Archive for October, 2008
Positive Divergence in SPY Chart
I seldom use technical indicators, and even when I do, I don’t use them for oversold/overbought purpose. As you all can see in this market, oversold can remain oversold for a long time or get even more oversold. When I do use them, its for the purpose of identifying divergence. Here’s a look at the SPDR Trust (AMEX:SPY) chart. I’m using the SPY chart because it reflects the gapping action (see the empty spaces in between candlesticks), unlike S&P 500 index.
The SPY printed a new low on 10 Oct and a few days back, it tested that low and held. At the lower panel, we see the MACD printing higher lows. This is positive divergence. While this could be the first signal that may point to a more sustainable rally, bear in mind that we are still in a downtrend and bear market. This could well be one of those violent bear rallies. Remember: The trend is your friend until it is broken. Until we see higher highs and higher lows, the current trend is still intact. Next resistance I see is at 100, then 110 (gap fill).
Such volatile market can be highly rewarding for day traders, but nightmare for swing traders. If you must hold overnight, please keep your position size small such that even 100% loss is well within your risk tolerance. Another reason why I don’t recommend holding options overnight is also because Implied Volatility (IV) is sky high now, meaning options are very expensive. A 10% drop in IV overnight can easily wipe off your gains and more even if the stock moves in your direction.
There are some very good day traders out there and I recommend you read MY DEL.ICIO.US on the left panel to see how they day trade in such markets. There are many gems in this bookmark.
Is It All Just a Scam?
The more I study the markets, the more I wonder what kind of shenanigans are going on behind the scenes. (…)
Consolidation Pattern? More About the Current “Bottom”
Has the market reached a bottom yet or not? It seems that’s the question on most people’s minds. (…)
Cup & Handle Pattern Example - Transocean Inc. (NYSE:RIG)
Above is a 15min chart of Transocean Inc. (NYSE:RIG) on Monday. It gapped up, retraced and found support at opening range low and 20 EMA. It then developed a Cup & Handle chart pattern. Notice the handle part of the pattern is on low volume, which is a feature of this pattern.
Below is a 5min close up of the chart. While one would typically enter on break of the cup’s high at the 1.25pm ET bar, it would be prudent to wait for consolidation in this case as it has printed several consecutive bullish bars prior to breakout. This is a useful tip shared by seasoned day trader, Trader Jamie. Price tends to pullback on consolidate after 3 consecutive bullish/bearish bars. So best to wait out. Indeed, RIG consolidated around $76 before moving up again. Stop loss can be set on trigger bar low. Target is usually set at 100% fibonacci extension from bottom of cup to high of cup & handle pattern which was reached near the very end of the trading session. Of course, given the volatility of market these days, it would be wise to take partial profit at the 61.8% fibonacci extension, which is also near round number $78 and tightened up your stop.
CBOE REPORTS RECORD REVENUES & EARNINGS IN THE THIRD QUARTER OF 2008; Eleventh Consecutive Quarter of Double-Digit Revenues & Earnings Growth, Revenues of $120.1 Million Up 24%, Earnings of $60.7…
CBOE REPORTS RECORD REVENUES & EARNINGS IN THE THIRD QUARTER OF 2008; Eleventh Consecutive Quarter of Double-Digit Revenues & Earnings Growth, Revenues of $120.1 Million Up 24%, Earnings of $60.7…