Saturday, December 04, 2010

Usual suspects, support, breakout, and other trading talk

We like focusing on a small number of stocks in a few sectors.  We have basically been trading the same stocks for over a decade -- this means that we know the sectors and stocks very well.  This helps us trade them well on support and resistance.      Let's look at some numbers.    We've done two set of big trades in the last 3 weeks.  The first one was from our November 16 newsletter which was a list of support alerts.  This means we were buying the blood into support.

From our support long alerts that TRIGGERED ( of course not counting ones that never hit our alerts like APA 104 or BTU 55 which would have been oh-so-sweet) from our newsletter for November 16:

SPY is up 4.6% from the bottom of that day on November 16 to today.

Our support longs that triggered are up the following amounts:

WLT 23 %
SLV 17%
XME 14%
X 11%
CNQ 10%
GDX 8%
WFC 7%
RIG 7%
GLD 6%
MOS 6%
DE 5%
MON 4.65%
DO -1%

Versus SPY up 4.6% from the bottom tick of November 16

The second big trade was not support but breakout; it came in late November in which we told our subscribers that we were buying in anticipation of alerts included in the newsletter.   We bought significantly below the following spots: CLF 72, UPL 49, OXY 89, BTU 60, APA 111, and UPS 70  because we had conviction that they would all break.   One by one every single one broke out.

As we've written repeatedly over the last 4 years in our newsletters and in this blog -- the safest trade is not the breakout but the trade to a magnet area known as the target.    We have never had a target trade not reach its target.   Sometimes it takes longer than we think (SMH 29 took the longest, 3 months) but they do reach their targets.    What happens after the target is reached (i.e. now a break-out) is more complicated.   Breakouts often fail, support often falters, but primary targets, in our decade of trading, are always reached.   

The big caveat of course is knowing what is a viable target.    Basically, the more clear the target the better.  Crowded trades are awful if you only get in when they trigger -- they often play games and stop people out or are sold.  But the numbers are hit.   Let's say stock HCPG is trading at 48 with a very clear breakout level at 50.  Everyone on your stream at Stocktwits is talking about the big juicy HCPG breakout at 50 and it's obviously a very crowded trade.  If it's a benign tape, and it's a great breakout level in that it has based on the daily and is not extended, and it's a stock you know well (and trust, we don't do this on small-caps for example or any financial save GS), then do not wait for 50 to come,  buy it at 48 with conviction that 50 will at least be hit. Once this happens we have 2 points cushion for any possible choppiness/games or failure.   The chances of the stock going to the target area are MUCH higher than having the chances of the breakout actually working.  

All that being said, it sounds easy but it's not -- many traders see target trades that simply are not there, or are too weak a magnet.  After our target trade posts we always get questions like "I'm thinking of buying this stock as it has a target at so and so."  We look up the stock and see a higher resistance level but no clear target.  Thus the chance of it working are much lower than any type of target trade that we would enter.  A good target trade spot basically is on every active trader's screen.
p.s.  and yes, within 3 weeks we nailed both the support and the breakout.  :-)    As we've said in the past, in easy tapes, we're all geniuses.  But it still feels good!

Friday, December 03, 2010


We sold the VALE swing, took some off into the ATPG rip but keeping some, and keeping OXY CLF for possible continuation (we already had our targets met as they both broke out).  The only stock that hasn't broken out yet is UPL which we've been long since last week.

Long into the weekend  four stocks: OXY CLF ATPG UPL.    

We've sold a lot into this rally (BTU APA UPS SWN VALE out completely and small partials left  in OXY CLF ATPG UPL) and are now back to mostly cash waiting for fresh set-ups.   It's been a rewarding week and we're heading out early for the weekend.   Have a great one.

Thursday, December 02, 2010

Goal reached

We started our swings two weeks ago all based on a run to OIH 136 which represents daily resistance, weekly 200SMA, and monthly 50SMA.  Well, we're here now and we have completely sold out of some of our commodity positions (APA BTU SWN )  but are still holding what's left of our CLF OXY UPL ATPG commodity positions.  The only one we don't have a comfortable cushion on is ATPG with 14.56 average.   We'll take the loss there on any close/move under 14.41 (200 SMA which it has repeatedly bounced off of).  We'll also be swinging VALE from 33 on a good close, an alert from last night's newsletter.

This whole plan which at some point consisted of having 10 swing positions (a lot for traders who are used to daytrading) was based simply on the target trade strategy.  It gave us conviction to hold through all the chop of the recent days.  

A few weeks ago we noticed a crop of commodity charts with excellent charts and exact targets. We wrote about these target alerts repeatedly in the newsletter (and which, happily for us, many of our subscribers also got into) of for example APA 111, OXY 89 (and then when it worked quickly, we held for secondary target of 91), CLF 72, BTU 60.   All were hit and we sold into it but held onto a last little bit in case of continuation (which we got and finally sold last of APA BTU today). 

Our targets in UPL (49) CLF (72) OXY (secondary target 91) still have not been hit and we're happy to sit in what's left of our positions and wait for these to also break-out.   Thanks to the early swings we have no multiple point cushions and stops above our entry points.

So now what?   We'd like to chop around OIH 136 for a while and digest the gains.  If that occurs a fresh new crop of set-ups will emerge and we'll start the game all over again.  But for now, we're laying off the gas pedal and chilling.   Of course market could keep on ripping higher but for us the edge for trades for new entries has now dulled.

Wednesday, December 01, 2010

Update on our positions

As our blog readers know (and as we have posted in our stocktwits account) we bought many positions last week, mostly (but not all) commodities,  in anticipation of break-outs.   Over this period we already had OXY BTU APA UPS  hit our break-out triggers.    We took a lot off today but didn't completely sell out of any position.  We have however raise our stops on all the swings.   As we've been repeatedly discussing in our newsletter in the last few weeks the best strategy right now is anticipating break-outs: buying on dips with stocks with clear targets and selling at least partials into targets and holding rest for possible continuation.

Next big resistance on our screen (for us anyway who are almost fully in commodity stocks) is OIH 136.  


 As we posted we were sellers into the rip to 1206 resistance.   Any basing now around this area would be bullish.

As our readers know we always take profits into resistance when the market travels from support into resistance in one day -- as opposed to starting the day close to resistance in which we would look for breakout of resistance and add into the break rather than sell into the area.