tag:blogger.com,1999:blog-78402160620822347832024-03-04T22:11:27.013-06:00The Careful TraderTheCarefulTraderhttp://www.blogger.com/profile/15665718506364433085noreply@blogger.comBlogger87125tag:blogger.com,1999:blog-7840216062082234783.post-36170024588987836882012-03-08T12:13:00.005-06:002012-03-08T12:16:49.996-06:00Closing the blogI'm working full time, trading part time and writing two blogs. Due to the constant lack of time and motivation to write quality posts I'm closing this blog. My fellow Slovenians can follow me on <a href="http://slotrade.blogspot.com">slotrade.blogspot.com</a> from now on.TheCarefulTraderhttp://www.blogger.com/profile/15665718506364433085noreply@blogger.com0tag:blogger.com,1999:blog-7840216062082234783.post-63803949309657442042012-03-04T02:58:00.003-06:002012-03-08T12:12:57.921-06:00What Happened To Gold?Please review <a href="http://carefultrader.blogspot.com/2012/01/end-of-accumulation-phase.html">this </a>post for better understanding of the following Nasdaq chart. Basically I still think there is a very high chance that market finishes this bull run with a climax run. It just follows the script I discussed in January perfectly. The uptrend is still intact and there was no big drop after several distribution days. If there will be a breakout above the red resistance, it will be a climax top and should be sold.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhZtWNxAv2_kTC-xwz0XmTA-90kSWNEfqRWfIlJF6vYsEpqf0xA778jH-utBdnjwXtUZGESgENw88-JUqOWXkx06Q7Apemuw7MEtmtCIFjpYvCyLKTbuc0Wx1FJfthvGWosyw-ZvQzfnC0/s1600/COMP+daily+March+3%252C+2012.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 245px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhZtWNxAv2_kTC-xwz0XmTA-90kSWNEfqRWfIlJF6vYsEpqf0xA778jH-utBdnjwXtUZGESgENw88-JUqOWXkx06Q7Apemuw7MEtmtCIFjpYvCyLKTbuc0Wx1FJfthvGWosyw-ZvQzfnC0/s320/COMP+daily+March+3%252C+2012.jpg" alt="" id="BLOGGER_PHOTO_ID_5715964042606422306" border="0" /></a><br />What happened with gold on Wednesday is beyond my comprehension. I don't even want to debate around precious metals too much right now. Plain and simple, after a sell-off of this magnitude, I'm not even touching gold until I become sure again that gold is in a buy zone. Even if by any chance gold rallies up to recent highs, I'm pretty sure it will be sold once again. So, just stay away from gold. We have to wait for another long term for for safer buy spot.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEidKpIszlThbasLWuSyVlSOCRu6JIn8NPzZ4OZmfvQzGeT3yI1nJl6JOmYM8qD5Dv5tQecOVowY0WLh4FHyv1fDCCI1POxH1z60077KPHWxp3sk68qE0_oty0G3-SUZ0mchucMjWdrkhIs/s1600/GLD+daily+March+3%252C+2012.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 143px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEidKpIszlThbasLWuSyVlSOCRu6JIn8NPzZ4OZmfvQzGeT3yI1nJl6JOmYM8qD5Dv5tQecOVowY0WLh4FHyv1fDCCI1POxH1z60077KPHWxp3sk68qE0_oty0G3-SUZ0mchucMjWdrkhIs/s320/GLD+daily+March+3%252C+2012.jpg" alt="" id="BLOGGER_PHOTO_ID_5715964049849241474" border="0" /></a>TheCarefulTraderhttp://www.blogger.com/profile/15665718506364433085noreply@blogger.com0tag:blogger.com,1999:blog-7840216062082234783.post-13101791074820217532012-02-22T12:14:00.006-06:002012-02-22T13:07:14.167-06:00Lowering ExpectationsLet's make a brief market analysis. The Nasdaq Composite still looks pretty good, but there are several indictions that a deeper correction is right behind the corner. Distribution days are showing op on daily charts of all indexes. We already have a failed breakout which is a sign of selling into strength. Cyclically speaking stock market's short term cycle is 16 days old and should deep down into low in 2 to 5 days. I expect this low will be quite deep and the next short term cycle will not make a new high, but instead complete a bit shorter intermediate term cycle, before rallying into new highs again.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgpL9-G4pI6VdJfWpILc7arqp8ivxYWwms-9i133NoqqLOHg-ON8x2rZOMmKTtGueGNcGel2eFu9u69IFGDy-Y6nqGZUlj4EKpKa-4kOnT8O4YXGiJNvx70S9yFDZE8BcVxeRP01-oVVvg/s1600/COMP+daily+February+22%252C+2012.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 252px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgpL9-G4pI6VdJfWpILc7arqp8ivxYWwms-9i133NoqqLOHg-ON8x2rZOMmKTtGueGNcGel2eFu9u69IFGDy-Y6nqGZUlj4EKpKa-4kOnT8O4YXGiJNvx70S9yFDZE8BcVxeRP01-oVVvg/s320/COMP+daily+February+22%252C+2012.jpg" alt="" id="BLOGGER_PHOTO_ID_5712025274050270498" border="0" /></a><br />One very important suggestion comes from small caps. I follow SML index, which tracks 600 small caps. These have clear laggards in last two weeks. While Nasdaq broke to new highs, SML was being caught in a correction already. And when dynamic small caps are left behind, this is usually a very bad sign for general market also. Both my indicators, the stochastics and MFI also suggest a deeper correction is coming in small caps, which are my primary trading vehicle. Not mentioning a plethora of failed breakouts I've seen lately all across the board.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiEYO0Rm7mRLd0iPe1jKPNbhHCOJrzEURJYoxnUXHn49oz4zoF-0EOO19Y_EJYJIi9gLF7NALyC4GEYNjpah3d9yxoIzFmwxoHylCMBuI7gxhXl88AD_F_0xfet1nXUV_OHV0jTcapQJX8/s1600/SML+daily+February+22%252C+2012.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 250px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiEYO0Rm7mRLd0iPe1jKPNbhHCOJrzEURJYoxnUXHn49oz4zoF-0EOO19Y_EJYJIi9gLF7NALyC4GEYNjpah3d9yxoIzFmwxoHylCMBuI7gxhXl88AD_F_0xfet1nXUV_OHV0jTcapQJX8/s320/SML+daily+February+22%252C+2012.jpg" alt="" id="BLOGGER_PHOTO_ID_5712025281329122802" border="0" /></a><br />Stock traders should now lower their expectations a little bit. Personally, I'll take the following steps that should keep me out of trouble:<br /><ul><li>Trade only the best of the best patterns.</li><li>Keeping tighter stops on open positions.</li><li>Taking less risk on initial positions.</li><li>Selling half at 50% of my usual profit target.</li><li>Trailing the rest of position with a tight stop.<br /></li><li>Not holding more than 50% of any position overnight to avoid being hurt by big gaps down in market.</li></ul>In general I plan to mostly just day trade until conditions improve, taking 7-10% profits when I have them.<br /><br />Gold is acting exactly as expected after an intermediate term low has been left behind. Yesterday's decisive move out of 33 days long cycle was followed by today's follow through, which of course is a sign of strength. Now, what do I expect of gold in the next couple of weeks? First it will have to face resistance at 175 on GLD. I fully expect it will get broken and then the next resistance is all time highs at 185 on GLD. I don't care whether if it gets broken on the first try or not as I will look to sell my stake around 180. When GLD reaches 180 and possibly 185 the usual 25-week cycle will already be very extended and any tag of new highs will probably be met by a bunch of sellers. For now I'm just holding my positions in DGP and GDX and will look to sell sometimes in the second 8-day cycle if everything goes as planned.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhUNxDD3Jrycs3AED1aobvJZt2FyVo36sEbTyED4Tv99JCyfpaPRigR3qkZE2_XpphoxeRQxO_8Xzi3967WSt_fukTzbfRqDlyPfqwJt3o4ThgJ_4xEOWSYTKC6l1yAEAP9VY67iCtKBwA/s1600/GLD+daily+February+22%252C+2012.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 251px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhUNxDD3Jrycs3AED1aobvJZt2FyVo36sEbTyED4Tv99JCyfpaPRigR3qkZE2_XpphoxeRQxO_8Xzi3967WSt_fukTzbfRqDlyPfqwJt3o4ThgJ_4xEOWSYTKC6l1yAEAP9VY67iCtKBwA/s320/GLD+daily+February+22%252C+2012.jpg" alt="" id="BLOGGER_PHOTO_ID_5712033978739981762" border="0" /></a>TheCarefulTraderhttp://www.blogger.com/profile/15665718506364433085noreply@blogger.com0tag:blogger.com,1999:blog-7840216062082234783.post-89994046482431384362012-02-18T04:15:00.002-06:002012-02-18T04:42:04.722-06:00Stocks Down, Gold UpFrom my experience cycles can be a pretty useful tool in choppy markets, but during uptrends they can become a little bit difficult to interprete because all correction are so shallow. During last month I pretty much ignored cycle counts, but now it may be time to review them again to gain a better perspective of where we are.<br /><br />Cycles for stock market are best seen on SPX. I believe the usual 9-week cycle already bottomed, which is denoted with the blue arrow. We should now be on day 14 of a shorter cycle that usually takes about 18 days to bottom. Both indicators that I use, stochastics for momentum and MFI for money flow, show a divergence from price. Distribution days have finally started to show up. Furthermore, in the last few days I saw some strange brief selloffs in highly liquid stocks. And, most importantly, I haven't had a strong breakout in my stocks in the past week. To sum up, I believe a deeper correction now really is coming. I think Thursday's breakout was fake to attract public into buying.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjLry9iwZQV6ZSSLCAcNK3IdFdLiiAeRrKDWKflbeVCUqrkqguEJWkH-l9Sc-B7jRE3l9Jbu4MrDN869KXHE7r0-C1Vwdv6C6VkDrUkCembUgdpfn_DuOwFtnXXz-Gp4jbOCTiw-f4jXKI/s1600/SPX+daily+February+18%252C+2012.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 251px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjLry9iwZQV6ZSSLCAcNK3IdFdLiiAeRrKDWKflbeVCUqrkqguEJWkH-l9Sc-B7jRE3l9Jbu4MrDN869KXHE7r0-C1Vwdv6C6VkDrUkCembUgdpfn_DuOwFtnXXz-Gp4jbOCTiw-f4jXKI/s320/SPX+daily+February+18%252C+2012.jpg" alt="" id="BLOGGER_PHOTO_ID_5710417428298740802" border="0" /></a><br />Another bearish signal comes from Nasdaq. This index has become a laggard again. When Dow and SPX outperform Nasdaq, this is a bad sign for momentum traders and general market as well. I expect Nasdaq to correct the most.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjOYkhu-ftMkbYlZLM5HZEkXBAxRokKEuKTRMpuugGf4S8XaV1ZSfPeoCGND7KZSSrIcWhjaq_TGgsZRujN84Jg1kYEtXUpomtb5j2AkVv8q6TPD7vOlbxajlmEJZu9UUu6fTTBVbnZtUU/s1600/COMP+daily+February+18%252C+2012.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 252px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjOYkhu-ftMkbYlZLM5HZEkXBAxRokKEuKTRMpuugGf4S8XaV1ZSfPeoCGND7KZSSrIcWhjaq_TGgsZRujN84Jg1kYEtXUpomtb5j2AkVv8q6TPD7vOlbxajlmEJZu9UUu6fTTBVbnZtUU/s320/COMP+daily+February+18%252C+2012.jpg" alt="" id="BLOGGER_PHOTO_ID_5710417416755946882" border="0" /></a><br />So, if money is flowing out of stocks, where can it go? There is only one logical place, which of course is gold. I firmly believe that Thursday marked a bottom of an intermediate cycle that usually takes about 25 days to complete. With 33 days it was a bit extended, but this is normal and actually positive, because it suggests a longer buying period. Besides, dollar tried to rally a little bit, which stopped gold for a few days. But all my signals suggest gold should rally from here. Momentum has not accelerated to the downside, money flow stayed strongly above 20 line and volume nicely subsided. I think gold is ready to launch higher, so I'm giving a buy signal on it.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiEGWlf3MjASY7je4kn9hg-YE4FnY1AwX_btF4Udh3X6ZMrnhvl_pB6XKgXsD-9Ac6qZPkM4LjdEqA6lT2zDofs3OWN1RwEJruU6LACUle89KxHkPeCmuePbWcKSe2ePbJmiFotRBYHcFg/s1600/GLD+daily+February+18%252C+2012.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 252px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiEGWlf3MjASY7je4kn9hg-YE4FnY1AwX_btF4Udh3X6ZMrnhvl_pB6XKgXsD-9Ac6qZPkM4LjdEqA6lT2zDofs3OWN1RwEJruU6LACUle89KxHkPeCmuePbWcKSe2ePbJmiFotRBYHcFg/s320/GLD+daily+February+18%252C+2012.jpg" alt="" id="BLOGGER_PHOTO_ID_5710417412067610946" border="0" /></a>TheCarefulTraderhttp://www.blogger.com/profile/15665718506364433085noreply@blogger.com0tag:blogger.com,1999:blog-7840216062082234783.post-76571452426998117142012-02-16T11:34:00.004-06:002012-02-16T11:50:43.479-06:00Climax Top In Apple?Excuse me for not blogging for almost two weeks, but I've been very busy trading and analysing charts. Besides, nothing really spectacular happened in any market anyway.<br /><br />Today I'd like to say a word or two about Apple. With a market capitalization of over 460 billion dollars Apple is the biggest stock on the planet right now. It represents a huge portion of both S&P ans Nasdaq index and it is on the eye of every portfolio manager in the world. What I'm trying to say is that as long as Apple is going up, stock market will go up. When Apple tops, market will top together with it.<br /><br />Now, has Apple already topped indeed? Many traders on their blogs and Twitter are fairly convinced that yesterday's reversal was a climax top. It may be, but I think chances are better that we will see at least one more leg up after brief consolidation. Besides AAPL chart I have two charts to show you to backup my words. First is Google that climax topped in 2007. GOOG made a very similar pattern to AAPL's. A breakout was followed by a straight line up. After couple of days of consolidating price exploded higher once again, before breaking down for good.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiFKTK4MOcCX4Ggw7B3yKaDQUWHKZEBFfPL-pU6wkC4dMvoVWvPrWT46AKB_7eVguXwNZeyYsTfD0BgWG3qTxa7tu0P1JbpBwNybmU4NYVwK32AJtgocv-25QXgDK2wfNGHlbByEoBphtU/s1600/GOOG+2007.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 143px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiFKTK4MOcCX4Ggw7B3yKaDQUWHKZEBFfPL-pU6wkC4dMvoVWvPrWT46AKB_7eVguXwNZeyYsTfD0BgWG3qTxa7tu0P1JbpBwNybmU4NYVwK32AJtgocv-25QXgDK2wfNGHlbByEoBphtU/s320/GOOG+2007.jpg" alt="" id="BLOGGER_PHOTO_ID_5709790487638505026" border="0" /></a>The second chart is last year's top in silver as many of us still remember very well. Silver developed a two-stage top. The second stage also made a brief midpoint consolidation before another leg up and final collapse.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiOXzxqDJajrJ36dUhCJD8h9oxuxPR8sDcZQUTPWyW-oOS_VKmQbimZf-nbE0bIKZSEqfGTemFLFx4R5XrN_7-XwApLXLBzIpSukJuzjOnahJPU_fhGIit_q8UZVqFeauDGOuwH4W7Itko/s1600/SLV+2011.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 142px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiOXzxqDJajrJ36dUhCJD8h9oxuxPR8sDcZQUTPWyW-oOS_VKmQbimZf-nbE0bIKZSEqfGTemFLFx4R5XrN_7-XwApLXLBzIpSukJuzjOnahJPU_fhGIit_q8UZVqFeauDGOuwH4W7Itko/s320/SLV+2011.jpg" alt="" id="BLOGGER_PHOTO_ID_5709790514272938802" border="0" /></a>And now let's see how AAPL looks like today. A very similar situation indeed. I consider a gap up on earnings as breakout. And yesterday's big volume reversal candle as merely a start of midpoint consolidation that should not take more than just a few days to complete. After that AAPL may see 700 plus in a month or so.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhxaqfEmGSgsEB9zisdVZdSDxiCxY3Qiz4FfptYtaEiIBDLwDctxrhJ9KkolS8jZNUL0vVe1JZ-YHoc_YAGsIA_yqIuOiIOrdoyflbBLaE3QTfgKXWPsLoeM147HcK-RjJRqhB7gK15IrY/s1600/AAPL+2012.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 193px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhxaqfEmGSgsEB9zisdVZdSDxiCxY3Qiz4FfptYtaEiIBDLwDctxrhJ9KkolS8jZNUL0vVe1JZ-YHoc_YAGsIA_yqIuOiIOrdoyflbBLaE3QTfgKXWPsLoeM147HcK-RjJRqhB7gK15IrY/s320/AAPL+2012.jpg" alt="" id="BLOGGER_PHOTO_ID_5709790467966673074" border="0" /></a>I'm not saying this will happen exactly as drawn on the chart, but historical precedents suggest another leg up is very likely. I would not touch AAPL at this stage, though. Every big portfolio manager in the world owns at least a portion of this stock and will use any strength to unload his stakes at a profit. AAPL is strictly an institutional stock and cannot be traded. It also cannot top in one day, so let's see how it develops.TheCarefulTraderhttp://www.blogger.com/profile/15665718506364433085noreply@blogger.com0tag:blogger.com,1999:blog-7840216062082234783.post-14349361623395544812012-02-05T03:12:00.004-06:002012-02-05T03:22:50.274-06:00Correction Should Start SoonI'd like to make a brief update on stock market. It looks like there will be no extended distribution phase as I suspected for some time. I think chances are now better that indexes are already in the final climax top phase, that should end this 9-week cycle and easy-money period.<br /><br />I don't bother too much with cycles at the moment as these became irrelevant in runaway moves. I don't believe 9-week cycle low is already behind us. The correction simply hasn't been severe enough. As I've said before the 9-week cycle can easily extend into 11 or 12 weeks, so there is still plenty of time for a deeper correction.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiG8R9DvEX5uP1I5L0BLaSg0zc73IKMR0jHeZ7RgRNLvnzqaJaKJA5xfNHTK-x1WJf7rCyDrxSmv8BHS9723DtQLskDhQ9CEMFZWHNaSHpDGAgyCrWExi-Dj0RVdsz3XYtmGM8xhTZy324/s1600/SPX+daily+February+5%252C+2012.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 252px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiG8R9DvEX5uP1I5L0BLaSg0zc73IKMR0jHeZ7RgRNLvnzqaJaKJA5xfNHTK-x1WJf7rCyDrxSmv8BHS9723DtQLskDhQ9CEMFZWHNaSHpDGAgyCrWExi-Dj0RVdsz3XYtmGM8xhTZy324/s320/SPX+daily+February+5%252C+2012.jpg" alt="" id="BLOGGER_PHOTO_ID_5705577169124013442" border="0" /></a>I like to use historical charts to get an idea of what markets may do in the near term future. I think November 2010 could be used as a proxy for current conditions. As seen on chart below SPX broke out from a tight range base on huge volume up day that stalled on the second day, and then experienced a 5% correction. I don't expect the very same thing to happen now (markets never repeat themselves exactly), but I do expect that correction will start in a couple of days. I believe many traders will see this breakout to new highs as a new buy opportunity, but public is always wrong on the market. This time it should be no different. Currently I still hold two minor positions. If we get any further strength on Monday they will probably be sold.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEinnXlljGXbpCevaaOvAYM83OzrU1rkEiya8Bhz2RlkKA0D6xIgCbaFbTBWa8yvB30uhBjMgAO-oK4xWc9w0SXCSDb9c7j40BuYkKwCRqL5NftEa_DHdAj47tP-JrVDEQvHIpx0GU5gRrA/s1600/SPX+daily+November+2010.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 250px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEinnXlljGXbpCevaaOvAYM83OzrU1rkEiya8Bhz2RlkKA0D6xIgCbaFbTBWa8yvB30uhBjMgAO-oK4xWc9w0SXCSDb9c7j40BuYkKwCRqL5NftEa_DHdAj47tP-JrVDEQvHIpx0GU5gRrA/s320/SPX+daily+November+2010.jpg" alt="" id="BLOGGER_PHOTO_ID_5705577171666776370" border="0" /></a>TheCarefulTraderhttp://www.blogger.com/profile/15665718506364433085noreply@blogger.com0tag:blogger.com,1999:blog-7840216062082234783.post-31023245251377311812012-02-04T10:52:00.004-06:002012-02-04T11:31:21.325-06:00Trade Review: STMP, FSL, HSOL, ACHN, EPOC, CONN, FBN, MDVNAs the market went into a runaway move my trading became so intense that it became for me impossible to write trade reviews. With friday's short term climax top (supposedly) I sold most of my positions and now I'm only about 15% invested, waiting for a correction. In this post I'll discuss some of the most interesting trades of the past month, namely the ones that provide some sort of a lesson for me.<br /><br />STMP<br /><br />STMP is a stock I've been folloving from November 2011, waiting for an opportunity to enter on a pullback. I patiently waited for consolidation below MA50. As you can see stock even tried to break above MA50 once, but I did not buy because the volume was low and I correctly estimated that this was a fake breakout. The second breakout was on high volume. A scenario I was waiting for more than two months. But I did not buy, because I thought the market was topping. Back then I havenpt realized yet the we are in a new uptrend. It was painful to watch a 20% move, so I entered on a breakout above that minor flag right below the previous top. Which of course was a mistake. I really regret this trade because I was right about STMP all along. But I shouldn't have bought after 20% move right below the resistance.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjElgvohfgwMLNCEwyuPQ2OAvy-FMH_iQY2g-apLkTckinYuiqfI53r6p5FfP9RSTuP2XCFtEADniDfVqNoOwmdUhahg6h6mWvVx4RiNICZRoKxAqP5iNl2UA0EgyXo_Br1CV-YZBTszX4/s1600/STMP+January+2012.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 251px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjElgvohfgwMLNCEwyuPQ2OAvy-FMH_iQY2g-apLkTckinYuiqfI53r6p5FfP9RSTuP2XCFtEADniDfVqNoOwmdUhahg6h6mWvVx4RiNICZRoKxAqP5iNl2UA0EgyXo_Br1CV-YZBTszX4/s320/STMP+January+2012.jpg" alt="" id="BLOGGER_PHOTO_ID_5705331220642264562" border="0" /></a><br />FSL<br /><br />FSL was a bit risky and unfortunate trade. I bought breakout above 16 and stock made an ugly intraday reversal. The next day it reversed again on a down day and then finally rallied. This stock likes to close off the highs, which makes it difficult to trade. I think I'll have to skip similar ones in the future.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhTj0RyyNarKF0MT3Klv1BAro0Zc7ctQxAQjt0tZ0vxLG9J0I3p26Uft9fPmtAGxK6bWP5BLypvF8ZPzAFTcoez2qhHLsdR29YWmYqLyAHeGecW5QyBnWCtBma7rQ2h03jtD4bj2Kc3sq4/s1600/FSL+January+2012.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 251px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhTj0RyyNarKF0MT3Klv1BAro0Zc7ctQxAQjt0tZ0vxLG9J0I3p26Uft9fPmtAGxK6bWP5BLypvF8ZPzAFTcoez2qhHLsdR29YWmYqLyAHeGecW5QyBnWCtBma7rQ2h03jtD4bj2Kc3sq4/s320/FSL+January+2012.jpg" alt="" id="BLOGGER_PHOTO_ID_5705330807061051490" border="0" /></a><br />What follows frome here are several stocks I sold too early.<br /><br />HSOL<br /><br />HSOL is a nice example of a launch pattern. I decide to review it due to two mistakes that I made. First, the pattern doesn't look very constructive. There are too many big volume down days in the flag. And second, once I got into the trade I sold it too early on an intraday pullback. In fact, stock has consolidated nicely and set for a breakout above 2, which is the opportunity I should've wait for all along.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjQsc_tEuVZWsCyXj60mw2VOkiootLQeqJSo2zeQ2cyBgXEVyfraY8gaXlmQZHvkN46XT3hEq2X_Cr9XRtFp9FTMkrMymO34Z34GCkzKuATQnmoYxlncMD_djY5w_K1o6QrAeRCuFYHAvg/s1600/HSOL+January+2012.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 250px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjQsc_tEuVZWsCyXj60mw2VOkiootLQeqJSo2zeQ2cyBgXEVyfraY8gaXlmQZHvkN46XT3hEq2X_Cr9XRtFp9FTMkrMymO34Z34GCkzKuATQnmoYxlncMD_djY5w_K1o6QrAeRCuFYHAvg/s320/HSOL+January+2012.jpg" alt="" id="BLOGGER_PHOTO_ID_5705334079673031810" border="0" /></a><br />ACHN<br /><br />Another example of scared-out trade. I hate intraday reversals, so I sold a minor profit and then watch the stock rally 20%.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgD8wjjq9hQsThKg3LNHhX18y_eHu7cWeQGjgaIji5RT0eIwZp8HVYJJ26QBw6vfjcuCDcK_gXHz-ewC9QKjcI19-mObrTBMKGzvSv9KzDdADjlA8mq3knw_OqnszQupMJyIpkXhjP0hTM/s1600/ACHN+January+2012.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 252px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgD8wjjq9hQsThKg3LNHhX18y_eHu7cWeQGjgaIji5RT0eIwZp8HVYJJ26QBw6vfjcuCDcK_gXHz-ewC9QKjcI19-mObrTBMKGzvSv9KzDdADjlA8mq3knw_OqnszQupMJyIpkXhjP0hTM/s320/ACHN+January+2012.jpg" alt="" id="BLOGGER_PHOTO_ID_5705330774928191298" border="0" /></a><br />EPOC<br /><br />Same story here. I caught pullback perfectly, but trailed to tight stop and got shaken out on a day of weakness.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj8dCEfFDHsQv6M2LvaMK0UeUTkTCUCNzFPfEm-iuqTs90EINoftjZbK5G8ZzQ3VlHB9SLaOgV48Gx0_1uQdDtSW3idQWF8BufGOtnBl_1j84D-Osz_qEKtel1Oj_RtdMIDPabx28XwOe8/s1600/EPOC+January+2012.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 252px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj8dCEfFDHsQv6M2LvaMK0UeUTkTCUCNzFPfEm-iuqTs90EINoftjZbK5G8ZzQ3VlHB9SLaOgV48Gx0_1uQdDtSW3idQWF8BufGOtnBl_1j84D-Osz_qEKtel1Oj_RtdMIDPabx28XwOe8/s320/EPOC+January+2012.jpg" alt="" id="BLOGGER_PHOTO_ID_5705330781022773282" border="0" /></a><br />CONN<br /><br />This is just an example of a perfect pattern that failed anyway. CONN made an excellent cup with handle-with-handle, which should be very bullish. Volime on breakout was huge, so I obviously had high expectations with this one. Well, it failed the very next day. This is why you have to use stops all the time. Even perfect patterns fail!<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgAZuu6KP23xKwL5XVcZW-3LWlOxacB1CuJJJYmGrLz60NwZiOfB7Vv9jzzEVkzFp97eoDmwY7qinEwuT4wlAVkOjKRndH-hJNwtL4O1kZWIljcX4Cuk3OjrjZDoxfnXoN7CtWaJW3Ki4U/s1600/CONN+February+2012.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 250px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgAZuu6KP23xKwL5XVcZW-3LWlOxacB1CuJJJYmGrLz60NwZiOfB7Vv9jzzEVkzFp97eoDmwY7qinEwuT4wlAVkOjKRndH-hJNwtL4O1kZWIljcX4Cuk3OjrjZDoxfnXoN7CtWaJW3Ki4U/s320/CONN+February+2012.jpg" alt="" id="BLOGGER_PHOTO_ID_5705330779071395234" border="0" /></a><br />But all wasn't bad. The following two trades were the most profitable ones in the past month.<br /><br />FBN<br /><br />I bought FBN on a breakout above 1.50 and sold a little above 1.80, which made me near 20% in a day. Stock then actually consolidated and rallied even more, but 20% one day gains on penny stocks have to be taken, because these highly volatile monsters can easily turn a perfect trade into a disaster.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi399pEZ6_hurqiYVRY85rTJsf_NFowNkxUj9jrnpiQqogO1d4LH9LHVQ7ChWxhQ33H-TK_xbn-0T8SYtjrbhf0ZtMCFBbVngljeR1JkLKhfuLZ3zvwgdkF2Tf_ksL1xlV-nzYTwS5N8cA/s1600/FBN+January+2012.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 251px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi399pEZ6_hurqiYVRY85rTJsf_NFowNkxUj9jrnpiQqogO1d4LH9LHVQ7ChWxhQ33H-TK_xbn-0T8SYtjrbhf0ZtMCFBbVngljeR1JkLKhfuLZ3zvwgdkF2Tf_ksL1xlV-nzYTwS5N8cA/s320/FBN+January+2012.jpg" alt="" id="BLOGGER_PHOTO_ID_5705330806764651170" border="0" /></a><br />MDVN<br /><br />MDVN was a lucky 30% gainer. I bought the reversal at 50 and soon after stock made a 20% overnight gap up. I entered that day with a 4% trailing stop. Luckily I didn't get shaken out on morning selling. After the stock rallied into the 70's I set a 2% trailing stop which got me out a little below 70. A nice example of good usage of trailing stops.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiHq97TSrCnNVdUyZ4XcSzbXUe_njlRB65bCrl62heG86mJ4GZVwAs2haicMFYk6J21a2xxYUkZbZzDWPleDlLfh48UxvucDitRmZFNW5SngiinOuzUUQk5z32MrohaHxHtLtdWj66pCH8/s1600/MDVN+January+2012.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 211px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiHq97TSrCnNVdUyZ4XcSzbXUe_njlRB65bCrl62heG86mJ4GZVwAs2haicMFYk6J21a2xxYUkZbZzDWPleDlLfh48UxvucDitRmZFNW5SngiinOuzUUQk5z32MrohaHxHtLtdWj66pCH8/s320/MDVN+January+2012.jpg" alt="" id="BLOGGER_PHOTO_ID_5705331215519804642" border="0" /></a><br />Apart from these mistakes January 2012 was still one of the best months I've had in two years. Let's conlude with the lessons learned:<br /><ul><li>STMP taught me how important is to stay objective on the market. If I hadn't been so sure about the market topping, I would've got this one (and probably many other). First follow stocks, then the market.<br /></li><li>Never follow public opinion! Through the whole uptrend most market analysts, even ones I have a high respect for, were dead bearish on the market and now behave like idiots, sitting on their miserable short positions and claiming that "market is irrational". Again, first follow stock, then the market! Don't follow the herd, which market gurus are a part of. Stocks are always right on time, general market is always late and public is always wrong, no matter what.<br /></li><li>Have initial stops in place all the time and never remove them, but don't sell stock on every minor weakness, especially if the market is strong. Start to trail only when stock reaches a percentage gain that you would not want to give away under any circumstance.</li><li>Sell when you have a one day unexpexted profit. Most stocks reverse after strong up days and barely ever reach previous highs.<br /></li></ul>TheCarefulTraderhttp://www.blogger.com/profile/15665718506364433085noreply@blogger.com0tag:blogger.com,1999:blog-7840216062082234783.post-83305704344437680162012-02-01T12:35:00.004-06:002012-02-01T12:47:07.726-06:00Following The PlanIt seems like today we will get another strong up day in the stock market. Again, it is getting very, very late in the 9-week cycle, momentum and money flow readings are still flirting with overbought areas and many high quality stocks are extended from their buy points. The general picture is still excellent. I haven't seen such a strong accumulation for about a year. But in the short term market will have to correct 3 to 5% if there is any more upside to come. I think what we are seing today in Nasdaq and hopefully tomorrow in SPX is a short term climax top that shall end the accumulation phase. Nasdaq is at new highs, but technically I give more credence to SPX, which is close to testing last week's high. We had a very nice run in the past month, but now is the time to take some off, especially in high octane names that can get killed during a correction. I'm trigerring a neutral signal on the stock market.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjfU6BLqN7-CVUpEyRzNrcOX37nn0EJybagTGTPkhEs4rM82ILJKZ33-ZeJvzBOmo_Qt8XCk-hV6J4Ms-_ltQreW8ANyC6eExHLpfyw-jZrNo7HIHBU_DnQMPX6NsubZ2U6LnkJqFGVhbc/s1600/COMP+daily+February+1%252C+2012.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 251px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjfU6BLqN7-CVUpEyRzNrcOX37nn0EJybagTGTPkhEs4rM82ILJKZ33-ZeJvzBOmo_Qt8XCk-hV6J4Ms-_ltQreW8ANyC6eExHLpfyw-jZrNo7HIHBU_DnQMPX6NsubZ2U6LnkJqFGVhbc/s320/COMP+daily+February+1%252C+2012.jpg" alt="" id="BLOGGER_PHOTO_ID_5704237959360319010" border="0" /></a><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhRA7R6MK-8QPDCRGjh4CIjaqUc3j-aDAPEgNHL8C7K5nSJ0ZfoeGVIiVf1QhtSa9a3jUwlHz_WSd1sPClQLPHDEhKZM5kMrh_A6OiHB_H7gtTsA6erQfH0GIkM0SmIWM_2QTUQnsmb3qw/s1600/SPX+daily+February+1%252C+2012.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 251px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhRA7R6MK-8QPDCRGjh4CIjaqUc3j-aDAPEgNHL8C7K5nSJ0ZfoeGVIiVf1QhtSa9a3jUwlHz_WSd1sPClQLPHDEhKZM5kMrh_A6OiHB_H7gtTsA6erQfH0GIkM0SmIWM_2QTUQnsmb3qw/s320/SPX+daily+February+1%252C+2012.jpg" alt="" id="BLOGGER_PHOTO_ID_5704237966439723714" border="0" /></a><br />The same applies for gold, which is even more overbought as stocks. Of course, this is a sign of long term strength, but right now I think gold may correct more, somewhere between 5 and 8%, before starting another leg higher. If anyone is thinking about buying gold right now... Good luck. Gold is also on neutral signal. We have to wait for a low risk entry once this extreme sentiment chills out a little bit.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEirttHsAr9N6EF4pc0T12puQGXaZBCe_V6lbWPi9FFFHAtIp0Rml9qjsbgyU0iKjzshZQUUrWexdxuY77Bqb_RjbF2BUFl5609Ep2D8eMhzafJz2HH2U-C-M-LeB_SiwPwihchSCLHaAnU/s1600/GLD+daily+February+1%252C+2012.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 251px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEirttHsAr9N6EF4pc0T12puQGXaZBCe_V6lbWPi9FFFHAtIp0Rml9qjsbgyU0iKjzshZQUUrWexdxuY77Bqb_RjbF2BUFl5609Ep2D8eMhzafJz2HH2U-C-M-LeB_SiwPwihchSCLHaAnU/s320/GLD+daily+February+1%252C+2012.jpg" alt="" id="BLOGGER_PHOTO_ID_5704237962778525682" border="0" /></a>TheCarefulTraderhttp://www.blogger.com/profile/15665718506364433085noreply@blogger.com0tag:blogger.com,1999:blog-7840216062082234783.post-45781840104548224372012-01-28T03:37:00.004-06:002012-01-28T03:53:42.246-06:00End Of Accumulation PhaseI would like to continue a stock market discussion from the previous week. Stock market is in a runaway move in my opinion. Once again I've prepared three charts from previous runaway moves and marked three distinct phases on each of them. I won't explain each separately. The point is that runaway moves typically start with a long accumulation phase. The slope of this phase is very steep and there are almost no down days. It continues with the distribution phase, when market starts to behave choppier. Momentum is mildly positive and money flow hardly ever gets into overbought readings. This phase is typically shorter from the first, but there have been exceptions. However, there are virtually no exceptions to the final, climax top phase. This is almost always a quick, steep 1 to 3 day breakout that marks the end of the bull market. See charts below for examples.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgcKtcv47mB6WjCKvOLMlnKrjXSYu2nBabRT6GAe5L4nipFgjor3bvxsqRKgBC0Ojv7EeKZ-vW9QCKQEBpGM-vw-1T-xjquIjME2HGUKFJWjkElqUP5F8hDokngVPOYKL3EHDDtDmqbmI8/s1600/COMP+daily+February+to+May+2010.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 251px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgcKtcv47mB6WjCKvOLMlnKrjXSYu2nBabRT6GAe5L4nipFgjor3bvxsqRKgBC0Ojv7EeKZ-vW9QCKQEBpGM-vw-1T-xjquIjME2HGUKFJWjkElqUP5F8hDokngVPOYKL3EHDDtDmqbmI8/s320/COMP+daily+February+to+May+2010.jpg" alt="" id="BLOGGER_PHOTO_ID_5702616369414153826" border="0" /></a><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhzIiPfHEwuAu9j6r6F6Z7MUoA1gYeD28XboIfhw-pdsJSpz9incEkjg5tEnoLpr1z9Nb2Brxa2AonHu__HTNk_ZL9DcsJs-YZf3ljc-xlPBX1ayNTqnsiS1xK9fC0q7WN7N70ybX9dXEU/s1600/COMP+daily+January+to+March+2011.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 251px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhzIiPfHEwuAu9j6r6F6Z7MUoA1gYeD28XboIfhw-pdsJSpz9incEkjg5tEnoLpr1z9Nb2Brxa2AonHu__HTNk_ZL9DcsJs-YZf3ljc-xlPBX1ayNTqnsiS1xK9fC0q7WN7N70ybX9dXEU/s320/COMP+daily+January+to+March+2011.jpg" alt="" id="BLOGGER_PHOTO_ID_5702616372723594834" border="0" /></a><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg5BG5MU-JONEYRj-jalAFmC_06AEgebzFwJmn3oSk5M4VPQUy3ALvwq1XRLnl98NluFJvKUtISTuRQnZoaqk7GDwDLXgHYToqWcETxTst8WJJ-u37xnFUMCVL7Y_Eq9MvCX9sjI7quuIY/s1600/COMP+daily+August+to+November+2010.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 251px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg5BG5MU-JONEYRj-jalAFmC_06AEgebzFwJmn3oSk5M4VPQUy3ALvwq1XRLnl98NluFJvKUtISTuRQnZoaqk7GDwDLXgHYToqWcETxTst8WJJ-u37xnFUMCVL7Y_Eq9MvCX9sjI7quuIY/s320/COMP+daily+August+to+November+2010.jpg" alt="" id="BLOGGER_PHOTO_ID_5702616365638293650" border="0" /></a><br />Let's now extrapolate these findings to the current market. I guess a pretty large distribution day on Thursday could mark the end of accumulation phase. There was no follow through to the downside on Friday, so more downside could take place next week. One thing that still bugs me is that I've completely lost my cycle count. We are on week 9 of the 9-week cycle and thus already overdue. Although I wish for further upside I'd also like to see a quick drop out of the green wedge that would mark the cycle low. Another thing that concerns me is the extreme slope. I speculate that market could now go into distribution phase, followed by climax phase. But this is just this. Speculation. Such an extended move into resistance could very well top right here. We'll have to wait at least another week and see. If indexes dropy in a slow, controlled fashion, there is a high chance of the orange channel to take place. If on the other hand sell off days start to pile in, chances are better for a final top in a week or two.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjFil2k02pFe4XMUwqoeaKxuA-RQtVDnS4uJPsEvwN0H9_J750tMIcaWhh64Fn6Yyl8T2jLv34gt7BqOrVVy70zZ-oGo8B0Xfk6H3bK5KCZZYiQF6KYTL45Ow0YS8DDWbI88WnSySvPbqY/s1600/COMP+daily+January+27%252C+2012.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 251px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjFil2k02pFe4XMUwqoeaKxuA-RQtVDnS4uJPsEvwN0H9_J750tMIcaWhh64Fn6Yyl8T2jLv34gt7BqOrVVy70zZ-oGo8B0Xfk6H3bK5KCZZYiQF6KYTL45Ow0YS8DDWbI88WnSySvPbqY/s320/COMP+daily+January+27%252C+2012.jpg" alt="" id="BLOGGER_PHOTO_ID_5702616608099402930" border="0" /></a>TheCarefulTraderhttp://www.blogger.com/profile/15665718506364433085noreply@blogger.com0tag:blogger.com,1999:blog-7840216062082234783.post-42041254273356330172012-01-21T04:51:00.004-06:002012-01-21T05:27:48.759-06:00Another Climax Run?The market action has frustrated me for the last two weeks. My analysis of cycles suggested an imminent deeper corrections that has not happened (yet). I believe in times when market seems to oppose logic it is best to try to find a past analogy just to see what can be expected in the near term future. By the way, I've decided to rename my cycles for more clarity. I will name them according to the average length of the cycle. Thus, the 18-day cycle means this is the cycle with an average length of 18 days. For 5-month cycle, average length is 5 months and so on.<br /><br />So, let's start with the facts that we certainly know. Stock market has been stubbornly griding higher for three weeks without any minor sign of exhaustion. Momentum and money flow indicators go from overbought to more overbought. What can we conclude from this?<br /><br />The first chart below is from February to May 2010. As we can see conditions back then were pretty similar to today's. The second 18-day cycle out of 5-month cycle bottom was accumulation period when both indicators stayed overbought for a long time. The next cycle was choppier as retails started to chase the rally and smarts selling to them. It all finished with a final blow-off top.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi9fnUyKtyKh4e9i9D3tIEGyJPg8-6y0wGdxmH2uljkB7-Iwr1fYBStxsNA6APZfkzju1lBXSyqjJ3M1JjoeLVrXDRIwKcnsnU-_2thm0TPJ7lTEGHaTE2zQInX4ZRCurR7UKWjxSAeNq4/s1600/SPX+daily+March+2010.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 251px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi9fnUyKtyKh4e9i9D3tIEGyJPg8-6y0wGdxmH2uljkB7-Iwr1fYBStxsNA6APZfkzju1lBXSyqjJ3M1JjoeLVrXDRIwKcnsnU-_2thm0TPJ7lTEGHaTE2zQInX4ZRCurR7UKWjxSAeNq4/s320/SPX+daily+March+2010.jpg" alt="" id="BLOGGER_PHOTO_ID_5700037241462176562" border="0" /></a>Next chart is from September to November 2010. A similar story. The first 18-day cycle after significant bottom was accumulation period, followed by two more choppier cycles with shallow corrections.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgx3D-25z_zmKd2mRySoAYTbK2UL8OtJ2o1i40D9NCNbCdeTgSmdl_UzXjd8qvvoq-q6MkL5p4YvRMVdrFTSkiS-npJ3h3j1wEGrJeJ2vF4jp_ekLA6DQ7iTqaeXJNOeN33XZh_fcXVmV4/s1600/SPX+daily+September+2010.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 251px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgx3D-25z_zmKd2mRySoAYTbK2UL8OtJ2o1i40D9NCNbCdeTgSmdl_UzXjd8qvvoq-q6MkL5p4YvRMVdrFTSkiS-npJ3h3j1wEGrJeJ2vF4jp_ekLA6DQ7iTqaeXJNOeN33XZh_fcXVmV4/s320/SPX+daily+September+2010.jpg" alt="" id="BLOGGER_PHOTO_ID_5700037242569429506" border="0" /></a>Another example is start of 2011. This one was a little bit different. The accumulation period was not so obvious and it stretched into two 18-day cycles. The rest of the story is pretty much the same. Several shallow corrections all being bought until the final climax run.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg9dtrJEYXjlbinZSQMpQMsW3u2H6_Jqn0ZjugofJRrOXl0MaxCd15xgXBVU_jdrzyRSXkXPRPaZhnMm-wPS0dlGEfjFJeCvpANZWnRY-2rB2h9Stc2V0isGTPCwHWT1gdKj-x9T_FYddM/s1600/SPX+daily+January+2011.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 251px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg9dtrJEYXjlbinZSQMpQMsW3u2H6_Jqn0ZjugofJRrOXl0MaxCd15xgXBVU_jdrzyRSXkXPRPaZhnMm-wPS0dlGEfjFJeCvpANZWnRY-2rB2h9Stc2V0isGTPCwHWT1gdKj-x9T_FYddM/s320/SPX+daily+January+2011.jpg" alt="" id="BLOGGER_PHOTO_ID_5700037232571710562" border="0" /></a>Now, let's make some general observations before moving to current conditions. First, notice the obvious separation from accumulation to distribution period. Accumulation period exhibits a very well defined uptrend with almost no pullbacks and all indicators staying in overbougth range for several weeks. During distribution period price action tends to become choppier, momentum line starts to wiggle and MFI barely moves above 80 as every rally is being sold.<br /><br />Regardless of the cycle count it looks like we have just witnessed accumulation period. Every indicator I look (price/volume, stochastics and MFI) display these properties. Timing wise I am not so sure that 18-day cycle low is already behind us. We are on day 21, which is very late, but the constantly overbought MFI suggests we may still see that 2-3 day pullback before continuation of the uptrend.<br /><br />Cyclicaly speaking we are in the timing band for a 9-week cycle low and in the timing band for a 18-day cycle low. A 3% drop should probably be enough to satisfy these conditions. On the other hand, the 9-week cycle may easily extend up to 12 weeks, so another 18-day cycle until the 9-week bottom is not out of question. Also, mind that we are officially still in a bear market. The long term 5-month cycle is not so far away and it is simply hard to believe that we may see another month or so of higher prices. But who knows?<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEix8HyMQEb-hc8zzcWoXnFF_lDnYgIpUFvHiQTq8asLBcuvyFOiRSFvyrLhuSo9aWovdCJj8hMzYX5g-a6txlB7sJ73F0bdx09PfA3zQoffnYvGsIm21HcYgYrG8KAbLjVvjIlV2QzJoMA/s1600/SPX+daily+January+2012.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 251px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEix8HyMQEb-hc8zzcWoXnFF_lDnYgIpUFvHiQTq8asLBcuvyFOiRSFvyrLhuSo9aWovdCJj8hMzYX5g-a6txlB7sJ73F0bdx09PfA3zQoffnYvGsIm21HcYgYrG8KAbLjVvjIlV2QzJoMA/s320/SPX+daily+January+2012.jpg" alt="" id="BLOGGER_PHOTO_ID_5700037235453861730" border="0" /> </a>I basically see two possibilites right now. The lenght of this rally and money flow suggest a very strong accumulation that should spurt another powerful push higher. On the other hand the parabolic look of this final week may also mean that we may just witness a couple more days of climax run, followed by a plunge. Although I like to make long term projections my trading decisions are (or at least should be) made based on short term market action. Right now markets are way overbought and even if this rally turns out to be a climax run I have no intention to buy anything until I see at least a 2% correction that would release overbought conditions, confirm my initial view that accumulation period is coming to an end and print a clear cycle low, whether it be just 18-day or 9-week cycle. So, currently I'm in a waiting mode until some high pribability setups present.TheCarefulTraderhttp://www.blogger.com/profile/15665718506364433085noreply@blogger.com0tag:blogger.com,1999:blog-7840216062082234783.post-68604465152978092852012-01-19T02:59:00.005-06:002012-01-19T03:32:20.160-06:00Stock Market's SurpriseStock market has caught me totally unaware. I certainly did not expect such an extended move to the upside. From technical perspective it seems unrational, but I have to proclaim that one day drop down to the previous consolidation area as a 17 day half-daily cycle low. I could also say that we are on day 19 of an extremely extended cycle, but it is usually better to stick to the normal timing bands and day 17 is much more normal than day 23 or more. So, what can we expect with this new cycle count in place? From the half-daily cycle perspective, the cycle is still young and could rally for two more weeks before bottoming. But the daily cycle is 35 days old and already in stage for a bottom. I simply don't believe we may see much more further upside. Not to mention indicators that have resisted overbought levels since the start of this daily cycle. Furthermore, big volume up days late in the cycle often tend to mark tops. We'll just have to wait for a decline to happen and then see how much of further upside we can expect. As it looks now, decline should be quick and shallow, soon followed by by a higher high.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiiDGMNp_Z1WVvFX0rUGsz-93Oxtlb2RpvksYK1024n4PEvRg-NzQtAl-RXa-1rIhjSJXhnnAyBc_0sm_YCxPv6_0hkO0vD4EeQJ7gasAll-VAeO0ADEkX9Sen4lXkkRIX82rJqWt8vZC4/s1600/SPX+daily+January+18%252C+2012.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 251px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiiDGMNp_Z1WVvFX0rUGsz-93Oxtlb2RpvksYK1024n4PEvRg-NzQtAl-RXa-1rIhjSJXhnnAyBc_0sm_YCxPv6_0hkO0vD4EeQJ7gasAll-VAeO0ADEkX9Sen4lXkkRIX82rJqWt8vZC4/s320/SPX+daily+January+18%252C+2012.jpg" alt="" id="BLOGGER_PHOTO_ID_5699265607518678962" border="0" /></a><br />Let's see how gold is doing. Right now, gold is a laggard. It is making higher highs, but volume and momentum suggest another half-daily cycle decline is imminent. If it bottoms above previous low, I might consider a minor position for a short term trade as volume properties still suggest another higher high.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhWuqNTUtWizPRpt-prQOPziLqlpu7gdmLRumIr6_S7kiKN3AA-tyIJxgRMEhbylT1mexqRvb8enUQY4tjE4ktMPRG9OEVTWofnAysRx06IApCHsheWJcveRLX6q6v1Zhlbb6_lZQzWs4c/s1600/GOLD+daily+January+18%252C+2012.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 251px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhWuqNTUtWizPRpt-prQOPziLqlpu7gdmLRumIr6_S7kiKN3AA-tyIJxgRMEhbylT1mexqRvb8enUQY4tjE4ktMPRG9OEVTWofnAysRx06IApCHsheWJcveRLX6q6v1Zhlbb6_lZQzWs4c/s320/GOLD+daily+January+18%252C+2012.jpg" alt="" id="BLOGGER_PHOTO_ID_5699265481667799810" border="0" /></a>I usually don't talk about gold miners, but there is a high probability shorting setup developing. Miners mostly follow gold in cycle count but are also affected by stock market. They are the weakest issue of all three. While gold and stocks are making higher highs, miners are way below. There is strong divergence in both momentum and volume and day to day candlestick analysis also exhibits selling into every strength. Any rally up to 54 mark would provide a very high risk/reward ratio short setup. It may happen during current or the next half-daily cycle.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEijz3jSlkLHXFQLgM7OzRwVz5rN-ERyrVeH721Kcyk8obAyGGODT69vif5yZbQ-if_Sxd1g-P010NMy4gTbawbNhXZB-3Kqc5FMJNgNp815eOgE3eBS5IjMXLaHFLbWsbIt3bFJZv_XZ4g/s1600/GDX+daily+January+18%252C+2012.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 251px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEijz3jSlkLHXFQLgM7OzRwVz5rN-ERyrVeH721Kcyk8obAyGGODT69vif5yZbQ-if_Sxd1g-P010NMy4gTbawbNhXZB-3Kqc5FMJNgNp815eOgE3eBS5IjMXLaHFLbWsbIt3bFJZv_XZ4g/s320/GDX+daily+January+18%252C+2012.jpg" alt="" id="BLOGGER_PHOTO_ID_5699272315316481714" border="0" /></a>TheCarefulTraderhttp://www.blogger.com/profile/15665718506364433085noreply@blogger.com0tag:blogger.com,1999:blog-7840216062082234783.post-64327267736709195912012-01-16T11:39:00.004-06:002012-01-16T12:04:43.693-06:00Weekly PerspectiveI'll make a brief post about my intermediate term projections for stocks and gold. I've made some analysis of past charts and realized that the following months will probably bring us more downside for both issues.<br /><br />Below is the weekly SPX chart. I've also plotted stochastics and MFI, my new indicators that I use. First thing to notice is the different behavior of both indicators in a healthy bull market in not so healthy bull market. In bull market MFI has a strong upside bias and higher highs and higher lows in index are confirmed by both momentum and volume. Observe that in the past year MFI has been unable to climb into overbought territory. What's more, we are seeing divergence right now, which suggests this cycle might be very close to a top.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgKcmcBJcaDfuUqtxg8FRF4clXNzLVesOdV0MPmLzBLGWGx2unY3UZHIvWDLiIGJfj41zbBDcVrtXhvrAnSaOFzZqBVG1_hGdnqmVzoIOanCubtV7QVWkdGPaeTECoCmCdlneF-FN1Dvrs/s1600/SPX+weekly+January+16%252C+2012.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 251px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgKcmcBJcaDfuUqtxg8FRF4clXNzLVesOdV0MPmLzBLGWGx2unY3UZHIvWDLiIGJfj41zbBDcVrtXhvrAnSaOFzZqBVG1_hGdnqmVzoIOanCubtV7QVWkdGPaeTECoCmCdlneF-FN1Dvrs/s320/SPX+weekly+January+16%252C+2012.jpg" alt="" id="BLOGGER_PHOTO_ID_5698286686431507602" border="0" /></a><br />We saw a very similar picture in 2008. Suddenly divergences in momentum and volume started to appear and MFI got a negative bias. It wasn't until the first cycle out of final bear market low when MFI went up to 100. Also, pay attention to extremely strong divergence in MFI just before the bottom, even during the strong downside momentum.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjXH_DkTwc8CLlJ1fHiowIxSMjvMBQ30XTzh0ZsvKWyBqFPADO6U4VO3KLWC97mczAZWRD7539hpeC0LwAkf8L7cXpFuo2__-9AaZPQAlx70AqZgqG9Ywom0npszxm0hpQhp3YSEfMgm-8/s1600/SPX+weekly+2007-2009.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 251px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjXH_DkTwc8CLlJ1fHiowIxSMjvMBQ30XTzh0ZsvKWyBqFPADO6U4VO3KLWC97mczAZWRD7539hpeC0LwAkf8L7cXpFuo2__-9AaZPQAlx70AqZgqG9Ywom0npszxm0hpQhp3YSEfMgm-8/s320/SPX+weekly+2007-2009.jpg" alt="" id="BLOGGER_PHOTO_ID_5698286687753054898" border="0" /></a><br />2000 to 2003 bear market was not much different. A bear market bottom was indicated by divergence in MFI, followed by an explosive move, that took MFI to 100, which was the first time since the bull market top.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj3xmrnFUSnRI6OuqOVQqP8RO3tgiiBbUisLlTTyz4iS-sj9RFG0PipMF2worME0VuN4-zIk7lR77EzQEwfNEPYUw_rszKHaBZf7B2CdmwVydtQMhxRxIYGVoQh52qpfRvw_af4-7u8PKU/s1600/SPX+weekly+2000-2003.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 251px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj3xmrnFUSnRI6OuqOVQqP8RO3tgiiBbUisLlTTyz4iS-sj9RFG0PipMF2worME0VuN4-zIk7lR77EzQEwfNEPYUw_rszKHaBZf7B2CdmwVydtQMhxRxIYGVoQh52qpfRvw_af4-7u8PKU/s320/SPX+weekly+2000-2003.jpg" alt="" id="BLOGGER_PHOTO_ID_5698286694256284642" border="0" /></a><br />It should be clear by now what I'm pointing too. First, I don't believe we have seen the final bottom. Not by a long shot. Bear market rallies can extend just enough to convince everyone that new bull is just around the corner. Luckily, we can use some volume studies to confirm how much buying was really going on during the rally. As current MFI readings suggest, this rally is fake and should reverse soon. Maybe starting this week.<br /><br />Second, at the final bear market bottom I expect to see a divergence in MFI. After the final shakeout MFI should get up to 100 in no more than four weeks, which would be our final confirmation. Until I see these signs, I'll be very, very sceptical of buying at the long side.<br /><br />Let's make the same analysis for gold. We have just witnessed the first weekly cycle in three years that was unable to push MFI above 80. What's more, selling volume seems to be increasing, which is seen from the downtrend on MFI. Plain and simple, I don't believe we have seen the bottom of this correction yet. I expect a strong move to the downside that will push MFI down to zero (and fix it there for some time), followed by a rally and hopefully a double bottom with MFI divergence. Previous cycle was very short (13 weeks), so this cycle could maybe extend up to 25 or 30, thus having enough time to complete the abovementioned scenario. Furthermore, if all this happens close to the pink line, this would be the final clue of another bull cycle starting.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhjKJ3Z0H1EGMaTRrBCw3AOREfMxt2WCk4qagBsRb-5VRy_Q6Zh1kX6NPK8angDriDe1C0XA5FfXq44P8zXqGUhjobB6NFFDl61NLQ5kZvj25-XaxontCVirxwWdODuyttSNP4s7NOV2dM/s1600/GOLD+weekly+January+16%252C+2012.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 251px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhjKJ3Z0H1EGMaTRrBCw3AOREfMxt2WCk4qagBsRb-5VRy_Q6Zh1kX6NPK8angDriDe1C0XA5FfXq44P8zXqGUhjobB6NFFDl61NLQ5kZvj25-XaxontCVirxwWdODuyttSNP4s7NOV2dM/s320/GOLD+weekly+January+16%252C+2012.jpg" alt="" id="BLOGGER_PHOTO_ID_5698286698685763490" border="0" /></a>TheCarefulTraderhttp://www.blogger.com/profile/15665718506364433085noreply@blogger.com0tag:blogger.com,1999:blog-7840216062082234783.post-71899691658693388452012-01-15T07:27:00.004-06:002012-01-15T07:41:01.180-06:00Trade Review: ALXN, CBLI, HGSI, VPHM, NSRI made plenty of trades this week. Probably a bit too many. My losing streak made me to become even more careful with my trades. I decided I will start taking smaller positions, not risking more than $100 on any trade, preferrably even less. And second, I'll start monitoring markets even closer as there are obviously only brief moments of momentum when swing trading has risk reward ratio high enough. Consequently, I was loaded in five positions when I realized that markets may be ready for a correction. I got scared of further losses and sold them all on January 9. Markets eventually rallied, but most of my stocks basically went nowhere or fall after I sold them, so I was at least able to finish one week positive after several negative weeks.<br /><br />I'm not going to spend any time on discussing every single trade this week as all charts are well annotated. Probably the lesson from the past several trades should be that I should strictly focus on the best longer term patterns as these seem to have the highest breakout probability in this market. Also, simply taking profits in 5 to 10% range may not be a bad idea as most breakouts simply fail soon after they make some initial progress.<br /><br /><span style="font-weight: bold;">ALXN: +7%/+$250</span><br /><br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjsy1u5gQtS49spjgVWyokvGs1PZtPB46h8JmQJbzFOcZhjOPq7CE2qz4R2bxo5Ech9BhFUZp0SstG4hKQND0SVfbnwJxXnxKDhQ3qFYPl1a0GWXGSoqEVmwjePO5iRmKsFiA4hnq7G0sU/s1600/ALXN+long+January+2012.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 142px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjsy1u5gQtS49spjgVWyokvGs1PZtPB46h8JmQJbzFOcZhjOPq7CE2qz4R2bxo5Ech9BhFUZp0SstG4hKQND0SVfbnwJxXnxKDhQ3qFYPl1a0GWXGSoqEVmwjePO5iRmKsFiA4hnq7G0sU/s320/ALXN+long+January+2012.jpg" alt="" id="BLOGGER_PHOTO_ID_5697852099673508114" border="0" /></a><br /><span style="font-weight: bold;">CBLI: +7.1%/+$96</span><br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjvReyme-nlThkzbXKK7QaPBiysL0dtysDdaTEIHchxQFCXLiysJtNdmSsrx5aL5ww7zgGNrjoOr03MTeE9DED0HKJ3I3TOJLHH1WRsHkNGFGK8kzyo6LxFhOCkt1IxUnIHhQ-qsJ5wQEU/s1600/CBLI+long+January+2012.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 142px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjvReyme-nlThkzbXKK7QaPBiysL0dtysDdaTEIHchxQFCXLiysJtNdmSsrx5aL5ww7zgGNrjoOr03MTeE9DED0HKJ3I3TOJLHH1WRsHkNGFGK8kzyo6LxFhOCkt1IxUnIHhQ-qsJ5wQEU/s320/CBLI+long+January+2012.jpg" alt="" id="BLOGGER_PHOTO_ID_5697852101786575170" border="0" /></a><br /><span style="font-weight: bold;">HGSI: +5.8%/+$68</span><br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiqXM1txtwcf1c5bVuDrzEH3Wea9ZjeNgXbUY8OAAU2LXPCHXxerjApKokwRkRGgcmyAb3ANv5WnQrpKiM5OsfCEdLNeeLaAjarVhlvFnJOfNNpdbJzoyqRnRDZ12TNxA9qOI8NErtkWiM/s1600/HGSI+long+January+2012.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 142px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiqXM1txtwcf1c5bVuDrzEH3Wea9ZjeNgXbUY8OAAU2LXPCHXxerjApKokwRkRGgcmyAb3ANv5WnQrpKiM5OsfCEdLNeeLaAjarVhlvFnJOfNNpdbJzoyqRnRDZ12TNxA9qOI8NErtkWiM/s320/HGSI+long+January+2012.jpg" alt="" id="BLOGGER_PHOTO_ID_5697852106577090178" border="0" /></a><br /><span style="font-weight: bold;">VPHM: -1.7%/-$24</span><br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj2CwMUM-ZezQxXhAhzAGvxncpFmVSKxHhyphenhyphen8ofjyjaye_UBiXi3WNg3tx7Ys43DGVM8n9vgrwk7OXVf-DXKg_rYIlT8Yxf4t67USwmTrUB-jBPeUen6aWJ4kJbNmxlr3lh-ENh0aS9b-zE/s1600/VPHM+long+January+2012.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 142px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj2CwMUM-ZezQxXhAhzAGvxncpFmVSKxHhyphenhyphen8ofjyjaye_UBiXi3WNg3tx7Ys43DGVM8n9vgrwk7OXVf-DXKg_rYIlT8Yxf4t67USwmTrUB-jBPeUen6aWJ4kJbNmxlr3lh-ENh0aS9b-zE/s320/VPHM+long+January+2012.jpg" alt="" id="BLOGGER_PHOTO_ID_5697852114285670738" border="0" /></a><br /><span style="font-weight: bold;">NSR: -1%/-$28</span><br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhJMBx7qHW6Red4E4nwe_oDVUQBeO32XphbrlSkPKHRDnsK9uYtelKFZ7GkNdHajXLgAj5cfGBVq-WWXSIdOPVMk38n7qrvBhhnuHwzLxk_Ae_yLLI9r8K4nTg21NKer_VMvtbesasaS0U/s1600/NSR+long+January+2012.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 142px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhJMBx7qHW6Red4E4nwe_oDVUQBeO32XphbrlSkPKHRDnsK9uYtelKFZ7GkNdHajXLgAj5cfGBVq-WWXSIdOPVMk38n7qrvBhhnuHwzLxk_Ae_yLLI9r8K4nTg21NKer_VMvtbesasaS0U/s320/NSR+long+January+2012.jpg" alt="" id="BLOGGER_PHOTO_ID_5697852112495402802" border="0" /></a>TheCarefulTraderhttp://www.blogger.com/profile/15665718506364433085noreply@blogger.com0tag:blogger.com,1999:blog-7840216062082234783.post-74670021818713782852012-01-13T03:16:00.005-06:002012-01-13T03:40:56.322-06:00Conditions ImprovingStock market did not provide a decline into the half-daily cycle low as I suspected last week. Instead it stubbornly flirts with the 1300 mark on SPX in an extended half daily cycle. What's more, yesterday SPX made a new weely cyle high, which makes it for at least 16 week top. What this means for the remaining of this bear market remains to be seen as the decline into the next weekly low develops.<br /><br />Anyway, the current haly-daily cycle is on day 16 and daily cycle on day 32. Both cycles are due for a decline in the next 5 to 8 trading days. I started to incorporate some indicators into my tarding arsenal. I've been studying several over past month or so and found stochastic(5) to be the most reliable momentum oscilator and Money Flow Index MFI(5) as the most reliable accumulation/distribution indicator. Both are just screaming for a decline. In fact, I haven't seen MFI so strongly overbought since the last bull market. A correction is due, but both indicators show strength in the market. Decline might materialize only as a 2-3 day swift drop and then quickly reach new highs. The next weekly low is still at least a month away, so there is plenty of time for another new highs attempt. However, I definitely don't want to buy anything right now. Stock market will correct very soon and shake out many week hands who are buying these "breakouts".<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEisJY87CQ9gUj1B4RJwUHgY3jfDrWLXIDc0Sm0RcWa6SyYaSfT7trgVBOjmAa3bIiOXQa32QbghYyUAWLxOgAE2GO6xFfoT7vJBRdwjbimkAFzrZgHXk7VIch-h98PDZ42zf7xvHNh9krI/s1600/SPX+daily+January+13%252C+2012.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 251px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEisJY87CQ9gUj1B4RJwUHgY3jfDrWLXIDc0Sm0RcWa6SyYaSfT7trgVBOjmAa3bIiOXQa32QbghYyUAWLxOgAE2GO6xFfoT7vJBRdwjbimkAFzrZgHXk7VIch-h98PDZ42zf7xvHNh9krI/s320/SPX+daily+January+13%252C+2012.jpg" alt="" id="BLOGGER_PHOTO_ID_5697046759384055618" border="0" /></a><br />Now on to gold. I use the exact same indicators. Gold also exhibits strength. The half-daily cycle, that usually takes 7 to 9 days, bottomed surprisingly in just six days and and gold is now flirting with 1675 resistance. It wont be breached in the first attempt, I'm almost sure about that. I expect gold will decline in the daily low sometimes in early February within the next two half-daily cycles and everything suggests it should make a significant higher high. I plan to buy the next daily low for a short term trade if MFI bottoms above 20, which would mean a lack of distribuion. However, the next daily low after this should also be a weekly low, which means that gold will probably come down to retest the 1525 area. The next weekly low should also provide the best long term buying opportunity of this bull cycle for another couple of years.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgkN17wDBt9QL4HJcj37Eg1_2O0G7Z80gQ0eYBRyCTKB49YzLeJTp-7E7a5Tr40hJ6hJBILOglPFCSIHhY42wf5Hq-tSQOQsoXaHdzcsFVhxKCo86qh7N0h7FU0etErKks4sQ847WO2b3c/s1600/GOLD+daily+January+13%252C+2012.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 251px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgkN17wDBt9QL4HJcj37Eg1_2O0G7Z80gQ0eYBRyCTKB49YzLeJTp-7E7a5Tr40hJ6hJBILOglPFCSIHhY42wf5Hq-tSQOQsoXaHdzcsFVhxKCo86qh7N0h7FU0etErKks4sQ847WO2b3c/s320/GOLD+daily+January+13%252C+2012.jpg" alt="" id="BLOGGER_PHOTO_ID_5697049256811452130" border="0" /></a><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEir4pjqKbcPbFP6CFxauHtX_VlTSX0sKFJyQ-IAKKxy344kpCxnKAmUAHuw-Ffa6GxIx35FnjZjRvxi7dulV2j9ib6c0jVISLB7nBZSGUCKQcKBmovtH7dIfDQM1uH5MgEJlH_IFQaeIVQ/s1600/GOLD+oktober+2009+do+marec+2010.jpg"><br /></a>TheCarefulTraderhttp://www.blogger.com/profile/15665718506364433085noreply@blogger.com0tag:blogger.com,1999:blog-7840216062082234783.post-66670596043975828922012-01-09T10:04:00.006-06:002012-01-13T03:42:25.681-06:00Cycles TheoryMy recent trade reviews took me a lot of time, so I haven't been able to make a decent post about the stock market and gold. I think it's time to look at where we are at the moment. I started to implement a cycle theory into my trading, so I'll devote this post to short term cycles in stocks and gold.<br /><br />On SPX chart below I've marked the daily cycle lows (blue arrow) since the last weekly cycle low (black arrow) and half-daily cycle lows (green arrow) from the last daily cycle low. The usual timing band for the shortest cycle I follow, which is what I call a half-daily cycle, is around 15 days. The current HD cycle is 13 days old and should find a bottom sometimes this week. The current daily cylcle (D) is 29 days old and should find a bottom within its normal timing band between 35 and 45 days. The weekly cycle (W) is 13 weeks old and still has plenty of time to develop as W cycles tend to last from 20 to 25 weeks on average.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEheMOPPfCj4u-wvmLrhDyIIcea-q7T28YtsQEbtj_V4wnBnqO-QsXjC82m0PB5H-8QCXul-fGPOm2G35A72LvB6KODWw1TXdF8I7UNiLKpNYpakBDLPJmuuxbica0zUpml-sv-vXy34xJA/s1600/SPX+daily+January+9%252C+2012.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 142px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEheMOPPfCj4u-wvmLrhDyIIcea-q7T28YtsQEbtj_V4wnBnqO-QsXjC82m0PB5H-8QCXul-fGPOm2G35A72LvB6KODWw1TXdF8I7UNiLKpNYpakBDLPJmuuxbica0zUpml-sv-vXy34xJA/s320/SPX+daily+January+9%252C+2012.jpg" alt="" id="BLOGGER_PHOTO_ID_5695669035423878530" border="0" /></a>My expectation for this week is that stock market will make a swift two to three day drop. How deep will it go is impossible to predict. I guess somewhere between 1225 and 1250 would be a nice level for a bottom. The bottom of the next HD cycle will also coincide with the bottom of the next D cycle, which means that the correction will be deeper. I expect the next HD cycle will top in no more than 6 days and it will not go above highs of the current HD cycle. I also expect the next D cycle will bottom above the bottom of the previous daily cycle as we now have two consecutive HD cycles with higher highs, so there is plenty of support below.<br /><br />Now, the most important question is whether current weekly cycle has already topped on week 4 at about 1290 level. I think it has. Reasons why I think so are following. First, we are in a bear market. In bear markets weekly cycles tend to top in the first 8 weeks. A later than 15 week top seems almost impossible to me. Second, volume properties simply don't suggest any major accumulation. D and HD corrections are deep, which is not typical for weekly cycles that want to reach new highs. We'll talk about this when current cycle develops a little further.<br /><br />And now to gold. The biggest question is of course whether gold has already formed long term bottom. I think not. The main reasons are two. First, gold W cycles usually last between 15 and 20 weeks. Previous cycle was 13 weeks long and if current W cycle already bottomed, it should be 13 weeks long also. Two very short cycles in a row are unlikely. Second, the rally out of W cycle should be furious. The current HD cycle we are seeing right now is on low volume and it looks like it already topped on day five, which is also not positive. I think we will see at least two more D cycles before this W cycle finally bottoms. I expect this will happen sometimes in late February or early March.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEho2cSn7xkKC_dCZ8y-RXQr0L7C7RrI6VXUVBxEgyjxr7NYrGl_4Sy8unUdg_8nRQU98v6SIbUGC-4ZsWjjmgyKGBTYCGEMpuimPU6qOdwf9w3mWEqO2SMUZrlY2JmP-iMxQl_9MdS2zps/s1600/GLD+daily+January+9%252C+2012.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 142px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEho2cSn7xkKC_dCZ8y-RXQr0L7C7RrI6VXUVBxEgyjxr7NYrGl_4Sy8unUdg_8nRQU98v6SIbUGC-4ZsWjjmgyKGBTYCGEMpuimPU6qOdwf9w3mWEqO2SMUZrlY2JmP-iMxQl_9MdS2zps/s320/GLD+daily+January+9%252C+2012.jpg" alt="" id="BLOGGER_PHOTO_ID_5695669575141613474" border="0" /></a>I know these are pretty bold predictions. I'm actually not too concerned with long term weekly cycles. Daily and half-daily cycles are useful for timing trades. I'm looking to go short both stocks and gold as soon as we get a confirmation that both still have weekly cycle lows to print.TheCarefulTraderhttp://www.blogger.com/profile/15665718506364433085noreply@blogger.com0tag:blogger.com,1999:blog-7840216062082234783.post-48916197369012965032012-01-08T06:23:00.003-06:002012-01-08T06:55:42.012-06:00Trade Review: SCSS, AMRSAnother disappointing week. I closed two trades and both of them negative. The first one is SCSS, which broke out from a nine week basing Breakthru pattern. There's not much I could say about this trade as the picture says it all. I bought a breakout above clearly defined buy point. Price made an intraday reversal, shook me out the next day and then rallied. A very painfull experience. One thing I learned from this one is that I really, really, REALLY have to set my stops a little wider. I did put it below the day of the breakout as I simply couldn't believe that such a strong breakout could reverse. But it did. A stop should've been set at least below the previous day low.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj2s9pP9OcUm3W1AJkUVcVfKi9XxNpc5hyphenhyphenwIVRWwnLAlE-BlUpaeDlIqp-pwcxe0pX4IjXWbqBYWxdZ9nzDzSFWfotL3xeMWHbDinjYaRDtJ7tX3WUhsiE6ALJYBNknav-LqVqpMt6FxaY/s1600/SCSS+long+January%252C+2012.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 142px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj2s9pP9OcUm3W1AJkUVcVfKi9XxNpc5hyphenhyphenwIVRWwnLAlE-BlUpaeDlIqp-pwcxe0pX4IjXWbqBYWxdZ9nzDzSFWfotL3xeMWHbDinjYaRDtJ7tX3WUhsiE6ALJYBNknav-LqVqpMt6FxaY/s320/SCSS+long+January%252C+2012.jpg" alt="" id="BLOGGER_PHOTO_ID_5695239054239484194" border="0" /></a>The next trade is even more confusing. AMRS made something that I call a Bottom pattern. As seen from the chart, the neckline (buy point) was clear, stock was obviously under accumulation and so I had to buy that breakout. It closed well for the first day and I expected at least some follow through up to 13 level. But the stock then simply collapsed. There is virtually nothing I could reproach to myself with this one. Except for one thing, which I'll explain in a minute.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjBVhleNUNj6Q1UF_806LFVrhnOndQ93ArvKliG5co9-80UjKRuCSWQaqhMMVD4pL2rOurl-fOacDae2Zq9J-qVCzWESI2NYX1JlWv79BedBCM09A6DNdoHPoaEGnhMPhUjgog5dKYRDxk/s1600/AMRS+long+January%252C+2012.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 142px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjBVhleNUNj6Q1UF_806LFVrhnOndQ93ArvKliG5co9-80UjKRuCSWQaqhMMVD4pL2rOurl-fOacDae2Zq9J-qVCzWESI2NYX1JlWv79BedBCM09A6DNdoHPoaEGnhMPhUjgog5dKYRDxk/s320/AMRS+long+January%252C+2012.jpg" alt="" id="BLOGGER_PHOTO_ID_5695239056065102994" border="0" /></a>These two losing trades from seemingly well defined patterns and well executed buys forced me to rethink my strategy a little bit. I mean, if good patterns with good buy points and well set stops don't work, what will work then?? I found my answer in the current market environment. Please see the chart below. I've plotted Nasdaq chart with a Dow Jones index line in the background. It is clear that market is obviously being dragged up by only a handful of large cap stocks included in Dow Jones. When Dow leads this is not a time for momentum trades. I mainly trade small cap stocks that experience some momentum, but there is just not any momentum in this market.<br /><br />And the second mistake is something I've already made in the past. I tried to buy breakouts on a big gap up day on indexes. My experience tells me that gap ups in a short term uptrend usually mean a short term top as many traders sell into these gaps. But still, I was ready to forget this experience and buy. It cost me, but the lesson was here.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjuiqeckqcwTNGDVLQlY69-6Fg7wSR85aZR19pogGdH4eZ7getVMiJmK-WH_ECaWdCBYnrcCJLgW7QqV8E5Wf7w5wu52Ye9W5Ve9iPzoXTfmrfWASXjmyF9GtvvKf12Mprq93yqVZpz9io/s1600/COMP+daily+January+5%252C+2012.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 142px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjuiqeckqcwTNGDVLQlY69-6Fg7wSR85aZR19pogGdH4eZ7getVMiJmK-WH_ECaWdCBYnrcCJLgW7QqV8E5Wf7w5wu52Ye9W5Ve9iPzoXTfmrfWASXjmyF9GtvvKf12Mprq93yqVZpz9io/s320/COMP+daily+January+5%252C+2012.jpg" alt="" id="BLOGGER_PHOTO_ID_5695242924247470402" border="0" /></a>I've also come to a conclusion that something is missing in my market direction/timing system. It is the obvious fact that market moves in cycles. I constantly look for confirmations of trend reversals before buying and this strategy constantly forces me to chase the market. The first task for the new year is so to determine some sort of cyclical timing tool both for stocks and gold. If I have time later in the day I'll try to explain why I think everything is now set for the decline in the stock market. Which makes me a little bit nervous as I still hold a handful of positions. Any strength on Monday will be sold.TheCarefulTraderhttp://www.blogger.com/profile/15665718506364433085noreply@blogger.com0tag:blogger.com,1999:blog-7840216062082234783.post-46164476298294559982012-01-02T00:09:00.000-06:002012-01-02T06:09:40.870-06:002011 Lessons<span>Year 2011 completed my second year of actively trading the US stock market. I have no other choice but to admit that I am disapointed with my performance. After two years I am about 5% negative. And there is only one thing that makes me still keep a positive view of the future. It is the recent realization that trading stocks is not a game. It may be compared to a sport, a business, a professional hazard in a casino ar at a poker table. But it is definitely not a game. Whoever treats it as a hobby, some late afternoon activity to overcome boredom, will only lose money. I've read many stories about highly successful traders that haven't made a single penny for years and blew up several accounts, before they finally started to make something out of their trading. Trading, as any other activity that needs to be mastered, will take its tuition. There is just no other way. One has to invest a lot of time and money before he can realistically expect any minor success. This is the aspect I've been consciously ignoring for quite some time. I thought trading stocks is as easy as reading a book from some trading wizard, applying his strategy and counting profits. But it goes way beyond that.<br /><br />That's why I thought it might be a good idea to make a list of lessons I learned in 2011. If one cannot critically look on his own mistakes, he cannot correct them. I've made plenty of mistakes. This will probably be one of the most important posts I'll ever write as I'll try to expose all my trading weaknesses I've observed in the past two years and provide possible solutions on how to improve them. These lessons will lay out the foundations of my trading philosophy for at least another year.<br /></span><span style="font-weight: bold;"><br />Money management is the most important aspect of trading<br /><br /><span style="font-weight: bold;"></span></span>From the beginning of my trading "career" about two years ago I have applied one painfully simple rule that has prevented me from getting into real trouble. I was always so afraid of seeing a big loss on my account that I almost automatically sold all my losers fairly quickly. Later on as I read several books about successful traders I got a confirmation that cutting losses is absolutely necessary for a long term success. There is an old proverb on Wall Street: "Cut your losses and winners will take care of themselves." And I thought I'll just have to stick to this one simple rule and let winners fly. Well, the truth is a little bit different.<br /><br />Sound money management goes much further than just cutting losses. Selling small losers before they turn into big loosers is essential but far from enough. You can cut losses but if you get too aggressive when conditions suggest passiveness and not aggressive enough when there is momentum in the market, you simply won't have any significant profits at the end of the year. Period. And this is exactly what happened to me this year. I was nicely up on several occasions, but gave all my profits away soon after conditions changed. On the other hand, when there were opportunities, I was afraid to step in because of my previous failures. I finally figured out that I need to develop some sort of money management rules, that will serve three purposes:<br /><ol><li>Prevent me from making a big loss.</li><li>Pull me into the market as conditions improve.</li><li>Take me out of the market as conditions deteriorate.</li></ol>Most of my analysis in the last quarter of 2011 has been devoted to development of money management strategy. I took my Market Timing System (MTS), which is basically a buy/neutral/sell signal system based on action of leading market indices, developed a Market Stage System (MSS) to determine the overall market trend and applied several new techniques and money management rules to them and got something that I call a Market Risk System (MRS). Fro details about these systemy please see Terminology page. I bet to say that the best thing I did all year was implementing MRS into my trading strategy in the past month or so. If I hadn't I'd probably be in real trouble by now after a series of loosers that I had due to the extreme volatility in markets. Maybe I'll discuss MRS in detail in some other post after I test it in the market.<br /><br /><span style="font-weight: bold;">I need to develop my own system<br /><br /></span>I think most beginner traders (me included) believe that all they have to do is find some guy that knows how to do it, who provides a free blog or a paid service, follow his recommendations and make money. Sounds logical, right? I'll try to clearly explain why this is not possible or very, very unlikely at least.<br /><br />Every methodology has it's drawbacks. Every. There are no exceptions. Most extremely seuccessful traders admit that their percentage of winning trades is no higher than 50-60% on average. So, we can conclusivelly presume that the best paid services will have batting average no higher than 50%. Now, with this "fact" in mind the beginner trader's assumption doesn't look so promising any more, does it? But there is more to this than just winning percentage.<br /><br />First major problem with following someone else's advice is character clash. Every person is different. We all have our own sense of reason. We, humans, the ego-based creatures, cannot do something that doesn't sound reasonable to us. At least not for very long. We like to make it our way. We like to believe our way is the only right way. Maybe this sounds a little bit too philosophical but it's true. The point is that most traders won't be able to follow someone else's advice without soon starting to incorporate their own rules. Which basically means they will come up with a different strategy. This may not be bad, but it should be clear that eventually every trader should develop his own system that makes sense to his personal view of reason.<br /><br />Second problem with advice based trading logically follows from the first lesson about money management. You can get the best buy and sell signals on the best stock picks in the world, but you won't make it into a consistently profitable trading unless you follow some sound money management rules. And that's the main problem with all paid services. They may provide high quality stock picks, but the money management principles are on your own. And it is the same with money management as with stock picking. Every trader will have his own reason behind it. They go hand in hand. Stock selection strategy must be supported by money management, designed specifically for that strategy. You cannot simply copy it from some other trader. You can take a template from someone else and follow it for some time, but eventually you will start adding your own personal ideas and finally come up with a completely unique method. The need to develop my own system for buying, selling and money management has become crystal clear to me this year.<br /><span style="font-weight: bold;"><br /></span><span style="font-weight: bold;">Profits won't take care of themselves, you have to take them<br /><br /></span>Human beings are greedy bastards. I'm human being, so I am greedy. When I have nothing, I want something. When I have something, I want more. When I have more, I want even more. You probably know how this progression continues in trading, right? When I have even more, I want even even more, and so on. Right? Well, wrong! In trading the progression goes on like this: when I have more and I want even more, I get back to something. Then I want more back again. As I want more back again, I go back to nothing. As I have nothing, I want at least something back. In the end I have to give away. That's how it goes.<br /><br />I couldn't get rid of this bug in my head for two years. But after a serious reconsideration of my past trades I finally accepted that I absolutely must turn that "I want more" into "I'll take something off" and "I want even more" into "I have enough". Selling stocks at the right time is ten times more important that buying them at the right time. Selling is one critical aspect of good money management strategy and cannot be left to chance. I could not take profits and watch the stock make another 20% from where I sold it. It was heartbreaking. I was so afraid of leaving money on the table that I just could not sell when I knew I'd had to. And this mentality cost me a lot of money. In short: YOU HAVE TO TAKE PROFITS! Yes, you will always leave some on the table. Always! But this is a simple fact of trading that every trader has to accept otherwise he has no chance of winning this game.<br /><br /><span style="font-weight: bold;">Buying breakouts into new highs is not the only viable strategy</span><br /><br />The first book on trading I read was <a href="http://www.amazon.com/How-Make-Money-Stocks-Winning/dp/0071614133">William O'Neil's How To Make Money In Stocks</a>. This is probably one of the top 3 bestselling books on trading of all times. Many traders worship it like a Bible. And there is no question it is of extremely high quality. It's been my personal trading guide for almost two years also. I highly recommend it. What O'Neil essentially promotes is buying breakouts to new highs from at least six week long tight bases. I consider this as a sound strategy and I've tried to trade these kind of setups for quite some time.<br /><br />However, there are some very obvious limitations to this strategy. Obvious in hindsight, of course. I haven't been able to see them for a long time, due to my firm believe in Mr O'Neil. The first one is that too often the best stocks with the most momentum and thus short term potential simply don't make constructive, buyable, several week long bases. This is is especially true in later stages of a bull market when everything is kind of sloppy and choppy. This has been my observation in the last year. During the whole year of 2011 I've been able to find maybe 15 to 20 stocks that would be potential buy candidates according to O'Neal rules. Most of them failed soon after the breakout as smart money sold into increased deman. Opportunities for long base breakouts just weren't there.<br /><br />Secondly, as I said, breakouts to new highs tend to become more risky as the bull market comes to later stages. O'Neal promotes capitalizing on stocks mostly when the new bull market develops from the bear market and holding them for several months. This would basically mean sitting on cash through every bear market, until new bull market develops. In case you miss it, well, wait for another correction again. Holding time for this strategy is way too long for me. I like to be a little more active. Besides, buying the wrong stocks can ruin your year as you sit with names going nowhere. All in all, I started to believe this may not be the best approach for me.<br /><br />The point is that buying breakouts to new highs only works in very specific market environment on very specific kind of stocks. I was a believer in O'Neil for a long time until I finally realised stocks can be traded in other ways also. This realisation forced me to sit down to charts again and make some analysis what else could be traded beside breakouts to new highs. Eventually I've discovered several patterns that looked promising and also uited my character better.<br /><br />The basic tenet behind all my patterns is their short term potential. I really don't have patience to hold stocks for three months, watching them drift slowly higher day by day. I like to be involved on a daily basis. Momentum is thus critically important. And momentum is in small stocks. I don't enforce any limitations regarding price, but most stocks that pop up on my screen are priced between 3 and 20 dollars. And best of all, the six patterns I've identified are all contextually different, meaning that they develop in different market environments. For a thorough description of patterns that I trade, please see Terminology document under Contextual Patterns.<br /><br /><span style="font-weight: bold;">Other<br /><br /></span>So, I think these four lessons were the biggest eye openers for me in the past year. But there were many other important lessons, that I will just briefly mention:<br /><ul><li><span style="font-weight: bold;">A system for determining market direction</span> <span style="font-weight: bold;">- </span>for a long time I tried to approach the general market analysis in discretionary was, meaning I had no mechanical rules to determnie market direction. This year I finally developed a more mechanical system that prevents me from inducing my personal bias into market signals.</li><li><span style="font-weight: bold;">Don't chase -</span> another problem that I could not get rid of. Chasing stocks can be translated into "getting into poor position immediately after breakout". I was often more afraid of missing an excellent opportunity than afraid of taking a loss with a bad stop, which was costly. If you miss the breakout, leave it!</li><li><span style="font-weight: bold;">Don't buy before breakout -</span> anticipating a breakout in fear of missing it or a gap up maybe sounds rational, but from my experience this is a recipe for disaster. Many breakouts simply never happen and many make that final shakeout that kicks you off right before stock really launches. Plain and simple, always wait for a breakout!,<br /></li><li><span style="font-weight: bold;">Set stops wide enough -</span> my obsession with taking only very small losses has brought me to extremism in setting stop losses. In most cases I set them way to tight, not aloving highly volatile stocks to breath in their normal rhythm. Yes, stops need to be tight, but not too tight. ,<br /></li><li><span style="font-weight: bold;">Take small positions -</span> greed and belief into a great setup can easily make you to take irrationaly big positions. This may work sometimes, but in the long run, it will make more damage than money. Simply, don't do this. Have the upper position size limit.</li><li><span style="font-weight: bold;">Set targets -</span> another mental trick that market plays upon inexpirienced traders. I never wanted to set targets for open trades. My excuse behind this was that I want to let my profits run, so I must not sell to soon. Well, the question here is, when will you sell then? Never? When it turns back down? I realized that setting targets is a virtue that is better be mastered if I want to succeed. This is the area I still have to work on.<br /></li><li><span style="font-weight: bold;">Analyse past trades -</span> I'm a pretty lazy guy and I never really felt like analysing all my past trades. I never thought I could learn much from them. Well, I totally switched this view after doing just a couple of such analyses. I learned more from them than from any book I read. That's why I started to make detailed reviews of all my trades, good and bad, on this blog.</li><li><span style="font-weight: bold;">Use buy stops - </span>another weakness of my character. I buy breakouts. What it's very hard for me to do is to buy immediatelly the price trades above my trigger price. I simply wanted to see a "confirmation" first. I wanted it to trade just a little bit higher. I wanted to see some increase in volume, and only then I will place an order. Well, the painful truth is that this is just not the right approach for trading breakouts. By the time I get my confirmation, I'm already late. I'm chasing. I cannot set a safe stop. I will have to get used to placing buy stops. Some of my buys will fail, no question, but I believe buying the right stocks at the right time and setting a safe stop will more than pay-off for those faulty buys.<br /></li></ul>TheCarefulTraderhttp://www.blogger.com/profile/15665718506364433085noreply@blogger.com0tag:blogger.com,1999:blog-7840216062082234783.post-27975202956034165192012-01-01T11:16:00.004-06:002012-01-01T11:53:07.091-06:002011 Wrap UpI thought I could make a short post at the year end to discuss 2011 action in gold and stocks a little bit and to present my expectation for the first quarter or so of 2012.<br /><br />There is one interesting observation I made while analyzing chart of SPX. It closed the year almost exactly at the price where it opened one year ago. The gain in stocks last year was a flat zero. I think the recent development in broad economics has brought us to the stage when buy and hold approach style of investing into stocks will fail miserably. Every rally in US stocks in last two years has been driven by some political factor, like printing more money to support investment of banks. The main property of such rallies is their lack of longevity. If there is no new technology which would start new wave of hiring and money making from production, there is simply no way we can expect any of these rallies develop into a bull market, like one we witnessed in late 90's.<br /><br />Thus I still fully expect the year of 2011 was just one giant topping process before a 2012 bear market. I have no clue on earth how long and how deep will it take to bottom, but the first half of 2012 should have a strong downside bias. I don't expect anything near to a 2008 plunge, but correction should still be quite dramatic, taking at least 40% off from current levels.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhOdcKzRijQLIJqBglcmoJY2FHS9lWXtOPuzJ4FYm0VDlE0d1S-FmKibJv8P17TVVyjS2IgnW0pFsvtfxw1RZROmANMmo3PIBl9ndTPx-CWgysNrgZEqO2Qwk19CZD50lAwr3jA7EBJ4B0/s1600/SPX+weekly+January+1%252C+2012.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 142px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhOdcKzRijQLIJqBglcmoJY2FHS9lWXtOPuzJ4FYm0VDlE0d1S-FmKibJv8P17TVVyjS2IgnW0pFsvtfxw1RZROmANMmo3PIBl9ndTPx-CWgysNrgZEqO2Qwk19CZD50lAwr3jA7EBJ4B0/s320/SPX+weekly+January+1%252C+2012.jpg" alt="" id="BLOGGER_PHOTO_ID_5692714033264215682" border="0" /></a><br />Gold has clearly completed it's cyclical bull market that lasted from 2008. The easy money times in gold are over for some time and anyone buying "every dip" will probably get completely discouraged until this cyclical bear finally bottoms.<br /><br />I've been drawing the green and pink trendlines for months now. I expect gold will end its correction on one of those lines, although I am about 90% convinced it will go below the green line. People tend to think that gold is a safe haven when stocks go down, but the massive liquidation event of stocks and gold in 2008 prooves that this is simply not true. If stock market really goes haywire, it will almost certainly take commodities down also. So, I expect gold will bottom in March or April 2012 as stocks complete their second stage bear market correction. In 2008 bear market gold bottomed six months before stocks and it should be the same this time also. As stocks will probably work their way into the third bear phase, gold should consolidate during this period, setting the stage for another cyclical bull market, that should take price of an ounce of gold up to 5000s area. I base this projection on development of past cycles. But then again, this is a bull market. The final stages of all bull markets tend to dwarf even the most optimistic predictions. So, no one should be too surprised if we see gold trading above 10000 three years from now.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhXUaeES7jcpdImctaJG-F1xkJIi0EmaK3yjhf9qkLtxPnWkt-Y8rB5WoCP0DZEs7iTMN-ATXriaS4TfLlLh2mZyHMffEODn_nMOMEvXunqBAJmYbiah7xYwmtHlItvAZM6NZSDRBlZIR8/s1600/GOLD+weekly+January+1%252C+2012.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 142px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhXUaeES7jcpdImctaJG-F1xkJIi0EmaK3yjhf9qkLtxPnWkt-Y8rB5WoCP0DZEs7iTMN-ATXriaS4TfLlLh2mZyHMffEODn_nMOMEvXunqBAJmYbiah7xYwmtHlItvAZM6NZSDRBlZIR8/s320/GOLD+weekly+January+1%252C+2012.jpg" alt="" id="BLOGGER_PHOTO_ID_5692714038165868514" border="0" /></a><br />My long term strategy for 2012 is simple. First of all I want to preserve my capital in face of weak markets. I have no intention to trade heavily into any direction in any instrument. The real money will be made when stocks and gold bottom and start their next cyclical bull run. It will surely take a lot of patience, but it should pay off heavily. I would also like to say a word about shorting. Everyone knows stocks are in a bear market. Everyone is talking about shorting indices or individual stocks is a way to go strategy in the next couple of months. But from my experience shorting is an extremely difficult task. Permabears consistently get dissapointed for that rare instances when everything lines up for them. I do plan to take some positions in inverse stock market indices ETFs, but they will be small, and everything will have to look just perfect for a bearish setup.TheCarefulTraderhttp://www.blogger.com/profile/15665718506364433085noreply@blogger.com0tag:blogger.com,1999:blog-7840216062082234783.post-81117796039869419022011-12-31T10:00:00.004-06:002011-12-31T10:23:28.223-06:00Trade review: GTIV, MNII think I'm getting a little bit mentally screwed up after the series of losing trades in past two weeks. This week I made two trades and made the same mistake on both, raising my stops too early. I really don't want to see any additional loosers, so I tend to raise my stops way before there is even time to do so, which of course is a sign of bad mental state.<br /><br />The first stock that I closed this week was GTIV. I bought it from absolutely perfect Squat pattern. For a description of all patterns please see Terminology page. Buy point was 6.35, but I got in a little bit late at 6.64, which was the first big mistake. The second was setting initial stop below buy point, but not below of the day of the breakout. The stock then rallied on low volume and I did not take advantage of that breakout above 7, where I should've take some profits, locking in my stop loss risk. Stock then reversed, fell below 7 and I got scared it could go into negative during this low volume pre holiday trading. So I raised my stop and got stopped out on two occasions with just a minor profit.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEikQ-xvHXaQ1jpCUkBifjvxVprx8-Reh21vC0VCKL3b_0IlatrVEi3bY-ng2rpJVf2C5GK5e1kt04qY_LOMcYrlSZKttmOxL9U49zT3Bssi-iu9TAt7oXw3zO0hK2A32XrHBeoa7Mtc8AE/s1600/GTIV+long+December+2011.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 142px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEikQ-xvHXaQ1jpCUkBifjvxVprx8-Reh21vC0VCKL3b_0IlatrVEi3bY-ng2rpJVf2C5GK5e1kt04qY_LOMcYrlSZKttmOxL9U49zT3Bssi-iu9TAt7oXw3zO0hK2A32XrHBeoa7Mtc8AE/s320/GTIV+long+December+2011.jpg" alt="" id="BLOGGER_PHOTO_ID_5692324235598771458" border="0" /></a><br />Looking at a stock at this time it is still acting very well. It is testing its buy point, which is a normal behavior and it is still poised to go up to 8, where I would look to sell. So the biggest mistake behing the GTIV trade was late entry, consequentially illogical stop and a poor position after the pullback, which, taking my bad series in account, made me to raise stops without any need to do so. I also should've locked in some above 7, taking in at least my stop loss risk out, which would allow me to leave my initial stop where it is without any fear of loosing.<br /><br />Next is MNI with a Launch pattern. The main problem with all these Launches is that they are very hard to buy at exactly the right time. Buy point usually is not clear, because consolidation often happens way below recent high. So I bought it on a breakout above 2.25, a little late entry again at 2.31, but not that late. It was still a good buy and stokc rallied almost immediately. And then again, the exactly same mistake as with GTIV. Stock rallied a little bit and I started to raise my stop in fear of price turning around into a loosing trade. So I naturally got shaken out on first decent pullback, while the stock is still looking just fine and poised to somewhere between 2.75 and 3, where I would look to take profits.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgW4epYDUNd__ePjXBBUEVWs9zBwVeJZOM0k7G-M4xOzjxpeGwzzmXuT6AW5uw65P8GnOTDPttYGPEx3XS74TtB3gvjQfaNx82SCXcc35xAojI-XCS9Oazrn59yVr58txtOFuPMHX97YEY/s1600/MNI+long+December+2011.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 142px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgW4epYDUNd__ePjXBBUEVWs9zBwVeJZOM0k7G-M4xOzjxpeGwzzmXuT6AW5uw65P8GnOTDPttYGPEx3XS74TtB3gvjQfaNx82SCXcc35xAojI-XCS9Oazrn59yVr58txtOFuPMHX97YEY/s320/MNI+long+December+2011.jpg" alt="" id="BLOGGER_PHOTO_ID_5692324240010556114" border="0" /></a>While making just a couple of these trade reviews my bad habits soon started to strike into my eyes. I always seem to be making the same mistakes, which is buying late as I wait for price and volume confirmation of a breakout, consequentally setting illogical stop and then raising stop without any particular reason to do so as price pulls back. I'll make a short review of all these lessons in a separate post as I think they're worthy of taking a closer look.TheCarefulTraderhttp://www.blogger.com/profile/15665718506364433085noreply@blogger.com0tag:blogger.com,1999:blog-7840216062082234783.post-17552547016298999862011-12-25T08:08:00.008-06:002011-12-26T03:56:07.709-06:00Trade Review: DXD, FSLR, DEXOA bad week for me. I closed three trades, all of them negative.<br /><br />The first trade was DXD long, which is a double inverse DJIA ETF. After market broke down from bearish flag I anticipated SPX would come down to at least 1175, where I would look to cover. But market reversed the next day, so I had to take a loss on this one. Meanwhile I opened some long trades and I expected shorting a market would be a good hedge if indices go down.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhXlvosLXPdYrRJuCBgeHyEY5JzsAXclJv68hUeMc1eztzRUsp2jIORdRIUec6sRFvKIzmv91V0SIs3yrYwlM8G942ttYKYmUSa2Vi19780415nuJ6S8gtFQcgm0wg_lHFFc4nPJrupFNw/s1600/SPX+daily+December+23%252C+2011.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 142px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhXlvosLXPdYrRJuCBgeHyEY5JzsAXclJv68hUeMc1eztzRUsp2jIORdRIUec6sRFvKIzmv91V0SIs3yrYwlM8G942ttYKYmUSa2Vi19780415nuJ6S8gtFQcgm0wg_lHFFc4nPJrupFNw/s320/SPX+daily+December+23%252C+2011.jpg" alt="" id="BLOGGER_PHOTO_ID_5690068649352451906" border="0" /></a><br />Here is how the actual trade took place:<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiSKgb8cRkdZHZeb9OdkWDSzg2VSBzT_R1oOy1-K6Cx0hI37sSkUvM52JXr-n9FFTPhUhyphenhyphenXCrXn0Ip1TvOqAVPIG4tpqJt9iRYlcCq7f1s9AJkkG_8plCbT8WaRiiRPVmkKoBdsVEO80xI/s1600/DXD+long+December+2011.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 142px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiSKgb8cRkdZHZeb9OdkWDSzg2VSBzT_R1oOy1-K6Cx0hI37sSkUvM52JXr-n9FFTPhUhyphenhyphenXCrXn0Ip1TvOqAVPIG4tpqJt9iRYlcCq7f1s9AJkkG_8plCbT8WaRiiRPVmkKoBdsVEO80xI/s320/DXD+long+December+2011.jpg" alt="" id="BLOGGER_PHOTO_ID_5690068655339731394" border="0" /></a><br />My next trade was FSLR. This stock made a pattern that I call a "Bounce". A Bounce is basically short term bottoming pattern. After some sort of a shakeout stock bounces off lows, creates a very brief consolidation area and then breaks out, rallying for 1 to 3 days on a short squeeze.<br />I bought abreakout above 33.30 resistance area and thought FSLR will easily reach previus gap down resistance at 37.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEga9iDcan1XDGxYbD_Cwo-CHRA_YvKK7uVFcViT_-uB0H4fZzOayiYRiU_7GO5lNZmEA0Z8yankct2pVXlnq-yTbSGsL0cntEmPxXCulYqVvyuHKv1U9umd9SiulWGS0qt4t2HP95tUJgA/s1600/FLSR+long+December+2011.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 142px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEga9iDcan1XDGxYbD_Cwo-CHRA_YvKK7uVFcViT_-uB0H4fZzOayiYRiU_7GO5lNZmEA0Z8yankct2pVXlnq-yTbSGsL0cntEmPxXCulYqVvyuHKv1U9umd9SiulWGS0qt4t2HP95tUJgA/s320/FLSR+long+December+2011.jpg" alt="" id="BLOGGER_PHOTO_ID_5690069408630524434" border="0" /></a><br />And stock is actually still poised to go there. But as seen from the intraday chart below (for intraday charts I have to use my trading platform) I got shaken out on a wild swing down as I raised my stop. Now, there's not really that much more I could say about this trade as a bad luck. My entry was a little bit late and my stop was probably too tight but the stock simply collapsed after it touched 36 mark. I definitely should've bought earlier, but I would still get shaken out on that ugly drop. So the lessons from this one are don't chase breakouts and have a buffer for stop loss. Which I did have, but not enough.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi3iQNUin4gzOMrW9r5iMnvjdWdIdtbP6_cqAxev35E8IySjEJ02TdLDc1zshrinvHS8FrZS3HRsyR_WGX384yz6LicfcMQpuYlM1Uthwja8a2mrU8ypTQ1Y8427xHg5qMGNms_2i_luNo/s1600/FSLR+intraday+December+23%252C+2011.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 204px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi3iQNUin4gzOMrW9r5iMnvjdWdIdtbP6_cqAxev35E8IySjEJ02TdLDc1zshrinvHS8FrZS3HRsyR_WGX384yz6LicfcMQpuYlM1Uthwja8a2mrU8ypTQ1Y8427xHg5qMGNms_2i_luNo/s320/FSLR+intraday+December+23%252C+2011.jpg" alt="" id="BLOGGER_PHOTO_ID_5690069411546808258" border="0" /></a><br />The last trade is DEXO, which is an intraday copy of FSLR. But DEXO was a really bad trade. I'll explain why.<br /><br />I have a pattern which I call a "Launch". Every once in a while I find a stock in a solid downtrend, suddenly shooting up from the ground, like a rocket ship from the launch pad. Often Launch pattern develops in several stages. As seen from the daily chart below, DEXO was in its fourth consolidation phase from its absolute low in October and stock was alreaady up 500% since then. I've been watchnig this stock during this last consolidation and firmly believed it can make another move up. But this was flawed thinking. Fourth stage bases are way too obvious to everyone. Also, DEXO experienced a significant climax top on November 29, when price gapped up and was falling all day long on huge volume. The third problem is that this is clearly a pumped up stock. There are many traders shorting it on every rally. So, all in all, I made plenty of mistakes with this one.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhaNsP32AXbU7NE7PE2tSHzKEYXfAolR6SU9j1oIiG0mi6h7AuKL0Z8zuUuPQxZZJHcWaRpXuHdLcgov01T0trjGH2TYABbIqHMXgdX3_-cry0AUNf4tpEb3bJMfhUZoQ5RQRkhorqbirI/s1600/DEXO+long+December+2011.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 142px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhaNsP32AXbU7NE7PE2tSHzKEYXfAolR6SU9j1oIiG0mi6h7AuKL0Z8zuUuPQxZZJHcWaRpXuHdLcgov01T0trjGH2TYABbIqHMXgdX3_-cry0AUNf4tpEb3bJMfhUZoQ5RQRkhorqbirI/s320/DEXO+long+December+2011.jpg" alt="" id="BLOGGER_PHOTO_ID_5690093050603142658" border="0" /></a><br />An intraday chart revealy pretty much the same picture as FSLR. I bought the breakout above intraday resistance and immediately price crashed, hitting my stop.<br /><br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjkjMSUDW8iSNBYLZaK8CuVFQxeRjfYrAqXSDxKekok_h5odkmkShXIw_VgY7avnVFMN2_vCFvHQh4DcSIeYo579qUDr9S6DI69Ihw0FD3ZfVSU0y8m1sp-FD0DK8-CsqYwPKBOs5URE_o/s1600/DEXO+intraday+December+23%252C+2011.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 200px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjkjMSUDW8iSNBYLZaK8CuVFQxeRjfYrAqXSDxKekok_h5odkmkShXIw_VgY7avnVFMN2_vCFvHQh4DcSIeYo579qUDr9S6DI69Ihw0FD3ZfVSU0y8m1sp-FD0DK8-CsqYwPKBOs5URE_o/s320/DEXO+intraday+December+23%252C+2011.jpg" alt="" id="BLOGGER_PHOTO_ID_5690093054157963986" border="0" /></a><br />And finally, the biggest mistake I made the last week was trading momentum stocks into the holidays. Experience tells that days before holidays tend to be dull low volume days. Of course, market may day drift higher all the way to the year end, but we cannot expect any serious momentum develop. If I find any good setups to trade I'll probably have to use wider stops than I used to.TheCarefulTraderhttp://www.blogger.com/profile/15665718506364433085noreply@blogger.com0tag:blogger.com,1999:blog-7840216062082234783.post-51939702326959499812011-12-18T11:38:00.000-06:002011-12-18T08:14:22.472-06:00Trade Review: NTSP, UUPI decided I'll start making weekly reviews of my trades. Analyzing market indices is whole lot of fun, but the real-life action is going on in stocks, so I guess these reviews will be a much more interesting read. Also, I believe making detailed reviews of all my trades, winning and losing will help me observe and overcome my weaknesses and become a better trader. So, I'll make an effort to be as critical to my trades possible, even on the risk of making a complete idiot out of myself.<br /><br />First of all a little introductory word about my trading strategy. I'm basically a momentum-swing trader, meaning that I trade stocks which I expect to move quickly, in a matter of no more than five days, into a wanted direction. Some of my trades are day trades and some last for several weeks, but most of trades will be closed in less then a week. I mostly trade on the long side, but will do occasional shorts if conditions tend to be favourable to bears (as they are now). Stocks are my number one trading instruments, but will do occasional trades in commodities, especially gold and silver, and currencies, such as US dollar.<br /><br />In general I trade six bullish patterns which I've analyzed and found them to be the most consistent ones for quick swing trades. They are not chart patterns in a sense that most traders understand patterns (i.e. cup with handle, triangle, double bottom, channel, etc.), but are more like contextual patterns. This means that they describe a context, or a cycle/stage/phase, the stock is currently in. A stock can be in solid uptrend, basing, bottoming, etc. I've even made up some stupid names for them. I call basic batterns Bounce, Squat, Resurrection, Launch, Breakthru and Runaway. Some of these patterns can also have continuation patterns, a second stage buy points, which have been named also. I won't bother explaining the mechanics of each pattern in this post, but will rather explain every pattern in a real-life example of a trade, when it occurs. OK, enough talking, let's do some trading!<br /><br />The first trade I closed this week was NTSP. This was actually a pretty unfortunate one as I got stopped out with a loss, only to see the stock rally from that point on. But, frankly, I made several mistakes in this trade. NTSP was a Resurrection pattern in its basic form. A Resurrection is a bottoming pattern. As the name implies, the stock is somehow being resurrected after being beaten down. After a several mont long downtrend, stock starts to make a bottoming base. When these patterns break out, they can produce some very nice gains in a very short amount of time.<br /><br />So, after being pushed down for several months, NTSP started to bottom in August 2011 and built a nice ascending triangle in the next four months, with a very, very clear buy point at $6.50. This is a picture perfect resurrection pattern. The basic definition is that stock must consolidate for at least two months, provide a clear buy point, should not rally too much from the lows and, ideally, shouldn't have any upside resistance anywhere near. Everything lined up for NTSP to go up to 8 and probably even higher.<br /><br />Now, the main problem is that I found stock on December 1, only after it has already broken out od the pattern. It was too extended to buy back then. I also didn't buy pullback to the buy point the next day, since I don't trust stocks that pullback immediatelly after the break out. Stock than built a very tight flag pattern with a clear buy point at 7. It even produced a little shakout right before it broke out. I bought this breakout and got shaken out the very next day as stock gapped down a little bit and fell below muy stop loss at 6.97. What happens next is seen from the chart.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjAy5Jqnlrn9L_ZFI90ZVy-2UPwXDXADTCLqYoeaDKXjGTOY9ePYpCR8B9QlFixii92x2PsHCcBcHDmpCUWpcfUawtKz8k9RBltFZS-_95a4k-BPYKLod__AyNn2ljIT9v8s5ziab0gN-I/s1600/NTSP+long+trade+December+2011.JPG"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 144px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjAy5Jqnlrn9L_ZFI90ZVy-2UPwXDXADTCLqYoeaDKXjGTOY9ePYpCR8B9QlFixii92x2PsHCcBcHDmpCUWpcfUawtKz8k9RBltFZS-_95a4k-BPYKLod__AyNn2ljIT9v8s5ziab0gN-I/s320/NTSP+long+trade+December+2011.JPG" alt="" id="BLOGGER_PHOTO_ID_5687471009224398178" border="0" /></a><br />So, what were mistakes I made in trading NTSP. There were many. First of all, buy point from Resurrection pattern was 6.5 dollars. Period. I should've located the stock earlier and buy that breakout. Secondly, my stop was flawed. A safe stop should've been put below the day of the breakout at around 6.75. I bought too late at 7.20 and was forced to put a stop right beneath 7. Which is not bad for a breakout from Resurrection pattern. But what I bought was not this pattern. It was a second stage short term base and these tend to produce a little bit more wiggling as the breakout point is not that well determined. Third, in a hurry to buy I actually miscalculated my position size. According to my money management rules I shouldn't have bought no more than 500 shares, but it looks like I mistyped some number in my money management calculator and got 700 shares. And the fourth mistake. Market was pretty shaky lately. My position in NTSP was way too big for these kind of market environment when indices threatened to produce a sell signal. I don't regret buying the stock at all. I would make the same if I had the same opportunity. But simply, I should've bought less shares earlier with a less stringent stop. That's it. Learn from mistakes.<br /><br />The second trade was UUP, which is a US dollar ETF. Now I don't generally trade currencies, but this time I decided to make an exception. I'll explain why. US dollar bottomed in May 2011 and started a real rally in September. Such long term bottoms don't top just like that. Dollar is still in a long term downtrend, but the action seen in past few months suggests some sort of relief rally is under way. The first rally produced a very deep pullback, scaring most weak holders to sell I guess, and then made an extremely right translated cycle. Right translated simply means the time between the start of the rally is much longer than the time from top to the next bottom. The ratio in this case is 20 to 4. Right translated cycles make higher highs in most cases, so I bought a confirmed swing low.<br /><br />Dollar is a very slow mover, so my position was almost 3 times my normal position. I sold everything five days later on a gap into new highs. Why? Just because dollar is in a long term downtrend, because gaps to new highs are often signals of double tops, which is still a probability, and because I had a pretty nice profit with a strong three day rally, which I did not want to waste. So, this was a very well timed trade from buying and selling standpoint in my opinion. The only mistake I made is that I traded a currency, which is not my specialty. But, as I said, stock market was getting weak and I wanted to have some sort of a hedge in case I screw up long stock trades. Which paid off perfectly this time as I was still able to close the week positive in spite of a loss on NTSP.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjpvG6coMm9ZBCpudQfsqQBq292chIdRksUlUzHGFMAlI-HcsiKLg4pcFkDlTIoaqqWUCMUPPCzWvIaLJcg68t0SCG5-5OdXZta3OtVCeEgSXcdz5Snmxv2y3PGhHHYmHNpChYfeL54RuM/s1600/UUP+long+trade+December+2011.JPG"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 144px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjpvG6coMm9ZBCpudQfsqQBq292chIdRksUlUzHGFMAlI-HcsiKLg4pcFkDlTIoaqqWUCMUPPCzWvIaLJcg68t0SCG5-5OdXZta3OtVCeEgSXcdz5Snmxv2y3PGhHHYmHNpChYfeL54RuM/s320/UUP+long+trade+December+2011.JPG" alt="" id="BLOGGER_PHOTO_ID_5687471012747105218" border="0" /></a><br />So, that's it for this week. I hope I'll have more trades to report next week, hopefully all of them with a profit:)TheCarefulTraderhttp://www.blogger.com/profile/15665718506364433085noreply@blogger.com0tag:blogger.com,1999:blog-7840216062082234783.post-81228519498737335232011-12-17T03:00:00.004-06:002011-12-17T03:46:40.908-06:00Bearish Intermediate TermLet's start today with the stock market. Well, it has been a chopfest for sure. Trading in these conditions has become extremely difficult. There are still plenty of high quality setups both long and short, only that most of these setups fail soon after the breakout/breakdown. What bothers me the most at the moment is an unusually huge Friday's volume on all indices. Intraday scan reveals that this volume was genererated in the first minute of Friday's trading day. Prices jumped on huge volume, but collapsed soon afterwards. Big volume is almost never a good thing, especially near recent tops. I think there is a pretty high chance that market makes another dip to test the November lows at 1160 on SPX, then rally into the year end and collapse again in January 2012 in earnest. This scenario seems quite logical. Breakdown from this minor bear flag would force many retail traders to sell. Smarts will be able to accumulate at previous support to ignite a strong Christmass rally. This rally would convince retails that new bull is under way, thus smarts will be able to sell accumulated shares, supposedly on breakout above MA200. A once tested support at 1160 will not become tested again, so prices should just slice through these levels like a hot knife through butter. Sure, just a speculation, but a pretty sensible one. I might short something on a break from this bearish flag.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi9I8JBh6T-R3Eyf9wDnGCCCUv0SkL0t4b6tUPPEPsU7txFaCwjXtmjQT6Wic6A1rd4QZpPqHTYCXG15gp7crhJ8xNMmlbkGECJhDYnPgARVgNn5oR9WYjFvrfB31rK6g7eTfoo5v98YzY/s1600/SPX+daily+December+17%252C+2011.JPG"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 144px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi9I8JBh6T-R3Eyf9wDnGCCCUv0SkL0t4b6tUPPEPsU7txFaCwjXtmjQT6Wic6A1rd4QZpPqHTYCXG15gp7crhJ8xNMmlbkGECJhDYnPgARVgNn5oR9WYjFvrfB31rK6g7eTfoo5v98YzY/s320/SPX+daily+December+17%252C+2011.JPG" alt="" id="BLOGGER_PHOTO_ID_5687019651784282882" border="0" /></a>Now to gold. Way back in September 24 I <a href="http://carefultrader.blogspot.com/2011/09/support-lines-for-gold.html">posted </a>some trendlines for gold. I think now is the perfect time to review my long term strategy as very important event happened. Gold violated black ascending trendline that has been valid from the early beginning of this cyclical bull in 2009. So, for almost three years gold price obeyed this trendline on every major dip. This trendline is now broken! I think gold did manage to close marginally above it, but daily action suggests there was no real buying at the line or below it. I think we can reasonably expect another dip down. There are basically two options. Gold may bottom at the green line in January or at the pink line in March. Let me explain why I think gold will bottom at the pink line (or below it).<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEigNFYXEp9bsbVaUFrJXnjIDPaO0en9PKk1xivddnEvFQIlzAxS8WMd5337O9FHGaFMv2yUIrNYjA6QdYJxK8KRc55YbBu-azkTlUEu8a5wqqjHW85OEEK2ETYZlutsxPEO83PIubxuSno/s1600/GOLD+weekly+December+17%252C+2011.JPG"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 144px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEigNFYXEp9bsbVaUFrJXnjIDPaO0en9PKk1xivddnEvFQIlzAxS8WMd5337O9FHGaFMv2yUIrNYjA6QdYJxK8KRc55YbBu-azkTlUEu8a5wqqjHW85OEEK2ETYZlutsxPEO83PIubxuSno/s320/GOLD+weekly+December+17%252C+2011.JPG" alt="" id="BLOGGER_PHOTO_ID_5687019648014827506" border="0" /></a>Let's forget about trendlines for a moment and just observe cycles on gold. On the below chart I have marked all the intermediate weekly cycles since January 2009. Green arrows mark bottoms of each cycle and the number below it denotes the weekly length of each cycle. If we make a quick averaging we can conclude that average cycle should last between 20 and 25 weeks. Now, the last cycle that bottomed in September was extremely short, lasting only 13 weeks. History of cycles says that extremely short cycles are often followed by longer ones. History also teaches us that bear cycles tend to be about 25% shorter than bull cycles on average. So, when we sum up all these numbers we realize that cca 24 week cycle that bottoms in March is more probable than cca 16 week cycle that bottoms in January. A very short 13 week cycle should be followed by a longer one and 24 weeks is appropriate length.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEizx0ycNy1TfkjSLQ1DhEsx_N1c8TGoe_JvE_msuBtaRxTVsiqs6BN3woYYG2AKVRTTmbwVpDL0TDBTJmfgi6ZKpjlw-xiOiGBqiyrR9Ku_XZXw5AwMF0j4NinCTXAM3ZqMGeCw1JJyBbA/s1600/GOLD+weekly+cycles.JPG"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 144px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEizx0ycNy1TfkjSLQ1DhEsx_N1c8TGoe_JvE_msuBtaRxTVsiqs6BN3woYYG2AKVRTTmbwVpDL0TDBTJmfgi6ZKpjlw-xiOiGBqiyrR9Ku_XZXw5AwMF0j4NinCTXAM3ZqMGeCw1JJyBbA/s320/GOLD+weekly+cycles.JPG" alt="" id="BLOGGER_PHOTO_ID_5687029029775010818" border="0" /></a>OK, let's wrap this up. The bottom line is that I believe January 2012 will be a massacre month for both stocks and gold. Stock market has been topping since February 2011 and will have to convert this into some sort of a dramatic fall sooner or later. If stocks go down, gold won't be able to keep high grounds as cash will be a safe haven for most investors. The same thing happened in 2008 when gold corrected 30% together with stocks. If a plunge of similar magnitude happens we can also expect that all technical levels will get broken in panic selling. But I'm getting way ahead. We'll talk about this when those times come.TheCarefulTraderhttp://www.blogger.com/profile/15665718506364433085noreply@blogger.com0tag:blogger.com,1999:blog-7840216062082234783.post-9292985102703429262011-12-14T11:50:00.004-06:002011-12-14T12:02:13.767-06:00Stocks Also On Sell ModeI think I've seen enough. Stock market indices printed 3 or 4 distribution days in two weeks, which should be more than enough to turn the trend back down. Today selling continues below MA50, which is my signal that bear market may be back again. Sure, we may and probably will get some sort of a relief rally on low volume into the year and, but I strongly doubt indices will be able to get anywhere near previous highs. Whatever bounce we may get it should probably be the best shorting opportunity of this entire bear market. We'll get back to this when time is right.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhb0hd5aCq7-Yv3XIPx_2fR7bAmk08rvfVFbkFiAkncmUbOAhTUQDIyXE_vv2OYgpaKOERCcDtaAWHCCy4uU0pTGkTu2MQhybXB-d62O1n3JYrF0Z-JWpLHvAiflG2dmiLvd6ETkZlUsA0/s1600/SPX+daily+December+14%252C+2011.JPG"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 144px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhb0hd5aCq7-Yv3XIPx_2fR7bAmk08rvfVFbkFiAkncmUbOAhTUQDIyXE_vv2OYgpaKOERCcDtaAWHCCy4uU0pTGkTu2MQhybXB-d62O1n3JYrF0Z-JWpLHvAiflG2dmiLvd6ETkZlUsA0/s320/SPX+daily+December+14%252C+2011.JPG" alt="" id="BLOGGER_PHOTO_ID_5686042927573016898" border="0" /></a>TheCarefulTraderhttp://www.blogger.com/profile/15665718506364433085noreply@blogger.com0tag:blogger.com,1999:blog-7840216062082234783.post-33026718997584258232011-12-13T12:04:00.003-06:002011-12-13T12:12:00.345-06:00Gold Breaking To The DownsideThis is just a brief update on gold market signal. Yellow metal is now officially in SELL mode as it broke to the downside from a four-month symmetrical triangle. The breakdown was so powerful it violated trendline, MA150 and previous swing low all in one session, albeit not on a closing basis. But I believe yesterday's sell off and today's follow through (not seen on the chart) is enough evidence to confirm my thesis that gold shall see much lower prices in the next couple of months. The currect short term cycle should bottom sometime in the next two weeks and rally out of this bottom will tell, how weak gold actually is. So I'll refrain from drawing support lines until I get a taste of the upcoming bounce. For now, my short term target on gold is around 1620, where this cycle should bottom.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhAt0YqeCdjr0xAujm90HKa2ywmgQoC3MDP20TZtoqaHiznbNd27_NcSNq7D1J_7eigShtyuNLjGkEEfQyeG9XadaeVqKmWRzX_1lznK91Yt9NaXAtR9k2f0n05YOCMwLMWomJ1YSzEM8I/s1600/GOLD+daily+December+13%252C+2011.JPG"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 144px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhAt0YqeCdjr0xAujm90HKa2ywmgQoC3MDP20TZtoqaHiznbNd27_NcSNq7D1J_7eigShtyuNLjGkEEfQyeG9XadaeVqKmWRzX_1lznK91Yt9NaXAtR9k2f0n05YOCMwLMWomJ1YSzEM8I/s320/GOLD+daily+December+13%252C+2011.JPG" alt="" id="BLOGGER_PHOTO_ID_5685675481614742498" border="0" /></a>TheCarefulTraderhttp://www.blogger.com/profile/15665718506364433085noreply@blogger.com0tag:blogger.com,1999:blog-7840216062082234783.post-88862607595225842182011-12-10T07:48:00.003-06:002011-12-10T08:10:24.377-06:00Gold WeakeningHow things change. About a week ago I've talking about gold possibly setting up for the breakout to the upside. I know many traders like to buy "in the face of an upcoming breakout", just in case price gaps up at the open, leaving latecomers behind. The problem with this strategy is that one presumes a breakout as inevitable. In other words, you become bullish on stock before you even get a bullish sign, which of course is a breakout itself. My experience shows this is a poor strategy. I made this mistake several times and almost always regretted it. But not this time.<br /><br />In light of this short aside, gold seems to be negating our bullish outlook from the week ago, as it is now on the verge of breaking down. Now again, I'm not saying it will, but last couple of day's action suggests there is more weakness coming for the precious metals. Several ascending trendlines could be drawn. If our interpretation on the chart below is correct, a break below the triangle bound would be a red flag for gold. The final confirmation of failed short term cycle and thus possible continuation of correction would be a close below the last support (green line). We'll get back to this later.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjolHOVDumjmKdmGEkpr0oLtEGU-h5Y-eL-AnHjvL3yGQL9YDa4q2bbgpIqzSx8ombLiGINfeFQdSuRW-iUi3VAvo8Uszsupk67Uyw6xlIPyMZClZYuLNwnlTlABHG7TtQ5k6K1vF_02LE/s1600/GOLD+daily+December+10%252C+2011.JPG"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 144px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjolHOVDumjmKdmGEkpr0oLtEGU-h5Y-eL-AnHjvL3yGQL9YDa4q2bbgpIqzSx8ombLiGINfeFQdSuRW-iUi3VAvo8Uszsupk67Uyw6xlIPyMZClZYuLNwnlTlABHG7TtQ5k6K1vF_02LE/s320/GOLD+daily+December+10%252C+2011.JPG" alt="" id="BLOGGER_PHOTO_ID_5684497264308218338" border="0" /></a><br />Stocks are not behaving any better than gold. The two-day coil-consolidation right below MA200 broke to the downside on a sell-off distribution day, which is negative, of course. On the other hand, Friday produced a pretty strong reversal, suggesting Thursday was just some panic selling on bad news. We'll have to wait a little bit more for a consolidation and a breakout or a wedging rally, followed by another sell-off. With a little bit subjective view, I suppose price could easily meander between MA50 and MA200 until the end of the year. Definitely not an environment for a momentum trader. Additionaly, there is still no buy signal more than two weeks into the rally, which is sign of caution by itself. I still believe stock market will continue its bear market trend soon.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhaXTDejzsS35MJWHoq3yuZkfsAO0FO7yt181StCPS9NfAZi55iWwqe8GcELZzTSqdDPMmC9GFCMW5QnNOQTt1DKSCSO5pOYH-LWrfZAtXkQetg4R2AQfWg5_VoDCgmbL5awKIdhyTTtIw/s1600/SPX+daily+December+10%252C+2011.JPG"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 144px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhaXTDejzsS35MJWHoq3yuZkfsAO0FO7yt181StCPS9NfAZi55iWwqe8GcELZzTSqdDPMmC9GFCMW5QnNOQTt1DKSCSO5pOYH-LWrfZAtXkQetg4R2AQfWg5_VoDCgmbL5awKIdhyTTtIw/s320/SPX+daily+December+10%252C+2011.JPG" alt="" id="BLOGGER_PHOTO_ID_5684497268649609714" border="0" /></a>TheCarefulTraderhttp://www.blogger.com/profile/15665718506364433085noreply@blogger.com0