We had some sideways price action this week within the larger up trends. The week finished out re-asserting higher highs and lows in the 30 minute trend after some chop during the week. This move we are in is incredibly strong especially in the NASDAQ and the NASDAQ stocks are trading like a dream. We don't know how long these trends are going to hold, all we can do is follow the trend and use swing points to manage risk. The Russell is also holding a 65m trend very well and is still in a pattern of higher highs and lows. Next higher high would require breaking $117, or last weeks high.
Like I said last week if the S&P and NASDAQ want to continue straight up then they are going to hold at a minimum a 30m trend and they are doing that. Where we stand right now, new highs are higher highs. And the more extended the higher highs get, the more room a higher low has to form. I realize we are in overbought on the daily NASDAQ but people we have to understand this can get up to 80-85 before real buyers start to let up in this market. There really isn't much else to say besides me preaching about risk management and following the price. Let's take a detour this week and look at some daily stock charts.
I was tweeting about this one all week talking about a gap up continuation trade in the making. What do I do at this point in the trade? This is where I'm trying to get in at the lowest risk possible while the trade is still active, that is while the gap up low is still holding. The less price movement risk I have the better position size I can hold while still staying under the confines of a percentage rule (only risk 1% of account). So that gap lower Thursday was a good thing when buyers showed up at the gap up lows. What I want to see now is $60 break and put a higher low above it. What I don't want to see is that gap up low failing to hold.
I haven't been tweeting about this one but it is a great example of how price is telling a story. The 130m trend has been active here since mid July and recently saw a large move into positive YTD territory. Right now we see buying coming off the lows but happening right above the YTD break even line. They are trying to hold this one positive right now. $55 is also conveniently in parallel with YTD break even and I would imagine there is some option volume happening at that strike price. Wonder why?
One more? Ok lets do one more
Been talking about YHOO setting up since the beginning of August. But is there a bigger picture going on here? Look at where the YTD break even line is. These social media stocks got beat down this year and a select few that are still negative on the year are trying to re-coup those losses. Look at the YTD break even of similar names like LNKD TWTR. All three have YTD break evens at the near high of the year and all 3 have nice active trends right now. Don't go trading TWTR long because LNKD is doing something, trade TWTR based on TWTR trends and swing points but this kind of information doesn't hurt and increases your probability and market awareness.
So hopefully you got something out of that and how I read daily charts differently from intraday trends for stock selection. What I discussed above is more about why I am choosing that stock to trade and what I'm looking at. After that I use the intraday trends and swing points to manage the trade nothing else. I stay in a static list of the most active stocks and I know each stock very well. This watch list each week comes from that list of stocks. This week has a lot of the same names from the last two weeks with a few names dropped and added.
God forbid I make this post any longer but I did a piece this week on emotional discipline. Basically the point of it was to say that every action or event we come across triggers a natural emotion for us to react and make decisions on. Someone slams on their brakes in front of you (action) you feel an impulse in your mind (emotion) and you make a decision to slam on the brakes too (reaction) because that is the process of driving. It happens quickly and effortlessly because you are at an unconscious competence level of driving, but it wasn't like that when we were 15 learning how to drive. Traders have to know these emotions very well and your trading process effects how you handle it. I don't touch on that subject much because it is something you have to learn for yourself but it's there for what it's worth. Thanks for reading
Trade well,
-Michael
