Sunday, October 30, 2011

One of my fav trading patterns....

On of my favorite chart patterns to trade is a triple top. I don't mean a triple top near all time highs, although that works too. But any time I see the price bump against a ceiling three times I get set for a breakout through those recent highs.
I have been seeing a lot of trades lately. What a difference a moveup in the averages makes. That is another valuable trading rule: Don't buy when the averages are in a downtrend!
Anyway, here is a chart of Knightsbridge tankers. I suppose the price of crude going up means their business might pick up as well...
Know when you will get out. Look at a chart and ask yourself: If I trade using charts, and if a breakout through this triple top means the price is going up, where will the price be when I am wrong. The classic answer is "somewhere in the middle of the present consolidation".....Please note that this is only good for a short term trade. Usually a day or two. We are bottom picking here if we trade for the longer term. I find it hard to hold on to these for the long haul. If I were that type of long term investor I would perhaps put on a big trade position, and then sell most of it and hold the rest for the long haul....Or add more later as the trend proved itself.
It is a gutcheck when you sell the trade and the stock just keeps going up! I remember buying Oregon Steel at $14, making a quick buck, and it didn't stop until $60....aaarrrghh!

alway limit your
Limit your risk.


I keep my stocks in lists. One of those lists is "Defense Stocks". This is the best looking chart of the bunch. A break above resistance at $58 may be the start of another leg up......
Always limit your

Saturday, October 29, 2011

Friday, October 28, 2011

Zerohedge locked me out.

I find that my I can't log in to Zerohedge. I must believe that I was locked out by the management. I have lately had some disagreements with the general tone of the discussions on ZH. I have felt that the stock market and the economy in general may not be as bad as is portrayed on ZH. I went so far as to state that "Zerohedge is a one trick pony". OMG!! Did I really say that??
All of my comments have been polite and logical. And I have been right lately. I think that may be the problem. The economy may be poised to turn around, the problems in the middle east may be on the mend, Obama may be the next president, and low interest rates may finally pull the economy out of its slump. And that means Zerohedge is out of a job.
But, I can't log in..... I can't believe they could do this. I thought they welcomed debate. Maybe I will be proven wrong.
If you have access to Tyler ask him what is up!!


Here is a interesting pattern. I would look to buy some grain if the price breaks out to the upside from here. I also would consider the price of grains an indicator of inflation. Inflation is a sign of increased economic activity.


Buy the strongest...

One thing I have noticed over the course of the last couple decades is that when a downturn in the general market is coming to a close the best bets are those stocks that have held up the best during the downturn. On a long term time horizon, here is one that has held up well...... Buying new highs in these situations often turns out to be a good bet. Counterintuitively.

Las Vegas Sands.

Thursday, October 27, 2011

The late dollar rally...

Here is the bigger picture of that dollar rally that happened over the last couple months as the stock and commodities markets were under pressure.

There is no uptrend here:


This is where you buy some more TBT. Don't get greedy. Just a second third.

Control your

Tuesday, October 25, 2011

How about this!

There is a lot of doom and gloom out there and has been for a long time now. It seems sometimes that everybody has lost hope of a rebound in the housing market. I often see charts of financial activity that the presenter shows as an example of the markets getting ready to repeat past history. Here is a chart put out by the folks at Case-Schiller. The crayon marks are mine.


"Surprises" happen along the line of least resistance.....


This is why trend trading is best.

Here is a prime example of the trend that continues to trend....

There is no "bottom" here.

Jesse Livermore, one of the greatest traders of all time, made the point in "Reminiscences of a Stock Operator" that the unexpected events that occur in the financial markets almost always occur in harmony with the existing trend. When the trend is up the surprises will be bullish surprises, and when the trend is down the surprises will cause further downward movement. I have found this to be true. There was a time when I tried to pick bottoms when there was no reasonable expectation for the trend to change, and invariably when the next news item came out the stock dropped further.

Monday, October 24, 2011

here is a breakout

This is one I meant to post for a couple of days. A classic "breakout" from a trading range. These are the types of areas where it is easy to put on an initial position with little risk since there is a well defined line of resistance that was broken. The buy was just as the price broke above the line....

Always limit your risk....

Thursday, October 20, 2011

Technical analysis..

I make most of my trading decisions based on technical analysis of stock charts. I would like to present a case for bottom picking in a coal stock. "Bottom picking" doesn't mean buying the low of the move. To me bottom picking means trying to identify those areas where a stock has MADE a bottom and has potential and momentum in an upward direction. It also is often where the shorts find themselves to be wrong..
Here is my technical take of Patriot Coal.

As a general rule stocks experience three stages of decline before they get set up to rise. In the chart above I have identified three areas that represent these declines in PCX. Notice the volume at the bottom of the chart. In the first decline the volume only picked up right at the bottom of that decline. The bulls were still in charge,(or so they thought), and the stock rallied back, but the volume remained low except for a couple of days.
The stage 2 decline was on huge volume, and the stock was halved in price. A sideways consolidation pattern then occured. The volume declined.
The stock had a chance to break out on the upside during it's consolidation after decline #2. If you look close you will see that it just barely broke out of the sideways channel that it was in, but each was a "false" breakout. The buying was quickly overwhelmed and the stock went down.
The stage 3 decline was on the largest volume so far. At point #2 (bottom chart) it must have been a "throw in the towel" moment for anyone still holding on. Also a good sign when looking for a potential bottom.
Let's take a closer look:
As the stock plunged to point #1 the volume surged. A rebound on heavy volume, and then another plunge to #2. The rebound from #2 was on the heaviest volume yet, and took the price up to #3. And volume has remained heavy in sideways trade from then, with the heaviest volume on the up days.
One of the key things I look for in a bottom is heavy volume in a sideways pattern signalling accumulation. ie, big buyers. The kind who tend to keep what they buy, and the kind who tend to be right. (Notice the decline in volume in the consolidation decline 2.) The volume has remained heavy since the selloff at #1.
To complete this bottom we need to see the stock (1) move above the highs at #3 on higher volume. If they do that then they will need to (2) break through the floor of the consolidation from the second decline, then to the top of that range, and (3) break through that to keep going up.
For a long term hold the stock would have to do the above three things.To limit risk on any trade the long term trader could buy at each of these milestones. As always, limit your risk by selling if the stock falls below the support areas offered by the consolidations.

A note on technical analysis. I don't have the money to do the research that the multi-billion dollar funds do. So I look for their footprints. When they buy or sell they tend to move markets on larger than usual volume. And they can't put on their position in one day. So they will tend to do their buying and selling over weeks. By interpreting the signals that price and volume give, the astute technical trader gets an indication what the "smart money" is doing. And the small technical trader has a huge advantage if he chooses to use it: He can put a position on in one mouse-click, or take it off just as easy. And his volume doesn't move the markets. (Well, most of the time!) So limiting risk is as easy as controlling your ego and admitting you were wrong. LOL!


Keep an eye on this one....

Is this when interest rates start up?

Just when you least expect it. That seems to be the favorite of the financial markets. Is now when long term interest rates commence the inevitable rise? The charts of the TLT long bond look set to continue the recent decline. Does that mean money comes out of bonds..... to the stock market? I think the stocks have held up well lately. Probably wrong again, but have to take the short bond trade by buying TBT.
Here are the charts.


Sunday, October 16, 2011

My favorite poem

Robert Frost. 1875–
 The Road Not Taken
TWO roads diverged in a yellow wood,  
And sorry I could not travel both  
And be one traveler, long I stood  
And looked down one as far as I could  
To where it bent in the undergrowth;          
Then took the other, as just as fair,  
And having perhaps the better claim  
Because it was grassy and wanted wear;  
Though as for that, the passing there  
Had worn them really about the same,   
And both that morning equally lay  
In leaves no step had trodden black.  
Oh, I marked the first for another day!  
Yet knowing how way leads on to way  
I doubted if I should ever come back.   
I shall be telling this with a sigh  
Somewhere ages and ages hence:  
Two roads diverged in a wood, and I,  
I took the one less traveled by,  
And that has made all the difference.  

Saturday, October 1, 2011

I can't believe I write this crap.

I find it hard to believe how wrong I have been in all of the things I have wrote here over the last couple months.  My trading has suffered also. Taking a little break.....

I can't resist tho... It looks like the S&P is going to fall off of a cliff!

UPDATE: OCT. 14, 2011


I'll be back soon. Getting the trading back on track. (the mind back on track!)