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A must know trading strategy

stockhaven — Thu, 23 Feb 2012 00:19:05 +0000

This video introduces one of the simplest, yet most profitable trading strategies you will ever find. Not only is the strategy great for big board stocks like AAPL, but it works extremely well on promo stocks like NSRS.

the text that goes with the video:

Remember how we pointed out that support and resistance are established all the time (in this Trading U post)? Stocks establish support and resistance every minute, every hour, every day, every week, every month, every year, etc…

The same concept holds true for uptrends and downtrends (which in essence are simply another form of support and resistance so this would make sense).

uptrends and downtrends are always getting established: every minute, every hour, every day, every week, every month, every year, etc…

Some uptrends only last a few minutes, a few hours, or a few days. Others can last weeks, months, or even years. The same can be said for downtrends.

Depending on the type of strategy you are implementing (extremely short term – day trading), (shortermediate (our word for short term/intermediate term) – some types of swing trading), long term (investing), some downtrends and uptrends carry more weight.

ex:

If you’re day trading, you are more concerned with the trend for that day and while you would consider other trends (like daily or weekly) they wouldn’t be your main focus

If you are holding long term, you are more concerned with the underlying weekly/monthly trend vs. the trend of the last few hours or days

Taking this all into account, we’re going to present what we have found to be a successful for playing uptrends and downtrends:

The concept:

A buy signal is generated when a stock that has previously been downtrending breaks above the prior days high

A sell signal is generated when a stock that has previously been uptrending breaks below the prior days low

Today’s high (after the market has closed) is always going to be tomorrow’s “prior days high”
Today’s low (after the market has closed) is always going to be tomorrow’s “prior days low”

SH @ the close 2/22/12: Markets stall but so does VIX

stockhaven — Wed, 22 Feb 2012 21:46:10 +0000

The markets finished lower today with the NASDAQ, Russell 2000, and Midcap 400 pacing the move south. From a technical perspective, today was really much ado about nothing in terms of the S&P500. SPX still is below its Spring 2011 highs around 1,370 but above 1,350. 1,350 is important because it is a previous resistance level and if it can become support now that would be a very bullish sign.

In the U.S. existing home sales rose 4.3% in January, hitting their highest level in 1&1/2 years. The data was taken with a grain of salt though as those same sales figures for December were revised down to 4.38 million-units from the previously reported 4.61 million-units. In China, the manufacturing sector contracted for the fourth straight month. The bears will need to see alot more reports like the ladder in to really see the market get nervous about the economy, both at home and abroad.

The best reason to remain bullish on the overall trend market continues to be the action in the VIX. We have outlined in clear detail on numerous occasions the inverse relationship that exists between SPX & the VIX. If anything with the market up 25% so far since October you would think people are positioning for a pullback. What would clue us off to such positioning would be spikes in the VIX on days like today. However, we didn’t see it. The VIX barely rose over 2% and even by the time the day was out.

The VIX hasn’t rallied 4 days in a row since 12/2/11-12/9/12. Meanwhile SPX has managed to accomplish the same feat on 4 such occasions. If you look at other trends like up 3 out of the last 4 days, or down 3 days in a row then the price action in SPX vs the VIX becomes even more apparent. Bottom-line, until we see the VIX put together a sustained rally then there is no reason to doubt the strength of this uptrend.

Mid day movers 2/22/12

stockhaven — Wed, 22 Feb 2012 18:26:03 +0000

Click here for a few stocks we’ve noticed today. To get these updates sent directly to your inbox, sign up here.

SH @ the bell 2/22/12: Markets continue to climb a wall of worry

stockhaven — Wed, 22 Feb 2012 04:32:48 +0000

Over the course 26% rally in the S&P500 since its October 4th 1,075 bottom, the market has climbed a wall of worry. Many market participants, including us, have surely been left frustrated by the small pullbacks along the way up to the current level of 1,362. We haven’t seen a pullback much greater than 2% at all so far in 2012. The lack of a real pullback is creating many potential scenarios that could play out in the coming days, weeks, and months ahead.

In our view, the implications of this stubborn march higher are very bullish in the short term. Many naysayers have likely missed a good portion of this rally so you better believe there will be a good amount of support on small dips. Why? Because those on the sidelines will fear that this is the dip and scoop up equities for fear of missing a move past 1,400. That same psychology can pose trouble though.

If the market dips 1-2% and everyone is expecting that that is all it’s going to dip and it then goes on to fall further, panic could ensue. However, even if that is the case we don’t think the panic would last very long. Why not? Because if we’ve learned anything over the last few years, its when panic sets in that’s usually a good buying opportunity (see fall 2008, march 2009, summer 2010, August- October 2012).

Really there is only one thing that can trump this rally: poor economic data. Furthermore, if such data does come out, it will likely take a few months before it really affects the market. While we receive economic data on a weekly basis, the market would probably need more than just 1, 2, or even 3 bad reports over a few weeks span to really rattle investors.

Remember those “double dip” recession whispers that we heard over the Summer? Anyone who got caught listening is kicking themselves right now. Therefore, we’re going to need a consistent amount of poor economic data over an extended period of time (call it 2-3 months) before we see this clearly bullish uptrend reverse. In the meantime, lets see if the S&P500 can sustain its perch above the 1,350 level and take out the May 2011 highs at 1,370.

2/20/12: Stockhaven’s Watchlist

stockhaven — Mon, 20 Feb 2012 18:05:13 +0000

Here are 4 stocks (along with brief analysis of each) on our watchlist for when the trading week resumes tomorrow. To receive this directly to your email inbox sign up here.

Click here for the watchlist.

To our readers…

stockhaven — Wed, 15 Feb 2012 04:54:50 +0000

Our editors will be unable to publish our “@ the bell” and “@ the close” commentaries from 2/15-2/20 due to business travel arrangements. Our usual publications will resume 2/21.

Thank you for taking an interest in our insights and we look forward to catching back up on the market when we return!

In the mean time keep an eye on the most recent lows (2/14 lows) and highs (2/9). Also watch to see if the VIX can solidify itself above 20 and the dollar above $80, both of which would have bearish implications for the broader markets in our view. Moves lower in these two indexes could help spark a move past the most recent highs.

SH @ the close 2/14/12: Today’s move not a surprise

stockhaven — Tue, 14 Feb 2012 21:14:54 +0000

Yesterday @ the close we noted the following:

While today’s price action was certainly bullish, the move higher came on the 2nd lowest up volume since January 12th. Couple that with the fact that all of the major indexes (except the NASDAQ) were rejected near their highs from last week and we don’t think you can get too excited about the move today.

With the indexes just below key technical levels, a catalyst was needed to push them thru. Unfortunately for the bulls, that catalyst never showed up.

Instead what we got was reports out of Greece that Euro finance leaders were not likely to release the bailout funds Greece was hoping for by Wednesday as initially thoughts. Adding fuel to the bearish flames was a weaker than expected retail sales report that showed sales in January rose 0.4% vs the 0.7% consensus estimate. While we have seen similar news be shrugged off by the market before, it didn’t come out when the market was near such key technical resistance. So did the news hurt the markets today? Yes, but we would argue that is a by product of where the market was when the news was received.

Keeping familiar inverse correlations in tact, the dollar and the VIX both rose as the broader market fell. The gains they saw though were nearly halved as the market staged a furious 11th hour rally. We were ready to talk about some more bearish points here but the bullish rally at the end of the day changed that. The good news is that no we have a very clear range to watch: today’s low (1,340) – last weeks high (1,354). A break below will likely usher in a further pullback while a breakout should lead to a test of the 1,360-1,370 range.

Lastly a statistic we thought was worth mentioning:

The Russell 2000 is down 3 out of the last 4 sessions for just the 2nd time since 12/8/11-12/12/11.

SH @ the bell 2/14/12: Is everyone too bullish?

stockhaven — Tue, 14 Feb 2012 00:40:18 +0000

According to the American Association of Individual Investors (AAII), people are too bullish on the market. The AAII Investor Sentiment Survey measures the percentage of individual investors who are bullish, bearish, and neutral on the stock market for the next six months; individuals are polled from the ranks of the AAII membership on a weekly basis. We can then peg a ratio to this number, an example would be 2 bullish people for every bearish person results in a bulls to bears ratio of 2:1.

Why is this an important measure to pay attention to? The whole premise is based on potential money not yet in the market, that could propel it higher. Theoretically, if more people are bullish then those people are in the market, which means there isn’t of outside money to push markets higher. Contrastingly, if more people are bearish then there is alot of outside money that could potentially come in to push the markets higher.

The best case scenario if you are invested in the market is for everyone to continue to doubt the markets ability to move higher. Why? Because that represents that many more people who can potentially change their minds and fuel further rallies. Those are the types of sentiment back drops that sparked furious rallies in 2009 and again in the fall of 2010.

The other side of that coin is when people are too bullish even as the market is performing well. This can create a sense of non-fulfillment, like those expect the market to push higher even after monstrous rallies. Those are the types of sentiment back drops that coincided with market tops before the financial crisis in 2008 and the 2011 highs. That is also the same sentiment backdrop we are starting to see now with the market off to its best start to a year in over a decade.

The ratio of bulls to bears has risen above 2.5, the last time the ratio was that high was a short while before the 2011 highs were put in. On the low side, a ratio of 0.5 seems to be the contrarian bullish signal to look for on pullbacks. Around that ratio is where the market bottomed numerous times over the last few years, including in 2008-2009, and 2011.

While nothing is full proof in the market and means this has to happen because of that, one should always be aware of various factors, be it technical, fundamental, or sentimental. The market may very well press higher in the near term, but if it does we’d want to see people become skeptical and get bearish. That would allow the ratio to return to more normal levels between 1.0-1.5. History shows that if we don’t get a downturn in this ratio, it could have bearish implications for the market sooner, rather than later.

The information for this article was derived from the AAII website which can be found here.

SH @ the close 2/13/12: Markets start week on a positive

stockhaven — Mon, 13 Feb 2012 21:42:54 +0000

The broader indexes continued their bounce off of Friday’s lows and started the week on a bullish note. While today’s price action was certainly bullish, the move higher came on the 2nd lowest up volume since January 12th. Couple that with the fact that all of the major indexes (except the NASDAQ) were rejected near their highs from last week and we don’t think you can get too excited about the move today.

In a momentum market, and we would argue that anytime an index rallies 20% in a short amount of time that is the definition of momentum, the name of the game is breaking the most recent highs. The most recent highs coming into today were Thursday’s highs, and they were not broken today. If you’re playing the momentum we recommend waiting for a break above those highs before positioning for further upside in the market.

One trade that continues to work is the tech trade. The NASDAQ tagged fresh 10 year highs led by a couple of names we suggested traders target:

A few stocks that appear to be at the forefront of this bullish momentum in the tech space is IBM, AAPL & PCLN. All three stocks have unmistakable long term uptrends in place and are either at or within striking distance of all time highs. They all also weekly options with good liquidity which makes for great day trading opportunities. We recommend continuing to view these stocks, and the tech space in general, with rose-colored glasses.
- @ the bell 1/31/12

Two of those three stocks, AAPL & PCLN hit new all time highs today. PCLN was especially bullish, moving over $25 or 4%. We suspect that resistance will soon come into play with these stocks but we have seen nothing to believe their underlying long term bullish trends won’t remain very much in tact.

Don’t chase! Why you must exercise patience (video lesson)

stockhaven — Mon, 13 Feb 2012 19:37:26 +0000

In trading, the lure of making quick money can be very enticing and take advantage of your emotions. When you see a stock gapping higher it can be very tempting to “chase” the stock right at the open. This however, is not a profitable strategy for consistent long term success. This video explains what it means to “chase a stock” and how to avoid doing it. Furthermore, this video offers a much safer and smarter strategy to still take advantage of fast moving stocks.