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Friday, February 29, 2008
Wednesday, February 27, 2008
I noticed on StockBee that Pradeep has given his all clear for the market. I completely agree and, even thought the S&P 500 still looks flat, the internals of the market continue to get stronger.
For more explanation about the plot below, check out this link.
Posted by Paul Stiles at 2/27/2008 09:04:00 PM
While the market was falling apart I picked up some shares of CSCO as it completed a perfected TD Sequential countdown. The entry point was very close to the stop-loss so I didn't worry too much. (That is what is so cool about the TD Sequential and Combo, they have well defined risk) The trade didn't work out and I was stopped out for a small loss.
The other day I pointed out that CSCO finished another TD Sequential just as an analyst upgraded the stock. After the post pop sell-off occured I couldn't help but pick up some July CSCO in-the-money calls for 3.50. Thanks to better market conditions, I'm sitting on some big gains right now with those calls being priced at 4.80. The really cool thing is that I expect to see CSCO price to reach 27.50, which would mean a call price of around 5.80. Tags: LongTags: Options
Posted by Paul Stiles at 2/27/2008 08:39:00 PM
Tuesday, February 26, 2008
Monday, February 25, 2008
Blocks 3.0 offers the zig-zag swing indicator but doesn't allow you to look into the code. I was interested in this because I'm trying to reproduce Jan Arp's Trender.
What I did was to translate a piece of EasyCode into VB.net from "New Trading System and Methods".
First thing to do is to create a new code block. Then, insert the Kswing code (found at the bottom of the page).
Posted by Paul Stiles at 2/25/2008 09:23:00 PM
Saturday, February 23, 2008
Posted by Paul Stiles at 2/23/2008 02:32:00 PM
Friday, February 22, 2008
It is always hard to time trades based on sentiment, but since I'm bullish (at least for the next few months), I thought I might back up my position with a look at the AAII sentiment survey. The red plot is the 10 week adjacent average for the AAII bull-bear spread, plotted along with the weekly close of the S&P 500. I think it is pretty amazing that the difference between the bulls and bears (with the bears outnumbering the bulls) is greater than the lows of 2002 and 2003. They say that sentiment indicators do not work unless they are reading extreme levels. If this isn't extreme, I don't know what is.
Posted by Paul Stiles at 2/22/2008 11:07:00 PM
The DeMark indicators are fairly complex and can seem a little like "black magic" sometimes. No matter what you might think of their usefulness or their predictive behavior, I'm beginning to wonder if some analysts use them to time their upgrades or downgrades.
Take Cisco (CSCO) as an example. Yesterday, CSCO completed a perfected TD Sequential countdown and was immediately followed by an upgrade from Citigroup.
Citigroup analyst Paul Mansky upgraded the San Jose, Calif., networking-equipment maker to buy from hold, calling Cisco attractive for long-term investors based on its valuation.
I have not made any attempt to document this behavior, but I'm certainly going make more of an effort in the future. What I would really like to do is to go back and look at the historical upgrades for a group of stocks and see how they correlate with the TD Sequential and TD Combo indicators. Unfortunately, I do not have the time or resources to attempt such a study. Too bad, if it is true, it could be a significant trading edge.
Thursday, February 21, 2008
Wednesday, February 20, 2008
With another good day for gold stocks, I'll continue my recap of how I timed some of my recent buys.
I have owned Great Basin Gold (GBN) since early 2007. It wasn't a large position but one that I liked fundamentally and technically. With gold rising ever higher, I was always on the lookout for another opportunity to add to my shares of GBN.
The chart below is a weekly that has two trends defined by a blue and green line. I have also plotted the Fibonacci retracement levels of each trend. You can see that there is very good agreement between the 0.382 retracement of the blue trend and a 0.618 retracement of the green trend. This overlap is referred to as "confluence" and often serves a support. I was looking for this and picked up some GBN at the 2.50 mark. As you can see, I took a little heat for about a week but overall, the timing of the buy was pretty successful.
Notice also that GBN bounced off another confluence point defined by the 0.236 retracement of the the blue trend and a 0.382 retracement of the green trend. (I didn't buy any more)
More on confluence
Tuesday, February 19, 2008
I am a CANSLIM investor above all else. But since there are very few market leaders to buy out there I think it is useful to dabble in some other trading methods.
This recent market weakness has highlighted a potentially powerful divergence between the price of gold and the performance of many gold stocks. Here are some of my recent gold buys and the reason why I bought them. Most of these methods were heavily influenced by Tom O'Brien.
First up is Gold Fields (GFI), which was a simple buy-at-support play. Sure the company was hammered by the energy problems of South Africa, but the price held at previous support and offered a low-risk entry. I have a price target of 18 and, depending on volume, I will either sell half the position and let the rest ride or just sell it all.
Next up is Anooraq Resources (ANO). This is an excellent example of a stock coming back and testing the breakout. I owned ANO from 1.00 to 2.10 and was anxious to get back in. I almost bought at around 4.00, but thanks to some advice from Tom O'Brien, I waited for that test. Well I got the test in late January on lower volume and jumped in at $3.37. Nice day today.
I want to also talk about Great Basin Gold (GBN) but due to my obsession with all of the election coverage, I'll talk about it tomorrow.
Posted by Paul Stiles at 2/19/2008 07:19:00 PM
Monday, February 18, 2008
The Blocks program is extremely versatile and quite easy to use. The newest version (Blocks 3.0), while still a little unstable, is even easier to use. Here is how you can create DeMark's TDST lines with the program.
To create the TDST line corresponding to a TD Sequential Buy Setup, the first thing you need to do is to create a "value pointer". Right click on it and then left click on the "block diagram". Next, create the block diagram shown below, using the custom block you will create.
To create the custom block, right-click on any blank spot on the above block diagram window and then left-click on the "create code block". Choose the "bar and Int to line" block. Next, insert the code (given below) into the space that says '************ Your Code Here ***************
To create the red TDST line, repeat the above steps but using the following block diagram and code. You can change the Integer input to go back in time. For example, if you want the TDST line that occured before the most recent TDST line, just enter 2 into the integer variable. The higher the number, the further back you go.
I put the code at the end of the blog page. It was written in VB.
Posted by Paul Stiles at 2/18/2008 08:39:00 PM
Wednesday, February 13, 2008
One of the things I really like about the Worden Brothers' data is that they contain sector indexes. There are main group sectors and sub-sectors within them. All of the sectors can be plotted together to get an idea of which sectors are leading. You can also put together a "market monitor" type breadth indicator to get a feel for the entire market. Below I have plotted market monitor for the Hemscott Industry Groups along with the NYSE.
Blocks also lets you take a look at an individual sector or ETF. Below I have plotted the market monitor breadth for the XLF and SPDR Semiconductor ETF.
Posted by Paul Stiles at 2/13/2008 10:49:00 AM
Monday, February 11, 2008
Here is a swing trade that I put on today. I picked up Gold Fields (GFI) in the morning for 13.32.
Here is a break out that I nearly bought last month. The break out failed and came back down to the lower level of the base. Friday, CHDX broke out again. This time it held and even followed through today. This type of action bodes well for the market.
Saturday, February 09, 2008
It seems that my previous post prompted a link from from Stockbee, as I have seen a sharp spike in my visits. I do not have a paid Stockbee membership so I can't follow the link back from where it originated. I can only hope that it wasn't pointing people to see a post of "what not to do". I have great respect for what Pradeep does and I hope that I wasn't stepping on his toes. It is one thing to present an indicator, it is quite another thing to use that indicator to make money in the market. Pradeep knows how to use his tools and that is why people pay him money for his advice. With that said, I want to respond to a comment asking about the previous post.
The indicator I presented is really quite simple. All one needs to do is calculate the percent change of the closing price from a high or low of a given period. One then counts how many stocks in a given index are above or below a given threshold. The final indicator is constructed by subtracting the percentage of stocks below the threshold from the percentage of stocks above the threshold. What's cool about the indicator is that stocks in a consolidation do not contribute.
Below, I use Terra Nitrogen (TNH) as an example. The first chart shows the 30 day Donchian channels (30 day highs and lows) and also shows the percent above the low and percent off of the high. In the previous post, I used a threshold of 15% in order to determine if the stock should be counted or not. If TNH was included in our hypothetical index, it would contribute to both the up count and the down. Since the final result of the indicator takes the difference between the up and down counts, TNH would cancel out and not contribute to either direction of the indicator.
The next two charts use longer time frames and greater thresholds. The 50 day high/low uses a 25% threshold. For the 80 day high/low I used the 40% threshold. Both time frames had TNH contributing to the up count, but not to the down count. Therefore, TNH would help contribute to the health of any index it was included in.
All I did in the previous post was to repeat these calculations for every stock in the Russell 1000 and the Nasdaq 100. Blocks 2.0 and Blocks 3.0 uses a very simple interface that makes such calculations very easy.
Posted by Paul Stiles at 2/09/2008 10:15:00 PM
Friday, February 08, 2008
I am constantly searching for new ways to help me visualize the health of the market. I recently posted about my Combo MACD indicator and found it helpful in identifying points of price exhaustion.
Today I'm going to present an indicator that is inspired by the "Market Monitor" methods of Pradeep Bonde at stockbee.blogspot.com. I don't know exactly how Pradeep uses his method. All I know is that it is based on counting the number of stocks that are a certain percentage above or below the recent low or high.
The indicator I show below was calculated by finding the percentage of stocks that are 15% above their lowest level in the last thirty days and then subtract that value from the percentage of stocks 15% below their highest level in the last thirty days. The result is a measure of the strength of that index. A high number means that there are more stocks going up than going down and vice versa for a low number. I also show the same indicator using using higher percentage moves over longer time periods and also using the weekly bars instead of the daily.
The first chart is that of the Russell 1000. I always like to focus on the triple bottom that ended the great bear market of 2000-2002. Look how the strength of the market increased with each successive low and also notice how powerful the move up was after the third bottom. What I find interesting about today's market is that we are very near the extreme levels of 2002 and we have yet to see a large counter-trend bounce. We are also testing the recent lows without an increase in the negative readings of the indicator.
The chart and market strength indicator of the Nasdaq 100 is given below. Notice how we hit even greater extremes that rival those of the 2002 lows. Is this the end of a bear market or just the beginning? I'm not sure but either way, I'm playing for a bounce in the short term.
Posted by Paul Stiles at 2/08/2008 02:33:00 PM
Posted by Paul Stiles at 2/08/2008 12:22:00 AM
Wednesday, February 06, 2008
Here is a Bloomberg Headline: U.S. Stocks Retreat After Crude Oil Prices Drop, Macy's Cuts Its Forecast
I know the writers need to say something, but I kind of get tired of this. Why does oil have to take the blame everytime the market goes down? Stocks decline on higher oil? Stocks decline on lower oil?
For once I'd like to see the following headline.
US Stocks Retreat for No Good Reason.
Posted by Paul Stiles at 2/06/2008 07:44:00 PM
Tuesday, February 05, 2008
One of the reasons why I put together the Combo MACD indicator was so I could compare individual stocks and to quickly judge the strength of each. It also allows me gauge the overall strength of the market by calculating how many stocks are weak or strong.
Below I show the S&P 500 and Nasdaq 100 and their corresponding Combo MACD, which I'm not too interested in. What I show at the bottom are the percentages of stocks in those indexes that are either above the value of 2, which I consider strong (green), and the percentage of stocks that are below 0, which I consider weak (red). What I find interesting is that we seem to be an extreme level of weakness right now. As you can see, we are at levels not seen since the market lows of 2002.
While I see no individual stocks to buy right now, I am picking up some ETFs on this weakness.
Posted by Paul Stiles at 2/05/2008 10:44:00 PM
Monday, February 04, 2008
Posted by Paul Stiles at 2/04/2008 02:29:00 PM