Courtesy of David at All About Trends
(Reminder: David is available for questions from members in the comment section!)
Friday we said:
"Well we either fill the waterfall gap down for a retest of the highs or this push up here stalls or backtests a broken trendline and rolls over."
Two weeks ago we showed you "What To Watch For" and sure enough the grand slam to the 50-day all based upon classic technical analysis was the rub.
We hit the 50-day as did most leaders, the full stochastics got to deeply oversold just like in Aug. and Nov. and here we are bouncing off the 50-day. From this perspective everything looks fine and is intact.
If we are going to retest the highs it has to bust through BUT first it needs to digest this last two day move (full stochastically speaking).
The index that has the greatest odds of doing so is the OTC Comp. Why? It’s the index that leads the market.
We all know there are two sides to every story (We’re sure seeing it in Wisconsin and Indiana) and two sides to every coin. So that said let’s spend some time on "What To Watch Out For". After all, eventually ALL trends change and if you are long at a peak you need to know when to get out.
The best way we know to show you classic change in trend patterns is to show a few examples of recent issues that staged "Change In Trend" Patterns — in this case up to down. The two most common patterns are Double Tops and what we call 1st Thrusts Downs.
First up is the double top.
If you get a chance check out ADTN and ARMH as they look very similar to MOTR just before MOTR went into an intermediate term correction.
When applied to the OTC Comp the blue lines are a what it would look like.
Next up is a First Thrust Down in the form of ROVI. Keep in mind in the short side watch list area we’ve been showing two recent examples we’ve featured in the form of BCSI and SLAB show in that section.
When applied to the OTC Comp the blue lines are what it would look like should they come to fruition in the index charts.
Thus far we have exactly what was supposed to transpire in the pullback off the recent highs in the indexes and many of the markets leaders. From here we’ll have to monitor closely to see if any of the "What To Watch Out For" scenarios above play themselves out. In the meantime, this IS a very fast market so tread lightly.
Lastly:
In addition to the "What To Watch Out For" potential scenarios above the VIX and the US Dollar are starting to "Get That Look".
We’ve seen it before and MAYBE we’ll see it again. That is Dollar up, market down and if the market goes down the VIX also tends to go up. So this is another thing to pay attention to going forward here. The VIX is starting to talk here and the Dollar has yet to.
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WHAT EXACTLY DO I WANT TO ACCOMPLISH WITH MY OVERALL Virtual PORTFOLIO IN 2011 REGARDLESS OF WHAT THE MARKET DOES OR THROWS AT ME?
SHORT SELL WATCH LIST
NONE — Why? Look at the indexes. We bounced off the 50 day average and prior supports.
Now if over the coming weeks we sell off to the 50 day or prior supports, (2-25 Been there already did that) bounce and then fail? We’ll get short in a major way. Should that occur it will set up a lot of double tops and first thrust down snapback rally chart patterns. Below are a few examples of what First Thrust down patterns look like.
BCSI
Classic first thrust down, puts in a bear channel, snapback rally call it what you will in pink, breaks it and it’s bombs away. One catch, the bombs away was earnings related. BUT that’s the pattern we want to see on the short side with names.
SLAB
Well there you have it, first thrust down, snap back rally and bombs away we might add.
LONG SIDE WATCH LIST
If I were to put money to work here. Where do I put it?
Remember it’s all about Pullbacks Off Highs of issues in clearly defined uptrends above the 50 day that we are most interested in.
AAPL
LLNW
Notice how our watch list got real small all of a sudden? That’s because at 200 MPH it doesn’t leave a lot of names at low risk entry points that we can work with anymore, besides the index action warrants caution AGAIN.
Featured names but not trade triggered by us
Long side featured
NFLX
BIDU
CMG
OPEN
SWKS
SOHU
FFIV
SINA
Gosh, who’s not to say this isn’t the start of some sort of right shoulder developing here. We’ll want to watch for that too over the coming weeks. If you were one who bought the face of fear here recently? Well you got a good 4-5 point swing trade out of it that’s for sure.
CLR
RIG
This issue seems to be tightening up here. If you’re long that’s good. Risk management is mentioned in the chart for those who own it.
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All About Options In The World According To All About Trends
NOTE: The exchanges recently started WEEKLY EXPIRATIONS of options. Going forward, make sure that you check to see which ones you are buying. Let’s stay with traditional options expirations which are the ones that expire the 3rd Saturday of every month.
NONE currently
CURRENT POSITIONS
"Let Your Stocks Tell You What To Do By The Action They Exhibit"
Long Side Positions
Per the trade trigger alerts Friday morning we are now long LULU, RAX, IDCC and CVLT.
So here is the deal with these. One of three things are going to happen here. We’ll either make a gain, wash or stop out at a loss. It can be no other way.
In each of the charts we laid out stop loss levels to be aware of should something go awry, those levels (And Trade Size Per Position Risk Management) define your risk.
Are they going to work out? Nobody knows. We are there and now at the mercy of the market. At this point it’s all about managing that risk as defined because right now we have no gains to be able to manage and quite frankly that IS always the way it is going to be the split second after you take a trade.
2-27 NOTE: Should the markets stage a retest of the highs these ought to go along higher with it. HOWEVER should the markets fail? These will most likely fail too so BE AWARE. What we’ve done is lay out stop loss levels to BE AWARE of should that potential scenario occur.
Remember the mechanics of reality apply with these issues and we , nor you have any control as to whether they are going to work out as the market is the boss not us.
LULU (We are now long 150 shares at 77.26)
IDCC (We are now long 250 shares at 47.34)
RAX (We are now long 300 shares at 36.79)
In addition to the green trend channel as a stop loss level which is more for those who have been investors and in it for awhile there is a red line in the chart , that red line will be our stop loss level, a break below it that is.
CVLT (We are now long 300 shares at 35.40)
SHORT SIDE POSITIONS
CYMI (We are SHORT 200 shares at 47.66)
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To our NEW SUBSCRIBERS
What we’ve tried to do is break our watch list down into chart pattern recognition structure from a visual standpoint. Learn the patterns and the components of patterns and you’ll blow those Wall Street MBAs away. You don’t need a $3,000 software program either. All you need is a BURNING DESIRE to be the best that you can be and we’re here to help.
We have a lot of new folks here and we thank you! We want you to take it easy, get to know how the routine works around here for awhile and to feel comfortable.
We hope you all aren’t here because you are chasing performance. For us it’s more about educating and making you the best you that you can be first (that’s what we focus upon!). Like many of our long time subscribers they have all found out that they have no use for traditional Wall Street (and we don’t blame them) and it’s our hope that over time you’ll have acquired enough knowledge from us to say the same with conviction.
One of the most important things we want to stress is that of RISK MANAGEMENT via POSITION SIZING. You don’t need to stack your account with just a few big positions as we’ve seen it time and time again that those who get into trouble are the ones who take large positions and do not employ any risk management system IE shoot for the fences. Those are the people who live on the fringes of extremes and yes ultimately get burned.
As a guideline a good initial system is that of the following example.
Let’s say you have a $100,000 virtual portfolio and let’s say that as a guide you never place more than 10% ($10,000) into any one position. Now let’s say that one day a news driven event hits (over which you have no control over anyway) and one of the positions tanks 20%. On its own that position is sporting a $2,000 loss, while that may seem devastating on its own its really no big deal overall.
Why? Simple its all about risk management being properly employed. What is the impact of a $2,000 loss to the TOTAL VALUE of the virtual portfolio in this example.
Answer: A whopping 2% LOSS. Now you know why we say no big deal.
We can also tell you new people here that you will get stopped out of names and you will take hits. There is nobody on the planet living that has ever hit 18 holes in one and there never will be. We’d rather get you grounded in reality right away vs talking about pie in the sky all the time like a lot of other sites. In so doing your head is screwed on straight from the start and when those days happen (and they will) mentally it won’t mean a thing to you. To us that’s what’s most important is YOUR state of mind as it’s your most important asset. We hope you appreciate our honesty.
We have a very good retention rate here at All About Trends and a lot of great outstanding people here. We like to think that a part of that is being upfront about what can happen (in both directions). Verses those up 500%, I turned $50,000 into $3 million or some other absurd number to get you to bite. That’s not who we are.
WELCOME ABOARD!
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Lastly with regards to taking any trade:
Remember the moment you take a trade you are at the mercy of the market and have no control except when to sell. If you are not willing to take the risk and are not willing to pay that price do not take the trade. We are willing to take that risk knowing full well the end result could be a loss. That said make sure that virtual portfolio management trade size is used accordingly. With any position you may take make sure that should something go awry the amount of total impact to your account does not devastate your acct. Try to stick to a 5% position That’s the key to virtual portfolio management, not biting off more than you can chew.
Remember the mechanics of reality with regards to the stock market states a stock can only do one of three things: Up, Down, Nowhere. The moment you hit the enter button you are at the mercy of the market therefore the only control you have is when to sell/cover. You can’t manage your gains as you have none to manage initially. Knowing this in advance it allows you to stay in outcome, that being you will either:
1. Make a gain
2. Wash
3. Get stopped out at a loss
Remember the market IS the boss. IT is going to do what IT wants to do.
