Category Archives: strategy

The greatest lie

strategy

We’ll start out by saying:  here’s a 1 minute 13 second clip by Mark Cuban that every high school student watch:

Don’t follow your passion, follow what you’re good at, and where you put your effort; as Cuban says “Nobody quits anything they’re good at because it’s fun to be good, it’s fun to be one of the best, but in order to be one of the best, you have to put in the effort.”

2018, we have Alexa ordering us toilet paper, and dog robots jumping around,  and Amazon supermarkets without cashiers but what we tell our children is probably the same as what some poor farmer told his son 4000 years ago, to be good at this (farming, trading, sales, whatever your chosen profession) you have to put in the work.

Such a simple concept, and yet for so many, so hard.

 

 

 

 

Change of market behavior= change of trading plan

strategy

For most of April we traded fast and furious assuming a range bound tape which means market goes up to resistance, gets hit hard, goes down to lower BB, buyers show up, back and forth.    How do you trade a range bound tape:    Active trading, tight stops, go for singles.

Last week though (weekly of April 30-May 04) something happened which we talked about in our blog last weekend and has been a recurrent theme in our posts.  $QQQ broke out of the 20sma weekly.    This meant to us that a change could come if SPY could follow QQQ — and this week it did with a solid close over 270.

Range bound tape:   from lower BB to upper BB, rinse and repeat.      This week though the tape morphed into a trending formation —  trend in sweet spot between upper Dev 1 and 2 (upper blue and black lines).    This means a change of plan.

So how does the change of plan reflect in actual trading?    Selling partials, keeping riders, setting wider stops, being much more patient.  Why? Because it’s  going to be more difficult to get back in as market doesn’t let buyers in, grinding higher in that sweet spot trend.

We still have all the stocks that triggered last week and which we posted about last weekend.   We still are holding onto $BABA $NFLX $SMH $XLF  plus adds from Monday to Wednesday of this week: $SPLK $FB $BIDU but we have taken partials in all of them.   If trending market continues we’ll look to add into pullbacks on support.

$IWM which had been the laggard for a long time has been the leader for the last few months, then $QQQ,  $SPY next and the laggard now is $DIA.     This week for us reflected a  pivotal time where you wonder if the leader can pull up the gang or whether the laggards will pull down the leader.    We found out this week as finally $SPY broke over 270.  Leaders won, for now.   Watch that level closely this week — we expect some digestion and chop but would want to see that level hold into Friday.

Happy Mother’s Day to all the moms out there reading this post!

Werk Werk: The two halves of trading

charts, IBD, strategy

#IBD Partner #AD

In the most general terms there are only two parts to trading:  1) find potential stocks to trade 2) trade aforementioned stocks.      #2, the actual trading part we have honed down to some basic strategies, tweaked out through 20 years of being traders.  We don’t really have to work that hard anymore in figuring out how to trade, what strategies to use,  risk management, etc.   The #1, actually finding candidates,  is the part where effort  never stops. You always have to be out there hustling to get new candidates.

We’ve been tapping into MarketSmith lately to tweak out some scans — some of you old timers will know the previous version of MarketSmith (pre-2010) as Daily Graphs.     Daily Graphs, started back in 1972, was the original chart book developed by Bill O’Neil, delivered weekly to subscribers.  We started trading in the late 90s and didn’t have the pleasure to have weekly chart books delivered to our houses, but  are pretty sure it didn’t have the same tricks as its new MarketSmith iteration.

MarketSmith is excellent on desktop and mobile.   For desktop we often use the slide function  — we go to for example Growth 250, put the Slide function to 3 seconds and let it Play.   We always have Chart Pattern Recognition on and just need 3 seconds to figure out where we are interested in or not — if it does pique our interest we  pause play and jot down the name. Then hit play again.   You can go through 250 stocks in less than 20 minutes.

 

What we also like to use is the mobile version on the iPad — looks amazing on iPad Pro.  Here is what the IBD 50 on iPad looks as we scroll through names that interest us:

What we would have paid to have this type of software power when we started back in the late 90s!

And appropriate for this week as most of the big hitter earnings are now in the books, stocks that have already reported earnings with either gaps or no gaps filled filter (sorted via yes or no):

QQQ has broken the range, let’s see if SPY can follow with 270 as big Kahuna.  See you out there on StockTwits and Twitter!

If you want to try out a trial of MarketSmith click here.    

#AD

$AAPL is like Playoff Lebron

charts, IBD, strategy

Range bound market continues but we think there’s a decent chance market finally breaks up out of the range. Why?  We’ll explain.

On Thursday things were looking quite dark.  Market was going full speed into the 50sma weekly tests, breadth was heavy, and it looked like a trend day down.   What was at stake?  Weekly 50smas of SPY DIA XLF and SMH.   All of them held on Thursday, closed off the lows, and all followed through up on Friday.  However, that’s still part of the range game –goes down with speed and you think it’s all over, then holds support and bounces and you think wow new highs coming.  Emotional trip up and down.   There was one difference though that caught our interest.   QQQ.

Thanks to world stock market leader AAPL the Nasdaq finally closed over 20sma weekly — the first time in 6 weeks.  It broke the range.  If it has enough power it can lead the other indices up — we won’t bet the farm on it but we are long into Monday.

Do you recall that smack down on 50sma daily resistance on the QQQ last Thursday after AAPL earnings?  We just re-mounted 50sma daily and closed over that smack down site.

SPY held the 50sma weekly but still has to deal with the 270 resistance which is 20sma weekly, horizontal resistance, top of BB,  and trend-line resistance.   Range bound hat stays on until that goes.

Note the lower Dev 2 BB bounce on Thursday, follow through on Friday.   Feels awesome, but it’s range-bound games until 270 falls on SPY.

DIA held 50sma weekly — you know the drill, has to get over 250 (20sma weekly) for us to stop talking about range-bound tactics.

 

Daily look– look how 200sma buyers won the day on Thursday with a close above it and followed through on Friday.    DIA has not closed under the 200sma daily since June 2016.

AAPL hit 50sma weekly pre earnings and it was game over for shorts– new highs on Friday.  AAPL is Playoff Lebron of the stock universe.

Glad to have it lead again — our trading universe and profits are in a happier place when AAPL leads (versus when for example utility stocks lead).

XLF we talked about in real time when it hit 50sma weekly on Thursday in regards to being a good risk/reward trade.   Good follow through on Friday — definitely not out of the woods but it could be worse.

BABA from Thursday newsletter we had on for potential long post Friday morning earnings — fantastic hold on 50sma weekly last week and follow through up this week.   As you know from our previous post, longs on good charts on good earnings can be golden trades.

Here is daily on BABA — note how it held support on the dip on Thursday and then took off on Friday post earnings.  Beautiful.  We’re long.

NFLX has been in our newsletter all week waiting for it to break this base as it held the 50sma daily (break of that and all bets were off).    Finally left the 50sma today — we’re long and looking for follow through next week.  Nice to be in IBD company as their Swing Trade service is also long NFLX.   #IBDPARTNER

NFLX chart on MarketSmith   and as you can see Fundies pass the test too:

 

We talked about SMH potential long last week on weekly 50sma — tested it again this week and again it held with decent follow through.  Bias is long until that fat blue line breaks.

There you go– all the important things we see in the market in one post.  Enjoy your weekend.   HCPG

Summary of the most important pivots we are looking at on all time-frames

charts, strategy

If you follow us on StockTwits or Twitter you’ve seen all of these ideas but we wanted to put it all together in one succinct post:

Shortest time-frame we follow for trend is the 60min and when there is a smooth ascending/descending 9/20EMA on that time-frame we pay attention.

SMH 5 sessions under 60min/20ema — looking to see if this can break tomorrow — a close over 97.5-98 would do the trick. 

TNX exact opposite — 6 sessions trending perfectly up — would like this to fail.

 

Intermediate time-frame — we’ve been talking about $SPY 270 for months– first as support, now as resistance.  Chart explains it all — we have horizontal resistance, weekly 20sma, and trend-line.   If bulls really want to get going, they need to get price over this on closing basis.   Note also the hold on the 256 weekly (plug here for our newsletter that called for that bottom — was a strategy to look for overshoot of 200sma daily into that weekly SMA).

 

We’ve mentioned this week how we’re looking for a reversal on SMH 50sma weekly — held today but needs to get some distance in next two sessions.  First time in 2 yrs it’s been tested so let’s see if bulls come out to defend it.

And finally long term time frame:   we have been talking about the 2015/2018 market now for weeks.  We feel like we are not in a bear market, and not going to make new highs but carving out a range just like in 2015.  We’ve probably seen the top of the range for now, but not sure we’ve seen the bottom yet.

So what to do?   Trade the range by shortening time-frame. In a bull market you can often get away with chasing without having your fingers chopped off — in range bound markets you will have no digits left within weeks.   Don’t be that guy, don’t be a silly carrot.  As long as we’re range bound, quick trades, very defined risk, and whatever you do, don’t chase.