Saturday, May 01, 2010

Basic Material Disaster Screen

Here's a list of basic material stocks down 10-20% for the week.   We think the sell-off is getting short-term overdone and will be looking for support bounces in stocks not directly associated to the oil spill (so no BP RIG APC CAM HAL, etc) but which are suffering from collateral damage.   Also some steel and coal stocks could be ripe for a bounce.   To be clear -- we never buy the low and average down.  We put alerts on places we think a stock will bounce, wait for buyers to show up, wait for reversal, and enter on the bounce with stop below.

Thursday, April 29, 2010

A failed support long trade

One of the rule of thumb rules of support buying is you want heavy volume when trading breakdown/breakout but light volume when you buy support or short resistance. Why? Because if stock has heavy volume it can go straight through the price. This is what happened with our CAM trade today -- we missed a great trade in it by seconds. It happens, and we're not particularly upset (especially since we've had a very good day trading other stocks from our list) but it's always a good reminder of how easily panic selling can go through support. The traders who go after these type of trades often take a lot of pain -- sometimes it works, and sometimes it doesn't. That's not our style -- not knocking that type of trading, but it's just not what we do.

This is the chart we were looking at -- we have 200SMA initial support and then secondary/tertiary overshoot strategy at 36 and 35.5

A few notes -- CAM was a buy on that first test at 42 near open, and as we always write (included in early morning blog post), a short on the second test (of 42) Now that would have been the best trade of the day!

We always write to wait for reversal before buying -- when it's slow you can wait for the candle to hammer up and buy the next candle. On a move like this it's impossible unless you want 2 point stop (we don't). So price actually did reverse when we bought and we had stops below on both -- buy you can't see it on the candle as it went too fast.

All in all we lost combined 64 cents combining all three trades (one win, two losses). A 3 point gain would have been, of course, much sweeter, but you can't get them all every time.

Retrospective musing? With that much panic chances that it would simply stop and reverse at our support levels was not likely. We should have either not gotten involved, or waited for a more clear sign of reversal with smaller size and wider stop.

Overshoot Strategy, Again

We've discussed the overshoot strategy in previous posts but it's always good to review it with real-time examles:

So here's what we were initially looking at -- APC we had alert at 100SMA but stock wasn't pausing. We wrote next support is 65.65 -- this is secondary support, so stock goes through first support and then overshoots to secondary support.

Fortunately it worked as stock found footing there and bounced:

We actually tried the first small reversal at 100SMA, quickly took our 25 cent loss, and then tried again on the hammer on the secondary overshoot support, which ended up working well (2 points with 30 cent risk).

(add 3 hrs to time stamp -- west coast time printed and start from bottom)

Daytrader Talk - Buy first test, short second

Very good examples today illustrating something we've talked about for years: first test of support is a buy (in a bull market), second test is a short or a pass, but never a buy (unless it prints a higher low -- not always easy to catch).

We had an 88 short alert in our newsletter last night on WLT (and posted in StockTwits)this morning before it triggered.

We had WLT as a long on the initial test of the 50SMA a few days ago. It worked well but now stock was returning back to test the support. On daily if a support is tested again in a short time-frame then we pass from trying to buy it long on support to looking to short the breakdown.

We missed a great entry on the rally to 20EMA/5 min -- short on the reversal with stop above.

But thankfully WLT based at 88 and gave a an entry short right at the number.

Very quick 2.5 points

Our other trigger was from Wed newsletter -- support long CAM 42. Again, perfect example, this time intraday, of how to buy the first support, but either short or pass on second. So daytrader would have caught the first move up long but passed on the second (or gone short).

Wednesday, April 28, 2010

Triggers for today

So far we have had a small day-trade in a short, one break-out starting to work, and three bounce support trades work well. As we wrote in our newsletter last night -- for now these are all day-trades except for our GLD swing from yesterday.

VALE alert was 29.75 for a support bounce -- worked well.

SSRI we had 20 breakout long alert and working thus far.

IOC was a short at 67.3 which worked for a quick scalp down.

FST we had 28 alert for a reversal trade long-- came within a dime and bounced nicely.

DECK came within a dime of our long support alert and bounced 3 points:

Tuesday, April 27, 2010

New position

Our only position long, posted today at 2:40PM (average 113.88) in anticipation of the 114.2 break-out. Love the chart, will add on pull-backs (gold notorious for pulling back and basing and filling).

Daytrader Talk

For as long as it works we will buy support in pull-backs. Couple points in buying pull-backs:

1) stock should be oversold when it hits support.

2) ideally the whole sector to which the stock belongs hits support around the same time (at least in same zone).

3) our best support trades are when the stock is deeply oversold on daily and also deeply oversold on intraday meaning it hits the support alert extended away from the 20EMA/5 min, creates a hammer candle and rallies. If everything sets well we often jump the entry when we see reversal in price and don't actually wait for the 5 min candle to close. Stop is on the low.

Here's an example today of WLT as it hit the 50SMA and bounced:

This was only a day-trade for us (no swing) as we feel there's more downside in the market.

Note how stock leaves the base, moves away from the EMA extended into support, reverses with very good volume. The hardest support buys for us the stair-step grind down moves and the easiest, ironically, are the panic vaccuum moves extended away from base/EMA into support. This of course is exactly the inverse of buying strength in which it is best to buy the stair-step up and always avoid buying on top of a big spike up extended away from the base/EMA.