New positions

Update:  We just aren't feeling it -- took it all off for basically breakeven (posted real-time).

There's still a trade here short -- going to come fresh tomorrow AM and re-assess

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Four major ETFs that we follow hit resistance today, SPY IWM IYR XLF.   We started swing shorts on all 4 (posted entries real-time IYR 49.85 short, IWM 63.8 short, XLF 14.88 short, and SPY 109.77 short).

Breadth is good today and the financials are leading, meaning we know that we could be in for some pain in these starter positions.   As to where to add or where to place stop -- too early to tell, we'll see what the market dictates.   If we start taking on some pain in the swings we'll probably hedge it with some long ETFs in other sectors. On the whole we feel more uncomfortable adding to shorts in pain than we do to longs.   Let's see what the next few days brings. 

Market Talk

As we posted this afternoon on our StockTwits acct the market reversed in front of resistance.  That's the new range  that now has to be broken.   The two following lines on the SPY chart are the short-term support and resistance that needs to be on your screens.  We're not doing much with stocks these days -- mostly trading ETFs until we feel there's a better edge in the market. 

It's summer.  Get out there, enjoy yourself, take some time off.   If you want/have to be in front of your screens, then stay smart.  Don't chase market up or down -- this is typical range-bound market where resistance is shorted and support is bought.    Stay cool and loose. 

Trading Talk

Similar to our copper tell for market bottom  fertilizer stocks have also proved to be great tells for us in the past.    We posted the first chart last week on chart.ly just as POT was breaking the trend-line:

Look how the stock successfully tested the trend-line/20 SMA before going higher.  Text book.  Next target 50SMA.

This brings us back to the super-focus theme of trading.  We focus on two patterns (bases, and trend-lines) only, no cup and handle, no head and shoulders, nothing else.  We only use a few indicators (moving average on daily and intraday, Pivot lines, volume).   We only have a few intraday set-ups we use and all our trades can be contained within the strategy of buying breakouts/shorting breakdowns and buying support/shorting resistance.   We have followed the same bulk of stocks now for over a decade.  We've traded together for over a decade without any additions/subtractions.

Everything we do is contained in a small trading universe.  But we know every nuance of our world.    We don't spread ourselves thin and we are experts in what we do.    You've heard it a thousand times -- find something you're good at and then get better. But nothing could be more true in trading.  Biggest mistake of new traders is going into a chat room and following different trades by different traders using different strategies.    Find your voice and then learn to sing.

Market Talk

A lot of shorts got suckered into yesterday's fade.   Before the close we posted:

As we wrote in the newsletter this weekend, we would short the first test of the 200 SMA but buy the second.  Yesterday was the first test of the 200 SMA which offered great opportunities short at SPY 111 and today was the break-out.    As we wrote yesterday and today, we like the market long but we do want stuff to set-up, something that is not happening due to the quick nature of this rally.  The best thing that could happen now is if we stay above but close to SPY 111 for a day or two and set-up some nice longs.

Everyhing these days happens in fast motion:  we go down quickly, we go up quickly.   This market is making daytraders out of all of us (well, we are mostly daytraders to begin with but for the rest of you!).

Resistance short triggers

Here are the daytrade alerts that triggered short today from last night's newsletter (short alert on rally to resistance).

ATHR 32.8 short on trend line:

SU short at 33.4 alert from last night's newsletter:

SCCO short at 31.5 alert in last night's newsletter:




CHK we liked long over 25.5 if it could base, if not we wrote to watch for resistance short 25.2-25.5

And SPY short 111

Super-Focus

One of our favorite tells in the market is copper.    Here are our two posts in the last week on copper (via JJC etf) on StockTwits

We traded intraday long all last week on the bottoming pattern:

And today we traded intraday short against resistance on the above pattern (including SCCO 31.5 short alert from last night) as copper hit the top of the trend-line.

One of the best advice we can give to young traders is don't spread yourself thin.   Find a niche and focus on that instead of trying to stay on top of every facet of the market.  We like following commodities -- it's our guideline  for how we trade.    Everything in this market is inter-connected, you don't have to watch everything to understand market movement.  Focus on one important sector, be it commodities, financials,currency, bonds, etc and get to know every wrinkle and crease on the map.

Trading Talk

NFLX 114.7-115 was an old alert on our newsletter -- the type that we write does not expire (base versus for example a  trend-line move that has to be adjusted every day).   We posted the chart again, writing that we were looking for a breakout, near the open on stocktwits

As you can see it's a very clear trade from 114.7 to 119.5 (but as always take some day trade profits in the way, we're already out half and always moving stop up).

Why did we like the stock today for a break-out?  Great relative strength and volume.   As an added bonus, the set-up was excellent:

Stock opened up near the break-out zone and based.  Next came the dip to R1/20EMA -- one of our favorite combinations, before bouncing back for a great base and break right at the number for a very nice break-out (thus far already 3 points).   Entry was either on the reversal on 20EMA/R1 or on the break-out itself as volume poured in at 114.7 break.   Stop for the 20EMA reversal would have been a move back through the EMA, and if you bought the break-out then stop would have been a move back through the base (probably 114, so 70cents to 1 point risk).

  As we already posted you'd want to take some off on the move to 118 and move stop up above break-even but ultimate target is 119.5

Whether you're a day-trader or swing-trader do yourself a favor and plant the 20EMA on your 5 min charts.

Update:  we got stopped on the remainder on the move back through our entry point.   Back to cash, yet again!

Market Thoughts

We haven't updated the blog for a couple of weeks because, well, we haven't had anything to talk about.  We've closed the day in cash every day now for weeks as we feel there is no edge currently in swing trading.    Even for day-trades we're finding slim pickings and are spending most of our time on the side-lines.  Boring, but part of the game.  We'll trade whenever we see a good risk-reward trade, be it once every two days or ten times a day.   As simple as that.

Here are some thoughts on the market:

Coal, steel, metals and miners, Ag-Chem all look horrible.  Drillers are broken but the action is better than before as the group is trying to stabilize. The strongest sectors within the commodities are natural gas stocks and gold.

Financials, transportation, and farming/diversified machinery look awful.    Basically "world growth" stocks are saying "no growth".

GS action is similar to the driller action -- chart is broken but one gets the feeling that whoever wanted to sell has already sold.  Stock is not rallying but isn't going down either.   We'll have our eye on the stock next week to see if this changes.

The only stocks that are still holding are the darling momentum group, the AAPLs and VMWs of the world.   They are the last pillar standing -- when this group starts bleeding we'll know that traders are finally feeling some real panic.    We're so used to the cowboy commodity stocks go down 8% in a clip -- that doesn't even make us blink anymore.  But we're still not there for the MoMo group.  Before we dip our toes into the bloody waters of panic we'd like to see traders finally give up their AAPL shares.

If market rallies and we switch to buying strength then our favorite set-up is AAPL.  Stock is setting up a very nice base near 265-266 -- it could be 2 days from now or 2 months but eventually we will get a nice break-out through that area.    Two conditions that have to be met before we buy the breakout:  relative strength (stock has to be leading the market up) and volume.


Crude closed over 71 -- watch that symbolic 6 handle and then 65-67 level for tells of panic.

Copper closed near that important 280 mark.  It's been leading the way down, at least partially on the prospect of China slowing down.  Copper will not act alone -- if the fears prove to be true look for many other sectors to follow copper down.   Our number one reason, technically, why we remain on the bear camp is the price-action of copper.

New positions

Gap down and rally today -- best tells to trade on the long side were GS and metals (especially AKS).  As we posted this morning:

  We were flat in the early afternoon as GS had broken the 20 EMA/5 min chart  and usually when that happens market just hugs the EMA all day making for choppy, range-bound action.  Then suddenly GS picked itself up and broke away from the EMA -- that woke us up and we quickly looked through our lists to look for trades.  Steels and miners stuck out and we bought both SLX XME (posted real-time on stocktwits)    At the time we felt like we were chasing both but at the same time we didn't feel like we had much choice considering the action in the metal/miners.    When the trade started to work in our direction (both closed over 2% green from our entries and XME now up 3% from entry in AH action) we took off a point in each and moved up stops.

Strange sandwich pattern on SLX daily and volume not too impressive but we liked the intraday action.  Let's see if we can get some follow-through.  We're long SLX 53.15 swing with stops to around break-even.  

XME we're long from 48.2 swing and will probably take off another partial at the 200SMA near 50.3.  Again, volume nothing to write home about but intraday price action on miners was very impressive.  Stops at this point are also around break-even


Update from May 26,  sold partials into today for around 5-6% profit (tweeted exits).   Flat. 

Update on our commodity basket

As we posted real-time  last week we bought a basket of 12 stocks (CAGC VALE RINO MOS SU TC ATPG AKS MON JRCC USO AA) on Thurs (20%) and averaged down on Friday open (another 20%) leaving us 40% invested in the account.  Today we sold out of all of CAGC for 16% profit, and sold partials on everything else leaving us under 10% invested in the Long-Term account.

We will exit the rest if portfolio drops under 1.5% profit (currently at 2.6% profit) or if on the upside in front of the 200SMA  on SPY.

If you bought with us into the Thurs/Friday panic then take some off with us today.

Update:  port at 1.58%,  close enough to stop, we sold last 10% and back in cash in all accounts. 

How to catch a knife, properly

Dedicated to @daytrend who motivated us to write a post on how we buy support


We do two types of knife catching, one is in long-term account, and one is in our more active day-trade/swing account. The long-term account is mostly inactive and probably used only a few times a year with the monies in safe but low interest money markets.  In the long-term account absolute key is to not even start the first buys until it's chaos-panic out there.  For example today was the first buys we made in this account -- sitting out already a move down from 122 to 108 SPY.   We put on our first 20% positions today.  We only enter 20% max in one day and only on next areas of support (next buy comes at SPY 105 or lower which would take us only to 40% invested).   Almost always these buys are in commodity stocks we believe in long term and never in fad stocks (TASR CROX two good examples).   There is no time-frame for this account and we never use margin -- these are long term holds for the future on the belief that commodities like oil are finite, the world population is growing, and that eventually demand will re-appear.   The stocks we started buying today were SU JRCC USO RINO ATPG MOS TC MON AA CAGC VALE AKS.  All broken charts, horrible looking, but also very oversold and good candidates for long-term holds.

The other, and probably more interesting to most of you, type of knife catching is what we do quite often in our day-trade account.   It's not really knife-catching since we wait for buyers to show up near support (or on overshoot strategy if no set-up on support), buy after stock has started to reverse with stop under.  Risk is always defined because you have your stop before you even enter (as opposed to what we do in our long-term account) and it often works well.  In fact our best days often come not from break-out days but from buying the panic. It's our specialty (and we pray to the market gods not to curse us after that last sentence).   We've done numerous trades like this in real-time just in the last 5 months since we joined Twitter.

So what do we look for?

1. Divergences, what we've called "comparative analysis" over the last few years.  We always look for "tells" to start diverging.  If crude has been leading market down we look for it to first stabilize.  Financials are another sector that often serves as a great tell.  If market is going to hell but financials are making higher lows then that's often a good tell for a market bottom (and remember these are day-trades, we're not looking for a 3 month bottom, but sometimes just a quick 1 hr bounce).



2. Absolute key is to wait for the reversal before you enter and put the stop under.  Sometimes it's very volatile and if we wait for a 5 minute candle to close we have to place a stop over a point away, something we don't want to do.  This means that often we go in on what we perceive is the bottom but before the candle actually closes.  When we're wrong on these trades we get stopped out literally in seconds.  If you don't trust yourself to take a stop instantly, and sometimes it means losing $1000-$2000 in 30 seconds, then don't try it because that realtively small 1-2G loss could snowball and  blow out your account 30 minutes later while you're still frozen in shock.  If you're the type that freezes, then forget about support buying and just stick with trend-trading.

3.  We don't start entering until the stock is extended from the 20EMA/5 minute but near daily support.  This is key -- we enter when daily and intraday are both extended.  Daily alert will already have been chosen from the night before as oversold stock heads into daily support.  Intraday we look for stock to move away from 20EMA/5min in a panic slope down.  Then and only then do we enter when reversal has already started with a stop on the low.  Our first target to take a partial position off is the EMA itself.  We're also very quick to move stop up to break-even after taking off the first load.

4. Intuition.   We've made a science of it and have numerous posts on the subject but in the end you need the screen time. It's much harder than it looks and you need experience to make it work.  We've traded for over 13 years through some brutal markets and have earned our stripes the hard way.  We can offer insight into our experiences and show you how we do things, but in the end, you have to do the grunt work and earn your badges.

This is a very quick summary and might seem confusing if you have not followed our strategies over the years but the following posts go into detail of everything we just mentioned. Many of them include screen shots of our real-time calls plus charts to illustrate these strategies.


Overshoot Strategy
Buy first test, short the second
EMA strategy for buying support
How to Daytrade Support
USO support Trade
Buying Support
Overshoot Strategy, real-time

USO trade

We wrote several times over the last few days (including our last post) that we were interested in buying USO in the 32 zone (or crude around 67-68).  We got our trade today -- not as profitable as we had hoped but this market is having a hard time bouncing.

We first bought USO on the inventory reversal, sold only a 1/4 for 1%, sold a bit more for meagre profits and got stopped break-even on the move back down  Meh.   The second set of trades though was much better. We wanted USO closer to 32 but decided to go in on the reversal (32.77 entry with 32.67 stop) as SPY bounced on the 200SMA.   We got off some very good exits, the bulk of it for over 2.2% profit  (decent size/trade since stop was only a dime on  a liquid stock).     

All posted real-time on StockTwits

USO/Crude

We like this 32 area for potential reversal into panic selling (around 4% away).   If you're watching crude then watch the 66 - 67 area for signs of reversal.  As always remember how we trade support: we wait for signs of reversal, we get in with stop under.  No catching knives, no being a hero. 

Daytrader Talk

As far as trades go today $SPY offered two good entries.  Support at 115 and resistance short at the 50SMA.  

Let's go through it with more detail:

We talked about 115 support several times yesterday/this morning and were very impressed how well it was supported at the open.   The market held its ground and rallied straight from support (115) to resistance (50SMA).   The best resistance shorts often come when market travels from support to resistance in one trip -- this often exhausts the usual range for rallies and makes shorting resistance successful endeavor. 

This is the chart we posted yesterday pointing out how the 50SMA on the SPY looks like a "great short spot".

We posted this updated daily chart after we initiated the short. 

 

    

The intraday chart will probably be more of interest to the daytraders in the crowd (which we guess is at least half our audience).   Note the slight high base at 117, and then a break away from the EMA right into resistance (50SMA daily).  Remember when you short resistance you want the stock to be extended -- this was textbook set-up.  We always wait for reversal first before shorting with stop at high of day.  We were a bit slow off the bat today and did not get in until  117.24 at 1:51:46.  Stop at that point was a penny above the high117.37, 13 cent stop.   We took first profits at the EMA -- when we initiate resistance short away from the EMA we always cover some on the reversal back to the EMA (20EMA/5 min).  Second and final cover was in front of the 2 day 116.4 -116.5.  In retrospect we should have left on a portion as it went lower, but we'll take it.

We noted this morning that crude was strong at the open.  Having crude roll over while SPY was making new highs (arrow on chart indicates time when SPY at high of day) was a great confidence booster to go short as we felt crude was leading the market.   Why?  Crude was firm at the open but market was weak -- crude rallied and market reversed and rallied.  So when crude started to roll and SPY was at high of day and at the 50SMA resistance, then chances of a short trade working were high.

This is typical trade around support/resistance.  As you can not a homerun, but a single.  This is what we try to do day in and day out. 

What to do, What to do

It's going to take a few days but we should get some kind of set-ups soon as we base under the 50SMA on the SPY -- we'll either get longs over mini-bases at that range or shorts against resistance, too early to tell.    Until then there simply is nothing to do for our type of trading.   Frustrating?  Of course. Especially with the current volatility in the market, but as a trader it's part of the game one has to accept -- the sidelines.

Until then, get some exercise, read a book, go kiss your spouse, and wait.  

Market Talk

After yesterday's monster range traders like ourselves who key off daily charts will find it difficult to find new alerts.  We need to break out of yesterday's range or build mini-range in stocks over the next few days.  For today, we do nothing.

For us to cash out on the Wed support buys that we initially wanted to hold as swings on was obviously a good move.  Our time-frame is very short now and we can't imagine putting anything into the swing account for a while.  

We broke through the 200SMA yesterday on may of the stocks we follow (including SPY) which means that support buying for us will be on hold.  Buying breakouts doesn't look likely either which leaves shorts.  Shorting at resistance and shorting breakdowns will probably be the game plan going forward.

For now though we're happy to do nothing today and try to chill into the weekend.   We'll go through charts on Sunday and if anything sticks out we'll post it here.

Have a good weekend.

Buying support

Update:  we took it all off, and flat in all accounts.   Might regret it as our original plan was to swing but there's just too much news going around (yes, excuses excuses!)

As our readers know we came into the day looking to buy the 200SMA/dip.  We got rewarded well for buying the fear. We wrote in our newsletter last night, "If many of these hit simultaneously there's a good chance we'll get a reversal at the spots."  and that's exactly what happened.

We sold all of our CENX OIH ANR FCX JOYG POT into the bounce but are still holding a few  TCK AA SWN VALE ATPG  with stops now above entries.

We posted this at 9:54AM -- we were in before that but didn't have time to post.  Since we posted at that time however, we have used it to show entries with the arrow.  



It was one of our best days this year in terms of PnL in which a lot came together -- extremely oversold sectors hitting support simultaneously.

Market Talk

Update:  as we tweeted this morning "buying into massacre" we added CENX TCK FCX AA VALE ANR SWN ATPG JOYG POT and have already sold a lot into the bounce.  We'll hold a portion swing of all though if they can close well.




Commodity slaughter continues on the rise of the USD.     We entered the day with our swing account  100% cash but did make two purchases today.  OIH and CENX on the 200SMA test.    We initially had decided to put a stop of 119.1 on OIH (couple cents below today's low) but instead have sold half the swing position this afternoon and are holding very small size with no immediate stop.   We think the commodities should find some support soon as the XME SLX KOL are all close to the 200SMAs.    We will buy all of these, swing size, on those spots -- if we get there tomorrow.


Here are the charts:

One more sell-off like today and we should hit the 200SMAs on the following (arrow indicates our desired entry spots):

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.

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).