Stock Trends Case Study 2010

From Novice to Professional Case Study #12 - (F), (JPM) and (WFC)

Here I would like to demostrate what black color bars signals a top and sell signal.

 

Let's take a look at JPM, short term bar is in black means a possible short term top, trend level is increasing on par with the price which is a good sign for a higher price.  BUT taking profit is very important and it is up to your greed level.  All of my comments are based on short term trading.  For longer term, we need to look at the weekly chart.  Based on past experience, perfect short term trades max holding period is 2 weeks and don't expect the price go up forever.

 

 

 

 

 

 

 

Here we look at another company F.  Most bars including ST/MT/LT are black, this means the stock is under big bull, I would not touch it now and move on to the next one.  Just need to wait for a low risk setup, that's it.  If you take a look at GOOG, the chart is similar.  Based on "position" theory, you don't want to be in a crowded room and there are lots of other empty rooms waiting for you to explore.

 

 

 

 

 

 

 

How do you deal with perfect trading signals?  The answer is easy money, this chart shows 2 perfect short term trades:

1. Buy on Dec 15, after price and trend level flatting and saw a little green on ST bar.  Sell on Dec 22 or 23.

2. Buy on Dec 31 or Jan 4 for green bars appeard couple with price flattened, I would probably take profit today Jan 7 or price spike tomorrow.  Hey profit is profit.

 

For the bank sector, I expect this is a multi-week rally, short term trading would trade more often but middle/long term will hold for couple week.

 

 

 

 

 

 

From Novice to Professional Case Study #13 - Apple Inc. (AAPL)

Today I would like to point out one common pattern for low risk setup.  Here I am using Apple Inc. as an example.  This is IMHO the easiest and reward pattern as far as I know and I often apply it on my trades and be able to minimize the risk and profitable returns in short term or as a middle/long term setup.  We need to have patient and clear mind to interpret it correctly.  Here are couple steps to identify this pattern:

  1. Target on a well known and large company.  One less factor you need to worry about bankruptcy or shocking news.
  2. Watch for consecutive whole red bars (from 5 and up, usually 8-12 is optimal and perfect).
  3. Trend level will definitely go lower along the line if #2 happens.
  4. Watch the closing price action flat for 2-3 days, flat means within 0.1%-2%.
  5. The top portion of bar (ST turns green) may show a sheet of green sometimes and this is a good sign right before rally.
  6. Either #4 or #5 appears, it is a low risk setup and good to take position right before the market close.
  7. Whenever there are black bars especially appears at the LT portion, that means a short term top and you might get hurt if you buy at that time! 

 

To confirm your position is correct, the next day the bar should look like the one on Dec 9 as the following chart and the following things would happen:

  1. Positive closing price action (price rise).
  2. Whole green bar (all 3 portions of the stacked bar turns into green).
  3. Higher trend level (if #2 happens, this should happen).

How long you want to hold your position?  I have no answer for it (The meal is in front of you and how much can you eat?  I don't know.).  But remember not to let someone take you meal away if you are eating too for too long (know when to take profit, usually best trades for short term are within 3 to 10 trading days, time it if you have no idea).

 

 

Apple Inc stock chart snapshot (AAPL)

From Novice to Professional Case Study #14 - China Mobile (CHL)

Today I am going to show you another successful trade using "Common Low Risk Setup Pattern".  Been waiting, waiting and waiting for 15 days and the green bar first shown up on Dec 29 (there is another one on 16 but only 7 red bars, I might put 30% to work on that situation).  Price been flat for 5 days (within .1 to 2%) which matched our criteria.  Make call options to work for 3 months one rank out of money (this is my favorite).  Hold it until Jan 6 there are some red bars at the bottom, so we look at weekly chart which has whole green bars so we continue to hold, plus positive price action we are OK.  We saw many black bars along the way, this is OK to hold if the trend level is increasing and positive price actions.  Until today Jan 15:

  1. ST and MT portion are black.
  2. Negative price action (yesterday 50.54, today 50.0)
  3. Broad market trend is in downturn (actually signaled 3 days ago but sometimes it is ok to finish the trade if it shows positive signals).
  4. Good trade usually takes from 5 days to 2 weeks, time it and you will know when to get out (It's just like cooking, too early or too late is no good at all).

CHL was on my bottom pick list posted on the old site 3 weeks ago and hopefully you did a good trade on it.

 

 

 

 

 

From Novice to Professional Case Study #15 - United States Oil Fund (USO)

Today I am demostrating a straight forward trade using the "Common Low Risk Setup Pattern".

On Dec 15: this is a potential entry point where consecutive red bars (at least 7-8), a sheet of green appeared and positive price action.  All these 3 criteria have to be met.

Dec 21: Still holding since closing price higher than entry price (your own judgement).

Dec 22-28, all good, whole green bars shows up, this are hold signals.

Dec 29-31, either take some profit or hold, a partial red appeared but trend level still looks good.

Jan 7: consecutive days of black bars and especially the negative price action, this is a sell signal for that many consecutive up days.  Timing is also important to determine when to take profit, nice trades usually takes 8-12 trading days.

Jan 11, should get out when black turning into whole red bars, 9 out of 10 the price will continue to drop, known as Elliot wave 5 turning into wave A.  As a matter of fact it does.

Another important point want to point out is to watch the Broad Market Trend as well.  In order to get the trade on your side, the stock needs to be in sync with the broad market to maximize your chance of winning.

 

 

 

From Novice to Professional Case Study #16 - Gold Miners ETF (GDX)

This is a show case of how to interpret buy and sell signals from a trend chart.  I am going to use a gold stock ETF for today's case study.  From the chart below a low risk setup buy signal was generated on Dec 22, 2009.  We bought GDX and held it for 12 days and saw the black bar showing up which generated a high risk or topping sell signal on Jan 8, 2010.  This is a perfect trade setupto show "Buy low and sell high".  You don't need rocket science to do that.  All you need is patience and a clear mind to wait for the trading opportunity to come to you.  We will wait for the next low risk setup and cycle it again.

 

 

Trend chart showing Gold Mining ETF GDX on low risk setup along with buy low and sell high signals.

From Novice to Professional Case Study #17 - Amazon.com (AMZN)

The case study serious has been using positive cases most of the time and I think it would be nice to have a nnegative case to complement the previous case studies.  In a bear market,thi sis useful to sense the risk ahead of a positive low risk setup.  Most of the time we wasi for consecutive whole red bars for more than 8-10 days and add to position when we see the first green bar and a minor positive price action.  In most cases when we trading in a bull market , it works beautifully many many times.  However, in a bear market, we need to be caution when a possible low risk setup become a trap!

 

Today, I am going to use Amazon.com for today's case study.  We saw there were many consecutive red bars since Jan 6 (more precisely Dec 30 was the day to start scaling out).  For all the Amazon.com friends, we wait and wait for a low risk setup again and finally on Jan 27, we saw the first whole green bar and a minor positive price action.  We were excited.  But when we check the weekly chart, Jan 22, and 29 still showing whole red bars (plus the overall trend level is quite high on top of the previous bar were black which signaled a top), this gives us cautions and warnings for this low risk setup.  The next day, on Jan 28, we saw a whole  green bar and positive price action, but the trend level rising too fast and too far, this is a double warning on top of the one from weekly trend chart.  Fine, we take a look on the next day which is Jan 29, no good at all, the trend level was rising too far and too fast again and the negative price action gave another warning.  Based on all these little warnings added together, we need to think about this is a real rally or just a bounce.  Of course, we need to consider the broad market as well which is no good at all.  Added up all these, we should leave.  No one can predict the future, but you can gather as much as information as you can to project the future.  In this case, there were too many negative factors to signal that we should neglect the trade.

 

Another point we should consider is if Amazon.com is so bearish, we could tell this may be the start of a broad market correction or even a bear market return.  If most of the top stocks are so bearish, we can imagine the rest of the stocks won't do any good as well.

 

 

Trend tutorial case study series daily trend chart for Amazon.com - AMZN

 

 

Trend tutorial case study series weekly trend chart for Amazon.com - AMZN

From Novice to Professional Case Study #4.10 - Citigroup (C)

What a day! The broad market trend started to show downtrend last trading day, however today has a big rally. One can tell this is a consolidation phase and a bigger rally is coming. I am neither bullish nor bearish but I am just here to interpret what I found from the model.

 

Let's continue the case study of CitiGroup, today we see quite a big bounce on the finance sector with Goldman Sachs leading the rally 2 days ago. Today BAC and JPM were rallying as well and this could be a potential of a multi-week rally. CitiGroup shows a little improvement on price and trend level as well, only LT trend shows a negative (red). Could this be changing hands between old time holder and new jump in buyers? Sure. People who bought in the highs are sick of it but the new comers see opportunities. As I said, the downside risk is minimal but the upside is huge and that's what I believe.

 

Have you ever caught a crab? You might touch it with a stick before you use your hand to catch it and this is similar to CitiGroup IMHO. It may cut you hard if you are careless and impatient. Try to place small trades and see what happen and average in more when you see the opportunities and that's what I have been doing on most stocks. The good part is you may get an incredible price.

 

 

 

From Novice to Professional Case Study #4.11 - Citigroup (C)

Finally today the first whole green bar shows up after mixed many signal bars.  This is a good sign on top of a significant price movement and higher trend level (longer bar).  I expect to see more whole green bars in the coming days to confirm this rally and today could be a good chance to add more to positions.  Sit tightly and enjoy the ride.  By looking at other banks, most of them shows similar signals as well which contribute to the confidence of calling this a real really.

 

 

 

 

 

 

Here is today's chart:

 

 

 

 

 

 

 

 

Here are the other banks charts:

 

 

 

 

 

 

 

 

From Novice to Professional Case Study #4.12 - Citigroup (C)

Today we see a perfect signal as yesterday: positive price action, positive trend level and whole green bars.  This tells us to hold.  Other banks are doing good such as BAC and JPM.  This rally won't stop until other banks shows weakness and I expect this would be a multi-week rally and weekly chart would be helpful to determine when to get off.  If anyone who are interested in trying out the weekly chart (still under testing but will be available very soon, I promise), please shoot me an email or post a comment here and I will forward you the steps.

 

 

 

 

 

 

CitiGroup (C) trend chart.

From Novice to Professional Case Study #4.13 - Citigroup (C)

Today's chart for CitiGroup shows a hold signal interpreted by positive price action, raising trend level and whole green bars.  Other than looking at a single stock, sometimes we should take a look on other companies in the same sector.  By viewing JPM, BAC, WFC are all on fire.  I would scale out the same speed as the price action rise, that means selling on any big price spikes, this can be achieved by setting limit order with a higher psychological price.  *Warning* This strategy is only for trading short term.  Keep in mind that we don't want to see the price going too fast and should maintain good discipline to get out when the price hits your expected one.  Yes you may miss the train...blah blah blah, this is the con of being a short term trader, but on the pro side you minimize the risk of holding long by taking a handsome 15-20% profit in 2 weeks.  Just need to look for another low risk setup.  There are so many stocks to choose from, why not?  Another significant to consider when to sell is the Broad Market Trend.