Position Update

As we posted in our Twitter acct/Blog this morning we sold all our commodity positions into the gap-up (didn't like GS AAPL action) and now have come back into the market and bought one position into the close -- a swing of QQQQ at 42.93.



As we mentioned yesterday we like this SPY gap fill area near 107.4 for a short-term bottom and are following our plan. We might go beyond it but we think market will dance around the area.


We expect some choppiness but it's not a large position and we'll withstand at least some pain before crying uncle. It's also quite possible that we're wrong and we get some type of wash-out come Monday -- we would add into that panic.

Most likely it's not the bottom, but we believe it's a good initial entry and this area will be in play next week.

Have a good weekend. HCPG

Guest Post by a Frenemy

Our first guest post on the blog by none either than the infamous Dinosaur Trader

Great example of a disciplined day-trade lay-up using intraday set-ups and daily charts. In our opinion -- the absolute best way to trade. Well done amigo.

Written by Dinosaur Trader
Illustrated by HCPG
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It was one of those days over here where there would be more distractions than setups. I had a dude tiling my kitchen, and a shaky internet connection that the cable company wanted to fix at 9:30am.

Another hurdle was a phone call from my company, harassing me about day trading my swing account. I tried to explain to them that fault lies with this damned HCPG newsletter I’ve been following. Guys buy “swing” positions, sell them the next morning, pat themselves on the back and then hurl shitbombs at day traders. Thing is, I can hardly blame them. This market has been damned shaky and every time it seems there’s real support, its violated faster than a meth addicted teenager at a dance club. I can’t blame HCPG for that, although there are unsubstantiated rumors about them turning their newsletter profits into hordes of meth which they are selling in rural america.. But I digress…

With the recent weakness in mind, I decided this morning not to chase price. Instead, I’d try and hang onto my swings and shift my day trades into shorting resistance. I was looking for “rhorts,” resistance shorts.

The OIH was outperforming. A few weeks ago, there’s no way I’d look to short the top sector on the day, but given the recent weakness, and the way rallies have been faded with consistency, I scanned the sector and found OXY approaching double daily trendline resistance.





The 20sma was first, up at 79.80 and on top of that, if things got dicey, I figured the 50dma should provide some resistance at 80.20. Instead of assuming I’d pick the absolute top, I set a few sell limit orders, laddered up starting from 79.60. Actually, that’s a lie. My first order was up at R1 at 79.42. However, OXY started to base just below R1 at 10:15 and I decided that it would probably shoot through there when the base broke and move to the 20sma. So I cancelled the R1 sell limit.



As it turns out, the 20sma was basically the top and I got off 3 limits for an average price of 79.75. The market was still strong at this point, and I exited half as OXY dropped back to R1 and decided to leave the other half stopped high of the day. Worst case scenario, I’d make a little money on the trade, no blood. Not bad considering the cable dude just showed.



The guy, an obese man wearing baggy pants, explained that he’d have to shut my connection down. So, I used the 15 ema as my target, set my buy limit, and let him grunt under the desk. His ass-crack was exposed in an inglorious manner, and I thought that MCD and NTRI might not be a bad long term stocks to tuck away in my daughter’s college savings account afterall.

The tile guy was in the kitchen talking angrily to himself. Normally, I would avoid such a situation, but having no control over my trading account with my internet disabled and not wanting to spend any more time with “Tony Asscrack” upstairs, I head towards the kitchen. The man had a small tile in his hand and he was staring at it and mumbling something obscene about the Chinese. I tried to slither by him and nearly made it out the door when he complained that the installation manual was written in Chinese. Apparently, the tiles were manufactured there. I considered adding some of that DYP back into my long term account.

I stepped out into the frigid winter air and started to pick up sticks. Yesterday, I had negotiated a deal with my neighbor’s gardener to remove my piles of leaves and take them to the dump. I found him outside smoking a cigarette in my driveway and gesturing towards the cable van which was parked, basically, on a pile of leaves. Tony Asscrack would have to come down and move it.

Back in my office, Tony Asscrack was staring with wonder at my monitors, which were flashing red more violently than a menopausal woman in a sauna. The internet was back up, the rally was failing, OXY had dropped right to the 15 ema, and I had just made enough cake to pay for my Chinese tiles. Exit $78.57.





I decided that, meth suppliers to rural america or not, maybe these HCPG guys were onto something.

Some Perspective

It feels like the market is in a blackhole but we feel more calm looking at daily. Short-term bottom at 107.4-108 and then after a little rally maybe further pull-back to 102. Nothing too surprising here looking at daily time-frame.

Update

We sold out 50% of yesterday afternoon's purchases:

CENX ATPG TC CRK PCU NUE SU DO JRCC RGLD IAG PAAS. Looking for more upside with commodities leading for the first time in a while.

It looks like SPY 108 will be a short-term bottom.

Update: Taking profits and closing positions that are rallying into resistance. Sold TC in front of the 50 SMA, sold SU in front of the 200 SMA.

Update II: Can't feel warm and fuzzy with AAPL GS acting this badly. We sold the rest of all positions, flat in all accounts. The bulls should have taken the GDP numbers and ran with it -- if this is the best they can do we'll stand aside.

New Partnership

HCPG is pleased to announce a partnership with T3 Live.

T3Live is an online trading education platform that provides traders of all experience levels with market analysis, real-time access to strategies, and extensive training from top trading professionals with solid track records.

This is the first partnership deal we have accepted in the four years of running our business. Why? Because we've been in the business long enough to know good traders when we see them and T3 is the real deal. We are excited about this partnership as T3/HCPG trading styles are similar and complement each other very well. Sign up here for a FREE two week trial at T3 Live.

Position Talk

As you know we put on some of our positions back on this afternoon (from the opening sale) and are now long CRK RGLD SU PAAS DO IAG TC NUE JRCC ATPG PCU CENX.

Being long commodities we're happy to see Dr. Copper (HG_F) strong tonight.

Our stop was going to be 108 but we're going to give it a bit more room due to earnings volatility and if market sells off we want to see how it reacts around SPY gap fill near 107.4.

We're hoping this 108-107.4 area is a short-term bottom. If not, we'll exit our longs.

As we looked through the charts of our positions tonight we liked what we saw in terms of entry on major support on all the stocks. What we'll be watching for is
positive divergence with commodities stronger than rest of market. If commodities go into the tank with the general market we'll cut today's longs loose and wait for the next set-up.

Positions

We think that SPY 108 has a chance of being a short-term bottom and with that we've bought some of the positions we sold this morning:

ATPG CENX CRK DO IAG JRCC NUE PAAS PCU RGLD SU TC

However, this time stops are simply today's low. Before we would have added into weakness, now if that occurs we want to go flat and re-assess.

Update

As we posted in our account at 9:37 AM this morning we went flat and sold all our positions from yesterday into the gap. Why? Ag-Chem sector was weak due to POT earnings but more importantly there just didn't feel like there was any excitement --the sound of the panting breath of bulls wanting to get in so as not to miss the bottom was missing. It was quiet. And the opening print was the high of the day. It was time to get out and re-assess.

What now? We're sitting on our hands. If we had gapped down then the fear trend would have not been broken but the gap-up reset it -- meaning we have to wait again for an extended more down. As we've written in our newsletter and in this blog many times over the last 4 years -- when buying support, the bounce is your exit. If the bounce fails, you have to sit patient and wait for the selling pressure to mount again.

We were anxious not to miss the "bottom" just a few days ago -- now we're happy to just sit and wait for more clear signs. We're technical traders, sure, but if you've watched us trade live on Twitter by now you also know that there's a lot of "gut and instinct" involved too -- and right now we see no edge. So we wait.

These are our positions

The arrows are where we entered these positions today, the lines are the bases against which we bought. Futures gapping up -- looks good for tomorrow with the exception of QCOM which is going to hurt (down AH due to earnings). Thankfully it's 1 out of 18 positions we have on: if we get some real strength on good breadth we'll be adding, not selling, to all the commodity positions.

In extremely oversold conditions grow a pair and put your hands into the fire:

Note the time-stamp of 2:19 PM:




Update next day: we sold everything into the gap-up this morning. We didn't like the Ag action (POT warned)/ lack of overwhelming strong breadth and wanted to flatten out and re-assess.

New positions

We nibbled on some positions today with expectation of coming pain. Absolute key for us right now is to stay small and add slowly while keeping a lot of buying power dry for tomorrow.

We inititated positions today in ATPG AU AUY CMI CRK DO GDX IAG JRCC NUE PAAS PCU QCOM RGLD SQM SSRI SU TC and will add not into support (most of these already broken) but into panic.


Update:

As we wrote real-time in our Twitter acct, we added into the FOMC sell-off and took off the adds into this little rally. Keeping all cores for now.

Sold partials of everything (but still have small size on all positions), limiting risk due to tonight's State of Union unknown.

All you need to watch

We wrote about this range this afternoon -- look at the very nice defined range in the SPY under the 60 min/20 EMA:



Any basing near the top of the range 110.5 and then break-out would increase the chance of success -- the same holds for basing over 109 support and then a hard break. Watch for possible head-fakes if range is broken on extended intraday move.

What we'll be watching

This is the kind of stuff we'll be using as tells going into any type of rally:

Note how these three reversed at resistance -- we'll keep them on our screens as "tells" to see how they react next time at these levels. One thing that's for certain -- break-out trading will be on the back-burner for a while and shorting at resistance will be at the forefront.

Resistance now what to watch

We posted real-time in our account this morning that we closed RIG against the 20 SMA -now it's over a point under.

This is the type of thing we'll have to keep an eye out for rest of week. If market turns bullish again and rips through resistance then we'll switch to break-out trading again, but until then we're buyers on support, and sellers on resistance.




Update: sold SU JRCC PCU TC positions, just keeping what's left of GDX AUY BVN PAAS into tomorrow.

Update II: sold the precious metals, flat in all accounts.

Catching a falling knife or just being smart traders?

Catching a falling knife versus Being a smart trader:

1. Individual stock is going down on negative news. Never stand in its way -- it's just not worth it. However, buying stocks selling off in a sector that is deeply oversold and running into support is often a very profitable strategy.


2. First few days of a trend-change from overbought status are not the time to start buying support. You have to be patient enough to wait until the stock goes from overbought to oversold AND comes close to support.


Let's look at two example from this morning:

We posted the PCU chart on Chart.ly last night with an interest in the 200 SMA area near 28. However in the morning weakness we bought some under 29 -- posted real-time on our Twitter Acct.






We were confident in the trade and would have happily added at 28 but often on a stock as oversold as this you don't get the chance to get the exact support and have to get in early.



We also posted our SU buy this morning near the open on support.




This was just a gorgeous example of a stock deeply oversold running into solid support:



As with any profession once you gain some experience you understand that there are nuances to everything. Of course there is some truth to the "don't catch a falling knife" proverb (reason we wrote this morning, for example, that we were staying away from X sell-off on earnings). But often, and especially in commodities the best time to buy them is not on break-outs (and we're primarily break-out traders!) but on support.

Triggers

Not enough of a gap-down to hit some of our alerts from last night's newsletter but here are the one's that did hit or came very close to hitting:

GDX PAAS SU TC all against support -- worked very well thus far. We're going to try to hold what's left in our positions (AUY BVN PAAS GDX JRCC SU PCU TC) into tomorrow with stops at today's low.

Update

We added to all our positions at the open, also bought SU GDX and picked up PCU. We got rid of our steel stocks NUE SCHN (NUE for a profit because of the opening add, SCHN for a loss).

We have now sold the adds in all the stocks and are holding core positions, hopefully for swing, on RIG AUY BVN GDX JRCC PAAS TC SU PCU.

Since these are now swing-size positions, stops are simply today's low of day.

11AM update, Closed RIG long against 20 SMA, sold more AUY BVN GDX PAAS SU PCU on the rally. Small positions left now in AUY BVN GDX PAAS JRCC SU PCU TC.

Market Talk

Quite a boring day -- variation on Plan B as the market went up, but not enough to excite momentum traders, and no sell-off to hit our alerts. We did very little all day except for some swings on very small size (25% of the normal 25% starter position) on SCHN NUE RIG JRCC BVN AUY TC PAAS mostly to stay in the game and stay focused. We're up in a few, down in a few, and keeping them all into tomorrow.

Market is in wait mode for earnings/econ news this week and there's just not enough edge to put on any out-sized bets.

Let's see if tomorrow is more exciting. HCPG

Favorite Stocks for a Bounce

BVN IAG AUY RGLD TC X MDR JRCC AKS NUE QCOM MOS SQM BG CNQ POT DO RIG DVN OXY SWN ECA SU NOV

Plan for tomorrow

Plan A: We sell-off hard and bounce. This is the plan we like most but think it's least likely to occur since many of the alerts are between 3-10% away. We'd buy the reversal of support for a bounce.

Plan B: We open flat and rally. This could happen and would be the most tricky for us. We'd probably just focus on a few ETFs in order to catch any rally XME OIH SPY and base our entries on intraday set-ups. Most likely plan to occur and the one we like the least.

Plan C: We sell-off somewhat, but do not hit our alerts and then rally. This will also require a bit of quick thinking, but should not be as difficult as Plan B. Note that many stocks closed on support on Friday. If we feel like the market is going to bounce then we would buy the weakness for a rally back into Friday support (overshoot strategy). The difference between this plan and plan A is that while the market sells off it doesn't sell-off enough to hit the alerts.

Plan D: We have trend-day down. Unlikely but if it occurs we'd probably take small losses all day long trying to catch bounces that turn out to be head-fakes.
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Plan A is easy but unlikely, Plan B and C are much more realistic, and Plan D the long shot. If there ever was a time thus far this year to bring your A-game to the office it's tomorrow.

See you tomorrow. HCPG

Comparative Thinking

Today was somewhat dramatic -- we traded our plan by buying our spots which hit near the open, and then sold the rally into the morning bounce and went flat. We posted the exits real-time in our account.

Why did we exit? Because while commodities were trying to bounce most non-commodity tells we watch were acting poorly -- and a true oversold market bounce almost always has good breadth, i.e. all sectors should have participated in the bounce.

Here's an example of AAPL, one of our favorite tells, against WLT (AAPL black line at bottom):





But what does AAPL have to do with coal? Nothing, but real turn-arounds in the market almost always have participation by market leaders such as AAPL.

This was the Plan

As per our blog post we offered our plan free to anyone who emailed us last night. Arrows were the entry point alerts -- some didn't make it, but most did. This was our best PnL day in 2010. However the "buy the support like a crack-addict" trade we think is over for a while as the technical damage to charts are severe. If market cannot hold today's lows then the next strategy might very well be resistance shorts.

We feel like old bank robbers who barely got away from the sheriff -- we won't be buying into blood like this until charts regain their patterns.

We went into it in more detail in the two part newsletter -- if you still want a copy email us at info AT highchartpatterns DOT COM

Position update is we added according to our plan and sold all into the bounce later this morning, as posted real-time in our account. We are completely flat in all accounts.