Archive for the ‘chart reading’ Category
I do not look at weekly charts much but when I do it is for a very important key support level. When under the 200 day moving average it is more difficult to find obvious support levels for stocks, most traders look at trend lines or price levels, I look at moving averages, and I found a strong one on the weekly time frame that I posted on my blog a few days ago, and since then the stock has arrived at that level and found support.
On the weekly chart Apple is now pegging the long term 50 week simply moving average that has held as support for the past three years. It held up right at this level yesterday and is above it in the pre-market. This is an incredibly high probability entry that I will be taking.
We are now at short term support levels and if they hold I will be buying here.
Here is a chart I posted a few days ago on my Blog, since then we have traveled to this support level and held.
Well it was a wild day today, shorts did very well, longs got clobbered, traders coming into today in cash were pleased with their position unless they went bottom fishing. It was a strange 24 hours with futures gyrating over night deep in the red then it recovered and we had green in the equity premarket that was erased as the open drew near. The we had a crash then recovery, then flat line. it was a tough day for most. Here are my thoughts for what the charts are saying to me after todays action.
I am actually looking to go long Apple tomorrow, while my primary trading is trends this is way oversold and stretched far away from the 5 day ema. Looking at this chart below you will see that Apple tends to return to near its 5 day ema regardless of it being an uptrend or a downtrend. We are looking at a possible 18 point snap back Thursday or Friday. I would love the opportunity to buy a gap down tomorrow morning. the risk/reward on apple is now in the favor of bulls and shorts are in danger of a nasty snap back to the 5 day ema in the next 3 days at some point.
The Dow Jones Industrial Index put up a fight at the 13,000 point mark today but it was eventually lost. The Diamonds found support at the 200 day for a bounce. The Diamonds opened at the 5 day ema and it was all downhill from there.
Spy opened at the 5 day ema and never looked back. It is a high probability it will test the 200 day like the other indexes have. I will look to possibly go short at the 5 day ema and long at the 200 day.
The QQQs cut through the 200 day with ease and found support around the round number $64. Look for possible rebounds back to the 200 day that is where I will look to go short.
The biggest question I have received today from everyone, new traders, friends, family, even my wife is “What will happen to the stock market if Obama wins?’ or “If Romney wins will the market rally?”
How should we trade the election results? …..Don’t.
Do not let the results color your trading, trade price action, trade the chart, trade your system. Continue to manage risk and stay disciplined. Take your entries and exits just like you have always done inside a winning methodology.
If Obama wins and the market gaps under support tomorrow and begins a downtrend for multiple days then it may be time to go short. If Romney wins and we gap up tomorrow and the market starts to trend upwards then it may be time to go long. If the election is too close to call then…trade the chart, trade what is actually happening not your own opinion of what should happen. The answers to how to trade the price action should be based on your methodology and the time frame you trade on not who wins the election.
Everybody wants a prediction but no one has a crystal ball, the best traders I know trade the price action not their own predictions.
As the U.S. presidential election approaches the market is in “wait and see mode” with key resistance and support levels. While it is possible to trade these ranges for those that have the desire to be active there is always the option of waiting in cash for a trend to develop, I suspect after the election results are out (hopefully Tuesday night) we will see a trend emerge, the market can go either way but we are at some key support levels and are oversold by many measurements. Stay vigilant, manage risk, and be ready to make some money. Here are the current levels I am watching for break outs to happen.
The SPY has buyers at the $140 level but sellers waiting at the 50 day line.
The Diamonds ETF has great support at the $130 level but ran into resistance as it approached the 50 day moving average.
Current support for the QQQs is at the 200 day moving average so far buyers are accumulating at that level. A close below that level is a signal of a true downtrend may be emerging.The 20 day moving average is also a near term resistance.
Apple has a new resistance level at the 200 day moving average after today. The 5 day ema has been resistance for over a month. I need to see these two levels broken and held to get bullish on a reversal play.
Let’s get some perspective here before we believe Apple is going out of business or that the stock is going to $300 or a 6 P/E ratio.
The indexes are holding up very well, the $QQQ is at the 200 day support, The $SPY is holding up at $140 like a champ, and the $DIA is supported at $130. We are in a base not a downtrend in the short term time frame. The market is not currently making lower lows.
The sentiment has become very bearish for Apple on social media this is one sign that most have sold out.
As with all its products since the iPod the doomsayers say that the iPad Mini is weak and just a knock off of the iPad and the iPhone 5 is not innovative enough, I hear the exact opposite from everyone who has purchased either of them, just like with all the other products.
While there is a lot of nervousness around the election and another 4 years for Obama that does not change Apples absurd earnings power and ridiculously low fundamental valuations.
If Apple was trading at a 100 or 50 P/E then I would be fearful of a plunge, but not at a 13 P/E with another block buster Christmas earnings ahead of it.
Apple is not just another tech stock it is a monster stock, the best buy points for monster stocks tend to be at a bounce off the 200 day or a break back above it.
Apple is absurdly oversold at this level by every indicator, the downside risk is minimal compared to the upside gain potential. The $560 price area is a key near term support level, $550 is a support level at the 50 week simple moving average that goes back to April of 2009.
It is very dangerous to short at these levels due to the possibility of snap back rallies at any time they can be quick and vicious as sellers stop selling for lower prices and buyers rush in and bid up the stock.
How many people wanted Apple at the 200 day so bad during the early year run but now when presented with the opportunity are scared irrationally of it being over as a valid growth stock. If this is not the end of the story for Apple then this is the buying opportunity everyone has been waiting for. The odds are that this is not the end, just a rest period before it returns to all time highs just for fundamental valuation reasons.
Of course trade this stock with a plan, have a high probability entry like the $550 or $560 areas after a bounce or a break back above the 200 day moving average.
I look for the 200 day sma to act as a first level of resistance and a place to take profits on a day trade or where this may be a short entry point for a day trade. The $600 price level will likely act as the second level of resistance, the century marks are places where traders like to take profits and put on new short plays.
Apple is THE best stock to play options on due to their liquidity, plentiful price strikes, and weekly options
I am not letting this opportunity pass me by, investors, option traders, growth stock investors, and day traders should all have this on their watch list and trade or invest with it based on their own methodology with out being blinded by FEAR.
Another interesting possibility if the bears really roar is the very long term 50 week moving average in the $550 area on the weekly chart, this level has not been breached since April 2009 around the bottom of that bear market.
Where is the Apple that we use to know? It is crucial that we stay mentally flexible and trade what the chart is saying. Anything could happen next week. Apple could reverse and make a run for the 50 day as institutions start loading up at bargain prices or if we lose the 200 day we could roll over and start testing the $575 area. Don’t trade your opinions trade the chart and follow the momentum and what happens around key support and resistance areas. If you are wrong get out quickly if you are right let it go until it gets into a key area and look to bank profits. Stay quick on your feet or stay in cash. Currently this is a trader’s market.
Apple stock is in a downtrend, earnings did not reverse this situation.
Nine out of ten times that Apple has tested the 200 day sma in the past 4 years it has bounced back above immediately.
Apple has closed beneath the 5 day ema six out of the past seven days. Above the 5 day ema is a high probability area to initiate shorts.
the 150 day was support for 4 days but has now turned into the first layer of resistance.
Apple bounced almost to the penny off the 200 day in the post market after earnings and at $591 on Friday, long positions in the $585-$591 area are high probability spots to enter long for a trade or for investors to add to long term positions.
For me to consider going long we need to close above the 150 day and 5 day ema and follow through the next day.
The chart historically is saying we are oversold and due for a bounce.
The market is at a cross roads, we are either at the bottom of a bull market or the beginning of a bear market. The up trend is still technically in place but the bears are fighting to bring us into an official down trend. Below or five key price levels to watch, we either bounce or we will wrestle with maintaining these levels. If they are lost we may struggle and get back to them but it is possible that they become resistance in a down trend. Government interference is beginning to lose its ability to stabilize the markets. It is becoming decision time, buy the dip or short the downside break out?I believe the following levels will be the key, either we bounce strongly and the up trend resumes or we lose these levels and plunge into a down trend to cleanse all the market of weak hands.
For bulls to stay in control they can not give up the 50 day SMA line to the bears.
The bulls must hold the 50 day sma for the bulls to stay in the leadership role for the S&P 500.
The QQQ has its last bull stand at the 100 day ema.
Google the markets recent big cap momentum stock must regain and hold the 5 day ema from the bears.
“If you diversify, control your risk, and go with the trend, it just has to work.” -Larry Hite.
We often hear of trading with an edge, but how do we know for sure we have an edge in our trading? How do we know that the odds are in our favor and that the more we trade the more our accounts should grow as we play our edge over and over? Are we really the casino and not the gambler or are our short term winning the result of luck?
One edge is in trading entry points in chart patterns that historically play out as a winning trade more times than a losing trade. Even taking entries that play out as winners only 60% to 70% of the time is much better odds than a random 50/50 entry point. The key is to do your homework and know the odds of each entry from specific chart patterns. Cups with Handles, candles sticks, and triangles are just some of these patterns. Thomas Bulkowski has done some amazing work around quantifying these patterns.
Another edge is in the use of historical price action back testing using software and historical price data along with technical indicators to see how a system would have done over an extended period of time across multiple markets. Moving averages and breakouts in different time frames are used many times to see what the equity curve looks like if the system was followed. This is the realm of the mechanical system trader. Price history gives the edge. Programming knowledge required.
Another edge is to trade a method that has been proven historically as a winning one. The method should have rules on what to buy based on fundamental or technical criteria , when to buy, how much to risk per trade, when to exit at a loss or when to exit to lock in profits. One example of such a method is the CAN SLIM system by William O’Neil while the system is very robust it is more of an investing system than a trading system due to the time frames of the recommended buying and holding of stocks.
Technical Analysis applied correctly can give a trader an edge. By trading what the chart is saying with support, resistance, trend lines and volume it will give a trader an edge over someone who enters randomly or based on opinions.
Experienced discretionary traders can be their own edge through intuition which is developed through market experience and exposure to market behavior and what makes and loses money over many years of trading. Successful discretionary traders are like seasoned athletes who began to just know what to do in different circumstances based on past experience and learning through repetitive action. They are also like professional poker players that can instantly size up the odds of their hand and the possible actions of their competitors.
An Emotional Edge can be gained by traders who make buy and sell signals based on systems and methods instead of fear and greed, they can step in and buy in a bear market when a reversal begins with a new trend upwards with out being clouded by fear and they can allow winners to run in a bull market not selling to soon out of fear of giving back profits. Traders not affected by their ego can sell quickly when they are wrong to avoid taking a bigger loss than is necessary. Much of trading is a mind game and do not underestimate the edge of having the discipline to follow your trading plan instead of your own fear and greed over taking you during market hours.
Asymmetric Risk Edge is really THE edge that produces profits in the long term. The only way to make money in the long term is to have all your winners be bigger than all your losers. This can only happen by cutting losers short and letting winners run or having a very big win percentage. A good ground rule is to only take trades that can profit $3 for every $1 at risk. Only risk $1,000 if you believe you can make $3,000 on a specific trade. Of course a day trader with a 60% win rate may be able to get by with a $2 profit for a $1 risk if they stay disciplined in cutting losses and a trend following may have amazing returns with only a 30% win rate if there wins are 5 to 10 times their risk.
AAPL – Buying In The Face Of Fear
Guest Post By All About Trends
All week under the chart notes on AAPL we advised subscribers the following:
10-1 Where is the “What Do I Need To See To Make Me Take A Trade”?, to which we’ll refer to as the “Gimme Trade”. Why it’s the 50 day average in the face of fear that’s where.
9-30 A tag of the 50 day in the face of fear sure would be a nice area to go long on it at.
For weeks we’ve also been talking about the power of a ”What Do I Need To See To Make Me Take A Trade”. This can be one of the most powerful centering statements you can ask to remain unbiased in your trading?
The 50 day moving average ($650) was laid out on the daily charts for you as a zone. Yesterday as the chart below shows AAPL tagged the 50 day average in true “Don’t Blink” form and off to the races. Many times these key support levels are reached and bounce immediately so it’s very important to have asked your centering questions first, formulate a game-plan, and know exactly how you will react when the moment arrives.
Preparation + Execution = Success
So what’s the moral of the story? Ask the question, then look at the charts for support levels and 50 day averages.
This has been an excerpt from the premium mid-day report from All About Trends. Subscribers receive daily commentary, real time stock/option alerts and a weekend wrap-up. To learn more about our stock and option recommendations and receive our free report — “How To Outperform 90% Of Wall Street With Just $500/ Week”, sample our free newsletter“.
This morning one of the best short play stocks of the year gapped up on earnings and provided a new opportunity for beat up longs to get out with their shirts and bears a chance to get short at a much better entry price. I took the entry and went short with put options as the trend reversed in the morning and the daily candlestick became uglier and uglier as the day went on. Besides the poor RIMM bulls that bought at the open the stock seemed to find no buyers above $8 as it plunged quickly from the double digit increase it had built in after hours and pre-market trading. As the day went on the daily candlestick on the chart looked familiar to me. Where had I seen the same exact candlestick before? Ah, good old Groupon was the one. My Groupon short early in the year became one of my biggest winners of 2012 (I played this in April). RIMM gapped above the 50 day today, Groupon also gapped above the 50 day in mid May but quickly returned to earth (See Charts below). There are simply no fundamental earnings drivers to sustain such absurd moves back up from the abyss. Sucking less than expected on earnings just does not create enough momentum to catapult a stock back into an up trend. This is why I am short RIMM and why I shorted GRPN in April. I use weekly in the money puts of course so if these stocks do have a take over rumor or some company buys them out my losses are limited to the price of the contract, selling short has an unlimited upside, put option losses are capped. It is important to know this.