Stock Market for April 2009

[Bottomfeeder]

Nice post Pinetree....bottom line is noone knows when exactly things are going to turn.

I am just learning the difference between placing a bet, taking a position and building a position.  There is a big difference between the three.  In December I placed a bet and built a TOO BIG position  FAZ in two days only to get whacked by Bernanke on quantitative easing for a 10K loss.  Unfortunately I was right, just early with too big a bet.  Would have made a killing.  In February I took not a full position, but too big a postion FAS, didn't get out when it reversed, and had to fight to churn out mistakes over a 45 day period, end result 25% gain, instead of maybe up to a 300% gain.  BTW, I did pick almost the ultimate bottom on that at 2.45.  Thats alot better, but way too in-effecient.  But going in the right direction.

Both were the correct calls, that yielded to completely different results.

This time its back the other way at some point, as stocks don't just go straight up or down forever.  I am hopeful that I will find myself going from taking a positon and churning it to build it for profits (up 2-3% this week being short) to be there with a large position real close to the bottom for the big gainer.
One thing we all have in common, is the thing that brought us all to this site and the U's and gold and everything else, is that we are all attracted to the concept of investing in the stock market to make a killing!

The lessons that we should be learning is that we have to become moe sophisticated to make it happen, and better learn to manage our risk to actually realize the reward, regardless of duration.  A mismanaged wrong long term investment is no less painful and probably more so, than a missed short term bet.  Its all gambling, even if less active.

[sidewinder]

If you are not into T/A just ignore this post.

Here is a snap shot of the current hourly chart of FAZ.

I am only using a 3 wave count.  Reason is it works and with elliott's wave count you get so many waves inside waves it just complicates the wave issue.  So the rules are (for me).

The Elliott in the Elliott wave theory is no relation to the David Elliott that I follow.  I have been a student of David Elliott aka "First Wave" of Wallstreetteachers.co TCNet, and recently has a club at Think Or Swim (TOS).  I have learned a great deal from David in the last 18 months and highly reccomend his methods as it is so simple a complete moron such as myself can grasp the trading style and make it your own. 

1. Wave 1 has but one rule;  it must begin at a new low or new high.
2 Wave 2 has but one rule;  it can't break the start of Wave 1
3. Wave 3 has but one rule; It HAS to break Wave 1

Using this simple wave count with the premise that;  New Lows seek new lows until failed new low.  and the opposite if the stock is trending up .. New highs seek new highs until failed new high. 



I have started the wave count just before the close on Monday counting that as a new high in this last run. 

Using First Wave's methods (hereafter referred to as FW) are simple because there is the ability to use as few or as many indicators as you wish.  The basic setup is a chart with the 20 SMA 50 SMA, Bollinger bands period 10 with .8 standard deviation.  Window 2 has 6 or seven stochastic studies with all the information removed except the SK period.  This reduces the "noise" and results in an indicator with different colored lines, each representing a different time period from long to short.  The blue line in the w2 is the long term stochastic study and you will notice in this chart the blue long term study has gone from the top of the range to its current position on the bottom.  The other shorter term lines move up and down on the chart.  The white is a short term stochastic and the orange is a short term RSI value.  What happens is, with the long term blue line remaining firmly placed along the bottom of the chart, the other short term lines move up and sometimes end up looking like a bow drawn back to shoot an arrow.  This produces what we call a “Snapback” action similar to pulling back a rubber band and letting it snap.  This is pretty much what happens to stocks as they move up and down.  On FAZ from the new low mid day Thursday the buyers kept coming in supporting the stock enough to bring the short term value up slightly through about 10 AM on Friday when the bears won out causing a bunch of selling which resulted in the “Snapback” reflected by all the short term lines going to the bottom.  The Blue long term is highlighted with the white oval on the chart.  This condition with all the window 2 lines at the bottom cannot last unless the stock is going to keep going down to 0 so what we call a Snapback UP is likely to form.  That is what’s happening now on the hourly chart.
   
Now look at the pattern.  The last few SBUs have failed to produce a new high and remembering what I said at the top of the post about new lows seek new lows and new highs seek new highs, I will shorten it to NLSNLUFNLs and the opposite NHSNHUFNHs. The last nice SBU on Thursday ended up producing a wave 2 sideways movement into the FNH (failed new high) around 10AM Friday. Wave 3s are generally the most powerful move of the cycle and this one produced a very nice shorting op on the SBD and if you understand these methods you could see if forming and have plenty of time to enter on the short side for ride from 18 down to 15 in about a 6 hour period.  This works on ALL time frames.  This chart happens to be an hourly but could just as well be a daily or weekly chart.  Picture this as a daily chart.  That’s a nice swing trade.  Matter of fact that’s 3 really good swing trades to the short side on this one chart.  In this instance you are playing the Failures.  That is the failures to make new highs.  I don’t play the in between stuff it’s too risky for me.  But once you can identify a failure, over and over you can make money.  If a stock is in an uptrend it works just opposite.  Learn to count to three.  Find a couple of indicators you like, sit back and enjoy your flight.  It matters not, which way the market is going.  Sideways markets makes it more difficult so, enjoy this.
 
In window 3 I have included the CCI (commodity channel index).  This is actually 3 CCI studies overlaid onto one chart.  The White line is the short 5 period study, the yellow is a little longer 20 period and the blue is the long 50 period.  There is a graduated scale on the right edge with the yellow dashed line being 0 and the two red lines running through +100 and -100 on either side of the center.  This gives us a look at how the stock is trending short term.  If all three CCI lines are below the -100 you would be in a serious down trend.  We have observed that when the three indicators are in between the red line the market is usually in chop.  Don’t go long when they are below the red -100 line and don’t short when above the +100 line.  Just another look at the trend.
 
This has been long winded and I will stop here.  It very difficult to explain so much in a short way but just wanted to share this with those of you that like to look at charts.  Challenges to this theory and method are welcome because I like to learn and to explain something is to reinforce and check my knowledge.

[sidewinder]

BF thanks for the nice comment.  Where have I been?  Well nowhere really just have been spending an inordinate amount of time trying to learn how to use the stuff provided at Think or Swim.  Or TOS.  I opened an account there about a year ago and thought it was too complicated for me.  But played around with the charting and options tools occasionally.  About two months ago the guy that runs the t/a club I frequent on TCNet started a club over at TOS and has the ability to be online live complete with voice and real-time charts and market information.  It is simply put, the hottest thing going right now and even Tom Sosnoff the founder of TOS is putting in effort towards our group.  I am very impressed with the folks at TOS.  Perhaps it is because Tom S. Likes David our resident chart guru but nonetheless I have been putting a lot of time over there as I feel it is the learning opportunity of a lifetime and don’t want to miss out.  David is live online with voice instruction for the entire trading day and I listen to his live market analysis at two different places in the evenings.  Those briefings are about an hour each.  Then I put the info to use by scanning over 7200 stocks nightly (I have programmed my TC200 program to do that)  looking and learning.  All this while participating in live chat at two different market clubs sharing ideas with others.

It's probably a matter of time before they start charging for what we have but for the mean time it’s free and it’s the best education I have seen in the stock market area since I have started a serious effort to once and for all develop an in-depth understanding of the markets. 

All during my working life I have just "dabbled" in the markets.  Now retired, I have the time to devote to study and that’s what I am doing. 

Plus you have the nicest charts, although I must confess I have NO IDEA what they are, just too sophisticated for me.

I thought all this was too sophisticated for me also in the beginning.  I will be frank with you here.  I originally came to this site because I had blindly followed J. Dines into the Uranium markets.  I was just a guy making plenty of $$ at the time and was sticking it into the U market.  As we all know it worked for a while then BAM.  I kept listening to the old man and kept losing money, all the while waiting for him to say get out or back up the truck.  It was a lot of back up the truck and pretty soon I saw that my truck had a leak ... a serious leak. I lost a lot of money.

That is when I decided to learn to invest and trade for myself.  I will never listen to any other newsletter peddler because I have invested the time and study to finally think for myself.

I've heard it takes 5 years as a trader to reach your full potential, I am about half way there.  Just keep trying to get better.

It does take quite a bit of effort but the rewards, both financial and personal are worth the time spent. I’m just guessing here but I would venture to say that the education I have gotten in the last two years of market and T/A study is just as good as any MBA anywhere has received.  As a matter of fact, one of my golf buddies is a PHD and is the head of the MBA department at a large university.  He has argued with me for the past two years about the economy.  He calls my thought on technical analysis and my economic theories hocus pocus and flawed.  He says he tried T/A and it only tells you what has already happened.  (which is a true statement but there is more to it than simply looking at a chart) I have so enjoyed encouraging him to put his money where his mouth is and on two occasions have been successful in extracting various sums of $$ from the good Dr.  He, on the other hand, has not yet won a single bet.  He has stopped calling me an economic hobbyist but I still refer to him as a mere academic on the public payroll.  It’s all in good fun but he will not engage me on the subject anymore.  (At least not in public view of our friends).   

Is this a claim to have located the holy grail of stock trading?  Hell no, I doubt there is such a thing, But I do believe one can develop a trading philosophy that produces more winners than losers and couple that with proper risk management a path to wealth. 

[pinetree]

That's awesome SW.

As usual, I have some questions.

About the waves, on that chart, what do you mean by wave 3 has to break wave 1?  I don't see where W3 breaks W1 on the chart.

I think I'm getting the other part now, so what we're looking for is to see if this upcoming SBU is going to be able to exceed the high from Friday morning or make a FNH.  So if it seems to be making a FNH, how do we know when to give up on it?  Are we looking for SBD signals?
Also, what do we do if it makes a new high?

Sorry if that's too much, I'm just trying to make sure I understand it.

Oh, and do you mind letting me know what the periods your using for those stochastics are?  I'd like to start using them.

As a side note, I noticed a nasty potential SBD forming on the CCI of the daily charts of the 3x bears early in the week, and for some reason didn't do anything about it, even though I found it to be very reliable in my backtesting.  Another case of analysis paralysis.  There was a 50% move in FAS to be had.

By the way, the possible snapback up forming in FAZ coincides with what I was getting at earlier with the VIX, this seems to indicate an FAZ trade could be upcoming... ha-ha... Maybe.


EDIT - If anyone cares this is the potential H&S top in gold... is that a breakdown on Friday??

[sidewinder]

Pinetree I have been looking for you to show up on TOS but have not seen your name in the chatroom as of yet..  What happened?

About the waves, on that chart, what do you mean by wave 3 has to break wave 1?

As far as the waves go unless the current wave goes through the W1 high or Low whatever the case, it will be a failed new high or a failed new low.  In that case, it would have to be a W2 because Wave 2 has only one rule.  It can’t break W1 … meaning that all failures .. that is failed new highs or failed new lows must be W2.  If you understand this down cold you can look at any chart on any time frame and in a matter of seconds determine where a stock is as far as wave counts are concerned. 

[sidewinder]

That last failed new high is W2, so we are still in W3

[sidewinder]

****************************************************************************
To be as simple as it is waves can be very confusing but applying the rules in your head and trying to write it down to explain it is not easy.  Matter of fact its making me dizzy right now.  But here goes anyway

Looking at that chart above let’s just for arguments sake consider that the last FNH I have the arrow pointed to is wave 2.  It fits the description of W2 in my definitions.  W2 can’t break the start of W1.  All failed new highs and all failed new lows (depending on the trend) are W2s.  Just glancing at the chart you can see that the last run up did not make a new high… it failed to make a new high.  So does it fit the definition all failed new highs are W2.  Yes.  Did it make a new low .. No.  What follows W2? …  W3.  All you have to do is count to 3 with this method…… So we have a failed new high (a W2) and are currently finishing W3.  Strictly speaking a new wave 1 started on the green candle following the low of $15.23.  When we confirmed this, then the move up will be W1  … UNTIL >>> it proves otherwise.  It could turn into a W2 if it fails to make a new high.  In which case we abandon the previous waves in favor of this latest wave 2 confirmation.  The idea is the we look either a failure to break 18.36 or 18.39 depending what kind of weight you want to place on that little double top Thurs-to-Fri Or we go up through it  which would make it a new high.  FAZ on the hourly has been popping up through the 50 SMA and failing, Popping up through the 50 SMA and failing.  In the last 2 weeks I can quickly see 5 times when it has popped through or kissed the 50 and failed so what should I expect? 

That W2 I have marked can be said to be a double top.  After the retreat on Thursday we went sideways into Friday premarket at 9AM it missed by .04 cents of the last up move on Thursday.  Did it make a new high?  No so that can be called W2 and as soon as the market opened it begin its W3 decent which was confirmed by a whole bunch of other things … There was an ADX crossover with the –DMI going up and the +DMI going down.  There was a “snap” on the CCI with the 5 and 20 abruptly turning down and heading for the 50 (Which by the way never got above the centerline although the 5 and 20 went nearly to the top of the scale. (big hint).  Those Bollinger bands are on the chart for a reason.  That 11AM candle closed below and cross down through the lower Bollinger band and the 20 SMA at the same time.  A powerful indication of a big down move to follow.  In addition to all this the 20 SMA and lower BB were sitting right on the daily Pivot Point which can provide support.  Pivot support was ignored and violated with a vengeance, so all this stuff when combined made for a nice shot at 15% or so.  It drifted on down to $15.23 after hours. How it will open on Monday… Who knows but for right now FAZ has made a new low.  If the general market continues up then I would expect FAZ to at some point go up to test the 20 SMA and Fail again.  I would not enter FAZ on the short side at this point; I would wait until it goes up again and fails. This should happen soon and provide a safer entry on the short side. If it continues down on Monday so what I did not risk anything.  But if I entered short here there is the risk that it will turn up and make an assault on the 20 SMA and I would be stopped out and lose $$.  I would rather have a free look by waiting and going short near the 20 or ever better the 50. 

Now my public service announcement; I don’t think this rally is anything more than smoke and mirrors.  The world economic woes have not gotten any better and all I see is more subterfuge by banks and government.  Think I mentioned perception earlier.  To top all this off all these companies are pulling a fast one on the public by unceremoniously lowering earnings expectations.  This has been quietly going on for many months now.  What this does, is when they DO release earnings everybody goes oh that’s not so bad they made, exceeded or almost made the earnings expiation.  All this talk will be coming from the shill actors on MSNBC, FOX news financial shows.  Most of those guys don’t know what they are talking about.  The idiot Cramer has proclaimed the Depression over. That alone should send shivers down your spine.

I didn’t proof read this so ignore the typos and who knows what other mistakes in this… LOL   

[jjj000]

Unfortunately I was right, just early...

sigh... ya, I can't tell you how many times I've suffered from this.  I'm a contrarian by nature.  Which is a fine way to live a life... but a real poor way to invest if you don't have brass ones and a good hedging strategy


==========

sidewinder---

what's the period of the YELLOW stochastic line on your FAZ snapback chart?  That seems to me, combined with the blue, to be particularly indicative of a strong reversal vs a weak one.  Thoughts?


==========

Damn...all this chart studying on a Friday night... I should be out meeting girls...

pinetree... don't do it.  girls behave more irrationally than the market and will cost you even more money!!

Although the T-A is a little more enjoyable... hehe... no disrespect to any of the fairer gender here on the board of course

[jjj000]

One of the simplest things I know of to play the markets is just use the McClellan Summation index with a 10 day moving average.

sidewinder - how come your chart has such a large scale compared to the one on stockcharts?  see below link:

http://stockcharts.com/h-sc/ui?s=$NYSI&p=D&yr=0&mn=9&dy=0&id=p31607838198

This summation index chart on stockcharts looks basically useless to me, with a number of false breakout indicators...

What's the difference on your chart?  Must be something in the calculations.  Per their notes on stockcharts they calculate using:

Summation Index = 1000 + (10%Trend - 5%Trend) - [(10 x 10%Trend) + (20 x 5%Trend)]

is this significantly different from what you are doing?

[jjj000]

Strictly speaking a new wave 1 started on the green candle following the low of $15.23.  When we confirmed this, then the move up will be W1  … UNTIL >>> it proves otherwise.  It could turn into a W2 if it fails to make a new high.

Sidewinder - I don't get this at all   apologies ahead of time for this post...

Going back to the FAZ chart you posted... first I'm confused as to why you drew your W1 and W2 points at the peak of the waves, but W3 at the trough...?

Then:

- how come W2 doesn't start early Tuesday around $22 - peak an hour or so later at $24 and then finish another hour later at $20?  Because that 20 was not a new low to trigger W3?

What if you decided W1 started mid-day Monday at $22 instead?  Then W3 would start Tue at $20 and resolve on Thursday at the new low - $16.50 or so?

Am I completely missing something???


Also how do you reconcile the higher tick mid-day Thu at around 18.25 during your W3 count--- which is a higher tick than the actual peak where you drew your eventual W3 top on Friday- around 18.19???

Could you instead be starting a NEW wave down where your current W3 starts???  Meaning:

- W1 goes from the new low on Thursday morning at 16.50, peaks at 18.25 mid-day Thurs, and completes on the next down move around 16.93

- W2 goes from 16.93 up to Fri morning at 18.19 and completes Fri afternoon at the 15.23 low

- W3 is just starting at 15.23... should come up to 50-day and test resistance around 16.50 and then turn back down to complete at a new lower low


Sorry, I should have charted that to make it easier on you to digest.

Am I making any sense or have I totally missed the method??

[sidewinder]

jjjooo

This summation index chart on stockcharts looks basically useless to me, with a number of false breakout indicators...

What's the difference on your chart?  Must be something in the calculations.  Per their notes on stockcharts they calculate using:

Summation Index = 1000 + (10%Trend - 5%Trend) - [(10 x 10%Trend) + (20 x 5%Trend)]

is this significantly different from what you are doing?

The McClellan Summation Index I used is from one of my chart services.  Worden Bros. Telechart 2000.  It is one of the most versitile I have seen and the Wordens have some prorietary indicators that are really very good such as one called time segmented volume or TSV and BOP or Balance of Power which shows a graphic depiction of how much institutional buying or selling is involved each tick.  So sorry if I sometimes throw up a chart without thinking someone may try to reproduce it for themselves and get some weird stuff. 

Long story as short as I can... the McClellan Summation Index is simply a cumulative indicator of the McClellan Oscillator. 

The McClellan Oscillator is reported each day by many financial news services. Their reported value will almost always be different than Worden's because, Worden, uses every stock on the NYSE. Many services use slices of the market.  The numbers may be different but the overall trend of the indicator, however, will be the same. I feel that Wordens T2100 series of market indicators are some of the most accurate data available.

Could be too you may be looking at the MA line the oscillator itself is the dots. I will change the picture to just a simple line chart as you have on the SharpCharts and you can see they appear the same.

[sidewinder]

And again the chart you sent me too...  dont see that much difference..  You can put many views on charts depending how you display.  What I display here are just what works for me and COULD vary slightly for some other charting services..

[Peter518]

First, I want to express my appreciation and comfort to JDH for his latest weekly works (blogs) even though he was sick.  I wish him recovery from his sickness very soon.  JDH, Take care.

==== Quoted from JDH ============
I very rarely get sick, but when I do it knocks me out completely. I was feeling great until about 8:00 pm on Thursday night, and then that was it. From about 9:00 pm Thursday until 9:00 am Friday morning I was knelt before the great white porcelain throne, every three hours, until I had nothing more to give. Friday was spent sleeping, until I awoke from my slumbers around 5:00 am Saturday morning, where I know sit, upright for the first time in a day, at my computer, surveying the damage.
=============================

Secondly, I thank you all on the forum for sharing your experience and lessons with us.  I have learned a lot from you.  Please continue the good job!

Special thanks are to Sidewinder for sharing David Elliott 3-waves theory with us, and explaining in details with FAZ as an example,  which is very handy to us.  If you had posted this three days earlier, you would have helped me make more money on FAS.

Finally, hope everyone makes a lot of money in the new quarter, no matter the market is up or down.

PS:  If the commodity continues to go up, some sectors we may want to keep an eye on are: Solar energy and base metals (steel, copper, Mo, and nickel), besides crude oil/gas.

Have a nice weekend.

Peter


   

[Peter518]

Just some complementary examples for Sidewinder's 3-wave post:



Example 1:  New Lows seek new lows until failed new low.



Example 2:   New highs seek new highs until failed new high. 

Courtesy:  Afraid to Trade.com Blog by Corey Rosenbloom

[sidewinder]

Trying to figure a way to make the explanation of the 3 wave count more clear.  Need my A$$ kicked for using FAZ as an example.. It has ugly waves as it is a derivative.  I will try to be more explicable about these wave counts.  lookit .... uptrending stock ..... wave 1 starts at a new high.  a Failed New high is wave 2.  that's it..... if you hit a bottom the opposite is true.  FAS is in wave 3 with the new low..  from there any up move is wave 1.  if it comes back down and fails to make a new low it is wave 2.  If it comes back down and makes a new low forget everything that just happened any up move begins a new wave 1 because it came down and broke the previous wave 1 we start the count all over.  

What we are looking for is Failures.  A failure of wave 2 down has a higher probability to go back up and and break the previous high of the last wave 1 top.  Nontheless at this point we would now be making higher lows.  hope you can see some logic in this.  

Anyway I will try to put something together that makes it easier to understand time permitting.  For the non TA fans really sorry just ignore these post and go start political fight.  lol

something I read about FAZ today

http://chartsandcoffee.blogspot.com/2009/03/leveraged-etfs-buying-options.html

Major point from the article

The proper way to set stops is similar to setting stops on options based on the movement in the underlying stock price. The same goes for setting stops on the leveraged ETFs. The stop on the leveraged ETFs should be pegged to the underlying stock price in the base index. The problem is that because of slippage the relationship between the leveraged ETF and the base ETF (e.g, FAS and XLF)the relationship constantly changes making it near impossible to tie your stop on the leveraged ETF to the base ETF with any kind of precision. This translates to letting a loss get out of control or getting stopped out of a position prematurely.

I'm not really a fan of these 3x deals