In order to keep RSOTC streamlined & efficient, as well as focusing my efforts on finding new trade ideas and updating existing trades, I made the decision not to have an open discussion forum on the site. That may change in the near future as I will have more time to engage in dialogue within a forum once I’m finished building out the site, which should be soon. Until then, I have always and continue to welcome comments, feedback & questions via the contact page (found under the Resources tab). I’m usually able to reply within 24 hours, often sooner (other than weekends). From time to time I will share a reply to a question that might have some value to others. Today someone gave me a heads up that CMG reports earnings after the bell on Thursday & pointed out the history of large gaps in either direction on CMG following many of their past earnings releases. As this is an important topic for swing traders (to close or hold a position into earnings), I figured that I would share my thoughts on the issue by pasting my response below.
Various tips and ideas for regarding trading and investing such as placing orders, using stops, etc… These tips are included within the content of the posts listed below.
The ABG (Asbury Automotive) Active Short Trade has hit the first target (T1 at 46.75) for a 9.7% gain since entry just a couple of weeks ago. Consider booking partial or full profits and/or lowering stops, depending on your trading plan. The reason that multiple targets are used on RSOTC is to accommodate various trading styles. Short-term, more active swing traders might prefer to book partial or full profits at one of the initial target levels or possibly micro-manage a position around these levels (sell/cover on the target & go long again/re-short on the bounce). Less active swing traders might choose to hold out for one or more of the higher (numerically) targets, shooting for larger gains while using larger stops.
When a trade setup is originally posted, the target levels are where I would expect a decent reaction (bounce and/or consolidation around that price level). However, the charts are dynamic… constantly changing and as such, the best time to evaluate whether a reaction off a target level is likely to occur is at the time, or just before, the trade reaches that target level. With trades based off the daily time frames, as the majority of trade ideas shared here are, I will typically reference the 60 minute chart to assess how likely a reaction off a price target will be. Things to look for are candlestick reversal patterns, divergences, capitulatory volume patterns, moving averages, etc… However, I also put a lot of weighting into the outlook for the broad markets and/or the sector that the trade belongs to. More often than not, if the broad market or a sector looks poised for a reversal (e.g.- a bounce off support) then the trade in question will follow suit. The point is that there are numerous technical variables that come into play when deciding when to book profits on a winning trade or continue to let it ride. It is also important to define one’s time frame & preferred targets for any trade before entering (failing to plan is planning to fail!). However, even the best thought out plans should always be open to revision, should the facts (i.e.- charts) change, which they often do.
With that being said, here are the previous & updated daily charts of ABG along with the 60 minute chart. I still favor a relatively minor bounce off T1 for two reasons: 1) The broad market (SPY) hit my first downside target yesterday and as expected, has bounced from there and might have a little more upside left. If & when the SPY takes out yesterday’s lows, I’d expect the selling in the broad market to accelerate with the SPY likely heading towards T2 (on the 2-hour chart) and most short trades following suit. The other reason 2) that I still favor a bounce off T1 on the ABG trade is the potential positive divergence in place on the 60 minute chart. I consider positive divergences on the MACD as “potential” when the indicator is making a higher low against prices making a lower low but only confirmed once the fast line crosses above the slow line on the MACD (bullish crossover).
I just wanted to reiterate the importance of defining one’s time frame when trading. The market analysis on RSTOC, as well as many of the trade ideas share here often use charts of varying time frames (e.g.- 60 minute, daily, weekly, etc…). Typical swing traders, trend traders and investors should not be overly concerned with the intraday charts (15 min, 120 minute, etc…), other than maybe to give a heads-up or early buy/sell signal on a trade. The current scenario laid out on the 120 minute (2 hour) time frame for the SPY shows an expected bounce off the T1 level, which was previously stated as 177-177.50. As I type, the SPY has so far hit an LOD of 177.12, smack in the lower end of the target range and close enough for very active, short-term traders to book some profits on shorts or position long for a possible quick bounce.
I will almost always give a higher weighting to the longer time frames and what the bigger picture is telling us right now is that the major US stock indices have recently broken below key uptrend line support on the daily time frames (with some at or near minor support levels). Those charts can be view in real-time via the Live Chart Links page under “U.S. Stock Indices”. There are many ways to incorporate the market analysis and trade ideas posted on RSOTC. In the example above, nimble, active traders might try to profit off a quick bounce off this first support level while typical swing traders might decide to take advantage of any bounce today to add some short exposure. A more conventional, less aggressive trader might even wait until the AAPL earnings are out of the way and wait to see the markets trade below today’s lows or even print another close below the daily uptrend lines/wedge patterns before adding any new short exposure or further reducing long exposure. The important thing is to define your time frame and trading style in order focus on the technical events that are relevant to your trading and tune out those which may just be “noise” (i.e.- the very short-term gyrations in the charts).
The first series of charts below are some of the major US stock indices, including annotations. Basically, most US indices, other than the Dow Jones Industrials, continue to make higher highs while nearly all key momentum indicators and price oscillators continue to print lower highs (i.e.- negative divergences). Such multi-month divergences were also formed leading up to correction in the 4th quarter of 2012. Divergences of such magnitude don’t always play out for a significant correction but more often than not, they do. This has been
FB will be added as an Active Short Trade here around the 50.45 area. On Sept 13th, Facebook broke below this very steep & overextend wedge & proceeded to backtest the wedge from beneath while forming an ascending channel with the parallel (blue) uptrend line. Prices have now broken below that channel with the MACD poised to make a bearish crossover, thereby confirming the divergence put in place on the recent highs. T2 (42.48) is the preferred target at this time with T3 (39.17) as the current final target. Stops should be determined based on one’s preferred target, using no less than a 3:1 R/R (risk to reward ratio). Most trade ideas on RSOTC list multiple price targets to accommodate various trading styles. Using this FB short trade as an example, a very active trader might only target T1 looking to book a quick, relatively modest 5.5% on a trade that is expected to last anywhere from a couple of days to less than two weeks while a typical swing trader who is bearish on both FB & the broad market in the short & intermediate-term might prefer to hold out for T3 with an expected holding period of a few weeks to a couple of months, possibly
I received several responses to the chart posted earlier today showing the Fibonacci time zone cluster on the $SPX. One follower of the site shared how he successfully used Fib time zones with GDX on the weekly frame as I replicated on the chart below. Someone else had inquired why my chart showed the lines initial sequence of the time zone lines as 0,1,1,2,3 when on his chart the lines were sequenced as 0,1,2,3,5,8,…. I use various charting platforms but most of the charts that I post, including the one referenced in today’s previous post, are from the TC2000 platform, which is a subscription service from the same company that provides FreeStockCharts.com. Both are popular and very user-friendly charting platforms with the primary difference being a few more bells and whistles on the paid version. The weekly chart of GDX from TC2000 is below followed by the weekly chart of GDX from FreeStockCharts.com. Both use the Oct 2008 bottom in GDX as the starting point (“0″ line) with the second line set to the late May/early June 2009 reaction high (actually, just slightly before it as slight liberties/adjustments are often needed to match the best “fit” between the price of a security and the Fibonacci time sequence). The remaining lines are automatically set based on the predetermined sequence discussed below.
Well, apparently fibs from our gov’t officials can’t stop a rally, as they tend of have the opposite effect of juicing the market. However, it will be interesting to see if a sequence of numbers made famous by a 13 century mathematician can actually do the trick. Here’s a weekly chart of the S&P 500 that I played around with over the weekend by overlaying Fibonacci time zones (aka- “Fibs”) on a few of the major inflection points since the current bull market kicked off back in March 2009. Like anything else in trading, Fibonacci retracements, extenstions and time zones seem to work very well at times and not so well at others. Like most indicators that I employ in my analysis, I find Fibonacci levels most useful when confirmed or aligned with other metrics or indicators. My preference is to also identify fib “clusters”, where one or more set of Fib sequences come together in close proximity.
As of today, the $SPX has broken below the white minor uptrend line pointed out on the daily chart posted here last Wednesday. That followed Friday’s bearish reversal/wipe-out of the entire post-Fed rally, which also brought prices back within the purple rising wedge/possible ending diagonal pattern. That reversal put in place an over-shoot of the pattern, a technical event that often precedes a break of the pattern in the opposite direction (downward, in this case). Again, these are just some things to note as possible early signs of a trend reversal. For now, the trends on all but the shortest time-frames remain bullish but with longer-term divergences still in place on the charts coupled with these (and some other) more recent bearish technical events, I continue to believe that the risk to reward on the long-side, especially establishing new positions at this point, remains unfavorable. There are still plenty of short trade ideas offering objective entries although shorts are counter-trend trades at this time and therefore, should only be considered by aggressive traders or those looking to hedge some long exposure. Keep in mind, though, that stocks (including the broad market) typically fall much faster that they rise. It is not uncommon to see weeks and even months of gains wiped out in mere days during a correction. As such, more experience traders who are comfortable with shorting should have both a strategy (where & when to short) and a wish-list (what to short) ready to go. Those not comfortable with shorting stocks or etfs might consider booking some profits and/or tightening stops on their remaining long positions at this time.
Some traders & technicians prefer using simple moving averages over exponential moving averages. Although I typically prefer exponential averages, I am not married to the use of either (or any of the other variations used in the calculation of moving averages). However, as I’ve recently discussed the bearish 20/50 ema cross, which is used to help define the intermediate-term trend, this chart helps illustrate why my preference has been to use the exponential setting on the popular 50/20 moving average pair vs. a simple MA setting.As this daily chart of the $SPX shows, the exponential pair has done a better job of avoiding whipsaws (false buy or sell signals) than the simple moving average pair. In the example above, I’ve highlighted the crossovers using a histogram, as it makes for a more clear visual than trying to discern when the moving average lines have actually crossed over. Any histogram reading below zero means that the faster average (20 day) is trading below the slower average (50 day). Bearish crossover are also identified via the red colored histogram bars which represent negative values. Note: The pair of red and green lines overlaying price on the chart above are the 50 & 20 EMAs.
ANR hit the first target yesterday for an 11.9% gain. This will be left on as an Active Trade for now but as is most often the case, the stock did pullback after hitting the first target level. Consider raising stops to protect gains if still long. As I wasn’t in this one (as I don’t, nor can’t possibly take every trade idea posted here), I didn’t catch the fact that target was hit until today.
Every completed trade on RSOTC, whether successful (one or more profit targets hit)
A new follower of the site asked me about how to identify & label divergences, using the SKUL trade as an example. Below is my reply included with the chart I shared with him on Sunday: