A temper tantrum

To begin, I must express my outrage... the one minute chart lies!
It only took me a few minutes to find an example 'cause it happens all the time.
Here is the one minute, two hour, chart of today's FAS Price action:


Click for larger image, browser back.

Notice the points identified by the letters A thru E...

A marks the point where Price is highest
A is followed by a higher (than the previous) low, so we can expect a higher high to follow
B indicates a lower high

Therefore we should expect that the rally has ended and a downturn has begun (sell short here)

C This lower low and high confirm the downturn is intact

Now, here is where it gets sticky...

D This is a higher high than the previous
E This higher low confirms the beginning of an uptrend

But does it? No! From there, Price takes a nosedive. (Grrrr)
At point D my short trade stops out at a loss.
Then the stock merrily performs as I expect it to (without me).


Plan B and Oops!
Here is a 60 minute, 4 week, chart of the same ETF:


Click for larger image, browser back.

A Higher high followed by a higher low (add to a long position at the breakout)
B Higher high followed by a lower low (stop out at a loss)

OK, with a lower low, the uptrend is over

C High of the day (Grrr! times 60)

This stuff is tricky!

Conclusions:
Don't be afraid to stop out at a small loss... it happens
Ya can't perfectly pick tops and bottoms
If you want to ensure a small profit, update your stop after every candle, or set a tight trailing stop
Ride out the ups and downs when you know a stock is moving your way on a higher time-frame

Help?

Around The Horn...

... in several ways.

I need to review the status of my favorite ETF's, and warn about the possibility of a market pullback.

- SSO/SDS, Leveraged broad market index:
(60 minute chart) Bull rally trend broken today. Still above the rising 50 ma but below the declining 20 ma.
(Daily Chart) Bull Rally, rising 50 ma.
- FAS/FAZ, Financial Sector:
(60 minute chart) Bull rally trend broken today. Still above the rising 50 ma but below the declining 20 ma.
(Daily Chart) Bull Rally. Above the rising 50 ma.
- ERX/ERY, Energy Sector:
(60 minute chart) Bull rally trend broken today. Still above the rising 50 ma but below the declining 20 ma.
(Daily Chart) Massive Bull rally. Above the rising 50 ma.
- TNA/TZA, Small Cap Sector:
(60 minute chart) Massive Bull rally still intact. Still above the rising 50 ma but closed at the declining 20 ma.
(Daily Chart) Massive Bull Rally. Above the rising 50 ma.
- BGU/BGZ, Large Cap Sector:
(60 minute chart) Bull rally trend broken today. Still above the rising 50 ma but below the declining 20 ma.
(Daily Chart) Bull rally. Above the flattening 50 ma.

From $14 to $35.60, TZA has moved a lot. More than double... Wow! We have yet to recover the pre-election levels but the run has been exhilarating. I wish I had bought and held for the duration, I'd have done better even with a smaller investment. I'll catch it next time.

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Now is a good time for me to sit back and watch. The market seems to be indecisive about its future (the next few weeks). Since the rally's trend lines have been broken, this might signal a change coming.

Market Tao: Rules List

Version 0.2.2
This list of Market Tao (definition) trading rules is a Beta release.
I'll update it from time to time, adding my findings and (maybe) yours. (please help)

Selling:
- Use stops or carry the memory of a bad trade, possibly indefinitely
- Update the stops to protect profits
- Trailing stops work well in certain situations
- Never hold over earnings
- Bollinger Band Sell signals take precedence over the Advance/Decline indicator on shorter time periods

Buying:
- "Stop to buy" is risky but can keep you from missing a rally
- If your entry is late, don't
- Go long or short depending on the 50 day (50 hour?) Moving Average direction and/or the 60 minute SPY patterns
- Daytrade long or short depending on the Advance/Decline indicators (Price and Volume)
- Look for price patterns and volume to indicate a developing trend
- The Adv/Dec line takes precedence over MA signals on shorter time periods
- Buy high. Sell higher
- Never buy on a declining Tick
- Watch for Trade #1 setups, but maintain Situational Awareness (many timeframes)
- Watch for 50 MA crossover setups
- Watch for Trade #3 setups that conform to the 30 minute gap strategy
Hey, What happened to Trade #2?
- When The Stars Are In Alignment, bet the farm (briefly)
- Make four Watch Lists and use the appropriate one
- keep an eye on the Bull/Bear Index and/or the alternate Bull/Bear index

Stocks:
- Why stocks?
- 3x ETF's make/loose more money than 2x'ers for the same time period. Some days they can move 25%
- Since ETF's are watered down by their sheer volume of members, individual stocks can make better short term investments.
- The Tick chart is important and responds much faster than the Adv/Dec line
- Win or loose, get over it
- Take care of the personal needs

Alphatrends update

Brian Shannon of Alphatrends has updated his web presentation. He no longer lives at blogspot.com. The link to his new home is posted in my right sidebar.

The good news is that his videos are longer and more in depth. Yay!
Sadly, the Bonus section (for book purchasers) has gone away.

QQQQ update

This hourly chart of the NASDAQ...


Click for larger image, browser back

...shows that the NASDAQ remains below its trend line, but is still outpacing the broad market index. (SPY) Definitely something to watch! Once they cross, I expect an exciting race to a new bottom will be on. I already have a small position in QID which I'll beef up when this thing gets more steam. Further, I'm watching my four favorite bear ETF's for signs of an up-trend... I'll let you know.

I just can't see how all this political news is bullish over the long term. (help me?) Further, with the price of energy on the rise, business fundamentals and expendable income will decrease.
Its a mixed bag though. Financial institutions are still undercapitalized (bearish) but "we the people" are going to inject more capital as needed (bullish). This will have a long term effect on our debt (bearish). When financials are healthy, industry and families will be able to satisfy their banking needs (bullish). Whew! I am not smart enough to get a read on that mess. Methinks few are. Therefore, the resulting fear and uncertainty may drive the markets down.

Which reminds me: With my ERX investment up 10%, I locked in the profit this AM... will re-buy later.

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The chart above was created at FreeStockCharts.com.

Someday, I hope to interview the web site owners and publish an article for the FreeTradingVideos.com newsletter.

FreeStockCharts requires an install of a Microsoft add-on called Silverlight which is a hassle. I hate to add more stuff into my PC for fear that overall response time will be reduced, mal-ware risk will be increased. Once installed though, I am happy to have access to these charting features.

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Oops! I just scrolled in to a tighter timeframe (by simply rotating the mouse wheel) and see that the Q's are significantly below the SPY now. Happy trading!

Update: My QID trade stopped out at a loss so I bought a large position in FAS. I'll sell most of it later today and hold some for future gains. At lease for the moment, the market has cautiously picked a bullish direction.

Caution is called for here...

Here is this morning's 60 minute chart of QLD...
Notice the little red candle under the trend line.


Click for a larger image, browser back.


The NASDAQ has fallen out of its bull trend in a big way.
Further, there is a lower high. A lower low is being formed as we speak.
I recommend extreme caution in placing any long positions but keep an eye on the bear stock ETF's like QID, FAZ, TZA, and BGZ. It is still early to jump into these ETF's IMHO, but their time may be coming soon. It's up to you to plan your risk/reward and thus, entry points.

Well, that's not completely true... The exceptions are things like DXO, ERX, and UGA which I continue to hold.

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Have you noticed that the price of gasoline is on the rise? I sure did. The price at the pump is an index that I watch. When it goes on the move, I trade UGA. Its so cool! As gas becomes more expensive, I pay more for it but make it back in my trading! Yum!

Note: DXO is up 6% but UGA is only up 2%. Methinks that UGA has some catching up to do.

This just in -- History about to be made

FAZ has tested the $10.00 line twice this morning. Ya might want to keep an eye on it since there is so much momentum in this month's rally.

Be careful with it though, the internal indicators are mixed. I have been leaning to give the Advance/Decline index a lot of respect. It is slightly bearish at the moment.

Oops. The Tick is also bearish......... we may have to wait a few days (hours?) for FAZ resistance penetration.

Update: SPY made a bear flag, the VIX is in a series of higher highs, The A/D is still bearish, the Bank index is falling, Tick is falling, all my favorite ETF's are under water, yada, yada, yada.

I think I'll take the rest of the day off.