Saturday, June 18, 2011

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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Friday, June 17, 2011

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.

Thursday, June 16, 2011

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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Saturday, June 11, 2011

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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Friday, June 10, 2011

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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Thursday, June 09, 2011

Respect the Lights

Modern civilization demands abstraction, and money is the ultimate signifier.    Most of our interactions are removed from reality.     This distancing effect is a common part of our life.  We buy an iPhone and all we think about is the dollar price, we don’t think beyond  the money — about the life of the person who actually helped construct the phone at Foxconn.


We buy our meat from companies that do everything they can to distance you from the idea that what you are eating was actually a live animal that was butchered.  It’s not even called “Cow part”, it’s called a Rib-Eye, another distancing effect.
The distancing effect is even more exxagerated for traders.  Money is already an abstraction, for traders it’s taken to a different level where money becomes an electronic number, green and red, bobbing up and down like in a pin-ball game.    Compare this to a carpenter who works for an afternoon, makes $100, and goes home with the money knowing what bills the money will pay. Every hour that passes he knows that he has pocketed another $25.     The connection is tangible.
Back in the bubble days (tech bubble, 1999) I was in a car with a buddy prop trader, going out for dinner, driving too fast down the highway.   We got clicked by a ghost cop car halfway down the route and my buddy was stopped an issued a ticket.  He was pretty flippant and I’m sure the cop was happy to give him the $250 ticket.  We drove off and he laughed, “Ha, I made that much in the first two minutes of the day”.   He didn’t care about the ticket , he had no connection to money, and incidentally enough, to risk.He blew out in 2002 and we lost touch.
The lack of respect for what you gain and can lose is directly related to how quickly traders blow out their accounts.   What is essential for new traders, especially prop/daytraders, is to make a physical connection between those flashing red and green lights and income.  Basically, what is needed is to try to overcome the distancing effect — to realize that those flashing lights represent hard-earned money and thus do everything in your power to follow the strategy/plan/discipline.    In this business to lose money is unbelievably simple.  On the other hand, to become a professional trader who can pull money consistently out of the market is quite difficult.  The first step in this quest is to respect those flashing lights.

Wednesday, June 08, 2011

Our tells and Mixed Market

We’re done nothing more than scalping today, looking for dimes here and there as the action is too mixed for us to bet in any one direction.  On the negative side we hate the action in the silver miners, CMI, and semis.   On the positive side AAPL showing a bid and OIH doing well (thanks to OPEC).
Zortrades showed a snapshot last week of a quick way to look at stocks on his screen — we liked it and borrowed the idea — doing the same but with our own favorite tells:

Quick look at this and it tell us to either stay flat, or go for scalps, and not push our luck in any direction — at least until we get better breadth.

What many are looking for is a trend-day up bounce — that’s not going to come until we get better breadth and a upside revesal on some of the “momentum” stocks (like it or not, silver miners are an excellent tell for hot money).

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Saturday, June 04, 2011

A special "Never Give Up" Motivational Poster for Finance Types

Motivational Poster of a come-back kid for finance types:

Incredible power of healing with Time (note– only when combined with sick innovative products led by a genius — usually does not apply to Scam Chinese Reverse Merger stocks )

AAPL circa Fall 2000 after if lost 80% of its value within months:



AAPL 2011

Just a lighthearted post from your friendly HCPG crew who are currently playing around with Esignal’s new Go To Date feature.   :-)
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Looking for a short-term trade bounce on the SPY using the Bollinger Bands as a guide

Many traders look for complex algorithms to tell them when the market is ready to bounce but in reality, all you need is a Bollinger Band.   We usually like to buy support when we have the whole sector hit support at the same time.   In fact, these have been our most profitable trades over the course of our trading career.   However, in some situations, like the one we’re in now, sectors are below support and we cannot rely on that strategy for assessing support buys.   When this occurs we look to Bollinger Bands on SPY for quick trades into the blood.

We closed Friday under the Bollinger Band, the first time since March 16.   As you can see from the last time it occurred it offered a nice opportunity long for traders.


Bollinger Bands are great general tools for ETFs

Let’s zoom out and look for other instances SPY has closed below the Bollinger Band.  Time and time again this simple tool has given great general reference points for bounces.


Ideally we sell off into next support, which is at 129.5 zone, and then enjoy a dead cat bounce.  As you know we believe this is a range-bound market meaning we also do not expect a straight trend down.   However, the emphasis lately seems to have shifted from “buy the dip” to “sell the rip”.

Our range now is between 131.4 resistance (which was the old support gap fill) and 129.5 support.


Please view everything we write in the context of our time-frame as short-term traders.

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Thursday, June 02, 2011

Why all traders should watch copper

How many times have we heard about Dr. Copper as a great “tell” for the economy?   It’s on the radar for most longer-term traders but it should also be on the radar for short-term traders.    We’ve said it a hundred times to our subscribers over the years that copper is THE tell on our market screen.   It often leads the market up and down.   Today was a fantastic example as it bottomed at 11:30 bar while the SPX kept falling for another 18 minutes until it bottomed.


Take a look at this overlay of SPY over HG_F



And in real-time, only on StockTwits  (not on WSJ, not on CNBC!)  the call from our esteemed friend Dinosaur Trader.



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Wednesday, June 01, 2011

Market Damage SPY

We took out 3 major moving averages today, 20SMA, 50SMA, and  tagging the 100 SMA which  finally stalled the bleeding.    From a technical point of view we’re working with damaged goods now.   We’ll spare you the “stock picker’s market, be cautious, raise cash” cliches, but we think we’re in for a range bound grind of a summer going forward.   Oh yes, and this will be  a stock picker’s market, please be cautious and raise some cash.  :-)
Four slow steps up, and one very dirty fast move down.


Tuesday, May 31, 2011

Daytrader Toolbox: when to short the gap up

We had a lot of spots in our newsletter last night that we liked if they could have waited a few days.  We had nothing that was ready.   A number of them gapped above and proceeded to sell off for the morning.   Reader M.D. wrote to us last night:
“I understand your preference on the market action.  On many setups you write ‘needs a day’ or a few.  What if the market does not play ball, and the alerts trigger tomorrow?  Do you pass on them?  Or if not, how would you play?”

We answered back:

“Then we usually look for shorts on breakout failures, shorts on ES, or just sit it out.”
———-

If the market has run a lot for support to resistance, and there are no alerts that are ready, then shorting a gap up is usually a very good risk-reward trade.   This is very similar to our strategy of  buying the gap down on a market that closes oversold on support.    It has a very consistent win rate and something we recommend you add to your tool-box if you are a daytrader.

Big run from support to resistance — silly gap up on an extended market means good risk-reward short.

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Thursday, May 26, 2011

Name of the game is commodity trend-line break

We’re seeing a ton of patterns like the following.   It’s a great pattern for commodities coming off the bottom.  You don’t get the exact bottom but often a nice meaty move.      Here are a few that have already triggered (and have been in our newsletter — strategy was swing long into the break) and a few that have not broken yet for your trading pleasure:
Happy to have the commodities back for a trade  (also note the Ag theme –we like Potash and Mosaic $POT $MOS)







Wednesday, May 25, 2011

Now or Never (short term)

Things were looking dicey last night with futures down 10.   Market recovered somewhat overnight and the beacon of light was copper which held strong. Even though we’re not exactly experiencing a rip roaring rally it’s a nice move off the lows.   This is a short term “now or never” day — we bounced off 131.4 SPY gap fill and have bounced back through the 100SMA.   All we want at this stage is for a close off the lows — if we can hold the lows then we should get some bullish set-ups in the next few days.

Copper poking its head over the multi-week range — through there and would be bullish.



Very similar pattern on crude — poking its head over the range.   Not enough distance to call it safe but it’s a good start.


SPY filled gap and bounced — if the lows hold we should get some nice bullish set-ups soon.


These are the types of patterns we’re looking for — MOS we posted yesterday on our stream (and was in our newsletter).



Similar pattern on WLT coming up through 120.

Inflection point indeed.   Bears and bulls, press your bets.    Bulls would need to get some distance from these areas in order for buyers to find conviction to bid prices up and bears would need to go through today’s lows.  Once we break the range we expect trades with more “edge” to enter the picture.  Follow us on StockTwits and Twitter.

Tuesday, May 24, 2011

Resistance points

We had some initial juice in the market with the USD weak and commodities catching a bid on the Goldman upgrade.    However, not too many charts will set-up long until bulls take it up a notch and get it over the following resistance areas:
SPY reversed again on the 50SMA.    A close over would be bullish short-term.   If bulls can’t get it going most likely bears will press their bets.   Inflection point.
Semis barely holding onto 100 SMA — they were holding well until recently and need to pick-up on support in order to keep the bull thesis alive.

XLF rejected again at the 200SMA today — horrible action here but at least would look like temporary bottom on a close above.


QQQ can’t get above 100SMA — again note how traders sold the 100SMA test.


IWM reversed again at 82 resistance.     We should get a distancing from this area soon as bulls/bears press their positions.


As you can see from the above charts we’re at a very important point in the market (short-term).  Both bulls and bears will try hard to press their bets at these inflection points.   We have very few set-ups either way — however we expect that to change quickly once the victor emerges.
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