AMZN - 033109

Posted by Tom C.

I will be making a few posts while Trader-X is on vacation. A few things about my trading:

1.) I make trades on 15, 10, and 5-minute charts.
2.) I still use Moving Averages as guides. I plot the 8, 13, and 34EMA.

AMZN was one of my better trades today. I love this formation - it is my "bread and butter" to borrow an old X term. It gapped up and then sold off and bottomed. About Noon it took out the 50% retracement of the morning's high to low, and then consolidated. You might look at the 4-5 bar consolidation and see a triangle.

My trigger bar is marked with a yellow arrow. Note how the 8 period EMA (white line) moves up and "pushes" price higher; all three MAs were moving up at a nice angle.

My target was the Fibonacci Extension and it was hit 8 bars later.



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Friday charts - 032709

My vacation starts - well, right now. So I am not too motivated to make a long post with detailed chart analysis. I'm sure you understand.

But here are a few trades from today, with [very] brief notes.

BCS gapped out of the previous trading range, and after a sharp retrace to the 50% mark it recovered; I entered on a break of the sixth bar's high.




FSYS - I bought on a break of the fifth bar's high; nice support from the R2 pivot (yellow line).




GILD - one more on a break of the fifth bar's high; the R2 pivot (yellow line) was just above the FE, and I held out for that as the target.



What can $5 do? Read about "Good Karma" and RJ.

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CBG - 032509

What can $5 do? Read about "Good Karma" and RJ.

I get a lot of questions about the "push through" setup. I am particular about the ones I take (as I am about all the setups I take). The classic setup (for me) would be a gap up, solid green wide-range first bar, green second and third bars that narrow in range (consolidate), close in the top 25% of the first bar's range, with the third bar actually closing at a new high for the morning (but only by a penny or two...).

CBG DIDN'T fit the classic setup, but I traded it anyway. Here is why:

1.) It gapped out of a flat trading range. The first chart below shows a half month of prices and you can see the context of the gap. It also gaps well above the yellow pivot line (R2).
2.) The second and third bars stay above the halfway point of the morning's range - see the second chart below.

Let me be clear - had the gap not been so predominant in comparison to the previous trading range, I would not have taken this setup. But it was compelling because of the reasons listed above.

I entered on a break of the third bar high. My first target was the FE of the morning's range (second chart). If you look at the fourth and fifth bars, you can see a classic bullish setup - a wide-range, strong bar followed by a hammer-type candle that closes near the high. Seeing that I decided to adjust my target, and I redrew my Fibonacci lines in the classic Trader-X style (from the previous day's low to the opening range (OR) high - see the third chart).

Price continued to rally and tagged the halfway point between the high and the FE (white dashed line - third chart). I closed the position on a break of the eleventh bar's low when price dipped back below that line. The total return for this trade was almost 8%, and it was a cheaper stock with high volume (easy to enter and exit).







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Tuesday fun

As Tom C. mentioned yesterday, I will be taking some vacation in April. I will be gone most of the month, but hope to pop back in occasionally. But Tom C. will [hopefully] fill the enormous void left by my absence.

Here are a few things that I thought you might enjoy:

For motivation - do you know who Randy Pausch is? If not, take a moment to check out this post on The T.A.D. Principle blog.


For irritation - these people expect us to feel sorry for them? Give me a break...what a bunch of jackasses.




And finally, some recession/unemployment humor:



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Catching those late day rallies

posted by Tom C.

I am gearing up to make some posts in April when X goes on vacation.

Days like today don't happen often, but when they do I catch the late day moves by looking for a saucer or "cup and handle" pattern. X taught me this pattern years ago, and Trader Jamie makes good use of them too.

I look for a rounded or saucer pattern, with an aggressive entry when price crosses the 50% retracement. The next entry option is the halfway point between the high and 50% retracement (the white dashed lines that X introduced us to earlier this year). Here are two examples with entries marked. I closed half my position at the FE and closed the other half at the end of the day (for VTR almost one and the same).





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The Dow moves up 500 points...

and all I got was this lousy EOG trade.

Actually, it was a good trade. But it is days like today that make me re-think my new "only trade the first few hours" philosophy.

EOG gapped up and printed a strong first bar. The second and third bars narrowed in range, with the third bar resuming the rally, closing strong, and closing at a new high. I exited the trade at a $1.00 gain, just below the R2 pivot line (yellow line).



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St. Patrick's Day celebration - or AIG protest?

What can $5 do? Read about "Good Karma" and RJ.

Before I sign-off for the week, I had to post a funny video. John Oliver from TDS at an AIG protest...well, kind of.

And watch closely at the 1:28 mark and you will see Dinosaur Trader make a cameo.

The Daily Show With Jon StewartM - Th 11p / 10c

Rage in the Streets

Daily Show Full Episodes
Important Things w/ Demetri Martin

Political Humor
Jim Cramer

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Tuesday charts - 031709

There were some good setups today - CEPH was my best.

CEPH gapped up and stabilized in the upper-half of the morning's range. The seventh bar was the narrowest of the morning (NRM) and an inside bar that closed green and formed on support (the halfway point between the morning's high and the 50% retracement).

I entered on a break of the seventh bar's high and closed the position three bars later at the FE.





I plan to follow Trader Mike's lead and take the latter part of this week off. If I make a trade or find myself around a computer, I might make a post. Otherwise I probably won't be back until Monday. Make sure you subscribe to the blog (see links at the top of the page) if you don't want to keep checking back to see if it is updated.

Have a good weekend.

PS - I also received my bonus check from AIG...so I have a lot of spending to do!

PPS - What can $5 do? Read about "Good Karma" and RJ.

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A few links for Monday

I am still trying to migrate from del.icio.us to Tumblr for my links ("THINGS I FOUND INTERESTING AROUND THE INTERNETS"). But frankly, it is low on my priority list!

Here are a few links I wanted to share:

Via Stockbee, "Everytime the S&P has made 10 days high (indicated by red spikes) in last one year it has had a correction or reversal." See the chart here.

Many of you have urged me to get on Twitter, but I don't think I have the bandwidth to do it. Via Jon's Stuff, here is a piece from Time - Desperately Trying To Quit Twitter.

Trader Mike linked to another good article from Time - What Sells in a Recession: Canned Goods and Condoms.

For you iPhone users - Kevin Rose (founder of Digg.com) has the latest rumors on the forthcoming update (copy and paste!?)...and he is usually right.

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Welcome to a new week

I thought this piece in The New York Times was interesting - to be sure there are many sides to the story, many tragedies, and much irresponsible behavior.

What happened to the victims of Bernard Madoff is terrible. But every day in this country, people lose money due to financial fraud or negligence. Innocent investors who bought stock in Enron lost millions when that company turned out to be a fraud; nobody made them whole. Half a dozen Ponzi schemes have been discovered since Mr. Madoff was arrested in December. People lose it all because they start a company that turns out to be misguided, or because they do something that is risky, hoping to hit the jackpot. Taxpayers don’t bail them out, and they shouldn’t start now. Did the S.E.C. foul up? You bet. But that doesn’t mean the investors themselves are off the hook. Investors blaming the S.E.C. for their decision to give every last penny to Bernie Madoff is like a child blaming his mother for letting him start a fight while she wasn’t looking.

Read the entire story here - Madoff Had Accomplices: His Victims



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A few charts

I received the following email from Greg:

"X, I wanted you to know that the halfway point you reference is coming in handy. I am still trading the classic style using the previous day's range, but I have incorporated the halfway point between the 50% and high/low and the halfway point between the high/low and the fibonacci extensions. In PGF Friday, it seemed a perfect top out pattern that you write about and it moved up to the halfway point in one bar. It left a long upper-tail, and that was my signal to get out. It may not seem like much of a move, but it was actually over 3%."

I marked up a chart for your reference with the Fibonacci lines plotted from the previous day's low to the OR high:




There were several "u-turn" setups on Friday. MS gapped above the previous day's high and then declined with the first bar. The second and third bars carved out a bottom with hammer-like candles, with the third bar forming a textbook hammer that closed positive and just above the 50% retracement of the morning's range. The next two bars rallied to the FE, where I closed my position.




What can $5 do? Read about "Good Karma" and RJ.

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Morning Routine

What can $5 do? Read about "Good Karma" and RJ.

vp3434 (I assume that is not his real name!) asked this question in "Comments":

"Now that you trade 10m charts, I'm wondering how you do things logistically. For a trade like ENER today, did you run your gap scans at 9:40, start scanning the results at 9:41, spot the ENER trade sometime before 10:00am, and then get your order ready as 10:01 rolls around? My TradeIdeas scan this morning came up with 60 gap downs and 149 gap ups so I was hoping you could talk about the timetable over which you scan and how many charts you scan. Thanks!"

My charting software is RealTick. For my watchlist, I use their Gap Up and Gap Down preset lists (the RealTick data and lists are real-time). There are other sources for Gaps, and if you look under "WELCOME AND LINKS TO KEY POSTS" at the top of the page, you will find several discussions.

Trade-Ideas is a great tool - I have not looked at it in several years, but have thought about evaluating it again (Trade-Ideas people - send me an email!). The pre-market ticker on CNBC is a good source as well. Yahoo! has a screener, though I assume it is based on delayed data (can you pay to upgrade to real-time?). Readers can list what they use and make suggestions in "Comments".

Back to my routine - the RealTick Gap lists are in real-time (as noted above), and at 9:35 I pull the data from NYSE Gap Up, NYSE Gap Down, NASDAQ Gap Up, and NASDAQ Gap Down and combine them into one list. That list is sorted by volume, so I am always looking at the most active stocks on a real-time basis. I scroll through the list and remove any stocks I don't want (for example, I [usually] remove issues trading over $100, issues that I don't like to trade based on experience, gaps that just don't appeal to me when I look at the charts). I complete this exercise by 9:45 at the latest.

From that point forward, I am scrolling through the list looking for potential setups. By the time the third 10-minute bar completes, I am comfortable and relatively familiar with the list and have several probable setups noted. I have Fibonacci lines plotted on charts where applicable (some I plot, some I "eyeball"). I keep a spreadsheet open where I make quick notes that I can refer back to on a continuous basis (my memory isn't as good as it once was!).

Though my watchlist may contain 100 or more candidates, I usually focus on the top 20-40 based on volume (which, as I noted earlier, is continuously updating). I may go deeper into the list depending on time, setups, open positions, et cetera.

In summary-
9:35 - start building watchlist
9:45 - watchlist complete
9:46 - scrolling through watchlist looking for setups, plotting lines on charts, and making notes


Below is the ENER trade vp3434 referred to in his comment. Price gapped up and printed a strong first bar. The second and third bars narrowed and rolled over, with the third bar forming a textbook hammer on support at the halfway point between the morning's high and the 50% retracement.

The fourth bar exploded and hit the FE target, where I closed the position. Price continued to rally and probably came close to hitting the FE from the previous day's low to the OR high (for those of you still trading the classic setups).



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Jim Cramer on The Daily Show

I watched Stewart grill Cramer last night and was surprised at how Cramer acted. He took a beating, and hardly argued or disagreed. I am not sure what his (CNBC's?) strategy was here.

It is entertaining, nonetheless.

The Daily Show With Jon StewartM - Th 11p / 10c

Intro - Brawl Street: Get Read to Buy Low! And Sell Die

Daily Show Full Episodes
Important Things w/ Demetri Martin

Political Humor
Jim Cramer

And make sure you read the post on "Good Karma" and RJ. I will post some charts over the weekend.

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We are saved! The return of the uptick rule...

It looks like the uptick rule will be re-instated next month. I am not an advocate of it as I don't think it will solve the problems we have. It seems - in my humble opinion - that lawmakers, business leaders, and everyone else should be more concerned about the fundamentals of the economy and how to run their company than the stock price and my ability to short it (when the economy is booming, do we put an obstacle in the path of people wanting to buy stocks...you can only buy on a downtick?). Common sense dictates that if a company is run well, it will consistently generate profits and the stock will rise. But it has become obvious over the past 12-months that most companies are NOT well run, and most business leaders are out for themselves; they have no qualms about destroying a company to increase their short-term payout.

So it is time to deflect the issue! Instead of focusing on business fundamentals, our blame everyone and everything else society focuses on - for lack of a better word - bullshit.

Having said that, it will not fundamentally change trading for me. I traded with the uptick rule longer than I traded without it. And before it was abolished, I did not know any different so I will just return back to that mentality.

I will say this - I hope it sparks a rally, no matter how illogical it is. I don't see them repealing it again once they re-instate it, so I hope the market starts a leg up based on the news. I read somewhere (though I did not confirm it) that the market rallied 50% in four months when the rule was originally established in 1938. So bring it on..I am ready for some long entries!

Here is the story, and here is my favorite quote...yes, the elimination of the uptick rule caused the economy to collapse!

Critics of short sellers, including Charles Schwab and the head of the New York Stock Exchange, Duncan Niederauer, have argued that the rule's elimination has contributed to the economic downturn or is harmful to issuers.

...on a side note - I want to give a shout out to Dinosaur Trader and thank him for aiding me in my continued success.

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Tuesday charts - 031009

There were some nice pullbacks today. WYNN was the best trade for me.

I entered on a break of the tenth bar's high. The tenth bar was a narrow-range, inside bar that formed on the halfway point between the OR high and the 50% retracement. There are some who might have entered on a break of the fourth bar high - I didn't for two reasons...the first two bars were very wide-range and price needed to work off that move (ie, pullback or move sideways for several bars); the second reason was that I prefer the setup to form on support - in this case, the halfway point (where my entry actually was).

I exited at the FE...note how price reversed exactly at that point. Sometimes trades are perfect.




AVAV gapped down and made a textbook "push through" setup. The first and second bars rallied and closed green. The third bar formed in the tail of the second and at support from the halfway point between the OR high and the 50% retracement. I exited at the FE.

I usually hold half of my position on setups like this, and AVAV would have been perfect as it continued to rally and gave a nice exit signal on the eighth bar. But I had too much going on, and did not have the bandwidth to focus on it (no complaints - it was still a good trade!).



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It's Tuesday!

I did not trade Monday, as I spent the last three days doing some work around a rental house...trimming trees, cleaning, repairs. I will be back at it today.

On a sad note, I received word that RJ passed away at the end of last week. RJ was a great contributor - giving freely of his time and knowledge to all that asked. I was fortunate to have a lot of communication with him over the past half-decade. My thoughts and prayers go to his wife and daughter during this difficult time.

R.I.P. RJ...you will be missed.

And let it serve as a reminder to all of us to take advantage of every day, and live life to the fullest. I know it sounds cliche, but we never know what tomorrow will bring.



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Saturday roundup

The "top out" pattern has been the setup of choice for the past quarter, for obvious reasons. To me the classic top out pattern is long upper-tails forming on the fourth and fifth bars, but failing to close above the OR (opening range) high. The smaller the real-body and closer to the actual OR high, the better (we will call this v1).

But a variation that has been working just as good - if not better - is when the third bar closes below the halfway point between the OR high* and the 50% retracement. If you look at charts posted over the past few weeks, you will see several examples of this variation (we will call this v2).

*note - I use OR high and morning's high interchangeably; moving forward I am going to [try and] use OR high as I have historically done.

Another variation that has been working well - but I have not tested over an extended period of time - is weakness in the first few bars and the inability for them to close above the halfway point between the OR high and the 50% retracement (as opposed to v2 cited above where price will close above the halfway point and then roll over to close back below it). Psychologically it makes sense, as it is working on the same principle - an early rally that fails to break through to a new high and begins to show weakness. I need to research the profit potential, though (we will call this v3).

With v1, the setup forms close to the morning high and I am looking for an initial move to the 50% retracement; I watch price action at that level to see if it is stalling or will continue down. With v2, I am looking for an initial move to the halfway point between the 50% retracement and the OR low (so, from the upper halfway point to the lower halfway point). With v3, I am looking for an initial move to the morning low and then I watch price action to see if it is stalling at that level or will continue down.

One of the drawbacks of v3 is that the entry is usually just above the 50% retracement; the rationale is that the weakness noted above offsets that drawback...but more testing is required to see if it happens consistently. Here are a few examples of v3 (entry was a break of the third bar low, exit was the FE):






Here are a few examples of v2 (entry was a break of the third bar low; exit on MRO was the FE, exit on BUCY was the halfway point between the low and the FE. Note that MRO presented a "beyond the FE" setup around Noon):





Here is hoping that next week will bring more long setups!

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The Dow

I was looking at charts this morning, and a few key levels to note on the Dow are:

> The Fibonacci Extension (FE) of 2008's high/low:
5222.26
(seems scary and impossible, but who thought we would be under 7000 6600?)

> The halfway point between 2008's low and the FE:
6335.82
(just a stone's throw away from current levels - see the white dashed line on the chart).



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Jon Stewart on CNBC

There were some good trades this morning. I just closed my last open position for ~5% gain (HOTT, a "top out" pattern). I will post some charts this weekend.

This may be the most amazing video I have ever posted. Regardless of your feelings on Rick Santelli's now famous rant, watch this video to see a retrospective of various CNBC calls and interviews over the past two years - and not just Cramer, but the Fast Money guys, interviews done by Faber, Bartiromo, and Carl Quintanilla; comments by Santelli and (former coke-head) Kudlow...and others. After eight minutes, it became clear to me what a cancer these people are for the average investor (if you are a trader, there is no way you should be watching these idiots).

The first few minutes deal with Santelli, and then the good stuff starts. Watch the entire thing to see how utterly unaccountable CNBC is for the crap they spew daily. I think they are more responsible for bankrupting the average investor than all the crooked companies, CEOs, and hedge-fund managers combined.

The Daily Show With Jon StewartM - Th 11p / 10c

CNBC Gives Financial Advice

Daily Show Full Episodes
Important Things With Demetri Martin

Political Humor
Joke of the Day

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Quick and dirty analysis - AIG

Last week I did a "Quick and dirty analysis" of the Dow. Readers seemed to enjoy it, so this week I thought I would take a look at AIG.

I am still trying to wrap my head around a 4th Quarter Loss of $62 BILLION (which - as you can guess - is the single largest quarterly loss in history). And of course the only logical thing to do is for the Treasury Department to give them another $30 BILLION on top of the $150 BILLION it has already "lent" AIG.

I think people are becoming desensitized at the magnitude of these numbers:

> $62 BILLION quarterly (QUARTERLY) loss
> $180 BILLION "lent" to AIG by the Treasury Department

Amazing.

And look how fast AIG's collapse occurred:

1.) Less than 18 months ago, AIG traded above $70/share.
2.) A year ago, AIG traded above $50/share.
3.) Six months ago, AIG traded above $20/share.

Yesterday's closing price was $0.43 (43 cents).



Again, amazing.

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Tuesday roundup

First, thanks to Tom C. for an informative post on the "u-turn" setup.

Next, RJ's daughter sent me an email and said she downloaded all the comments (no Internet access in the hospital) and read them to her father, and they both appreciated it very much. We are close to 40 comments - I hope we can double that over the next few days. I am a big believer in the power of positive thinking and I know all of the support and comments will go a long way towards helping RJ recover. So leave him a comment here.

Finally, I did not find many "great" setups Monday and Tuesday, but I still had some good trades. I wanted to highlight a variation of the "top out" where the third bar closes below the halfway point between the morning's high and the 50% retracement. The entry on both charts was a break of the third bar's low.

STT had the added advantage of being turned back down at the previous day's low (the third bar closed back below that level). And if you do a more detailed analysis of GENZ, you will see that price is turned back down at resistance from the FE of the previous day's high to low.

I covered both positions when price reached the OR low (and left some money on the table!).





note - I am done for the day, so the GENZ chart is only through 1:30PM EST.

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Analyzing the "u-turn" setup

posted by Tom C.

Trader-X has mentioned the "u-turn" setup several times over the past week and given me more credit than I deserve for it. I want to point out a few things:

1.) It works best on a gap up. Why? Because price is usually falling into - and making the "u-turn" on - support from the previous day.
2.) It works better if it happens in the first 3 bars, with an entry on the 4th bar (when it breaks the 3rd bar high).
3.) It works best if both the 2nd and 3rd bars touch the morning low. This helps keep the 3rd bar from being overextended and makes them better resemble "offsetting bars" that X has referenced many times in the past.
4.) They don't always make it to the FE. As X pointed out a few days back, the previous high should be your first target and then the halfway point between the high and the FE.

Does that mean you can't trade them on a gap down, or if the 2nd and 3rd bars aren't perfectly offsetting? No. Just realize there is higher risk as the quality of the setup goes down. The HBC trade from earlier this week is a good example - it would have been perfect had the 3rd bar touched the morning low...but it was still a good setup. Note how the 3rd bar closes above the dashed white line (halfway point between the low and 50% retracement).



Also, the "u-turn" is really a variation of X's "top out" setup...it is just the mirror image (ie, a long setup).

I am happy to be back here making a post every now and again. I will target one a week beginning in late March. As of now, the next few weeks are booked with vacation (much needed) and finishing my "Five Rules" (a great site that you should be reading and contributing to; trust me when I say it is a soul-searching, positive experience to write yours).

Also, I want to wish RJ a speedy recovery. He has been contributing comments as long as I have, and I hope he is back here soon. If you have not already done so, leave him a comment to read when he gets back!

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