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A simple explanation of an easy yet powerful trading technique.
Here is a discussion on NFLX's chart trends.
Here's a short analysis discussing the current trend of AMZN.
Here's a short video explaining what topping action is and what to look for.
SPDR Gold Trust ETF (GLD) traded above its 200 day exponential moving average for the second time in a week. This got our attention for a number of reasons. We noted that GLD had been in an uptrend since the beginning of the year and considering the geopolitical situation in Ukraine and Russia, we decided to take a closer look.
The previous time that GLD was above its 200 day exponential moving average was in January 2013. Since then it had been in a downward trend, which was not surprising considering the relatively stable world economy and investors’ increased tolerance of risk in the stock market. On June 28, 2013, GLD marked its low for the year-to-date at $114.68. It tested that low and closed even lower at $114.50 on December 19, 2013 and set its low for the calendar year at $114.46 on December 31, 2013, causing a Triple Bottom. Aggressive traders started taking the trade at that point (see chart below).
On September 11th, we decided to trade Tesla (TSLA). We had been watching the trajectory of this stock since August 1st, when it was trading at $135.00. We felt the price action warranted a closer look.
This stock had been the definition of volatility, where any news caused big price swings, whether warranted or not. From Department of Energy loan repayment issues to the ongoing battery supply saga, Tesla’s stock has never been short on headlines. By September 11th, we had seen enough and knew that it was time to go long.
Here’s what we saw that day:
We launched the newest version of our website on October 17th and we think it’s pretty darn good. Our whole reason for the redesign was to give our clients and industry professionals an improved user experience while still giving them the best in market trades and news. The site now makes navigation easier for both existing clients and new users. We’ve also added to our cluster of dedicated servers to offer lightning-fast speed for all users.
The new site also features enhanced security and privacy with the use of Norton security and TRUSTe, leading names in internet security and consumer privacy protection respectively. This assures both members and non-members that we’ve made significant efforts to go above and beyond typical web requirements to protect them.
One of the enhanced features available on the new site is the ability to use Disqus to post comments and banter with other traders in the community. Subscribers of the PRO level subscription also have the opportunity to pose questions directly to the pro traders and ask their opinions on positions and strategies. The one thing that our developers could not do was bring along all of the comments from the old site.
Whenever we look for new trades, we always look to see where there is the greatest amount of value. While we are technical traders by definition, the idea of getting good value on a trade is not lost upon us.
The following is a chart of ADP that we were reviewing recently when we decided to enter a trade:
When you trade for a living like we do, it's easy to lose sight of the fact that the stock market is not a zero sum game. When the average investor goes out and plants his flag of support and says that he's buying company X's stock, he's saying that he believes in the company and that the company's success will also mean his success (i.e. everybody wins). This is not true in the world of stock options where the rules are clearly designed for it to be a zero sum game. That means that for every investor that gains, there's an investor who loses the same amount. So, what does this have to do with high dividend yields and using them to find today's best stocks? Quite a bit, actually. You see, a lot of our trades, especially at the pro subscriber level, are designed to take advantage of the zero sum game, while gleaning hints and clues from the average investor who's playing the non-zero sum game.
When uncertainty hits the markets, whether it be for geo-political reasons or changing fundamentals, stock investors look for safety. That safety sometimes can be found in the comfort of quarterly dividend cheques and, oh, how people love those dividend cheques. So, how do you trade this? Well, one of the strategies that we use (and, we can't share all the details with you here as our system triggers are based on a set of complex variables) is to closely track the VIX, which is an index of the implied volatility of the S&P 500. When it reaches a certain level (it's somewhere above 22.6 and below 31.9), we begin looking at price action for high-dividend yield stocks. Now, when we say high-dividend yield, we actually mean "reasonable" dividend yield (i.e. 3-7%) but high compared to the 10-year note and other relatively safe fixed income instruments. From our highly customized technical indicators, we can see where the price action truly is.
As markets begin to gyrate, it's not only the small individual investor that looks for a safe haven but the big institutional investors do the same. This is where a careful analysis of price action allows us to pick the best stocks as there are a lot of what we refer to as "RUD" (Run-up's done) stocks. These RUDs may show serious price action in a stock such as Philip Morris (PM), which is a notorious high-yield offender. However, by the time an average investor studies the charts and makes his decision, most of the run-up may be over, thereby nullifying any of his perceived advantage. Therefore, you need to study these charts and study a lot of them to be able to determine which still have room to go higher and which are RUDs in a tense market.
Enron, Worldcom and Tyco have provided material for some intriguing case studies on how company fundamentals can be misleading. On the surface, all three of these companies had very impressive annual reports and financial statements with clean audit opinions. However, under the surface, as we found out later, these companies were perpetrating frauds of epic proportions. The lesson here was that you can’t completely trust company fundamentals. So, what can you do to improve your chances of finding tomorrow’s hot stocks? The answer lies in the tea leaves of stock market prognostication, charts.
Charting, also known as Technical Analysis, is the practice of using historical stock market data to predict future movements. It’s based on the theory that over the course of time, certain patterns have emerged and that these patterns are pre-cursors to predictable future events. Is this a better technique than combing through a company’s financial statements? The Efficient Market Hypothesis and Random Walk Theory would say that charting is no better at predicting future stock price movements than fundamental analysis. However, we are firm believers in charting and have had considerable success with it in our trading over the last 20+ years.
Let’s look at some of the basic charting techniques that we use on a daily basis to mine for tomorrow’s hot stocks: