Trading Review for 2/10/2000
The market continue to diverge - the Nasdaq 100 index is about 1250 points above its 200 day exponential moving average while the DJIA is 80 points below its 200 DEMA. Historically, such divergences result in an eventual top in the significantly diverging index. Therefore, we're on the look out for a major NDX selloff. However, as always, we continue to trade the market - not our opinion of what the market should do. But we are watching the action carefully, as should everyone. If you are significantly long high profile Nasdaq stocks, be sure to protect or hedge your positions.
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 Wednesday's trading action relative to the top Trade Prospector signals:
Volatility Compressions
ITWO triggered longs at the 244.3 upper boundary for 3 points
VERT triggered shorts at the 223.1 lower boundary more than once for 3-5 points
SNDK offered a reversal entry when the price action bounced off the 149.5 upper boundary for 4 points
Trading Range Patterns
LHSP gapped open 1/2 point beyond the 76.5 upper boundary but gave traders long entry in the 76 7/8-77 range for 3 points
CREE gave traders a nice long trade at the 146.9 upper boundary for 17 points
SEPR triggered shorts at the 140.1 lower boundary for 3 points and again at the 144.6 upper boundary for 4 points - traders who took the reversal coming back through the lower boundary picked up an extra 4 1/2 points
Mutliday Patterns
QLGC gave long entry at the 102.3 upper boundary for 3 1/2 points
CREE gave traders a nice long trade at the 146.9 upper boundary for 17 points
SEPR triggered shorts at the 140.1 lower boundary for 3 points and again at the 144.6 upper boundary for 4 points - traders who took the reversal coming back through the lower boundary picked up an extra 4 1/2 points
Breakthrough Momentum
MNMD bounced off near its 78.9 lower boundary and ran up to within 1/2 point of its 84.5 upper boundary - reversal players were rewarded with 5 points
VNWK reversed just short of its 60 lower boundary and ran through its 62.9 upper boundary twice giving traders first 1 points and then 2 1/2 points - reversal players picked up 4 points on the bounce off the lower boundary
ENZN gapped almost 2 points below the lower boundary for no short trade entry - it subsequently reversed at 42 1/2 and rallied back through the 54.1 upper boundary for 2 points - reversal players picked up about 6 points
Momentum Intersections
VTSS gave an absolutely fantastic long entry at the 58.2 upper boundary for 14 points
UNFY triggered shorts at the 25.8 lower boundary for 1 1/2 points
CVS gapped open beyond the 39.9 upper boundary, ran to 41 1/2 and then pulled back to 40 giving a long entry worth about 1 point
Near Trading Channel
LVLT gapped open at 120 and triggered longs just above the 119.5 upper boundary, but traders were quickly stopped out for fractional losses when the price action reversed - reversal players picked up 2 1/2 points
MNMD gave two long entries on the breach of the 82.3 channel upper boundary - one for 1 1/4 points and the other for 1 3/4 points
FFIV triggered shorts at the 92 lower boundary for 2 1/2 points
Near and Narrow Trading Channel
AXTI gave traders an opportunity for both a short and a long trade in the same day - first a short at the 25.4 lower boundary for 1 1/2 points and then long at the 28 upper boundary for 3 points - reversal players picked up the extra 2 1/2 point boundary width by entering long upon the reversal back through the lower boundary
Breakout Patterns
PILT gapped well beyond the 35.5 upper boundary and then sold off to close just above the 31.4 lower boundary - reversal players who shorted as the price reversed back through the upper boundary picked up about 4 points
CMNT gave a fractional short at the 17.8 lower boundary
CY bounced off the 41.6 upper boundary at the open and traded in a narrow range that gave a quick fractional short at the 40.8 lower bounadary - reversal players picked up about 1 1/2 points
MACR triggered shorts at the 63.3 lower boundary twice, once for 1 point and again for fractions - reversal players who took the long as the price reversed back through 63.3 picked up about 2 1/2 points
Envelope Patterns
NKE bounced off its 32.8 downside continuation boundary and reversed course - reversal players picked up about 2 points
PVN fell through its downside continuation boundary at 67.8 for 4 points
CMTO gapped well above its 42.6 upward continuation boundary only to selloff the rest of the day - reversal players who went short on the reversal back through 42.6 picked up 4 points
Of interest to trend traders - from the 20% pullbacks group, MCLL (1 point on reversal), ELON (1 point) - from the overbought group, HGSI (9 1/2 points plus 4 points on reversal), AMCC (30 points from two long entries), PMCS (18 points on reversal) - from the oversold group, CMS (2 points), PGR (1 point)
Of note to daytraders using the trading index feature - the top performers in each index category offered traders the following profit opportunities today (these are breakout and reversal based points, daytrading with more granular S/Rs could produce better results):
Under $50 - CORR (2 points on reversal), SOFN (~1 point), AXTI (5 points plus 3 points on reversal)
Under $100 - FIBR (6 points), HYSQ (4 1/2 points), LHSP (3 1/2 points)
All - AFFX (19 points), CRA (33 points), BRCM (19 points)
Knowing where to expect, and capitalizing on, reversals is a key profit making tool in the daytrader's arsenal.
Whipsaws can happen in choppy markets and traders should always step away from the trade or give themselves more distance from the original entry boundary when a reversal occurs (such as adding one point to the reversal side of the trade entry boundary) to reduce the effect. Losses are a fact of life, but they can be easily kept to a minimum while maximizing your profits with proper stop management.
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).