Trading Review for 1/25/2000
Successful trading is about knowing where to look for opportunities, knowing when to seize the opportunity (or not), and managing their risk to maximize their profits. To that end, let's take a quick look at Tuesday's trading action relative to the top Trade Prospector signals:
Breakout Patterns
SLR gapped open to 77 3/8 and rallied to 77 15/16 before selling off to a low of 75 1/16 to close at 76 7/16
SNPS opened at 53 1/4 and sold off to a low of 46 11/16 to close at 48
PMI opened at 39 5/8, rallied to 39 15/16, sold off to 38 3/8 to close at 38 5/8
SLR opened inside the breakout boundaries (76.4 and 78) and rallied just up to the upside breakout boundary before failing. This offered attentive traders a classic failure at resistance trade and those that faded this failure realized over 2 points profit. Those who waited for the breach of the 76.4 boundary saw about 1 point profit.
SNPS offered traders a good short entry upon the breach of the 52.3 breakdown boundary for 5+ points profit.
PMI failed to breakout of its boundaries and was a no trade.
Breakthrough Momentum
The breakthough momentum group contained a lot of indices which had downward momentum.
SPX (S&P 500 index) opened at 1401.5 rallied up to 1410 and oscillated for a while before selling off to 1388.5, rallying again to 1414.3 and closed at 1410
YHOO opened at 327, sold off to 316 1/4, rallied to 335, sold off again to 320, then oscillated within the 320-330 range before rallying to 346 3/8 and closed at 345 9/16
OEX (S&P 100 index) opened at 759.1, rallied to 766.5, sold off back to 755.3 (just above the previous day's low), and finally rallied to 770.1 (just below the outer probability boundary and less than 1 point above the 769.5 resistance projection) to close at 767.3 (effectively at the SR3 767.2)
EBAY opened at 139 1/8, fell to 133 3/4, rallied to 145, sold off again to 136, rallied to 141 and finally sold off once again to close at 137 1/2
QCOM opened at 143 5/8, fell to 140, rallied to 149, sold off to 140, rallied again to a high of 149 15/16 and closed at 149
The SPX offered option traders an initial headfake penetrating the 1409.1 upper boundary only to fail within one point of that boundary at 1410 and reverse. Option traders would have entered long calls and been stopped out for small losses and entered long puts on the failure at resistance, finally being stopped out by their trailing stops for a 10-15 index point gain on their puts. Those who recognized yet another bounce (or were using reversing stops) at 1388.5 (less than 1 point from the 1387.9 sell boundary) would have reentered long calls and been rewarded with another 10-15 index points profit. Those who waited for the breach of the 1409.1 upper boundary realized about 4 index points profit.
YHOO gave several entry opportunities - first as it sold through the 318.3 lower boundary for a 1-2 point profit, then upon the breach of the 331.5 upper boundary for 3-4 points, and then finally again upon the breach of the 331.5 upper boundary for 13-14 points profit. Traders who traded the reversals back through the boundaries realized additional gains.
Like the SPX, the OEX offered index option traders and initial long call entry as it breached the 764.8 upper boundary. The index failed its rally at 766.5 and fell back stopping out traders with anywhere from a small loss to a small gain depending on how they managed their stops. The index later offered another long call entry upon again breaching the 764.8 boundary for a small 3-4 index point profit.
EBAY was a resistance traders dream offering numerous opportunities to fade failures near support and resistance. However, for strict breakout traders it finally gave a long entry upon breaching the 141.6 upper boundary for an approximately 2 point gain.
QCOM was good to traders. It initially gapped opened slightly above the 143.4 upper boundary but immediately sold off and offered attentive traders a short entry worth 2-3 points. Strict breakout traders got their entry to go long when the price action traded through the 143.4 upper boundary realizing 4-5 points profit. After the stock again sold off back under the upper boundary, traders were again given an opportunity to go long as the price action again traded through the 143.4 boundary and again giving traders 4-5 points profit.
Envelope Patterns
HON gapped down to 46 1/4, rallied to 47 1/8, sold off to 45, and finally rallied to close at 47 7/8
CLPA gapped open to 25 11/6, sold off to 24 1/2, and spent the rest of the day within a trading range bounded by 24 1/2 and 25 1/2
CEFT gapped open to 19 3/4, sold down to 19 3/8, and rallied to close at 21 7/8
WSTL gapped open to 19 11/16, rallied to 20 5/16, sold down to 19 7/16 and closed at 19 5/8
HON only offered a short entry to traders who recognized the rally back to just below the 47.3 sell boundary from the initial gap down open was a failed rally opportunity and extracted 1-2 points. Otherwise, this was a no trade.
CLPA likewise offered no suitable entry and was a no trade.
CEFT failed to breach either boundary and was a no trade.
WSTL gave traders a brief long entry upon breaching the 19.8 upper boundary on its way to the 20 5/16 high. Traders would have been stopped out at around breakeven when the stock sold off again.
Momentum Intersections
TFSM gapped open to 59 5/8, rallied to 61 7/8, sold off to 59, and again rallied to close at 61 5/8
MU opened at 68 15/16, rallied to 69 3/4, sold off to 64 1/2, and rallied to close at 66 19/32
ORCL gapped open to 55 1/16 and proceded to trade in a 55-57 1/2 range
TFSM's rapid gap open would have offered suitable entry only for the fastest traders with fast direct execution systems or traders trading in the pre-open market. Otherwise, a good entry was had when it sold off and then traded through the 59.5 upper boundary for a 2 1/2 point profit.
MU offered a short entry upon breaching the 67.4 lower boundary for a 2+ point profit.
ORCL was stuck in a trading range and offered no good entry and was a no trade.
Mutliday Patterns
PEB gapped open to 166 1/2, sold off to 161 11/16, rallied to 164 and closed at 162 3/4
PWAV opened at 94, sold down to 91, and rallied to 100 1/4 to close at 100
KOPN gapped open to 72 and immediately (as in seconds) started selling off continuing down to a low of 63 and finally rallying back to close at 66 3/8
PRGN gapped open to 92 5/16, sold down to 85, rallied back to 88, sold off again to 84 7/8, adn finally rallied to 90 and closed at 89 1/8
Multiday patterns, like volatlity compressions, often result in high volatility for the stocks. PEB offered attentive traders a chance to enter long at the reversal just below the 161.8 boundary - otherwise no there was no entry.
PWAV however offered an excellent long entry when it finally broke out through the 95.2 upper boundary for a good 4-5 point profit.
KOPN showed incredible volatility within the first minutes of trading. Traders fast enough to enter on the failure at the 71.9 boundary at the open picked up 6-8 points on a short. Strict breakout boundary traders picked up 4-5 points by shorting upon the breach of the 68.8 lower boundary.
PRGN offered a short as it sold off through the 87.7 lower boundary for about 2 points profit. Traders were again given a good short when the stock rallied back to 88 only to again sell off through the 87.7 boundary for another 2 points.
Volatility Compressions
CHKP opened at 252, fell to 249, and then rallied to 283 13/16 to close at 279 3/8
RNWK opened at 146 7/16, sold down to 139, and rallied back to close at 157 7/8
RHAT opened at 110 1/16, sold down to 109 1/2, oscillated around 110 for much of the day, and finally broke north to close at 114 7/32
Volatility compression trades are, well, volatile. But they offer the attentive trader significant profit potential.
CHKP offered a good long entry upon breaking through the 271.4 boundary for a 9-10 point profit. Aggressive traders who risked fading the bounce off 249 (before getting to the 246.2 lower boundary) as it passed back north through the open price of 252 picked up almost 20 points more.
RNWK offered both a short and a long today. The short entry as it sold through the 145.1 lower boundary for about 5 points profit. The long entry as it shot back north through the 152.3 upper boundary for another 5 points profit.
RHAT failed to breakout of its volatility boundaries and offered only a breakeven short as it initially sold through the 110.2 lower boundary down to 109 1/2 and reversed back to oscillate around 110 for part of the day.
Trading Range Patterns
PEB gapped open to 166 1/2, sold off to 161 11/16, rallied to 164 and closed at 162 3/4
KOPN gapped open to 72 and immediately (as in seconds) started selling off continuing down to a low of 63 and finally rallying back to close at 66 3/8
DMIC opened at 35 1/2, sold down to 32, and rallied to close at 35 1/16
Trading range patterns often produce good volatility as well. And as we've said before, volatility is a trader's friend because it produces opportunities. PEB offered attentive traders a chance to enter long at the reversal just below the 161.8 boundary - otherwise no there was no entry.
KOPN showed incredible volatility within the first minutes of trading. Traders fast enough to enter on the failure at the 71.9 boundary at the open picked up 6-8 points on a short. Strict breakout boundary traders picked up 4-5 points by shorting upon the breach of the 68.8 lower boundary.
DMIC offered a good short entry as the price action traded through the 34.5 lower boundary for a 1 1/2-2 point profit.
Trading Channel
From the Trading Channel Breaches group - YHOO, BRCM, and DCLK
From the Near Trading Channel group - JDSU, IMNX, and EBAY
From the Narrow Trading Channel group - NDX, NSOL, QLGC
YHOO opened at 327, sold off to 316 1/4, rallied to 335, sold off again to 320, then oscillated within the 320-330 range before rallying to 346 3/8 and closed at 345 9/16
BRCM gapped open to 293 3/8, rallied to 295, sold down to 285, rallied to 295 again, sold off to 272 1/2, and finally rallied to close at 282 3/4
DCLK gapped open to 108 1/4, sold down to 106, rallied back to 110 1/2, sold down to 102 9/16, and finally rallied again to close at 110 1/8
JDSU gapped open to 222 3/4, fell to 213, rallied back to 232, sold off again down to 215, and finally rallied back to close at 232
IMNX gapped open to 113, sold down to 102 9/16, and rallied back to 119 1/2 to close at 117 1/16
EBAY opened at 139 1/8, fell to 133 3/4, rallied to 145, sold off again to 136, rallied to 141 and finally sold off once again to close at 137 1/2
NDX (Nasdaq-100 index) opened at 3667, fell to 3591.3, rallied to 3700, sold down to 3600, and finally rallied to close at 3759.3
NSOL opened at 242 7/8, sold down to 230, rallied to 245 1/8, sold again to 226 1/2, and rallied back to close at 243
QLGC gapped open to 167 15/16, sold to 163, rallied back higher to 176 1/2, sold off to around 163, and rallied back to close at 174
Trading channel trades can be simple and rewarding.
YHOO had fallen well below its trading channel and while offering no entry today, did close back inside its channel. Likewise DCLK remained below its trading channel offering no channel trade entry.
On the other hand, BRCM offered traders two stellar and simple opportunities. It gapped open back into its trading channel above the 292.1 lower boundary. When it sold off back through that boundary it triggered traders short for a 5-6 point gain. After it again rallied back into the channel, it again failed and fell through the 292.1 boundary again triggering traders short for an 18-19 point gain.
JDSU also offered excellent entry - after first gapping above its channel, it sold back down intothe channel and gave traders a good entry when it again rallied through the 216.2 upper boundary for a 14-15 point profit. It again sold off back into the channel and again broke out through the 216.2 boundary for yet another 14-15 point profit.
The NDX offered index option traders a couple of put buying opportunities - first when it fell through its 3652.9 lower boundary for about 55-60 index points profit and again after it rallied back into the channel and then fell through the 3652.9 boundary again for a 45-50 index point profit.
NSOL also offered traders two shorting opportunities - first when it fell through the 233.5 lower boundary for a 2-3 point profit and again after rallying back into the channel and falling back out of it for a 5-6 point profit.
QLGC offered traders a breakout above the 174 upper boundary for 1 1/2-2 points. Aggressive traders who traded the two reversals off of the lower channel boundary at about 163 saw an extra 20 points profit.
Recognizing that a mere one point per day profit when trading 500 shares (or 5 option contracts) is $120,000 per year, you begin to understand the potential for profit in applying Trade Prospector's information.
Copyright 2000, by Third Millennium Trading. All rights reserved. This information is proprietary and reserved for the personal use of Trade Prospector users and registrants. No other use is permitted without the express authorization of Third Millennium Trading.
Disclaimer: Third Millennium Trading does not recommend the purchase or short sale of any stocks. Trading should be based on your own understanding of market conditions, price patterns and risk. The information presented here is designed to contribute to your understanding. Controlling risk through the use of protective stops is critical (more).