A Few Setups for Tuesday, March 27, 2012

The market exploded up yesterday after a speech from Ben Bernanke where he indicated the need for continued stimulus.  More "free" money (financial cocaine) for the markets.  What could possibly go wrong?  I won't answer that question just now, but there will certainly  be repercussions down the road.

For now, this is a one-way freight train speeding down the tracks, flattening any bears who dare to venture out.  Is this latest surge end of quarter "window dressing", where under-invested money managers scramble to show the "right stocks" are in their portfolios?  There's no need to over think it, just go with the prevailing trend.

ALWAYS use stops to protect from big losses.

Click on charts to enlarge view:

Airlines in Play for a Short Term Trade

This weekend I've been going through some different scans and was surprised to see the airlines show up on the radar.  Rising oil prices and the airlines show up?   All indications point towards higher prices for crude oil over the mid to longer term.  But maybe oil will back off a little, or at least stabilize at current levels.  Who knows?

The airline ETF (FAA) is too thinly traded, so while it has a similar setup it can't be traded in any size.

Remember, these are short term trade setups only, and they're riskier because a divergence play inherently means that the chart is in a downtrend.  

So if you do decide to trade any of the airlines, on your next flight you'll get charged a double extra baggage fee, and TSA will give you and your traveling companion a strip search - so be forewarned.  ALWAYS use stops to protect from big losses.

Click on charts to enlarge:

Some other airlines on my radar are TAM, SAVE, JBLU, and low priced and thinly traded PNCL.

How To Mess Up a Good Trade

Tuesday night when I was going through my chart scans, I noticed that some of the interactive gaming software companies (EA, MGAM, GA, TTWO, etc) were showing signs of accumulation. 

Here's the chart of EA I annotated for my records (but didn't post anywhere) on Wednesday morning.  It has the falling wedge pattern and a positive RSI divergence, along with a "W" bottoming formation.

Click on charts to enlarge:

I was watching the stock closely on Wednesday morning using 5 minute candles, when the stock started to get jumpy around 10:55 AM.  It ramped up and just ticked above the trigger price of $16.56, and I bought at 16.57. 

The stock then meandered sideways the rest of the day and I decided to hold it overnight.  Here's a screenshot of the intraday 5 minute setup that I used.

On Thursday, the stock started with a long candle that started up, then reversed lower.  The action in the early morning had a larger range than on Wednesday, and it made me uncomfortable for some reason.  I wanted to see the price action stay in a tight range.  

After watching the stock gyrate around in a range that was larger than what I wanted to see, albeit in lower volume, and with the stock heading for prior support at $16.35, at 10:14 AM I decided to pull the trigger and cut my loss.  

 Here's an intraday 5 minute chart showing my entry from Wednesday and the unfortunate, premature exit.

 

What a dumb thing to do, as I sold on THE lowest candle for the day.  The stock proceeded to tighten up midday, then blasted out around 2:25 PM and made a nice move on expanding volume.  

Why did I sell before the stock went through it's stop loss point?  Why was I overly concerned with the early morning action when it did so on low volume and hadn't violated my stop loss point?

Lesson learned.  Don't get cute and preempt a trade that hasn't triggered.  It cost me dearly on this one.

Watchlist for Tuesday, March 6, 2012

Since my last post on Wednesday of last week some much needed progress was made in the P/L column.  I had a position in ProShares UltraPro Short Russell 200 index (SRTY) which was purchased on Feb. 24 and 27 between $9.18 and $9.38.  The last part of that position was sold Monday at $10.07, even though I think we could see a bit more short term downside.

GA was another winner last Friday, and a small gain was made in SGI.  MCK and BLDR were sold at small losses.  So as of now, I have one position and the rest in cash.  I'm not looking to press it too hard this week until the ADP employment report on Wednesday, along with the nonfarms payroll number release on Friday.

The tight, upward channel that the S&P 500 has been trading in for the last 11 weeks is very similar to what happened in the Fall of 2010, (see chart below) when the market rallied after the Fed signaled QE 2 in late August.  

In that time period, there was a 10 week rally followed by a 3 week pullback of 4.4%, then a 12 week continuation rally.  A similar pullback would take roughly 60 handles off the SPX down to 1317.

Click on charts to enlarge view:

Here are a few charts on my watch list.  The REITs showed up prominently in my scans.

ALWAYS use stops to limit losses.

                                                       
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