got to tell you – I agree. I’ve been out almost every day in December and in years past where I would have had problems with parking – no sweat this year. Also we have had some lines but nothing too difficult and an awful lot of stores just don't have anybody in them. Not the big boxes of course but a lot of the specialty shops. I don’t know what that means for certain but I think it bodes ill for the retail reports in January. That will mean a one-day market decline at best and then ho-hum up we go again. Adam on the Daily Options Report said it best – he called it “relentlessly plodding upturn.” That pretty much nails it.

I really thought we’d have a good day today – at least go up and stay up but there are a lot of profits from the “relentless upturn” and somebody is taking them. Possibly the funds – setting the end of year markers – the retail trade is too conditioned to wait for January to take profits and there are hardly any losses to take this year.

For tomorrow the up/down ratio went up to 48%, the new 20-day highs gained ground and the new 20-day lows lost ground. Everybody went red in the last hour except IWM. The small caps had a great day. The VIX slid back inside of 5% below its 10-day moving average.

This all sums up to a great big – I don’t know. I’m going to sit on my positions through the holiday and see where we go next week. I'll watch CRVL and MAMA and a couple of others to see if I can get a day trade but other than that I'm pretty set where I am.

The magician is now at 38 – 29 having called today correctly – I should have listened and not played DHI – oh well sometimes you have to believe your own stories. I still think homies are over-sold and I'll get 10 - 15% out of DHI yet. I'm looking for a about a buck-60 with no real downside risk. For tomorrow – magic says --- tails – more bear. Could be.

Tuesday Wraps

I’m still holding SYMC and WFC and both actually went up today. I managed to salvage most of my losses on ORCL this morning – I expected a small downside – not that steep drop but, as always with a mature company, the first drop is an overshoot and if you jump on board and double or triple up you can usually get out without losing your shirt – and that’s what I did. I wouldn’t do that for some no-name but I seldom play immature companies just for that reason – I really want to know how the trading community reacts to bad news or, as in this case, good news.

I jumped out on the rebound at .25 and only lost a 100 bucks in all. Considering I was a grand down at the start – not bad. I then took a solemn vow – I will never play ORCL again – this is the second time that it was traded out from under me for no good reason. It is now on my white board under the word “Never” along with 20 or 30 others that I will not play - mostly because they are empty pieces of junk that misbehave.

(start sermon)
Warning! Warning! Warning! If you try this on your next dump job and you lose don't blame me - it is not an approved method of trading. Never, never, never double up a losing position - Never! (end sermon)

In case you think I have forgotten my day trading skills I took a small position in MAMA off a new method that I have been testing. It seems to work but I’m going to tell you that the risk factor is high and you need to move quickly. I have found this to be an effective play in every time frame from 4 minutes through 15. Look at the chart below.



You can see what the new set-up is – if the first time increment encompasses all three of the EMA’s that I use then I buy it on the next open. I keep my mental stop at the EMA 21. Now I don’t know if this will work with other moving averages because I’m happy with it working with the three I use all the time. Interestingly, MAMA also had a classic set-up a bit later in the morning – but I was already in the trade.

If you don’t think this occurs very often – take a look here at WFC – also today.



And here is a counter-gap trade I wish I could have taken but I was back on the shopping detail this afternoon. I give you HANS.



Finally – I thought the markets had a good chance to go up today because the first hour PC ratio opened above yesterday’s first hour open and closed below yesterday’s first hour close. That was despite the fact that the FTSI 100 was down all day. As I mentioned yesterday - these are rules of thumb and not hard and fast "must be's".

Of course a lot of stocks did go up today – the up/down ratio is back at 45% but the new 20 day lows are still 200 more than the new 20 day highs and that is a good thing. The VIX is back at 5% below its 10 day moving average but the good news is that every major index we follow and GS finished the last hour with a strong red candle – there was a ton of selling going on. All of this leads me to believe that we will probably go up tomorrow. But as you know a good trader doesn’t care about the direction of the market because a good trader can make money regardless.

I’m giving Mr. Magic a pass for today since the market finished mixed which leaves him at 37 – 29. For tomorrow --- tails – bear in the air - - oh, who believes in magic anyway?