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.

Charts

Here are some charts we like with arrows as entry points. All oversold and heading into support:

Email if you want Recap

We're writing a two part newsletter and first part is a recap of our positions today plus our strategy going forward.

If you want a copy please email us at info AT highchartpatterns DOT COM

and we will forward you the newsletter.

HCPG

Our positions

We had a list of support spots to buy coming into today -- at first we were going to day-trade them on reversals but noticing how heavy the tape was we decided to put on smaller starter positions swing (our starter positions are always 25% of full positions).

Here are all our positions. We won't add today -- in the unlikely event that we bounce from these lows, great. If not, then we expect to take some pain and add at next support zones sometime this week -- and thus most likely our targets will be rallies back to resistance (which was support today) for the over-shoot strategy.

The most important thing here is not to add any more today in order to reserve gun-powder as this pull-back feels more serious.

Note we already took some profits on RGLD BTU AA












Added starter positions also on MDR AGU

Commodity support love-fest

Look at these charts representing semis, metals and miners, coal, steel, oil companies, and gold miners. Support thus far has held on all of them -- there are the lines of the sand going forward. We buy the first test (today) but never the second test (if immed after) so none of these will be valid if hit again tomorrow. Our regret is not hitting support long trades harder this morning as it is very rare for multiple sectors to hit support and fail simultaneously.