DaytradeTeam Trading Markets

Catchy Title Here

2006-01-10T07:15:00.000-08:00

Often when day trading, you will notice that a stock has several trendlines on the same chart. Stocks will often accelerate their level of ascent, producing a steeper and steeper trendline as time goes on. For an example of this, let's take a look at a three month chart of AMD:

The blue line on this chart represents the longer-term, or primary trendline. This trendline has been in place for a long period of time and has been tested several times, which means it has a high level of validity.

The green line represents the newer, short-term trendline. Notice how AMD's rate of increase has accelerated over the past month or so. This trendline is not as well-established or tested as the primary trendline.

I like to use the short-term trendline for my entry point, and the longer-term, primary trendline as my indicator for where to place my stop. Just be sure that the short-term trendline entry point is close enough to the longer term trendline stop level for you to be comfortable with your max-loss on the trade before you enter it!

So for AMD, I would look for a dip to the short-term (green) trendline to buy into. I would then set my stop at a point that would require the primary (blue) trendline to be broken by .25 (around 1%) or more to force me out of the trade. This gives you a nice angled stop line that results in a steadily increasing stop level throughout the trade, and allows you to stay in an uptrending stock for as long as the ride will take you.

Note that like all technical analysis, this method applies to any time frame and any stock. So no matter if you are day trading GOOG or looking for swing trades on MSFT, this approach should work very well for you.

Watch me trade in my Live Trading Room and get all of DaytradeTeam's stock trading and options trading alerts in real-time. I promise you'll never look at trading the same way again!

Here's How I Use Head and Shoulders in Day Trading

2006-01-05T20:00:00.000-08:00

Today in our Live Day Trading Room, we got big profits out of a short sell of BRCM, thanks mostly to a very clear head and shoulders formation follwed by a nice, high volume breakdown:

Notice how the head and shoulder formation consisted of 2 very clear shoulders and a nicely defined head---a great indication that a reversal is about to occur.

We shorted at 49.85 during the formation of the 2nd shoulder, and patiently waited for the breakdown. BRCM did not disappoint, with a nice high-volume break of the neckline followed by a very fast drop of .50 for us to cover into.

We exited into the sharp wave, and locked in a 1.2% profit in the process. Keep your eye out for head and shoulder formations this week, especially late in the day.

I want you to join me in my Live Trading Room---see my day trading analysis and get my stock trading alerts in real time--I promise you'll never be an ordinary trader again!

Easy Profit on BEAS Using My #1 Exit Rule

2006-01-05T08:19:00.000-08:00

In one of my previous tips, I told you that my #1 exit rule for day trading was to exit into sharp waves. As you know, one of the things we love most about technical analysis is the fact that the principles that apply to day trading will also apply to longer-term swing trading of stocks.

In fact, our Small Cap Swing Trading System just exited an easy 5.0% winner on BEAS using that very same #1 rule of day trading exits:

Notice how we bought BEAS on a nice dip after a recent high in its uptrend. We then patiently waited as the stock struggled to make new highs during the end of the year as profit-taking took over and almost all stocks struggled. Then, almost like clockwork, BEAS exploded higher on nice volume today, and we exited into the sharp wave of buying for a nice profit.

Did we sell too soon? Maybe--but when you sell you only have two options: You either sell too soon or too late. Guess which of those I prefer ;)

I want you to get my small cap trade alerts in real-time. Try a one week trial membership to DaytradeTeam right now. I promise you'll never be an ordinary trader again.

Profit from big moves in either direction on SNDK

2006-01-03T10:25:00.000-08:00

Back on December 12th, I told you that SNDK was poised for a big move in one direction or another, and that the best way to profit form that was to use a straddle or strangle options spread. Well, since then the stock has moved up $17/share and has made some really great options trading profits for those that listened.

Now we find ourselves in a very similar situation as SNDK tests 52 week highs today and looks poised for yet another breakout in one direction or another:

Notice how SNDK is now challenging its old high. A penetration and close above 66.00 would indicate further movement to the upside and a nice breakout pattern. On the other hand, if SNDK pulls back here, it will form a bearish double-top formation. In either case, it is very likely that SNDK will move big over the next month or so, and owners of strangle options will likely make a handsome profit. Also note that this same analysis can be applied to AAPL and GOOG right now if you look at their charts as well.

For strangle options, I always like to go at least 3 months out with strikes that produce a net debit of under $1.00 for the put and call combined.

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GOOG Could be Setting Up a Major Move

2005-12-21T20:10:00.000-08:00

GOOG has had a rough week by its standards. After starting things with a bang on Monday morning, the stock has put together three days in a row where the highs of the day were seen by 11:00 AM. In fact, the sessions on Monday and Wednesday each had the elements of key reversal days--with GOOG experiencing some fairly heavy selloffs from solidly positive to solidly negative territory. Also note that EBAY and YHOO have shown bearish tendencies this week and will likely follow GOOG fairly closely on Thursday and Friday.

Let's take a look at the 5 day chart of GOOG to get a better feel for how things may progress the rest of this week:

Notice how since Monday around noon, GOOG has had several periods of high-volume selloffs along with a series of lower highs. On the positive side, GOOG has recovered nicely from the extremely sharp selloffs, each time bouncing and settling above 424.00, which looks like an extremely important support level for GOOG in the short term.

This type of descending triangle formation is not an indicator of future movement in one direction or the other like a head and shoulders reversal pattern or a pennant formation might be. Instead, traders should use this formation as a warning flag that something bad might happen with the stock and prepare to take advantage of it if it does.

The key to day trading Google on Thursday and Friday is going to be found in the responsiveness that GOOG has to the 424.00 support level and the downward sloping line connecting its lower highs. If GOOG breaks 424 support and stays under that level for more than 30 minutes, you've got a potential breakdown in the making and a great opportunity for short selling profits. In the DaytradeTeam Live Trading Room, we will also be watching for opportunities to sell short as GOOG approaches the top line of the triangle, with a tight, angled stop loss that gets us out of the position in the event that GOOG puts in a new higher high and breaks the formation.

I want you to watch me trade, learn my strategies and get my alerts in real time through our Live Trade Room during your one week trial membership. You'll never trade the same again!

SIRI and XMSR Worth the Risk Here

2005-12-20T07:47:00.000-08:00

Sirius Satellite (SIRI) is currently being plagued with insider trading allegations and a bit of the old "buy on the rumor, sell on the news" syndrome with Howard Stern. Sometimes for investors, having a big news item like "Howard Stern is Coming" is a lot more appealing than "Howard Stern is here...(now what? we paid how much?, etc)".

Those two items have certainly had a negative effect on the stock of late, but from a technical point of view, the outlook from this point is certainly favorable from a risk/reward standpoint:

On the 9-month chart, you'll notice that SIRI is nearing its long term uptrend line here and showing some oversold signals with the 14 day RSI near historical lows where the stock price has bounced in the past. Look for opportunities to buy SIRI or enter bullish options spread positions with the mentality that if the uptrend line is broken on heavy volume, you'll exit quickly with only minor pain. A short-term target of 7.00-7.25 should be adequate.

XM Satellite Radio (XMSR) is in a little bit of a different situation technically:

Notice how XMSR has moved into a well-defined trading range over the last two months between 27.90 and 31.10. XMSR is currently nearing the bottom of this consolidation range, and could be in a very nice position to enter a bullish vertical credit spread or other bullish net-credit options trade. This allows you to profit from time-decay of the options premiums should the support level hold here, but exit with a very small loss (or even a gain) should the support level fail later this week.

Come try out a trial membership to the DaytradeTeam Live Trading Room and Options Strategies Today. I'll show you exactly what I'm watching for, the strategies that I use and send you my real-time trade alerts!

Stock Trading Tip: Sell Into "Lonely Gaps"

2005-12-19T13:45:00.000-08:00

I'd like to share with you one of my favorite stock trading tips: Sell positions and lock in profits on "lonely gaps".

I know what you're thinking, "Andy, what the heck are you talking about? What is a lonely gap? Sounds like something you made up."

Well, yes--I did make up the term "lonely gap." See, a gap open occurs when a stock opens at a price significantly different than it closed at on the previous trading day, leaving a space (gap) when you look at the chart. A lonely gap occurs when the stock is gapping up without the help of the overall market. In other words, the stock is gapping up all by itself and without the conviction of the broader market to sustain the move (note that this is best used on stocks that do not have MAJOR news events driving the gap.)

For an example, let's take a look at the trade of FLEX that we just exited for a nice profit on Monday in the DaytradeTeam Small Cap Swing Trading System:

On the chart, you'll notice that on Monday morning, FLEX opened significantly higher than it closed last Friday, creating a gap up on the chart. In addition, this was a lonely gap, because the Nasdaq and SP broader markets were only slightly higher at the open and starting to sell off just a few minutes into the trading day.

This made us hit the sell button very quickly. We locked in a profit of almost 5% in just a few days, with the bulk of the gains coming on the overnight move. After selling, we watched with pride as the stock fell 30 cents through the day to close at 10.85, happy that we took the gift given to us by the lonely gap.

Want to learn my stock trading strategies and profit from my real time trading alerts? Start a trial membership to DaytradeTeam right now!

Place Compelling Title Here :)

2005-12-14T17:57:00.000-08:00

In stock trading, your enemies and your friends tend to switch roles quickly and often. No, I'm not referring to the analyst that finally upgraded your favorite stock or the market maker that can't make up his mind. I'm referring to price levels, specifically support and resistance levels, and one of my favorite rules of technical analysis:

Broken Levels of Resistance are Automatically New Levels of Support

For a current example, let's take a look at a 6 month chart of AMAT:

Notice how late this summer, AMAT was unable to make a significant move above 18.50, even making a double top and confirming it as a solid resistance level as the stock moved lower over the next few months.

Well, fortunately for AMAT shareholders, things have recently taken a turn for the better. If you look closely, you will notice how once the stock broke 18.50, not only did it breakout to new highs, but it also confirmed 18.50 as a new support level, bouncing upwards off of it twice. This is a great example of an old resistance level becoming support immediately after being broken.

Now AMAT is pulling back a little bit and starting to test the uptrend line that has held successfully for the past six weeks. At just under 19.00, this could be a good opportunity to start picking up some shares of AMAT on a pullback from their recent high. You will have an uptrend line as initial support, and a former double-top resistance line at 18.50 as primary support.

From a risk/reward standpoint, you can't ask for a much better setup than that.

Learn from me as you watch me trade and get my alerts in real time each and every day in the DaytradeTeam Live Trading Room.....

Day Trading Exit Rule---Angle Your Stop Line

2005-12-13T10:17:00.000-08:00

Our first day trading exit rule was to always exit into sharp waves. Unfortunately, not every day trade will have such a happy ending. Having a rule that helps you identify "dead money" trades and gets you out of them quickly can be just as important to your bottom line as knowing when to exit the big winners.

Day Trading Rule #2---Angle Your Stop-Line

Everyone knows the importance of having a stop loss in on every day trade you make and sticking with it. But what about trades that "just sit there" or turn into slow, agonizing losers without ever hitting your stop?

That's where angling your stop-line comes into play. First, let's take a look at what I mean by this by looking at a sample day trade:

In the example above, let's assume you bought AAPL at the area highlighted in yellow. You want to protect yourself, so you set a stop loss just under the low of the day. This is what I refer to as a "standard stop"--it's horizontal and remains at the same price throughout the trade.

The second line, angled upwards, is what I prefer to use as my stop line. Notice how it is angled in the same direction as the trade at about a 45 degree angle. In theory, the angle of your angled stop line should match the angle of the trendline of the stock that you are trading.

This type of "angled stop" trading has three main advantages:

It requires the stock to maintain its trendline for you to maintain the position. If the stock isn't still trending in your direction, why do you want in anyway?
It constantly decreases your maximum loss on the trade as time goes on.
It helps you account for the negative value of time. It really helps you get out of stocks that aren't moving much--and therefore gets you moving on to the ones that are faster.

Of course, when I talk about an angled stop I don't mean actually placing an order with your broker and adjusting your stop every minute. I am also not referring to a trailing stop, which is adjusted based on stock price and NOT on the passage of time. Simply draw your angled stop line on your chart upon entry into the position, and exit the position anytime the price crosses your angled stop line.

It's also important to note that the angled stop line will often pass into profitable territory on your day trades when a stock maintains its trend and continues to move in your direction.

You really need to check out our Live Trading Room--you will get all of my alerts in real time, including day trading, stock trading and options trading alerts!

SNDK Test Approaching

2005-12-12T07:35:00.000-08:00

SNDK has had a heck of a year, running from near $20/share all the way up to 65 in a little less than 11 months time as it rallied along with AAPL and other utilizers of flash memory technology. Of course the big run is over now, and the stock has pulled back to around $50 after a couple of downgrades and a natural end to the massive short-squeeze that took place on the stock.

Unfortunately for SNDK shareholders, there are signs that this may be more than "just a pullback", and that SNDK may have another large move to the downside in its future.

Looking at the one year chart of SNDK, you can see the big run the stock had after its initial breakaway gap above 24 this summer. You can also see that SNDK may be in the final stages of completing a head and shoulders formation--typically indicating a reversal in trend and potentially spelling bad news for the stock.

The "neckline" for SNDK's formation is right around $45.50/share. If SNDK can hold above this price and eventually make a new high, the bullish patterns continue. On the other hand (more likely), if SNDK falls through $45.50 on decent volume, the neckline will be broken. This price action would confirm the head and shoulder reversal and indicate a strong likelihood of a new downtrend emerging for the stock.

One of the best ways to play unconfirmed head and shoulder reversals is through the use of straddle or strangle options spreads as the stock approaches the neckline. By entering both a put and a call option at the same time, you profit from a large move in either direction--which is extremely likely if SNDK starts to test the $45.50 neckline.

Friday is Big Test for GOOG

2005-12-08T19:34:00.000-08:00

I've been about as bullish as they come on GOOG over the past year. In fact, it doesn't seem that long ago that GOOG was sitting at 280 and I was telling you that the run to 480 was only half-way over.

Now here we sit at 410/share (a mere 17% from my 480 target) and the stock looks like it may be starting to find some trouble. In fact, if you take a look at this 20 day chart on GOOG you will see why I say that Friday's action could be extremely important in determining if GOOG will continue to skyrocket or begin a major pullback:

Google has entered into a descending triangle formation. This occurs when a stock makes a series of lower highs, with bounces off of a horizontal support line in between. On GOOG this support line is right in the 399-400 range.

Notice how the stock is currently sitting right at the descending line that connects the series of lower highs. This is why Friday is a potentially pivotal day for Google as well as EBAY, YHOO, AMZN and the rest of the internet sector.

Basically, one of two scenarios will occur on Friday:

The stock will move lower, confirming the validity of the descending triangle and the associated bearish outlook. In this scenario, we will begin watching for opportunities to enter bearish options spreads or short sell GOOG in the next couple of weeks. Be especially mindful of a high-volume move (and hold) under 399 over the next week or two, as this would indicate a major breakdown is starting.
The stock will move higher, essentially eliminating the descending triangle and affirming the strength of the 399-400 support level. In this scenario we will keep our bullish positions in tact and look to add on low-volume dips to near the 400 support level.

At DaytradeTeam, we've had some very good success day trading GOOG in our Live Trading Room over the last year, and we expect that to continue well into 2006. For the mid-term however, now is the time for GOOG to either make a stand or pullback---and thanks to technical analysis we'll be ready for either!

Day Trading Exit Rule #1--Exit Into Sharp Waves

2005-12-06T12:27:00.000-08:00

Most day traders are familiar with the old day trading rule that tells you to "let your winners ride and cut your losers short". Well at DaytradeTeam, we've modified that just a little bit. It goes something like this:

"Let your SLOW MOVING winners ride, and cut your "TOO FAST" winners and all of your losers short"

For an example, let's take a look at a profitable trade we had on YHOO today in our Live Day Trading Room:

Notice how within a few minutes of short selling YHOO, the stock started to move lower very quickly. As you can see from the one day chart, the down move was very "steep", with the stock falling quite a bit in a short amount of time. We refer to this type of movement as an "unsustainable trend", and the type of quick move in our favor that we like to take profits into. Instead of "letting our winner ride", we gladly cashed out of YHOO for a 0.5% profit in just a few minutes and moved on to the next trade.

When a stock is moving in your direction, "let it ride" if the angle of the trend is a 60 degree slope or lower, and exit into the sharp wave on big, sharp movements in your direction that look closer to 90 degree angles (almost straight up or straight down). This will allow you to expand your profits on trades with well-controlled, sustainable trendlines and cash out for quick profits on stocks with unsustainable rushes in your direction.

Note that these same principles can be applied to all forms of stock trading and options trading.

McDonald's Setup Makes Me Smile

2005-11-28T19:47:00.000-08:00

MCD is setting up for an explosive breakout to the upside, and I want to make sure you get in on it when it happens.

I know what you're thinking. McDonald's? The burger joint? Come on Andy--give me something with bytes or bits or clicks like AAPL or GOOG!

Well, the beauty of technical analysis is that you don't have to care anything about what the company actually does. The only thing that matters is what the stock does, and I like what I see on MCD.

The first thing you'll notice on the chart above is the 3 month consolidation pattern that MCD has made between 32 and 34. Typically these types of tight trading ranges are the base for a large, extended move in one direction or another. Just look for a break of the consolidation range on above average volume and play the stock in that direction with a 4% trailing stop.

Look for a break (and hold) above 34.25 on volume of more than 9 million shares as your indicator to initiate a bullish position.

The key here is patience. Getting in now at 33.95 or 34 may be tempting because you will already have an extra .25 profit by the time the stock begins its breakout move. Unfortunately, this type of thinking gets a lot of traders in trouble because they are ignoring the power of the 34.00 resistance level that has made this consolidation pattern so appealing in the first place. By simply waiting for a move above 34.25 on good volume, you put the risk/reward ratio in your favor by a huge margin---where if you get in now you actually have a greater chance of the 34.00 resistance level holding and losing on the trade than winning. If the stock never breaks 34.25 on big volume, we'll just keep on looking for other opportunities in a very tradeable market!

Come join me at DaytradeTeam and I'll let you know exactly when to get in and out of potentially explosive stocks every day in our Live Trading Room!

How I'm Playing the Potential Explosion on RIMM

2005-11-21T19:01:00.000-08:00

RIMM has been in the news a lot lately, with its patent lawsuit dominating the headlines. Volatility has been huge over the last few weeks-- and I have a feeling the party has just begun.

When looking at the one year chart on RIMM, the first thing I notice is a head and shoulders reversal pattern that has just been confirmed with Monday's close near $67.50. The other thing I notice is the relative weakness of RIMM to the Nasdaq Composite index over the past 52 weeks, most likely a result of investor angst and focus on the courtroom proceedings:

OK, from looking at the one year chart on RIMM I'm convinced from a technical standpoint that RIMM will be moving higher from here. On top of that, I also know that RIMM has about 14.5 million shares of its float shorted--about three full days worth of average volume, which means this stock could get a very nice short squeeze on any good news for the company. In fact, I'm going to set a two-month price target of $92.00 per share on RIMM--which is approximately the price it would be at had it simply matched the performance of the Nasdaq over the past year.

So what will I be alerting DaytradeTeam members to do on RIMM Tuesday?

Well, as most of you know, I really hate risking a penny more than necessary on a position. With RIMM shareholders waiting on pins and needles for the whim of a judge to be passed down, it would be a big mistake to buy RIMM stock and risk a full $67.50 per share, so I'll be looking for limited-risk, bullish opportunities on RIMM options instead.

Tuesday morning I'll be analyzing the options chains on RIMM and looking to alert members to either one of these two positions:

A Bullish Vertical Credit Spread that profits as long as RIMM stays above $60/share for the next month (and only risks $3.40 in the process)
A Directional Call Trade that buys either the 80 or 85 call options for the March or Jun 2006 expirations. These positions would likely produce a gain of $6-$9/contract in the event that RIMM does get a short-squeeze higher, but only lose $1.50-$2.00/contract in the event that RIMM completely falls apart to new lows.

This is the way that I love to trade "home run plays"--use technical analysis to put the odds in your favor, and common sense to severely limit losses in the event things don't go your way.

Day Trading GOOG for an Easy $2.50/Share Profit

2005-11-20T18:23:00.000-08:00

Friday was another very good day in the DaytradeTeam Live Day Trading Room, but one day trade in particular on GOOG stood out as one of those where you just think to yourself--"this stock trading stuff is just too easy". Here is how the trade played out over the course of the day:

You will notice that we sold short GOOG at 403.20 fairly early in the day (red text), watched the stock trade basically flat for several hours, and then cashed in by buying to cover the position at 400.70 (green text) after a high volume selloff took place at around 2:30 PM ET (blue text).

So what was it that led us to make this trade and to be so confident and comfortable of its profitability throughout the trading day?

Well, Friday was options expiration day for the November contracts and we knew that GOOG was very likely to close the day at or near its max pain strike price. We knew this by looking at the recent past history of GOOG's day trading patterns on options expirations days:

Notice how in four of the last five months, GOOG has closed within 30 cents of its nearest strike price (and don't forget that 30 cents is peanuts on GOOG!)

Expiration Month Closing Price
JUN 280.30
JUL 301.20
AUG 280.00
SEP 300.20
OCT 339.90

As we expected, this month was no exception, and GOOG closed within 20 cents of the 400 strike price---and made our members a very nice $2.50/share profit in the process!

QCOM Setup Complete and Now is the Time for Entry

2005-11-16T19:01:00.000-08:00

Qualcomm is in trouble here, and is setting up perfectly for a short sell or bearish options position after confirming a triple top formation over the past six weeks. Let's take a look at the six month chart of QCOM (click to enlarge):

Notice how QCOM has failed three separate times to break the 46.00 resistance level. The first time, QCOM fell from 46 to 41.50 on a two week pullback. The second time, QCOM bounced off of the 46 resistance level and dropped all the way to 39.02 on very heavy volume and a large gap lower. Once again, QCOM has failed to break the 46.00 level, completing the triple-top formation and is currently sitting right at 45 in what looks like the beginning of yet another pullback.

Here's how I would play the stock from here:

I'm basically looking at two possibilities for an alert on QCOM for DaytradeTeam members late this week:

A basic short sell position that profits from QCOM's drip in price over the next few weeks. Our target on this trade would likely be 39, with a protective stop order at 46.46 to limit our loss should the 46.00 resistance fail. If the move down towards 45 is swift enough, we will likely look to sell December 40.00 put options against our position to generate some income from the trade.
A bearish options position. Over the next two days we will be watching the DEC and JAN options premiums on QCOM extremely closely to determine what type of spread would have the best profit potential with the lowest exposure to risk. Possibilities include a bearish vertical credit spread, a 40.00 butterfly spread or even a simple directional position on long-term, out-of-the-money put options.

I fully expect QCOM to continue to gravitate toward the 45.00 "max pain" strike level for options expiration on Friday of this week, so I will be watching for any moves over 45.30 on Thursday and Friday to enter my position. If we don't get a move up to 40.30+, I will most likely alert our members to the trade on Friday afternoon at 45.00 or higher.

Look for Sale Prices on Microsoft

2005-11-15T18:14:00.000-08:00

Microsoft has finally taken the gloves off. A renewed energy has apparently swept through the company, and through Wall Street. A plan to destroy Google is in the works, they are entering the supercomputer market, and their XBOX 360 unit is likely to be one of the "must have" gifts for Christmas this year as it beats Sony's Playstation 3 to the shelves.

Even better, the stock is looking very strong, nearing three-year highs and continuing one of the more "stealth" uptrends I've ever seen. Take a look at the three-year chart of MSFT to see what I mean (click to enlarge):

Notice how MSFT has moved steadily (and yes, very very slowly) higher over the last few years, making higher lows throughout the period and putting some very impressive high-volume rallies together in the process. Currently, MSFT is running right up against its three-year high on a month-long rally (highlighted in yellow) that is both impressive and unsustainable at the same time.

A pullback in MSFT is almost certain here, and that is exactly what we want to see. My Swing Trading and Options Trading Systems will be watching very closely for low-volume pullbacks over the next month to enter bullish positions on.

After all, what could be better than a company with a renewed "start-up" spirit, a genius staff, an uptrending chart and 40 billion dollars in the bank?

3 Stocks Worth Shorting Tuesday

2005-11-14T19:32:00.000-08:00

The Nasdaq may very well be starting to top out here in the very short term, so its a good idea to start scanning our radar for stocks that have been underperforming over the last week or so. Here are three stocks that we will be looking for short sell opportunities on in our Live Trading Room on Tuesday:

BRCM

Ever since its big run last Wednesday, BRCM has done nothing but form a series of lower highs and form solid support just above the 45.00 price level. If that 45 support level breaks early in the day on significant volume, BRCM could be in big trouble. In fact, there is a reasonable probability that it could fall almost as quickly as it shot up should that key support level fail. Of course, as long as the stock remains above 45, the risk of a move higher is far too great to enter a short position--make it fail first.

SHLD

On Monday, we were able to grab a quick $1.15/share profit on SHLD through a early morning short sell. We'll be looking to do the same on Tuesday morning, especially if we see some low volume moves higher into the upper end of SHLD's downtrend channel.

EMC

EMC has been in a downtrend for the past five trading days, despite the overall strength of the Nasdaq. We will be watching very closely for chances to short sell this stock at 13.65 or higher on Tuesday, with a target of 13.10 a real possibility if the Nasdaq gets a significant pullback.

Of course, none of this matters if the Nasdaq is strong on Tuesday, in which case momentum to the upside will likely rule the day.

High RSI Says QQQQ Rally Just Starting!

2005-11-13T20:39:00.000-08:00

Many traders may be tempted to look at the RSI of 70 on QQQQ and determine that the stock (and thus the Nasdaq-100) is overbought and due for a pullback after the big rally we've seen. But what is important in reading an indicator like RSI is NOT the actual value that it is reading, but how the stock has reacted in similar situations in the past.

Let's take a look at the year-to-date chart of QQQQ:

Notice how in 2005 there have been two other times when the RSI hit the 70 level, both naturally coming after significant runs higher in the stock.

On the first occasion, in the middle of May, the RSI hit 70 as QQQQ hit 37.50. Was this a top for that cycle? No. The Q's ran over a dollar higher over the next two weeks before topping out, with the RSI holding above 70 the entire time.

The second instance took place in late June, with QQQQ hitting 38.65 as the RSI crossed 70. Again, this was not a top. The stock ran another 1.50 higher before topping out at 40.12--again about two weeks later.

Bet on History Repeating Itself:

Well, here we are again. A big run to new highs and the RSI hitting 70. As we've seen by looking back at the chart, the only other two times this has happened this year the Q's have seen an extension of the rally over the following two weeks by an average of about 4.2%.

When history repeats itself (as it tends to do), we'll have a nice continuation of this move through the end of November and up to 42-42.25 on QQQQ before we finally top out.

Analysis of Gaps says GOOG Headed to $480 and TASR has Bottomed

2005-11-10T16:31:00.000-08:00

A Gap Open occurs when a stock opens at a significantly different price than it closed at on the previous trading day---creating a "gap" on the chart. Most stock traders understand what a gap is, but very few understand what a gap might mean.

There are basically three types of gaps, and knowing which type of gap a stock is experiencing could be the difference between a very profitable setup and a losing one.

Gap #1: The Breakaway Gap (MEDI)

One of the easiest (and most profitable) gaps is called the breakaway gap. This type of gap usually occurs after the stock has been in a tight consolidation pattern or trading range:

MEDI produced a breakaway gap at the end of August and has been in a solid uptrend ever since, consistently bouncing off of the uptrend line to higher highs. In fact, we just closed a swing trade on MEDI for a gain of over $1.00 per share in a single day simply from watching this stock for low volume dips to the uptrend support line.

Gap #2: The Measuring Gap (GOOG)

Following a breakaway gap, the stock will often make a very nice move (up or down) before "stalling out".

The next gap typically occurs at the halfway point of a major run and is called the measuring gap. A measuring gap generally occurs right after the stock stalls in the trend established after the initial breakaway gap. If you look closely, you can see that GOOG made its initial breakaway gap at 200, and has now made what looks like a measuring gap (highlighted in yellow) at 340:

If this is indeed a measuring gap for GOOG, it has taken place about 140 points higher than the initial breakaway gap. In theory, this would mean that GOOG likely is halfway through a major run and has about 140 more points to go from the measuring gap at 340. This would mean that GOOG could easily make a run to 480/share!

Over a month (and 100 points ago), we told you why we wouldn't bet against Google. Now, we certainly do not expect GOOG to have nothing but an easy ride higher from here. We think that pullbacks to the top of the measuring gap (330-340) are certainly possible here, and we will be watching GOOG for buying opportunities in our Live Trading Room for some time to come.

Gap #3: The Exhaustion Gap (TASR)

The last two posts have told you about the breakaway gap, which typically starts a stock's run and the measuring gap, which typically occurs about halfway through the stock's run higher.

The final gap type is the exhaustion gap--the final gap in the run of a stock. After a big run, the stock will usually give you one more big overnight move before breaking the trend and heading in the opposite direction.

You can see the sequence of gaps on TASR as it has run downwards over the last year. The first highlighted area is the breakaway gap, the second takes place about halfway down the chart and is the measuring gap, and the third highlighted area is probably the exhaustion gap.

When a stock moves back through the exhaustion gap, as TASR just has, it is a confirmation signal that the run is over. Now that the TASR has moved back through the exhaustion gap, we are constantly looking for low volume dips to buy into and alert our members on. Thanks to the "the run is over" sign that an exhaustion gap puts up for us, we can feel confident buying a stock where others may only see a downtrend!