Feb 28 Market Summary

Negative Divergence on the /DX. Weekly pointing down, made it to the middle of a 4 year long channel, but monthly stochs point down, weekly MACD points down (weekly stoch has been heading down and is not yet bottomed), daily MACD points down and stoch is embedded. Maybe the buck will get a slight bounce here, but I think the trend is down, doubt it will make it back to the top of the channel at about 83, then 87.

/GC is looking and feeling pretty solid right now:
Monthly is showing the stochs headed back up after this correction. Looks just like every time the price has corrected in the recent past.
Weekly MACD looks fantastic, and stochs are back up top, hopefully to get embedded for a nice run.
Gold has broken out of the downward channel it has created since the highs back in August. It came back down after breaking out, but not quite to the old upper TL for a test. Dollar weakness and gold chart makes me think it won't make a legit retest.

/SI is showing some solid strength, as well.
Monthly stochastics are almost bottomed and about to cross over to head upward again. MACD beginning to curl up again, too. The last few month's activity has crushed the indicators, and I am just hoping for a resumption of healthy growth.
What is strange is that this Jan/Feb 2012 resemble almost to a T Feb/Mar 2011. Definitely don't want to see more parabolic nonsense, although I am about ready to get in the black on this trade again. Bought SLV at $45, yikes. What stupidity. Don't buy parabolic moves. Usually, they will indicate a good time to SELL, unless fundamentals continue to point to a very long term hold...
Anyway, silver is very close to either breaking out of the downward channel it has created since the sell-off, or another breakdown. Indicators and fundamentals point to a resumption of the upward trend. If we crack $36.5 or so and get a nice retest and bounce, I'd say the trend is back in play. $36.5 looks like an important area. This is where we had a short reprieve in the parabolic move last year, and marks the first point of the lower TL of this downward leg. If we make a channel out of the last 4 years in silver, we get some pretty appetizing upside price targets, but hopefully in a more reasonable time period. I'd like to see the $50 mark around this time next year.What a long hold, definitely getting that favorable cap gains rate!

All this technical analysis of gold and silver is within the context of what I see as very favorable fundamentals, of course...

A lot of confusion in the market. Price levels in the indices keep rising on good earnings reports, and despite global economic issues. Employment numbers have been coming back moderately encouraging, but I think we are experiencing a small bounce caused by the foolish monetary policy of the Fed. The easing, combined with poor monetary policy in the federal government, is certain to have a negative effect on the economy and stock markets in the longer term. Additionally, the trend in fuel prices is not promising.
Consumer confidence is up, which I am taking as a bearish signal.
It's all about timing, you don't want to get into a trade too early and wipe out your account before the move that you 'know' is going to happen begins.
Need to draft a strategy for entering the short side here, but the precious metals trade is still treating me well. Lack of capital is a serious issue, as well. I don't think I want to exit this silver trade until I am solidly back in black, so I won't have funding to get in the short game. It could very well take another several months before the indices start pulling back in a material way. I am reluctant, as ever, to short this thing anyway.
I think the /ES is due for a downward correction before too long, but I'm not interested in trying to time that shit. The longer term monthly chart is looking nice for the /ES tho...

From a newsletter:
"This has been a stealth rally and one of the least loved rallies in history according to analysts. There has been no conviction along the way. No massive volume surges and relatively few days of decent point gains. However, if you could order the perfect rally this would be it. If you could order a rally would you want a one with a steady climb, no nerve racking declines to stop us out and one that continued for months while breaking out to new highs? I suspect the only problem is that it came when investors least expected it and they are frustrated they did not recognize it sooner."


On the oil front, this intense price spike will likely be subdued in the near future, which will present a nice buying opportunity ahead of the typical 'spring/summer rally'. (gas prices seem to rise, but crude tends to just maintain its long term growth trend...) Additionally, as would be expected, the long term charts are pointing up based on fundamentals. I do not know why the average joe who is certain that oil prices will continue up doesn't go snatch up a contract or two in the oil market... I still want to set up a futures acct...
Can I short transportation? Short CCL - already have trouble filling cabins since Italy disaster, will have a hard time raising rates to compensate for oil price rise.

Beige Book at 2PM Wednesday. This week is actually pretty heavy on the economic data and such. Should be interesting.

Go back and watch those 'Informed Trades' videos on mining company investing. Do some fundie research on a few, just to get the practice. HL, EGO, IAG, NEM in particular are of interest.

Keep eyes open for S/D imbalances all around you.

BANGARANG!! BASS!!

Watch List and market notes

Stocks to watch:

• ABV: Looks to be a pending reversal of a downtrend that started at a high of $32.
• Daily Chart:  MACD pinching off at the bottom. Stochastics coiling around the buy trigger line. Price level is right towards the mid-top of the downtrend channel, so we are either going to break up and out or fall back down towards a level that is both the bottom of the channel and the 200EMA. If this level is hit, it's an almost certain BUY at that point of major support. Watch indicators but if channel is broken wait for confirmation based on either a retracement and bounce off the upper TL or a strong volume break that reaches the 20 & 50EMAs.
• Hourly Chart: Stochastics turning up towards upper TL, MACD just crossed upward near the 0 line. Looking a little weak and ambiguous here. We're riding just below the 20&50 with the 200EMA overhead and out of the channel.
• Summary: Looks pretty good but be careful not to get caught in a little shakeout to the lower TL/200EMA on the daily. As usual, use daily to make the decision and the hourly to time the entry. Could be a big winner if it ends up bouncing off the 200EMA @ ~$25.50 and heading back to original ~$30 level. Position Sizer @$800 position size allows for 30 shares at $25.50
• DRYS: Been in this one for a while, finally looks like a good time to buy. Cannot believe I chose the entry that I did. Just laying in bed looking at iPhone charts not knowing WTF I was doing all excited about a mobile trade when I could have gotten out of bed and likely noticed the price position in the channel was well into the DOWNWARD LEG! Held and held and held and now ~$100 down on the position. Oh well. Absolutely stupid trade. I could pick up another round lot at the low low price of $5 down here and bring some money back.
• Daily Chart: Bouncing off the lower TL of the channel. Good action in the MACD, just starting to show green histo and Stochastics are on the way up. Having a little trouble with the 20EMA it looks like, but nothing significant based on other indicators.
• Hourly Chart: Riding on top of the 20EMA with the 50EMA below as well. Just today meeting and somewhat crossing resistance at the 200EMA/sub-trend line. This is one moment of truth that must be crushed before confidently buying more shares. MACD/Stochastics are a little precarious at the upper levels but the daily has enough oomph to have some confidence.
• Summary: gdamnit I think this one is going to pop, and certainly hope so. Not going to hold this loser for much longer. Have already waited too long, really, but I don't think I'm being desperate in expecting some gains here.
• TTM: This is a stock I've not really looked at much, but I like it. Emerging market exposure, seemingly good fundamentally (need to do some more research into that claim, too), and it's looking good technically. I think some owners were concerned about overvaluation+recall situation which snowballed into an oversold condition that is just now reaching lows.
• Daily: This stock has been falling down at a rate that nearly mirrors its earlier rise with the 20EMA as a resistance level for about 2 months. It has just now contacted, somewhat broken below, and bounced off of the 200EMA in the last three days. MACD appears to be turning up, but had similar activity last week too that ended up being a fake-out. This time, though, stochastics are displaying some serious buying pressure, crossing the buy trigger line with strength. Today's high nearly touched the 20EMA; whether or not we can break that level will be a good indication that buyers are ready to start running the show again.
• Hourly: Seeing a good bounce in indicators. Also great volume coming in the last few days. I think this is the bottom, tech traders using the 200EMA on the daily as their entry trigger. Hopefully tomorrow's action will meet my more conservative entry criteria.
• Summary: Looks like $26 (20EMA on Daily and 200EMA on Hourly) would be a good entry point. Position sizer shows a lot of 25 priced at $26.05 ($651.25) and sold at $30 bringing $98. Acceptable profit but it could take a month to achieve it. There is above average volume going into it, though, so it might be a quick $50 or so. Will tweak numbers depending on available funds.
• HL: Been watching this gold miner. Made a great move today of 6.52%
• NGS: Descending wedge pattern, coiled stochastic
• Daily: Wedge pattern is going to pinch the price range one way or the other. Since the general longer term trend has been up, we are above the 200EMA and the 50EMA, and MACD and stochastics are looking right.
• Hourly: Missed the stochastic crossover on this chart, but if the move is to continue out of the wedge,  it would still be a worthwhile trade.

Notes:

• "Egypt not a key player in commodity markets" http://www.youtube.com/watch?v=4G0B4_bgK1c
• Trader Spotlight with Gas on programming indicators for finding setups with stochs lining up on multiple time periods. AWESOME
• http://www.livestream.com/daytraderrockstar/video?clipId=pla_04baeb22-ba28-4bfb-ba6e-7edc0445aee9
• http://rpmws.com/gas.html

Take Profits!

I will never again lag in taking profits off the table. Will follow indicators and be happy with a decent return as opposed to assuming that I can tell the future of a move and set profit targets.
I know that I will still make mistakes and hold for too long, and that sometimes there will be more to a move once I am already out, but that's better than having to hold a stock for a month waiting for my profits to return when they are lost due to a standard 'profit-taking-caused' retracement.
I know I can do this, because I keep watching stocks go the way I expect them to. The primary problem in my strategy is not taking off profits before they are lost. You are a day trader, do not hold forever! Losing profits on the dips is for fools. "Buy and hold is a loser!" Don't get caught in the trap.
I need more money in my account.

Technical Analysis: Moving Averages

• If I have any insights about moving averages, I'll put them here.

Trade Alert: BOT 20 CREE @ $62.6994

Stock Symbol - CREE
Entry Price - $62.6994
Stop Loss - $60.00
Profit Target - $68.00
PT:TL Ratio - 2.11
Other Notes: Position size was rounded up to 20 shares from recommended value of 17.

Screenshots:
Did not take all the screenshots, because ToS platform was having problems with accepting my order(s) and I was preoccupied with figuring out what was going on.
30D 60MIN:

Follow-Up:
Tues. July 6, 2010 - Evening of purchase
It appears that I bought this stock at the peak of the first run of the trend breakout.
Should have waited for the price to come back down toward the trend line and turn over in the stochastics and MACD.
The share price has come close to the stop loss a couple times, but the conditions still look good for a bull run.
At a loss of $34.79 at time of writing. After-hours trading shows some buying interest. We'll see if it means anything.

Wed. July 7, 2010 17:10
CREE moved like a beast today on relatively heavy volume.
The move is likely to continue if the market keeps truckin' toward 1060 or higher. Next resistance at 1066, but if bounce takes us to upper trend line, that will be at around 1080-1100 before another retreat. (breakout of trend extremely doubtful. current sentiment is weak.) A good jobs number tomorrow could help propel us upward within this channel.
Stop Loss order lifted to $64.75 which locks in a bit of profits. I'll be keeping a close eye on the stock, and am planning on exiting the trade far before the share price reaches that stop.
Profit Target order also increased to $69.00. Will likely take off half here and set a tight stop on the rest if conditions are good.

Just remember: When Diagnosis Changes, Modify Treatment.

Notes

• All those stocks in your watch lists that are lookin' tasty down at the bottom of channels and wedges are going to fall out. This is a sneaky market, methinks.
• Stop going 100% long!
• Why is it that I can go against my rules without even noticing it?
• Breakouts from trends tend to retrace back to the trend line before continuing the move.
• Do more stock research!
• Avoid any stock whose fundamentals have been impaired.
• Ah!
• If you plan to be in a stock for a particular amount of time to achieve your profit goal, but the majority of the profits rush in far before you expected them to, it probably makes sense to get out (or at least scale out) of the trade, because you now already have far more to lose than gain. Drop half, set tight stops on rest, sounds like a good plan in many circumstances
  

Goals

• 4% portfolio growth per week
• Friday evening weekly reviews to monitor performance
• Earning a living from trading in 12 months from July 2010, or by July 2011

Identifying Broad Market Trends

Signals of an Emerging Downtrend

• Watch individual stocks, especially the leaders, for signals of a downturn.
• If an otherwise winning system gets stopped out ~5 times in a row, this is another signal

Signals of an Emerging Rally

Technical Analysis: Volume

Volume (and relative volume) is a very important indicator that can help to choose entry times and determine whether or not there could be conviction in a move of share price.

• If one period's (usually day) bullishly engulfs a previous period, but volume does not do the same, the move is likely to be a fake-out
•  Market Wizards, David Ryan:"When a stock that has been moving up starts consolidating, you want to see volume dry up. You should see a downtrend in volume. Then when volume starts picking up again, it usually means a stock is ready to blast off."

Trends and Position Within Them

Types of Trends:

• Channel
• Falling
• Rising
• Flagging
• Wedge
• Falling
• Rising
• Flagging
• Embedded Trends

Trading with Trends:

• If, having broken out of a trend, a stock re-enters the base, it is extremely likely to make its way back to the bottom of the base. Continue to honor original stop loss level, but consider cutting position size in half.
• Reversals of trend are relatively low risk, and give clear cut sell signals in the event the trade isn't going the right way.
• Breakouts and changes of direction require above average volume to be taken seriously. Of course, other indicators should be used.
• Depending on overall market condition, there may not be enough 'oomph' to really start a rally from a trend breakout. Wait for the retracement to the trend line before getting in for a better risk/reward play.
  

Stock Selection

Technical Analysis:

• Moving Averages [outside link]
• Price Movement / Support & Resistance
• Stochastics [outside link]
• Moving Average Convergence Divergence (MACD) [outside link]
• Volume & Average Volume
• Trends and Position within Trends
• Patterns
• Multi-Indicator Setups

Fundamental Analysis:

• Low Debt to Equity
• High Earnings Per Share (and high within EPS rank)
• Sustainable dividends is often an indicator of a healthy stock, but value of dividends should not have any impact on whether or not a trade is made. Dividends are minute in the scheme of things and mean almost nothing within the context of short->medium term trading.
• Significant Free Cash Flow
• Avoid stocks under $10 (but not religiously)
• Look for stocks with relatively low shares outstanding. Supply/Demand dictates that much more money is required to move price of stocks with higher shares outstanding.
• < 30 million*
• Institutional Ownership can be a boon or a bane. 
• Stick to stocks at levels of 1-20%*
• Buying at new highs (upon breakout of a trend) avoids falling prey to a situation in which many buyers who got in toward the top of the last upswing, in a channel for example, and waited with a loss for some time for the price to return again, create resistance at the old highs thru mass selling.
• Avoid stocks with high P/E relative to broader market - strong earnings trend very important*
• In a bear market, play the stocks for which the fundamentals have not been impaired.
  

News Environment:

• News can move a stock in unpredictable ways.
• No stock is immune, but it could be valuable to consider which stocks are most prone to news-related price movement and organize these somehow.
• Bear Market: Bad news crushes, Good news is all but ignored
• Bull Market: Good news rallies, Bad news is all but ignored

Macroeconomic Analysis and World Events: 

• ES-mini movement
• Regularly analyze the overall market as if it were an individual stock.
• Advancer-Decliner Ratio should be high and trending upward when planning to go long.
• Federal Reserve action
• Regulatory environment in relation to the overall market and individual stock or sector
• Natural Disasters in relation to individual stock or sector
• Trends within the indexes will have a large impact on trading strategy.

Finer Points:

• Bear markets present an opportunity to spend more time researching & selecting stocks that have the greatest likelihood of large moves upon reversal of trend. Plan ahead for the rebubble.
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*according to David Ryan's recommendation in Market Wizards

Risk/Loss Tolerance

Risk:


- All trading involves risk. Some trades are not going to be profitable.
- Risk management must be a primary consideration in a trading strategy in order to ensure minimal losses on those trades that do not go as planned, and to remain solvent thru particularly difficult markets.

• The transaction cost of any individual trade must not exceed 25% of Net Liquidated Account Value 
• Scale in to the relatively risky trades.

Loss Tolerance:

- The Maximum Tolerable Loss must be determined before any trade takes place. The Stop Loss Total will then be divided into the MTL to determine the size of the position which will maximize profit opportunity while also staying within a conservative Loss Tolerance.

• Each trade must not risk more than 2% of Net Liquidated Account Value
  

Determining Stop Loss Level

Stop Loss will be set based on values displayed by:

• Average True Range
• Trend Lines (and measured moves based on trend lines
• Moving Averages
• Pivots
• Recent highs and lows
• Historical highs and lows
• Position within a pattern

- Wherever there is a convergence of these values, there is probably a good stop loss level.

- Stop loss target should be somewhat below any support level/range that is used to set it. This helps to avoid getting taken out just before the expected bounce.

- Stop loss should be a set level until trade has begun moving in the right direction, at which point it will be switched to a trailing stop.


- A stop loss level is pointless if it is ignored. Do not hold a loser.

Position Sizing

Position Size will be determined as follows:

1) Determine Stop Loss (trailing) and Profit Target. [LINKS]
- Base stop loss and profit target on key support and resistance levels (if history allows): trend lines, moving averages, pivots, recent H&L, historical H&L, measured moves, etc.
- Profit Target can be raised depending on the ongoing situation, but stop loss must remain as it did at the initiation of the trade.

2) Determine Total Tolerable Loss based on a percentage of Total Portfolio Value (2% is a fairly risk-averse percentage, and will be my default for now)

3) Divide Total Tolerable Loss ($) by Loss Per Share (difference between Purchase Price and Stop Loss Level) to get Total Position Size* (round as appropriate)

4) At this point, one should calculate the Profit Target : Total Tolerable Loss ratio. [LINK] This is a last-minute filter to determine the potential best performers at a given time.
- A value of 2 would be considered great, 1.5 mediocre, and anything below 1.25 not worth investing in.
- Remember that Profit Targets can/should be adjusted upward or downward as the situation progresses, meaning the initial ratio can be skewed by conservative or aggressive expectations.

*Total Position Size is a risk-limited quantity. The Actual Position Size may be lower due to a shortage of Cash in the account, due to the fact that we are calculating Total Tolerable Loss from our portfolio as a whole, which may be comprised of any proportion of cash and other investments.

Download Position Sizing Spreadsheet

Strat:

Explanation of overall strategy:

• Active trading management
• Systematically determine relative strength of a stock within its sector and overall markets.
• Buy/Hold strategy, with majority of stocks, will decimate your portfolio in the current market.
• Apply day trader techniques to the more predictable commodity-based stocks during this bear market. Shorts are also viable in the current economy. Spend time understanding the Chinese market and individual stock plays in that market.
• Goal in a bear market is to come out with enough at the end to buy up low-priced equity, so at the very least, minimize losses by tightening loss tolerance percentage and portfolio exposure per trade.
• Don't Be Greedy: set modest and pre-determined profit targets. Use trailing stops to lock in profits.
• Be Patient: let the set ups come to you.
• Be Flexible: there are many fish in the sea, so don't get married to any one play or risk missing better opportunities.

Subtopics within strat:

Risk/Loss Tolerance (portfolio & individual trades)
Stock Selection
Trading Time Scale
Position Sizing
Stop Loss Determination
Profit Target Determination