09/28/2009 Trend days can kill your account

Hello Traders,

I know its been awhile since I made a post but today seems like a great opportunity to discuss something that gave me trouble early in my trading career. The TREND DAY. Do I need to define trend day? I don't think so, its pretty self explanatory, the market just keeps trending. Simple. This kind of day can wreak havoc on indicators and account equity ! We're gonna look at the chart to see how to avoid these pit falls, but first some background...

With an absolute lack of economic news, M&A took the spot light. Abbot made a big bid for Solvay and Xerox gobbled up business process outsourcing company Affiliated Computer Services. Johnson and Johnson got in the mix too, buying up an 18% stake in hand sanitizer maker Crucell. While it is good to see companies making acquisitions, I wouldn't get too excited, this economy is still in the toilet in my opinion. BUT the market has less and less to do with the economy these days, its mostly just squiggly lines on charts, and if you treat it that way you will make way more money. I promise :)

Looking at the chart, the signal to go long occurred between 4:30 and 5:00am with the two SMI lines crossing, the particle oscillator crossing above the 0 line and the OBV panel painting a red square indicating divergence in price and volume. What's that, you were still asleep?? Traders don't sleep!! Ok, I'll admit I was asleep too...

The next entry was at 9:45am on the break to a new high. 1048 to be exact. The SMI's were already stretching to the upper range at a value of around 60 -- with 80 being over bought. Why go long? If you were looking at the bigger picture (daily) you would see a textbook bounce off the 20 day MA. And I MEAN textbook man! Good traders are always, ALWAYS, looking at the bigger picture for clues. You must understand that. The big fish don't care about 2 ES points, and its you Vs them. got it? cool.

Back to the chart. Lets say you got in at 9:45 am at 1048. By 10:11 you should be taking profits of 7 points with the SMI's red and the OBV painting diamonds left and right. The key is to recognize that this is a trend day early and make sure you are on the right side of the trade. The white box shows the SMI pegged above 40 most of the day. I'm sure any indicator I put up there will be pegged all day too. The market reached its fair value and stuck there. The particle oscillator stayed green all morning and that means NO SHORTS! By the time it crossed the 0 line again you should have been teeing off on the fourth hole and maybe on your third beer ;)

Trend days can be tough. Alot of traders that don't see the trend end up trying to bet against the market when their indicators are showing oversold/overbought conditions. If you can't trade a trend day then just don't trade. Stick to what you know. Lets say you traded 3 lots today and took profits at 4 ticks, 6 ticks and left a runner for 7 points...that's 38 ticks ($475.00!!) . Way better than any McJob I can think of.

Here are the take away's: Recognize the trend, don't fight it, and walk away when you got money in your pocket. Its really that easy.

Thanks for reading guys. All the indicators are from Big Mike's trading blog VIP section. make sure to pay him a visit and if you got a second click those Google ads over there on the right. Feel free to comment too. Later,

-Nate

09/07/2009 Market Outlook

Hello Traders,

I just want to jot down some thoughts real quick about this week's market. Friday's action was very light. The market continues to deceive gravity as well as conventional wisdom about equity valuation. The wild card remains to be the Dollar. The Almighty Buck. If it breaks 78 it seems 75 is easy. The dollar is clearly the sacrificial lamb in all this mess. So lets say that happens... well this market could easily ramp up another 2-3% as commodity speculation begins to run rampant. How much do you think people are going to love $3.50 a gallon gas and $5 a gallon milk when they are broke and unemployed? That's irrelevant though because earnings will go higher and so will the markets. Class warfare anyone? Ok, I'll kill the conspiracy talk.

I'll be back a little later with a chart and some key levels to look at.

-Nate

Good Evening Traders,

Tonight's post will be brief because the Steelers game is on! Yesterday I said I wanted to short this level, 1005. Well, things didn't quite play out the way I thought they would. The 3:30pm Ram job compliments of 85 Broad St opened up some possibilities. Lets discuss them

First off, 985 is untested. And so is 975 below that. I strongly believe we are going to test those levels. Yesterday's chart is still very much in play. I said yesterday those price levels " could take the rest of this week or even the next..."

I want to break it down on a smaller time frame though. Tomorrow we will know the employment situation in America. I expect it to be in line with the consensus or a little better, -200k-ish. Everyone who studies the markets knows this number is highly flawed. They can tweak things like the birth/death model and make up whatever numbers they want. We all know its not the numbers that matter but the reaction to them. This is bigger then Fed day IMO.

On tonight's chart I kept the indicators nice and simple. An RSI, MACD, and some Bollinger bands. Take note of the divergence that formed on the RSI. There is now good separation on both the MACD and RSI with the prior crossing it's zero line. Also, note the strength of the histogram on MACD. Basically everything is pointing higher. I made a few marks on the chart where we could find resistance. There is a Fib level at 1009.25 to keep an eye on. Putting on a short there with a stop at 1012 seems like good risk reward to me. I will be watching the Globex session and pre-market tomorrow to see if price can get up to 1010. I honestly think this afternoon's squeeze was just buffering us for a nice 20 point decline tomorrow.

Steelers are looking sharp and I keep getting distracted! You can follow me on twitter. Please click on the ads if you like what you are reading. Have a good night everyone. Get some sleep its gonna be an early morning tomorrow.

-Nate

09/02/2009

Hello Traders,

I was very excited for Wednesday this week because I would have all morning to trade. Turns out things were very very choppy. I ended up taking a short at 11:30 from 998.50. It was just a scalp set up though and I closed it out 15 minutes later for 2 points. BORING....

The big stories today were gold and AIG. Gold was rocking, up 2.5% or so! 27 million shares of GLD traded. This is obviously because the dollar shit the bed. People are talking about bank failures again, Europe looks like trash, and don't even get me started on China. They're "stimulus" money definitely made its way into the stock market over there, driving the price up 80% this year. I read a little about China and from what I can grasp, they have overcapacity EVERYWHERE. Without us buying their crap from Target and Walmart they don't even have an economy. A correction in Chinese markets was inevitable. However, I wouldn't short it with the proverbial 10 foot pole. Why? Cause the government could step right in and start buying up the market and cut your head off in the process. They do that here in America but at least we get a little wool pulled over our eyes by first giving "bailout" money to the banks and have them bid up SPY the last 15 minutes of every Friday. Enough about all that though, I want to talk about the S&P 500

Last week, ( 08/24 to be exact) I said the top is in and went short the ES. I closed the position a few days later and never got back in. So sad. Of course we are down 30+ points from that very day (still falling in after hours as I write this). But what can you do. I don't have an account with $1 million in it (imagine that right), so I'm not going to hold leveraged S&P contracts for weeks at a time. By the way if you feel like letting me manage your futures account feel free to email me...No? ok I'll move on :)

Well, The pullback is here. All the "September sucks for equities" talk feeds on itself, so keep that in mind. I'm going to make a few predictions about where we are headed. First off, this move is almost over. IN TERMS OF PRICE, not time. It could take the rest of this week or even the next, but we aren't going much lower than 980. I honestly expect that price by Friday when the job(less) numbers come out and people start to realize the mess we are in. Then at some point next week the "everything is fine" crowd will be back, and we will fill Monday's gap, moving back up to 1001-1005. That will be a great time to get short again in my opinion. I drew out how I expect price action to look on today's chart. Am I the man with MS Paint or what!

Lets see how things play out. There are always wild cards out there. If you are trading this mess keep an eye on Gold and Oil. Also remember the 50 day moving average is closing in and all those IBD reading hotshot fund managers will be plowing into the markets when we get there. I'm sure of it. Its all just squiggly lines on charts to them. Thanks for reading

-Nate