Market Talk

It's been a long time since we started looking at the QQQQ as the leading index instead of the SPY but we like how the Nasdaq has regained leadership of the market.

Simply put: As long as we stay over the 50SMA we'll be active in buying pull-backs on strong stocks. Any move under the 50SMA and we'll have to reassess the strategy.



And if we don't pull-back then our favorite two break-out candidates are GMCR and RIMM.

Great interview

Fantastic straight-up talk by Charlie Munger (Vice-Chairman of Berkshire Hathaway) done in the midst of the crisis last year:



Also this video which cannot be embedded.

Market Talk

The higher up the market goes here the less you should chase price. We've had some good opportunity from our list today and in all cases were able to buy on good bases or on dips to the EMA.

We're back into a benign environment where the main strategy is buying intraday dips/bases on leader stocks near break-out levels.

We're long AAPL swing from Friday and are holding that along with positions in AMZN X ATPG CNX X GOOG which we will all swing on good closes.
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Update next morning: We sold what was left of our swings into this gap-up this morning.

Big win for the bulls

The bulls kicked ass today on this reversal. The opportunity today was plentiful and we are kicking ourselves by not being more aggressive in our own picks.

Here are the support longs from our newsletter last night -- out of all of them only one closed lower. The arrows were the buy spots:

Review of some of the leader stocks

We wrote a while back that on next dip we'd focus more on tech and less on commodities. Well, we're here now and here is what we're watching:

We wrote last night to watch the 20/100 SMA on AAPL as a tell -- today it cratered through. Technically nothing to do here in this stock in no-mans-land and we'll be avoiding.



We'll be looking to buy reversals in CREE at 61 and 60.



We'll be looking to buy CMI reversal near 53



BRCM has decent support near 29.5 -- we'd buy a reversal on that area



CTXS slow but 43 support might be worth a trade.



We like FFIV on 52 support



GS was a buy on our newsletter from 158 to 160 target. Today stock rallied from 158 to 160 and then reversed sharply. Currently in no-man's land until bottom of bear flag just under 154.



We like RIMM 72 break-out a lot but don't have enough confidence to buy support in the stock. We'll leave alone until stock shows strength through 72.



VMW we have alert near 46.5 for a support buy on reversal.



This is the first time we can remember GOOG not responding to a market rally. Stock has flat-lined and we have no interest in the name right now.

Today's triggers

Decent day from newsletter as we got off a long and two shorts:

GS we wrote could be good for 2 points through 158 (160 resistance). Only regret is not shorting it through 160 failure.



WLT set up base and break 78 for daily short at 77.6



BUCY we had short at 62 which worked well.




We're flat now and going through charts -- coming up we'll post the charts of some of the leader stocks with possible support points.

Simple and yet so complex

Do not ask ....

To ask which is better -- fundamental or technical analysis -- will only take you down a path of confusion. Why? Because it takes away the focus from what really makes a trader consistently profitable.

Behind every profitable trader, technical or fundamental, is a great tape reader.

The best traders make money not by reading 10-ks or looking for head and shoulder patterns but from being able to sense fear and complacency, knowing when to push in an easy tape, when to anticipate and when to wait for confirmation, knowing how to find discrepancies and how to monetize them.

Often the difference between a consistently profitable trader and a churning one is the level of conviction in the plan: The best traders know when to push the envelope and when to wave the white flag. All this will help develop what years later will be called "natural instinct" -- the "edge".

Profitable traders constantly create new strategies and methodologies to stay ahead. For us this has been our "base and break" pattern strategy, or the idea of only pulling trigger when daily, AND intraday set-up/ or our constant comparative analysis against market "tells".


Every year mutual funds with deep pockets and vast research teams at their disposal underperform the market. Compare this against The Fly who we've watched for years maneuver admirably around the market riding the meaty parts of many a momentum stock. Or take the example of one of Stocktwits heavy-weights Jim Gobetz (aiki14) who has a great feel for the market and knows when to buy fear and sell into greed.

There are traders who recognize all the chart patterns, can quote verbatim from Gann studies and dream about Fibonacci retracements, who know dozens of technical indicators that we've never even heard of, and yet who can't trade their PnL past the poverty line. Compare this against the number of active traders with seven figure incomes who look at nothing else but price and volume. Charts are nothing but visualizations of price action. If we had super-human memory we wouldn't look at charts. But we don't, so every night we look through charts to remind ourselves of the previous days price-action.

On a personal note we've made our income from the market for over a decade now not because we can read charts well but because we're constantly looking for new things, for market tells, always trying to stay one step ahead of our competitors. We've proven ourselves over the four years we've posted on this blog; from our first call to start buying one day before the March 2008 low or on a more recent example of going long within minutes of the last bottom on February 05. There was no indicator nor technical pattern that told us to buy when we did -- it was developed instinct through years of watching price-action.


And to conclude we'd like to add a note about Stocktwits and new traders.
We wrote back in 2006 that the first step to becoming a professional trader is to find a type of system/trading method that you're drawn to -- one of the biggest mistakes of new traders is wandering into different methodologies simultaneously. For example they decide to give break-out trading a try and buy a new high, the stock reverses and they hold it, and then hold some more, until they convince themselves that it's a good value. Thus they started out as momentum traders (who couldn't care less about value) and ended as value traders (who couldn't care less about momentum). Mixing up such strategies is usually the beginning of the end.

As humans we define ourselves against others; good cannot exist without evil; the First World means nothing without the Third; and prey can only exist in the presence of predators. Traders can help define themselves and find what they're drawn to with the help of the Stocktwits community -- be it premium sellers, momentum traders, value traders, or currency traders. Stocktwits puts what before was abstract for a new trader into a convenient visual map. Do you want to live in the Bronx or Queens? Before a trader had to walk through communities for days in order to make sense of it all. Now it's simply all on the map.

Update

As we posted on our Twitter acct several times near the open "Instinct today , thus far, is to fade, not buy". Market was extended after trend day yesterday -- and it's very rare to get two trend days in a row in an already extended market.

To put it in a brutally simple manner -- for traders like ourselves there are two main strategies going into the day. Trend day strategy is buying break-outs, shorting break-downs; range-bound strategy is selling rallies, and buying support. Of course the hard part is figuring out early in the day which strategy to implement. We use our alerts as "tells" to help us decide what to do: for example CREE we had target long to 64. The stock set up base and break at 63.6 but only made it to 63.75 before reversing -- this was one tell out of many that made us think that we needed to use range-bound strategy of selling rips/buying dips instead of trend-day strategy of looking for break-outs/break-downs.



Copper very extended and reversed today -- needs to digest the big gains from bottom.



KOL reversed at 50 SMA



We're long a few RIMM in anticipation of 72 break-out. We trade around core positions, adding on dips, selling on rallies, while keeping core size. Quite likely we're early on this as it could test 68 support. Average right now is 69.8



We're long swing FFIV anticipating 54 break-out-- again, we'll trade around core position. We're long average 53.2 (posted on Twitter this morning). Update we sold it all 53.8-53.9 on this run -- we don't want it to break-out today and will buy on dip. If it breaks-out, we're not going to chase.



We would like to focus on tech more and less on commodities going into near future.

Trend-line breaks versus Channel Breaks

As much as we love the trend-line break trade, the best and least messy moves are straight up channel breaks.

Out of all our triggers (around 12 and counting) from last night the two strongest moves were WLT CMI channel breaks and not trend-line breaks.

Why is that? Because while you don't want a trade to be too crowded, you do want it to be on enough traders' screens for it to get momentum; trend-line breaks are just harder to spot for most traders. It's a fine balancing act between obvious but not crowded.

WLT 73 long alert



CMI 53 long alert

Another Example

AAPL great move today through trend-line but heavy resistance and congestion ahead.

Market Talk

Trend-line breaks worked well today but if you're looking for continuation you will have to be patient.

PCX found support on the 100 SMA, broke trend-line today for a nice move. But look at what's ahead in terms of resistance: 50 SMA, 20 SMA and lots of daily congestion. Nevertheless still bullish -- if you're a swing trader this is a hold with stop on today's lows.

Last Night's Triggers

Alerts that have triggered thus far into the trading day.


Arrow is entry point alert from last night's newsletter:

Position Update

We went long a few shares AAPL at 196.21 swing as it keeps bumping up on the trend-line. In retrospect we should have waited for trend-line to actually break rather than anticipate it due to bearishness of the market.

On the upside we like 198 and 200 targets for partial exits and on the downside around 194 (2 day low) and we'll probably eat the 2 points loss.




Update: Sold AAPL for 1 point loss this morning. Will try again long on trend-link break.

Position Update -End of swings

We don't often blog/tweet all our real-time trades but if we lead people in, we will lead people out. And since we posted our entries, here are the exits.

As posted in the account today we sold into this gap-up with best profits being (from Friday buys) CENX FCX TC 7-8% profit to lowest being SMH NUE XLE 2.5-3% profit.

Our focus for rest of day will be day-trades.

Position Update

We were expecting a consolidation day but the market gave back a bit too much for our comfort. Nevertheless the big levels are still holding but the range is tightening and we should get some real direction soon.

Here's what's left of our swings (at 3:50 PM):



As we tweeted today we sold ANR for 3.4% profit from Friday swing (earnings tomorrow) and sold SQM for 1% loss and MOS for 3.6% gain in front of AGU earnings tomorrow.

We gave back a chunk of the remainder of the positions from Friday but at least having these swings kept us from trading in today's chop-fest.

DT misses the bottom!

Guest Post by amigo Dinosaur Trader:




For Those Who Missed The Bottom

I’m not sure how Friday went for you but for me, it sucked. No, I didn’t lose money, it wasn’t that bad, but I missed the bottom in a big way. While HCPG and a bunch of other people I know were stacking money faster than you can say “comparative analysis” I was at a friend’s house, drinking some coffee and musing over what a shitty year 2009 was.

I thought I was being smart because I had made good money on Friday morning and then had dribbled it all away picking “the bottom” too soon. At around noon, I made my last losing trade of the day, in PCU. I decided when it started to pull back yet again that “the bottom” just wasn’t going to happen on a Friday afternoon. I congratulated myself with having the restraint to walk away instead of churning myself negative on the day and I head over to my friend’s house.

On the way I stopped off at the local hardware store to pick up some paint. I asked the guy mixing the stuff, a surly old man named “Kenneth” to use the “low VOC” stuff. He rested his hand on a nearby gallon of paint, looked down at his shoes, took a deep breath and looked at me, shaking his head ever so slightly.
“You’re not going to die of paint fumes, son” he said.

“Yeah, I know, it’s just that I have a small kid…”

Kenneth interrupted. “Your kid’s not going to die of paint fumes either. Look, let me tell you a story.” He drew in a hoarse breath. “You know how Mickey Mantle died? His father had some disease, Hodgkin’s disease, or Huntington’s disease, one of those.” He waved his hand in the air as if swatting away some imaginary mosquito. “Anyway, Mickey Mantle thought his entire life that he was bound to die of the same disease his father had, and so he used this as a rationale to go out and party. He figured, who cares if I have a few drinks, I might as well enjoy myself before I die of this awful disease.” He looked at me with a flash of impatience as he could tell I had yet to make any connection between his story and the “low VOC” paint. “Well, you want to know what he died of?” Here, Kenneth paused for effect and then he practically yelled, “He drank himself to death!”

“Okay, fine,” I said. “Give me the regular stuff.”

As I shuffled away with my toxic paint, he left me with one final bit of advice. “Just eat whole wheat bread and drink plenty of water and you’ll do fine.”
The story had shaken me up a bit. Perhaps Kenneth’s lesson was that I was too focused on certain details, and missing the bigger picture in life. I congratulated myself again on having the perspective to walk away from a crappy day in the market. “Maybe I’m beginning to see more of the big picture,” I told myself. I smiled.

The talk at my friends house over coffee was of perspective and how, as parents, aging parents, we had gained a lot of it in only the past few years. I left feeling good. It was 3:30 and I wanted to get home to see the last few minutes of trade.

I clicked on my monitors and sat down. My Tweetdeck was full of new messages including a direct one from HCPG, “You missed our epic bottom buys, all in real time. Dick!” “What assholes,“ I thought. I scanned through charts… everything I was looking at only a few hours earlier had ripped, simply ripped. All of that perspective I thought I had just gained went right out the fucking window. I was disgusted.

I clicked off the monitors and went downstairs to psychologically abuse my cat.
Over the weekend I did all kinds of research, calculating pivot points, drawing trendlines, etc. I told myself that I would get back in the saddle today and make up for missing the bottom. Instead, the market is fucking around, displaying less direction than Clay Aiken surrounded by a circle of men. I’m down a little bit and pissy. I told my daughter to steer clear of me, “Daddy is in a bad mood,” I warned. She looked up at me unafraid and said, “You better steer clear of ME Daddy, I’m in a bad mood too, my doll is sick.”

“You have a lot to learn about perspective kid,” I mumbled, wondering if the paint fumes had sickened her doll.

Anyway, if you missed the bottom, don’t go “drinking yourself to death” today. Go get some nice whole wheat bread, drink some water, and bide your time waiting for a better opportunity. What’s done is done. Don’t prematurely “off” yourself by letting anger and frustration rule your trading.

Consolidatory Action

Very good digestive action by the market (as long as we stay in this range) and we haven't made any trades. We're still long and strong CENX TC FCX ANR MOS MEE BVN NUE XLE SMH SQM.

Why do we like this action? Take a look at the following charts and see how today we're basing right under resistance. Sharp moves up would be sold but a base and stair-step higher would be much more effective in trapping the bears.

Thoughts

We would say that 80-85% of the time writing the HCPG newsletter is relatively easy and a pleasure. A few break-out candidates stick out to us on the daily charts, we highlight them, and then review the trades the next day. Right now we're in the other 15-20% of the time where writing this newsletter is a struggle. Why? Because nothing is clear and even the first factor, usually a given: what strategy are you focusing on?-- is tough to answer. We're primarily break-out traders but there are no break-out candidates. Charts are broken.

However if Friday's low indeed is a near-term bottom then we need to find longs. The best we can do is find target longs to resistance. These don't have the same success rate as break-out longs and tend to be more messy/choppy so adjust accordingly. To add to the complexity we have to be aware of the fact that the trend is broken and therefore need to be cognizant of resistance shorts on any rally. Of course "not easy" doesn't equate to "not profitable" as there are many opportunities in the market thanks to the increased volatility. You just have to climb higher up the tree to get the fruits.

Refusal to Die

What's interesting to us about all the following charts? Their refusal to die in the market plunge last week -- all of them held last Friday's low (Jan 29) while their respective sectors (tech, gold, financials, oil, Ags, etc) all went lower. If market bottom is for real (no matter what the time frame) then watch these stocks to lead. Also if you feel that Friday afternoon was a head-fake then watch for new week lows on these stocks. This is the kind of analysis we constantly do to find new "tells" that will give us edge in predicting market movement.