I noticed today on the pressure charts that GS is trading into a wedge on the daily chart. I decided to look at is closer on the price charts and noticed that since January 21st GS has been at or near the $159.40 level five times. I just can't seem to make close above it. I applied some fib. retracement lines to it and found that from the last major swing high on January 21 ($171.00) to the swing low on January 27th ($147.27). The 50% retracement is $159.35. Maybe that has something to do with it. Traders may want to keep an eye on this level and make trading decisions accordingly.
Today's trading did not show much conviction. The 1100 ceiling seemed to be too much for the S&P 500 today. Why would that be after such a bullish day yesterday? My Italian trading friends the Fibonacci's might have something to say about it. If we measure the January 19th closing high of 1150 vs. the February 8th closing low of 1056 you have a difference of 94 pts. The 50% retracement of this bearish move would take us back to 1103 and change. If we measure intraday highs and lows we end up using the Jan 19th high again of 1150, and the Feb. 5th low of 1044. The difference there is 106 pts. The 50% retracement of this level is found at 1097. The S&P 500 closed today at 1099 which is right in the middle of the two retracement levels. Ultimately, picking a direction from here would be a coin toss for me except for the fact that almost every chart I look at seems to either be over sold on the stochastic or nearing that level. I guess we will see what tomorrow brings.
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As most of you know the VIX has traded up ten points in the
past month. That may not seem like a lot
until you consider that it started at about seventeen. The rise in the VIX is a sign that fear is
entering back into the market. The ATR
on the DOW is 141. Are you kidding
me! That’s huge. Sometimes up, and sometimes down. Above
10,000, below 10,000, above, below and on it goes. No wander fear is back – there is no
consistency. So how can we take advantage of this
chaos? If you are a Dow watcher, make a
change to the S&P 500. Yogi Bara
once said “You can observe a lot by just watching.” When it comes to the S&P 500 it is
true. I was just having a conversation
today with my “Trade with Me” class in which we were discussing the market’s volatility. I suggested that with the futures pointing
higher today we would have a pop initially but the S&P 500 was showing an
awful lot of congestion (resistance) at the 1071 range. The market opened and of it went – right through
10,000. The S&P did run up and it actually
made it to 1072 but because we had spent some time with the S&P chart
before the market opened when were watching for the fade around 1071. If my eyes were on the Dow I might have become
infatuated with the Dow above 10,000 but instead we held steady and the S&P
500 guided us through the market swing. Before
I make a trade, even if the stock chart looks fantastic, I always confirm the
move with the S&P 500. I think of
support and resistance levels on the S&P 500 as my “Market GPS.”
Follow up – Just after I wrote the information above, the S&P launched over the 1071 to a high
of 1079.28. I really did not expect this
to happen, but once the index broke its resistance (1071) I had a pretty good
idea where support now was (1071ish because old resistance often becomes new support). As the day progressed, the S&P500 has
worked its way back down to either side of 1070. If it holds the 1070 mark today, I would
think chances are good for a continuation of the rally. If it closes below 1070, we may be looking at
another downside reversal for tomorrow.
I will be watching my “Market GPS.”
I am sitting hear in my mancave watching the S&P 500 move from 1099 to 1100. From 1100 to 1099. How exciting! Yesterday I was totally confident that we were heading down after the "dead cat bounce," but here we are up 85 pts on the DOW and 11 on the S&P 500. Mayby the cat is not dead yet. I went into my charts and happened to notice an interesting picture. Back on October 19 2010, to S&P 500 topped out at 1100. The following day the high was 1098 and the day after that the market made one last charge to 1101 and then reversed course to the downside eight days before bottoming on November 2, 2010.
More recently the 1100 number has come into play as well - Like today! January 27th, the S&P ran up to 1099 and then retraced back to close positive for the day but off the highs. On January 28th, the S&P ran up to 1100 and backed off to close negative for the day. The market dove pretty hard for a couple of days down to 1071. Currently, the market is, as I mentioned earlier, at 1100.
If we were to put the pieces together we would notice the once we decisivley broke above 1100 December 22nd, that level became new support. When we broke through that support on January 22nd (30 days later) it has become new resistance. Here is my thought on the cat. If the S&P 500 does not close above 1100 today, the kitty may not come when you call it.
I happened across AMZN the other day and noticed that there is a Head and Shoulders pattern on the short term chart. If you are not familiar with this reversal pattern, here is some information to consider. In my classes I teach traders about the four basic tenets of reading charts. The definition of a bullish trend is one of them. This definition says that a bullish trend is a series of higher highs and higher lows. If a chart shows higher highs and higher lows, in order to continue the trend it must establish higher high after higher high. If at any point the stock cannot create a higher high and instead establishes a lower low, then the bullish trend is over. These concepts are the reason a head and shoulders is a reversal. The top of the head represents the highes high. The right hand shoulder represents the fact that the stock could not establish a higher high and instead establishes a lower high. The big "GO" moment signal in all of this is when the right hand shoulder breaks below the previous support (collar or neckline). When that takes place the trend has, by definition, ended and the possibility for reversal exists. A head and shoulders pattern not only gives you a "Go" for entry, it will also provide a potential target. Here is how you can determine the target on a head and shoulders. Take the price at the top of the head, and subtract the price at the bottom of the right collar. Now take that number and subtract it from bottom of the right hand collar. That is your target. As an example, today AMZN has a head and shoulders pattern on the daily chart. the top of the head is at $145.91. The bottom of the right hand collar is $129.82. The difference between the two is $16.09. Now if we subtract $16.09 from $129.82, your downside target would be $113.73. Most traders who work with these calculations would certainly not be greedy and try to capture the entire $16.09 move. I hope this helps your understanding of the head and shoulders reversal. If you would like to see this pattern and others like it traded, sign up for my Trade With Me Webinar series.
I read this morning that GM is going to repay their TARP money sometime this summer. Sounds like good news for the auto manufacturer and Howe Long! They are following in the long line of financial institutions that are paying back their loans. This sounds like a pretty good thing all in all but I was wondering about something. The banks want to pay back to loans for one main reason - to get control of their own destiny again. With the money came restrictions and expectations. No bonuses, no jets, no fun stuff. The expectations were that the banks, no longer in danger of going under, would start loaning to businesses again to get the economy going. When the money is paid back, no restrictions, and no expectations. I am not a big government guy, and I believe that businesses are in business for the purpose on making money and the government should not impose restrictions on how much any one person can make. With that said it is obvious why TARPies would want to pay the money back. As this happens it seems that President Obama has become more aggressive in his language. He invited the so called "Fat Cats" to a meetings to "encourage" them to start lending again. Unfortunately - he now has no leverage.
If you have spent time with me in any of my classes you know that I am a big believer in "Go" moment trading. What is a "Go" moment? It is an indicator that is meaningful to you, that signals that now is time to take action. In my trading, a "Go" moment is a specific price point for a stock that signals some type of breakout or breakdown. This is why I like to trade chart patterns. As an example, you might think of a head and shoulders pattern. The typical rule is that if the right hand shoulder falls below the right hand collar you can expect a breakdown of that stock. This pattern is perfect for the "Go" moment trader because there is a specific price point that defines the bottom of the right hand collar. We know objectively when that moment happens. Not only do "Go" moments help us to be more confident with our entries, they also help up to determine stop loss placement quickly and easily. If there is a specific price that tells me it is time to get into a trade, then it should stand to reason that if the stock price breaches that same point going the opposite direction then your justification for being in the trade no longer exists. Many Wizetraders struggle because their entry points are vague and therefor their exits are vague as well. If this describes you, consider finding a "Go" moment to help put some objectivity into your trading. If you would like to see me trade this way, I would love to have you enrolle in my "Trade With Me" webinar series.
Chris Irvin (TraderChris)
For more information on Chris Irvin's "Trader with Me" webinar series click on the training tab in the Wizetrade Community.
In a choppy market, many traders feel that they have only one option – Day Trading. A trending market will always be easier to trade, but there are fantastic money making opportunities in all market conditions. All traders know this to be true but most are unable to conquer their own fear in order to capitalize on the opportunities. When the trader is able to define, accept and manage the risk in a position, he or she will be able to trade all market conditions without fear.
Defining Trade Risk
“A known evil is always better than an unknown evil.” This means that knowing the worst case scenario is always better than not knowing how bad the situation could get. In trading terms, if a trader takes the time determine where the stop loss will be positioned, prior to entering the trade, he or she will be able to determine the trade risk. Simply subtract the stop loss price from the current price.
Example:
Current price: $43.00
- Stop Loss: $41.50
Trade Risk $1.50
Accepting Risk
Prior to entering into any position, the trader needs to think through their own money management plan of attack. Success in trading is a result of protecting your capital not trading potential. There are obviously many opportunities that present themselves in the market every day, but the trader must temper enthusiasm with money management otherwise the market will take away your enthusiasm, not to mention your money.
How does the trader learn to accept risk? The answer is a combination of stop losses and position sizing. The first step in accepting risk is determining you MAL or Maximum Acceptable Loss. The MAL is the most that the trader is willing to lose in any one trade. This number is always fixed. It should be some percentage of the trader’s total account. As an example, a trader with a $20,000 trading account might choose to follow the 10%/10% rule. This rule states that if a trader has a $20,000 trading account, he or she will not put more than 10% of the total into any single trade. This means that no position should be greater than $2,000.00. Of that single $2,000.00 position, the trader will not have more than 10% at risk. This hypothetical trader’s MAL would be $200.00. The MAL is not determined by the trade, it is determined by account size.
The acceptance of risk comes from the ability to integrate Trade Risk, with Account Risk. The trade risk is the separation between entry price and stop loss. Account risk is the MAL. The integration of the two is accomplished by dividing trade risk into account risk. The quotient of this calculation will determine the number of shares to be purchase for the trade.
Example:
MAL ($200.00)/ Trade Risk ($1.50) = Position Size (133 shares)
