Hammer Time "MAYBE"

This looks Positive...

So did this back in Aug 3rd 2011

Time to reset the Mayan Calander

As of this writing the $SPX futures have taken a nose dive to the 1430 level on news that congress is going to take off on their Christmas vacation while uncertainty runs rampant in the markets.

The retrace levels are approximately the 50dma for the 38% and the 200dma for the 62% retrace.  Let's see if things hold at those two important levels.

Isn't this apropriate for the Mayan End of Days Scenario.

Position Size Matters

Position Size Matters

If you are watching the twitter stream and wondering how traders can still have intact trading accounts after stocks like $AAPL ,which looked like they put in a bottom and are heading back up, do an imitation of an Acapulco cliff diver, then the answer is Discipline and Position Sizing.

Discipline is the harder of the two but either you have it or you don't.

Position sizing is easier to figure out.

Determine how aggressive you are with your trading account.  Some say that you should not risk more than 2 percent of your total account worth on any single trade and this value can skew to an even more conservative figure if you want to be trading for any length of time.  1%?  Less than 1% like a 1/4%?  This amount is up to you.  There are plenty of examples of how to assign risk to your capital on the Internetz.

Let's imagine you have a $100,000 account from which to trade with and you want to be relatively conservative and risk 1/2% for a possible 1.5% or more gain.  That gives us a $500 to risk on the trade.

The next step is to determine a possible support area for your equity.  Let's say you have identified $50 as a possible support area and the equity seems to be bottoming out at $52.  That gives you a $2 possible loss because if it loses $50 you are certain that it will continue downwards.

You take your maximum risk of $500 and divide it by your maximum loss value of $2 

which gives us 500 / 2  = 250 shares.  

When you enter your buy order, you also enter your Stop-Loss price of $50.  If more sellers overwhelm the buyers you are out $500 instead of $5,000 or more.  This allows aggressive traders to attempt a second or even a third catch at confirmed support points and walk away with winning trades of 100% or more at times.

If you are trying to catch falling knives you need to be prepared to get a few cuts here and there, but make sure they are just little paper cuts and nothing so serious where you can't use a keyboard like our fuzzy little friend down below.

Fibonacci numbers work unless they don't

My early November post drew a line in the sand at around 1340 plus or minus a few points.  If you were aggressive  you could have tried to catch that knife at 1384 which was the first Fibonacci retrace at 38.2%.    Unfortunately, that first level left many with a few cuts I 'm sure.  If you obeyed your stops, you were not left with stumps albeit a bruised ego.

The next Fibonacci level of 61.8% seems to have done the trick last week.  If you eased into the market, you were pleasantly surprised today when it gaped up 10 handles and continued on it's merry way closing up almost 2%.  That was quite a gain so if we can begin metering this Holiday rally it would give us a more sustainable up-trend.  The main trick to knife catching is obeying your stop loss price so you have enough fingers to attempt the following catch.

The only fly in the ointment is if we get some nasty macro news like the middle east getting out of hand or the fecal cliff discussions turning south.  Then this could be a dead cat bounce and the O'Neil methodology about waiting four days after the first serious up day, like last friday, would prove itself yet again.  On the other hand you would have possibly missed a $30+ gain in $AAPL today.

There is a funny image of a "Dead Cat Bounce"  at 

http://guidepostings.blogspot.com/2008/12/dead-cat-bounce.html

Bigger picture on the $SPX not bad yet

If we take a step back and look at the $SPX on the monthly view, we see that the MACD has been embedded up at the top and wanting to begin a downward move now.  Looking back at 2005 we can see that the MACD didn't fully cross, but when it does, look out below.  I hope QE3 will have enough gumption to continue an upward trend albeit another 6-9 months.

If we step in a little bit, the weekly MACD has crossed but there is still a possibility of pulling out of this at the 200 daily moving average or the 40 week line.  The trend lines are comfortably below us so there is no reason to believe the Mayans got it right for the end of this year.

Catching $SPX knives

Looking back at the Shooting Star post back on Sep 17th we can see that we are nearing the 50% retrace of the Summer's move and could be ready to attempt a holiday rally anytime soon.  Keep your eye on the 62% retrace which is in the 1338 - 1346 area.  If that is breached then we are in for some pain but you have to keep in mind that the Bernank's sugar will be absorbed into the system soon.  Will we bounce tomorrow?   If you are attempting to catch knives, pay attention to your stops so you have enough fingers and capital to participate in the ho-ho rally.

Teddy Bear instead of a Grizzly

Teddy Bear's Picnic

If you go into the woods today, you're in for a big surprise...

The technology heavy $COMPQ has been taking a beating more than the $SPX and it shows it as it stopped Friday's slide at the 100 day simple moving average.   Attempting to define a W bottom is proving a little difficult hear as it has pierced the BB on it previous two visits to the lower bound.    The 200 day simple moving average is down below at 2968 and a support seems to be appearing to materialize around the 2974 area.  This looks like a possible head and shoulders that has just broken below the neckline, but with Elections and QE3 we shouldn't be getting too bearish just yet.  Be cautious, just don't break out your bear costume just yet.  Maybe all we need is the "Teddy Bear's Picnic" which is not as threatening.  Patterns do fail, and when they do they end up reversing with a vengence.  Take a look at Bulkowski's busted patterns page.

What rhymes with "Tool Carpet"?

“History doesn't repeat itself - at best it sometimes rhymes” 

- Mark Twain

If we look at the last time The Fed gave the market a little sugar on November 3rd 2010, you can see that it took a little breather to the 50 day simple moving average a few days later and then continued on an 18% rally into the beginning of May.  During this time frame we had two major events happen.  First in Japan and then in Libya, but the market powered up until the "Sell in May" rule kicked in.

So now we have QE3 and as expected it has relaxed from that euphoria driven news. The question to ask now is if the market will relax to it's 50day or is the 20 day as low as it will go?  If you are entering an new  positions now, perhaps entering with half or a third of a position would be wiser than just piling on in 100%.  It all depends on your personality and level of risk.

What rhymes with Tool Carpet you may ask?  How about Bull Market just like QE1 & QE2.  Even if it is short lived since this version of QE is not seen as being as effective as its previous siblings by the Fed.

Shooting Star Pattern wins a star this time.

The Shooting Star candlestick pattern worked out this time and the market is being caught at the 20 day simple moving average.  Is this the bottom or is it possible the that there may be some more downside?

To look at a pattern that "may" be forming,  let's take a look at the chart down below.  We can make out that a Head and Shoulders could be sketched out in the following week or two.  That of course would have to mean that the general market is going to go sideways and then go down even further.  I doubt that this is going to happen right after the Fed just started QE3.    (imagine a 3 year old after he/she downs a party size bag of M&Ms )

   So unless we have some big Macro News like a shooting war starting up in the Persian Gulf, this market is going higher.  

Let's look at the more likely scenario in a future post

Shooting Star on the $SPX

After watching @cousin_vinny's video on how QE3 may effect the market, I put this chart together for a possible retrace scenario.  Although I agree that the market wants to go higher, it needs to take a breather some place around here.

I used Steve Nison's  "Japanese Candlestick Charting Techniques" to review this chart.  It is a must read.

Bollinger-Keltner Band Squeeze Indicator

I heard about the use of a TTM Squeeze method over the past few months and after finding out that it was only available on a few platforms, I decided to see if I could adapt to the stockcharts.com site.

It's essentially a Bollinger Band (BB) superimposed over a Keltner Band (KB).  This setup fine tunes the Bollinger Band squeeze that normally breaks out to the upside or downside in a big way.

The BB have an opaque red tint, while the BB have a blue tint overlay.  The intersection of both areas is mixed to a nice purple/violet/Barney looking color.

The way you know this has been triggered is by the BB width coming inside the KB.  Looking down below at the SPY in mid May of 2011 you see the first sign that this has occurred by seeing the light red area appearing  both above and below the purple/violet area.

Now that you have been notified by the trigger action, you still need to know if it is going to break to the upside or downside.  You can use whatever momentum oscillator you find works best for you.

At the moment I am using a Slow Stochastic but I have also place a normal RSI and ROC as well to assist with making a better decision.  It may even be a better idea to use a non-price related indicator like Money Flow as well.  More on this later.

So in this example we see that the Slow Stochastic oscillator has turned to a bearish indicator so you could go short on the SPY in mid-May and cover in mid-June when the oscillator changed.

Again in late August the trigger came up but changed direction the following week.  So that was a bit of a whip saw effect but if you follow the following points of getting in on the circles and out on the squares you end up with net-positive results.

The chart below is shown in a weekly time frame, but this can be used in most other time frames as well.  I am still going about testing this for equities as well as ETFs.   If you decide to use this, make sure you test it on the target stock and ensure you have a rewarding outcome first.

More bad is good? Baltic Dry Index $BDI

While getting my weekly dose of CNBC back in 2008, I heard of the Baltic Dry Index.  You know when we were having human sacrifices, dogs and cats living together...you know, mass hysteria!  It essentially keeps track of global shipping and could indicate if global commerce is slowing down when it settles.   Diminishing exports out of China and elsewhere would cause something like this to occur...

The first low in late 2008 came in at 663.0 and then after QE1, QE2, ECB actions, and the TWISTERs we pulled out of the slump and got back to business.  Then something odd happened at the beginning of 2012.  When the clouds seemed to be parting, we got hit with at 647.0 number shown down below (with the blue arrows).  Commentators on the street said that because of a sudden decrease in Iron imports from China, and an increase in new container ships, we where not looking at a brewing storm.  Well we are in September now and we are seeing the 647 again.  A level close to the bottom of the financial crisis in 2008.

So this could show a more severe easing in the global shipping model, or merely an overabundance of newly built ships purchased with low lending rates.  Which statement is correct?

If things are as bad as they look, then you can rely on the FED, ECB, BOJ, and BOC to do the needful.

Chart of the $BDI (Baltic Dry Index)

According to wikipedia The Baltic Dry Index is: "an assessment of the price of moving the major raw materials by sea. Taking in 23 shipping routes measured on a timecharter basis, the index covers Handysize, Supramax, Panamax, and Capesize dry bulk carriers carrying a range of commodities including coal, iron ore and grain."

Identifying a W bottom using Bollinger Bands $CAT

Caterpillar (CAT) made a high back in mid February and it had been coming down until it finally made a bottom in mid July.  Bollinger Bands can assist you in finding a bottom and allow you to have a higher degree of success in implementing this trade.

What we are looking for here is a W bottom (tight double-bottom).

• If we look closer at this area, you will want to see the first leg down making a low outside of the lower Bollinger Band.
• The first bounce upwards to the middle of the W should get you as close to the middle band as possible.
• The second leg down that forms the second bottom should stay "within" the lower band and you can enter the position on a long basis.  If you are more conservative and want additional confirmation, you can wait for an upward move in higher than average volume as seen down below in the thick blue arrows.

This can also be used to help identify tops with a M top pattern as well, which I can go over in a later post.

TCBI - part trois

TCBI part trois

TCBI did not break out, but we were prepared for that to happen since we didn't see a "True" 3 weeks tight pattern with a higher volume breakout day.   The market settled 2% from it's 52 week high and it looks like it is catching a breather to build up some strength to push higher...unless we get some bad macro news  like (Iran, Syria, Fed, Italy, Spain, etc. etc. etc.).   You can always find a reason to hunker down but until you get that signal it doesn't pay to play chicken little.

 We had several options after we brought up our Phesis (yeah, I know it should be thesis...) that this wasn't an ideal breakout:

A

• Sold our shares at the end of the day after you confirmed the volume was not sufficient.
• Wait until a valid base is formed and enter a position with a proper volume breakout.

B

• Sold our shares at the end of the day after you confirmed the volume was not sufficient.
• Repurchase at a predefined support level 43.30 (cool that it was definable to a degree)
• Wait and see if another base forms above the purchase price with a hard stop at $43.25

C

• Entered  a fraction of a position 
• Ensure it does not break our "Max Pain" support level which in this case is close to the $43.30  area if you chose a 3% stop.  I like to place hard stops 15 cents below a support area so you don't get taken out of a position during the day by the machines.

TCBI did not go down in high volume so it still looks interesting.  The fundamentals are doing well so it's worth to keep this on our radar.  If you wanted to make a case for a 43.89 buy point as it retraced to it's 50 day moving average back on the 23 of July it would only be extended by 1% as of today's close.

ALGO - DELL

Algo Like signature on this chart?

Rock On - AAPL

\m/

So many signs to be had  ;)

Rock On!

TCBI - Low Volume Breakout

Now that we can look at yesterday's action on TCBI  ( Texas Capital Bancshares )  We can see that the volume at the end of the day was around 611k shares which ended up being around 31% of the average daily volume when you calculated the past 50 days of volume data.  Although there was more attention being  paid to this stock on the break out day, you should want to see the volume be greater than 40% to 50% .  This shows you that institutions (Hedge Funds, Mutual Funds, and Brokerage Banks) are interested in this equity and are adding it to their coffers.

So now we have two strikes on this  stock.  The first is that the last week of the 3 weeks tight pattern did not finish under or at 1%.  The second is that on the day of the breakout from the pattern, it did not have the volume you want to see to confirm that it is still being loved by the heavy lifters of the market.  Add to this that it opened up at $44.71 on the 20th which ensures that if you did not buy this in the pre-market then you may have paid a little bit more than you wanted to.

Now this stock shouldn't be discounted yet,  We may have just started a small pull-back in the general market and it is relaxing it's relentless move upwards.  If you are an O'Neil practitioner and want to stay in this buy point, then you might want to bring in the stops from the standard -8% stop loss to something more conservative like 2%-3%.  We are finishing the summer chop session and the environment should get more stable until the election season winds down.  Let's take a look at this tomorrow and see if it warrants our continued love.

Me Gusta 666 - AAPL

Bending the rules...eh?

Texas Capital Bancshares $TCBI  is forming a pattern called a 3 weeks tight pattern which is one of the shortest bases around.   It can go one more week which should be called a 4 weeks tight but that's straying from the subject.  The primary condition for this base is that the Friday's closing price be 1% or less than the previous week.  So far this is what has transpired:


07/27/12  $43.83
08/03/12  $43.59  -0.5%
08/10/12  $43.68  0.2%
08/17/12  $44.42  1.7%


You can clearly see that the last week was way more than the ONE percent allowed by that rule.  You can start making excuses that this last Friday was an options expiration day and that the price action can be somewhat erratic, however buyer beware, once you go down this path of justifications.

TCBI has great fundamentals and it recently found support on it's 50 dma just a month ago.  If you're familiar with the O'Neil method of pricing the buy point at 10 cents over the previous 3 weeks high point of $44.60 then $44.70 would be a confirmation .  Taking into account that we are also within 0.3% of this years highs on the $SPX,  you should take a smaller position only if it goes up on high volume past the buy point and stick to your stop loss rules.

TCBI - 3 Weeks Tight

Bad news is good news for global markets

We all know that attempting to fix a debt crisis with, yet more debt, will lead to a very bad place but as the Dead have said  "I may be going to hell in a bucket, babe But at least I'm enjoying the ride" 

Noteworthy EPS for 8/3/2012

Noteworthy EPS for 8/3/2012

Agrium	AGU
Wellcare Health Plans	WCG
Procter & Gamble	PG
Viacom	VIAB

Noteworthy EPS for 8/2/12

Noteworthy EPS for 8/2/12

Generac	GNRC
Abiomed	ABMD
Par Pharmaceutical	PRX
Western Refining	WNR
Scripps Networks	SNI
LinkedIn	LNKD
Sally Beauty Holdings	SBH
Time Warner Cable	TWC
Teradata	TDC
DirecTV	DTV
Kraft Foods	KFT
Old Dominion Freight	ODFL
Cardinal Health	CAH
Kellogg	K
Zipcar	ZIP
Molycorp	MCP
General Motors	GM

Noteworthy EPS for August 1st, 2012

Notworty EPS for August 1^st, 2012

DaVita	DVA
Ellie Mae	ELLI
Thoratec	THOR
Wright Express	WXS
Liveperson	LPSN
Comcast	CMCSA
MasterCard	MA
Stratasys	SSYS
Sturm Ruger	RGR
Time Warner	TWX
Burger King Worldwide	BKW
Allergan	AGN
Harley Davidson	HOG
Garmin	GRMN
Green Mtn Coffee Rstrs	GMCR
Weight Watchers	WTW
Yelp	YELP
Hyatt Hotels	H
Transocean	RIG

Noteworthy EPS July 31st, 2012

Noteworthy EPS for 10/31/2012

Cardtronics	CATM
Web.Com Group	WWWW
Sourcefire	FIRE
Acadia Healthcare	ACHC
Discovery Comm	DISCA
Liquidity Services	LQDT
Pfizer	PFE
Allstate	ALL
Coach	COH
Penske Automotive	PAG
Martin Marietta Materials	MLM
True Religion Apparel	TRLG
Electronic Arts	EA
Goodyear Tire & Rubber	GT
United States Steel	X

3 Peaks & Domed House

I've been looking at a concatenated pattern called the "3 Peaks & Domed House" for the last year.  I call it a concatenated pattern because it can be viewed as a "Triple Top" pattern followed by a "Head & Shoulders" pattern.  The "Three Peaks & Domed House" was coined by George Lindsay, a trader who wrote several books on charting in the 1970's and passed away in 1987.  His market timing was said to be uncanny with the accuracy he developed.   Although the $SPX has sketched this pattern in the crudest of ways, the grand finale doesn't seem to be bearing out unless the last hump on the right was exaggerated.

The following is a very rough sample of the pattern:

The following is a view of the S&P500 index for the past two years:

(click2enlarge)

As of this writing on July 30, 2012, it does not look like that last hump is going to yield a move lower unless it varies quite a bit from the original model.  So only time will tell.  We will keep the following quote handy in case we see a drastic dip lower:

"History does not repeat itself, but it does rhyme."  - Mark Twain