Screen Configuration Bonanza

There are lots of threads out there on traders sending in snapshots of their workstations — that’s fun to look at but what is more useful for a trader is how they actually configure what’s on their screens.  We’re doing a post on how we configure our screens and would like to add other trader configurations.    Please e-mail us at  info AT highchartpatterns DOT com with snapshots/(and if you wish explanations) of how you configure your trading software and we’ll add it to the post including your StockTwits/Twitter handle.

Here’s a random one found on google image.   Go $GOOG!

 

Like a Zombie that won't go down

Like a zombie that won’t go down this market keeps getting hit with bullet after bullet and yet refuses to roll.    Many are looking for a regular session test of the $SPY 130 test (we already had that test in the overnight session on Tuesday $ES_F).

The market is absorbing bad news well.  Let’s take a look the afterhour action of Wednesday and Thursday of the Moody and S &P rating news.  The market immediately went down 10 points on Wednesday after the Moody’s review news and then recovered within hours:

Next on Thursday came the after-hour news of S&P possible downgrade PLUS the little detail of the agency asking for 4 Trillion deficit reduction deal in order not to get downgraded.    Again, ES plunged and recovered.

Dip-buyers have now been rewarded for two years.   There will come a time when the dips cease to be bought — we think it will come if/when we break the March 2009 trend-line but until then we’ll keep doing what has worked so well now for so long.

Note that range-bound strategy rules supreme in the current market hence the other side of the equation  has worked equally as well (at least this year) which is  sell the rips.    However as long as we are holding above a 2 yr trend-line we prefer to focus on the long side as we believe the force is stronger in the bulls.

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SPY areas to trade against

We’re at the close here and bulls  held the 20SMA/50% retracement of recent rally/ $ES_F AH low.

So what if doesn’t hold?  Next support comes in at 1295 on the $ES_F which is the top of the previous range (corresponds to around 129.8-130 on the $SPY) which also is around 61.8% retracement of the rally.

As to our position, we’re all cash.   If market rips then we’ll pay up for it and trade whatever sets/triggers.    However, we won’t be looking dark until we lose that 2009 trend-line — so far all we’ve had are mean reversions up and down as rips have been faded and dips still have been bought.  Until that changes we’ll be trading the status quo.

Big beat by the $GOOG machine in AH — ball is in bulls’ court now as they need to hold this technical level and rally from it using the earnings beat as a  catalyst.  A push from this 20SMA/50% retracement area would be a great start which in turn could bring in the “fear of missing” mentality.

Watch that Tuesday night low on the ES_F

 Remember this line in the sand we posted yesterday?  It’s baaaaack:

Tuesday 3AM futures tested and passed the top of range test.  We’re getting close to it again now.  Click to enlarge:

And on the $SPY it corresponds to 129.8-130 range.

Fun times.

Thank You

First of all, we completely forgot about our 5 yr business anniversary mark (June 13, 2006).    However, a belated note hopefully is better than nothing.   Opening the HCPG business forced us to step up our game — and for that we’d like to thank our subscribers, many of them who have been with us for years.  We may have many faults but lack of loyalty is not one of them — we always remember the people who have helped us over the years and want to give a quick shout-out on this 5 yr mark.

A year and a half ago we joined the world of StockTwits/Twitter and for that we’d like to thank @downtowntrader for giving us the initial push to join,  @howardlindzon, @ppearlman and @ldrogen for welcoming us aboard and getting us started via the Suggested Stream and later with a partnership with StockTwits.    Working with Dr. Phil has been a fantastic experience — he makes you feel you’re on his team and like a good coach, he’s always looking out for you,  pushing you to take it up a notch, and take that next step in becoming better.

We’d also like to thank all those that have given us increased visibility, too many to mention, but especially early RTs from (now) buddies like @gtotoy @traderstewie, @szaman @chessnwine ,  The Reformed Broker and the WSJ links, @DinosaurTrader for links to his early blog and the RO,  Charles Kirk for early links over the years on the The Kirk Report, and @abnormalreturns for links on his fantastic site.    Being part of the community of such a young and growing company such as StockTwits is very exciting — for us it’s a great win-win.  We’re happy to contribute value to the community, grateful for the friendships we’ve made, and for the fanastic exposure we’re experiencing alongside the growth of StockTwits.
Looking forward to the next five.

Look what happened while you were sleeping

We bounced right at the previous top of the range on the $ES_F — click to enlarge:

Too bad it happened at 3 AM…   Anyway, that’s the line in the sand going forward and the line that the bulls will have to defend against all lehman-cello type events.

News tapes are our least favorite tapes, add the fact that our beloved semis are getting clocked today, and you’ll find us mostly chilling today.  We have numerous alerts that could trigger but the market would need to firm up before anything like that occurs.  As for being a bear — not until we close under the March 2009 trend-line on the $SPY.

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In it for the long term

We’re active traders (probably 80% day-trade, 20% swing) and quite aware that the burn-out (and blow-out) rate in our business is quite high.   It’s a given that trading is stressful, probably more stressful than many jobs out there, and because of this  there are certain measures we’ve taken which have helped us avoid burning out (so far anyway, going on 14 years trading, and 5 years since we founded HCPG).

1.  The most important decision for us was to become trend traders.  For the most part we’re breakout traders.  Even when we do support longs we’re buying oversold markets bouncing on longer-time bull-trends.   We sometimes engage in contra-trend trades  but rarely for long stretches of time.   Why?     Because going contra-trend for extended periods of time is exhausting.
Have you ever noticed those that are bears in bull markets cover way too early when the tide finally turns?  Or perma bulls  in bear markets who sell into the first real rally when things are just getting started and go into cash very early in the rally?  It happens all the time.   They’ve been underwater in their positions for so long that when they finally go green they’re psychologically burnt out and running on empty.  They take meagre profits when the run has just started.     This isn’t to say that contra-trend traders don’t make any money.  We’ve always said that there are many ways to make money in the market and for the most part it’s a personal preference.   But it’s not for us –we find contra-trend trading too exhausting.  Kudos to those who can do it long-term.    In life often the easy path is the wrong path.  In trading the easier path (trend-trading), we’ve found,  is the right path.
2.  We’ve accepted the idea that we don’t have to catch every turn.   There are times, for example, when we feel the market is very bullish but extended.  Instead of looking for break-out failures the next day we instead chill and wait for the long-setups to get ready.   In the beginning of our career we weren’t like this — we were hungrier and wanted to catch every turn up and down.   As the years passed though we slowly decided the extra stress of constantly switching directions didn’t warrant the extra profits.   In the end it’s all about risk (stress)/ reward (trading profits).     In extreme choppy range-bound markets we still go back and forth but in strong trending markets we try to stick to one direction.

For example, as you can see in this chart of the $SPY it was smart to trade range-bound while in the box, but once we broke out of the range we were happy to stick to the trend and not try to go long/short at every small opportunity.

3.  Trying to find a balance between work/life is always a juggling act.    Our goal now is not to maximize profits but to find some form of balance between a good income and a good life.  A good life for us is one that consists of retaining a certain economic comfort while still having enough time to spend with family, friends,  on leisure, and exercise (post on home gym relevant to this point).   To state the obvious, consistent balls to the wall will wear you out.  There’s a time for intense work but there’s also a time to step back and balance out the work/life equation.  One of the most useful points taught in any ECON 101 class is the concept of the law of diminishing returns.   Our thinking is not to maximize PnL but to find that sweet spot between work/life that will most efficiently allow us to maintain a good life-style (money coming in via trading) while having enough free time to enjoy life.

Easier said than done of course but finding the balance between work and life is one that we’re constantly trying to achieve.
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Market Talk SPX

After a 100 point rip on the no-Greek default bottom $SPX finally seeing some fatigue in the market.  That being said the market held the gap today which is very impressive in itself considering how much it has already run.  Our general rule is to always sell the gap up after a large run.

We are looking for a consolidation phase now and a fill of the gap (blue rectangle).    This would aid in setting up new longs and be bullish going forward.

March 2009 trend-line, linear versus log

If you were watching for a bounce on the 2009 trend-line  you would have had two very different conclusions if your chart was set to linear (as ours are) or log.    Here’s the linear version that we always use:

$SPY sat on the 200SMA long enough for trend-line to catch up and bounced.

Log version shows complete break (interestingly enough we’re testing the underside of trend-line now).  Bears were very excited about this break.

What’s the difference?  In a linear chart there is no adjustment for a percent move.  A chart moves up 2 points if its a move from $20-$22 or $100-$102.  Of course a 2 point move in a $20 stock is worth a lot more percentage wise than a 2 point move on a $100 stock.   A log chart adjusts for that by moving same amount on chart based on percentage, not points in price.    For us, this is meddling we don’t want in our graphs.   We want pure price and time, not adjusting for percentage.   However, there is no “right or wrong” in this argument, more a preference.  E-signal uses linear as default for example while other charting platforms often use log as default (including stockcharts).
The 2009 trend-line for us is the big kahuna — it was THE focus for us in June as you can see in these four posts  March 2009 Trend-Line Sirens calling,  A visit to the Nasdaq Trend-line, Buy the first test not the second, and The only chart that counts  (hint, it’s the 2009 trend-line chart
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Daytrader Toolbox: anticipating breakouts

In benign momentum markets such as the one we have enjoyed for the last week a lot of break-out moves start before the alert.   Two of our day-trade strategies, base and break, and The Indy, were created to take advantage of this phenomenon.     A quick glance at two triggers from last night’s newsletter in $OPEN and $YOKU.

We wrote in yesterday’s newsletter “OPEN 85 not bad for a squeeze — type of stock that sets up before on base and break/Indy” and indeed the set-up before the alert today — on the lift-off from the 9EMA near the open 1 point under.    Best way to catch a move like this is if you were stalking it — yet another reason why we like small watch-lists.

Second entry if you missed 84 was after it had based on 85/R2 for second lift-off from actual alert at 85.

YOKU 37.5-37.7 we wrote yesterday to look for set-up which was a good spot to enter for a quick 1 point run.    Another entry was off the 3rd/1 minute bar off the open gap.   You will see this pattern quite often in benign momentum markets — gap up, 2 x1 minute bars that are fairly tight, and 3rd bar lift-off.   The highs and the lows of the first 2 bars were within 25 cents which is great risk/reward.   When you see a tight stop like that buy the 3rd bar that takes out the high with stop on any reversal into new low.

As extended as the market is right now there are some very good momo moves for day-traders.     We’ve had two extremes since the beginning of the summer — complete bear sentiment where every rip was faded and now the complete opposite in a true momentum tape.  It should be an interesting summer.

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My best purchase in a long time

With that title you would think I (have to use “I” here, this one is all me, not from my partners who work in offices) I am talking about a stock purchase, but no, I’m talking about a home gym.    I’ve had exercise equipment in our rec room downstairs for years but never took it too seriously, maybe I’d use it once in a month.  Maximum.  Aside from that I’d try to get some exercise at least 3x a week but a lot of times it was a time-struggle fitting it in.    I often wanted to get some exercise during the trading day but being away from the computers, even for 1 hour, often made me hesitate.
About a month ago I decided to change things up — I knew very well that as per the HCPG trading strategy there would be chunks of time where I would be doing nothing, just waiting for alerts to set-up, or targets to be hit.  At the same time I knew I would always hesitate leaving the office for too long.   I decided to build a quality home gym in our rec room.
First purchase:   a quality dock/speaker for the music via iPhone.    I went for the Bowers and Wilkins Air Zeppelin which is one of the only systems that allows AirPlay.   It also has formidable sound.   I’ve been using it almost every day for a month and couldn’t be happier with the quality.

We already had an Elliptical machine in there but I never really took to it — but I do like running, so I bought a LifeFitness Treadmill.  I did some research into treadmills and thought LifeFitness was a good fit. Again, very happy with the quality thus far.     The Air Zeppelin can be controlled via my iPhone on the treadmill and I have my Interactive Broker app running on the iPad to monitor my positions/market.   The only pain here is that you can’t have two running at same time so you have to log-out of the main office TWS and log into the one on the  iPad.

In order to add some variety I bought a free-standing bag for punches and kicks.   I went with the WaveMaster but that was the only one they offered — didn’t put too much research into this one but no complaints, works great.


A couple of yoga mats for sit-ups, etc is a must for the room.


A few medicine balls for strength-training.


And so far that’s about it — there’s nothing I want to immediately add.     It’s been the best material quality of life jump purchase I have made in a long time — I am working out now around 6x a week, I feel better about trading, and I’m much less tempted to trade for trading sake (one of the most common errors for day-traders).   If I’m bored, I’ll go downstairs, blast some music and go on the bag.  Today was a very good example.   I came into the day with no alerts and just nursing a few swings.    There was really nothing to do (even though my buddy DinosaurTrader did get me involved in a nice little miner short for an hour, thanks dude).  I worked out for 45 minutes and feel great.
This is my first foray into giving  non-stock advice but it’s one I feel strongly about — if you already have a home gym think about  upgrading/sprucing it up so it becomes more attractive to you and if you don’t, think about it setting one up  for your next purchase.  I think almost more than any other profession, having a home gym is a great asset for  home-office traders.

Charts are never enough

We  rarely trade only on what we see in charts, nor in fundamentals.  We always defer first and foremost to price action (especially to divergences), and a lot of times to “feel”.     Yesterday was a good example — we went long late in the day on a basket (tweeted before close) of $ANR $CMI $SMH $GDXJ $OIH $XME and it certainly wasn’t what we saw in the charts (even though we liked the potential of trend-line breaks in CMI ANR) but price-action.    We started to sound more bullish in our tweets yesterday and finally purchased the basket — why?  Two reasons:
1.  We had $UA 70 in our newsletter for a few days and it finally triggered and worked very well.  Appetite for momentum was coming back into the market as retail stocks ripped.
2. Market  refused to die no matter how much bad news it was bombarded with from overseas.    As our readers know we don’t like to buy support when there’s basing — because often what happens after the base is the stock craters.  But on the flip-side when a stock refuses to die even though it’s basing on support then there’s a chance it will rally hard, which is exactly what we saw yesterday.   We didn’t think the 200SMA would hold but it was holding — and that was enough to flip our bias and to initiate a position long.
We’re out half of the basket  ( up on the worst position SMH 2%, and 4.7%  on ANR, our best position).   Stops are on lows of day on everything but will be updated after the close.
It’s still hard to trust this market as these one-day rallies have consistently been sold, however this is a good start with the break of trend-lines.

Long  $CMI 93.38 (posted real-time yesterday) and made it in our newsletter for trend-line break long.

We’re playing it tight enough (already out 1/2 and stops over break-even is tight in our books) but also leaving some room (might swing 1/2 but at least 1/4) in case today’s bounce has some legs.

We posted this yesterday as our SPY road map –$SPY now has passed several short-term resistance areas but still has to deal with the big kahuna resistance of 130.

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Update, sold 1/4 more, swinging last 1/4 into the night.

March 2009 TrendLine's calling

An updated “The only chart that counts” posted 8 days ago — trend-line’s still holding and still calling our name.    We’re not fans of making longer term bets as a few contra-trend days down the road can completely change the picture but the obvious look is test and bounce on the trend-line, and then through for lower prices.    Short-term is our game though and we’ll be looking to play day-trade bounces on the trend-line, currently at $SPY 125.   Note we’ve become much more cautious than we have been in buying support and are picking our spots very carefully.    This is an unforgiving tape and one has to adjust accordingly.

$QQQ trend-line near 53

The Russell is hanging on better than the other two and trend-line farther away here on the $IWM at 74.5

The Russell has the added advantage that the trend-line coincides with horizontal support (the other two horizontal support are further down) and for this reason is our favorite:

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IPOs from Hell

You won’t find traders who hate chasing more than we do and it’s probably a reason why we avoid IPO action. Good IPOs that want to move higher always set-up at a later day without all the insanity of the first few days.
The market is in a bad mood and no better way to understand the scope of its wrath by looking at the price-action of a few recent 2011 IPOs.    Three recent issues that have been popular on the streams: Pandora ($P) down a cool 48% from it’s highs from two days ago,  the first social-media IPO LinkedIn ($LNKD) down 47% from its highs from last month, and have to throw one Chinese IPO in there — QIHU 360 Technology ($QIHU) down  52% from it’s high from two months ago.
From our May 19 post (the first day that LNKD went public)  we wrote:
“And for those young bulls who think that old-schoolers don’t understand the new paradigm of social media…. you’re wrong.  Earnings are still earnings.   We learned that lesson the hard way (via fiber optic stocks) back in the last tech bubble and now you’ll learn your lesson in the new social media bubble.”
IPO’s have always been risky but the latest price-action in recent issues is taking it to a further level of danger.

Being aware of the foolishness of the chasing game is part of our trading strategy (fading tops) and we have a decent eye for it — two recent ones we’ve talked about on the StockTwits stream — the silver top call and our Osama top call made at 1372 $ES_F.   We can’t think of a faster way to exit this business than to chase parabolic moves.   We assume most of our readers are well acquainted with the saying “Bulls make money, Bears make money, but Pigs get slaughtered” — there are no bigger, fatter, juicier pigs in the trading world those who buy parabolic moves away from any base.
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200 SMA history

It was a perfect technical bounce — market hit $SPX $RUT 200 SMA and bounced perfectly.   Traders were desperate for a bounce and they found a perfect reason for it — but it’s hard to believe that this will be THE bottom.    Why?  It’s very rare to have a perfect, neat and clean technical bounce on an important area to bottom a market.   Bottoms are most often messier affairs.   We looked through the SPX to look for the last time we made a technical bottom on the 200SMA (the most important moving average) and we had to go back all the way to 1997.

Click to enlarge:

Perfect bounce on the 200SMA today — excellent for short-term traders but not so important for longer-term traders.

The last time the 200SMA had any actual holding power was in 1997.

We grinded on it in 2009 but we were coming in from the underside– different scenario:

Enjoy it while it lasts, be it one day or one week,  but be nimble.  And if you are a swing trader, remember if the bounce/move is real (i.e. the second time in 14 years that we have a bottom on the 200SMA)  then there will be a plethora of good set-ups that will form over the following days/weeks.    Patience young Jedi.

Traders having 200SMA fun

First we had the 200SMA test of the $QQQ a few days ago:
It worked well for 2 days and then failed miserably.

Today we had even more fun with the simultaneous test of the 200 SMA on the $IWM and the $SPX.    Click to enlarge:

SPX support held perfectly:

It’s all too neat and clean for us to think that this is THE bottom but it should be good for some short-term fun.     If the bottom is indeed real then expect a plethora of long set-ups to emerge in the next few days.

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Buy the first test, never the second

We have a saying in our newsletter to “buy the first test, but never the second”.  We explained this in our previous $QQQ 200SMA test post.  Today was the second test of the 200SMA in only 2 days — and not surprisingly it didn’t hold.  Next big support is near 53 on the trend-line.

We wrote in the newsletter last night “Bulls finally got their big rally day — however, on the big picture it looks like it’s just a pause before we go hit the trend-line (or chop around until trend-line catches up)”

Trend-line currently near 1240 — that’s our next big support spot.

We only made 1 trade today (the $SPY trade we tweeted) and we have no interest in being active in this market until we see better edge.   A wash-out to the trend-lines could bring that edge.

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Oh the suspense -- the XME test

Note the test and success first of the 50SMA in Jan 2011, then the test and success of the 100SMA in March 2011, and now the test of the 200SMA in June 2011.

Note the first test of ascending SMA has a much better chance of success than the next tests (if tested in short period of time).   The third test of the 50SMA failed and the second test of the 100SMA failed.   We like first tests on ascending SMAs, but not so much the subsequent ones (unless considerable time has elapsed).

Click to enlarge:

We have no position currently in XME — possible overshoot if SPX goes for 1240-1250.

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Our plan for next week

We took a mid-sized position near the close prices on QQQ IWM SPY but with the understanding (and lots of room in buying power) that market could gap down/sell-off a few percent into 125 SPY on Monday.     So why did we buy?  Because there’s a chance market doesn’t gap down and we wanted to be involved, and we liked the XLF hammer.  So why didn’t we go in with bigger size?  Because the evidence is quite mixed and major trend-lines and support levels often serve as magnets — basically, it’s too risky to bet anything big right now.  Even if we gap up we would have zero regret for not taking on larger size.   Note also we didn’t put on any leveraged product (no TNA, SSO, no futures) as we want to stay on the conservative side.
We wrote on Monday night “we think ultimately this market will at least go test the trend-line which currently is lining up with the 200SMA around 125″ and it’s coming even sooner than expected.     Note how trend-line is slightly below the 200SMA.  We’d love a) bounce before 200SMA to leave out all the dip buyers who didn’t get in today and were waiting for the 200SMA or b) a move through the 200SMA to freak out everyone and then bounce on overshoot to trend-line just under it.

And what if trend-line can’t stop this falling elevator?  Well, next support is near 122 — but unlikely we will get there without experiencing some bounce, even if it is a dead-cat intraday or 2 day bounce.

The QQQ very similar — trend-line support, and then major support right above 50.7
QQQ close to 200SMA — however, note the awful action in AAPL — good possibility that the 200SMA will not hold.

One of the brighter notes — XLF off the lows on Friday.   Good start.

Copper technically broke down but then rallied back to close near 405 support again.

GDXJ another bright spot as it held firm during the market downturn.

We’ve been asked for long-term predictions from some of you — we don’t have any.   We don’t believe in long term technical analysis.   The charts can look one way but then the market has two days contra-trend and the whole picture changes.  Right now it looks like we will test the trend-line, bounce, and then go through and test the major horizontal support (122 SPY, 50.7 QQQ) but again a  rally  could change that picture drastically.    The price-action is bearish but it’s too oversold for us to put on break-down shorts — however we will be active in resistance shorts on any bounce.    We think this coming week will bring a lot of fire-works — absolute key between those that make a fortune and lose a fortune is buying power.   If you start slow and add only at major levels (no margin, no leveraged products) you can often catch very nice reversals.  If you start too soon, add too soon, most of the time you will blow out before the reversal comes.
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The only chart that counts

This is the big kahuna — ideally we’d like a slight overshoot of the very watched 200SMA into the loving hands of the trend-line from March 2009.   Nothing goes straight down but that trend-line test seems like a given.  In our experience the first test of the trend-line is often a great risk-reward long.  The second test, not so much.

Click to enlarge

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