Trading Review for 2/11/2000
We look for a possible reaction rally on Monday or Tuesday because the DJIA is oversold, however we continue to believe in the likelihood of further downside (especially on the Nasdaq). The tech and internet indices (NDX, MSH, DOT, GIN, etc.) show volatility compressions and we therefore expect them to burst one way or the other soon - given how far extended the NDX is (1300 points above its 200 DEMA), we see the higher potential is for it to burst lower (possibly after first participating in a reaction rally).
But, as always, we will trade what the market does - not what we think it will do. But we suggest all traders remain vigilent for further downside in order to avoid being sucked into a bear trap - and be sure all your long positions are hedged or protected with trailing stops.
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 Friday's trading action relative to the top Trade Prospector signals:
Volatility - Volatility Compressions, Trading Range Patterns, and Multiday Patterns
VERT Triggered shorts at the 219 lower boundary twice - first for 5 points and again for 8 points INSP Triggered longs at the 195.7 upper boundary for 4+ points - reversal players picked up 10 more points CTKS Gave a short entry at the 174.1 lower bounday for 1 point and an 8 point reversal play at that boundary CMRC Gave short traders at the 152.7 lower boundary about 2 points JDSU Fell through the 201.8 lower boundary and gave short traders 2 points and a long reversal for 5 points LHSP Triggered long trades at the 80.5 upper boundary for 4 points SNDK Offered a long entry at the 149.6 upper boundary worth 3 points ADAP Gave a short trigger at the 117.9 lower boundary twice - first for 3+ points and again for 4+ points AFFX Initially triggered longs at the 275.9 upper boundary for 4 points and then a short at the 261.9 lower boundary for 15 points - reversal players picked up an extra 14 points
Momentum - Breakthrough Momentum and Momentum Intersections
ENZN Dropped through the 54.2 lower boundary for a fast 5 points GMST Sailed through the 66.2 upper boundary for an 8 point gain INCX Gapped and quickly ran through the 21.6 upper boundary for about 5 points and then reversed direction and fell all the way back to just under the upper boundary before bouncing and again triggered longs for 3 more points HRBC Triggered longs at the 30.5 upper boundary for 1 1/2 points and then gave a reversal trigger for 1 point SE Gave a reversal off the 36.7 upper boundary for 1-3 points WMI Triggered fractional shorts at the 14.5 lower boundary PCLN Fell through the 53.8 lower boundary triggering shorts for 2 points
Trading Channel - Channel Breach, Near Trading Channel, and Near/Narrow Channel
NSOL Roared through the 304.2 upper breakpoint for 21 points - a reversal as it fell back through 304 gave 10 AFFX Triggered a quick long at the 275.9 breakpoint for 4 points, a reversal short for 15 points, and a breakdown short at the 261.9 lower breakpoint for 15 points ITWO Triggered long at the 248.9 breakpoint for 5 points, a reversal for 6 points, another long for 3 points, and another reversal for 9 points ADAP Remained in its trading channel - no trade HNCS Gave a good reversal exactly off the 96.5 upper boundaru for 4 points GE Triggered short at the 135.4 lower boundary three times - first for 1 point, then again for 1 point, and then again for 1 1/2 points AFM Briefly poked its head through the 80.3 upper channel boundary for fractions and then triggered reversals for 1 1/2 points
Envelope - Breakout Patterns and Envelope Patterns
TIBX Gapped beyond its upper boundary, but ultimately triggered reversals as it fell back through for 8 points CHKP Gave an opening reversal trigger near the 180.7 upper boundary for 10 points VTSS Remained trapped within its boundaries - no trades AMAT Plummeted through its 168.5 lower boundary for 5 points ETEC Fell through the 105.2 lower boundary for 4 points ADBE Triggered a short at the 87.7 lower boundary for 1 point and a 3 point reversal
Of interest to trend traders - from the pullbacks to support group, SDS (3 1/2 points), CKFR (8 points), GM (3 points), SPOT (2 points), DELL (2 1/2 points on reversal)
Of note to daytraders using the trading index feature - Under $50 - CORR (4 points), CLPA (6 points), AXTI (3 points), Under $100 - LBRT (6 points on reversal), FIBR (5 points), All - CRA (2 points), NSOL (21 points + 10 point reversal).
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).