Trading Review for 2/28/2000
An index divergence of the other kind today - a significant market move seems to be brewing. The reaction rally in the Dow and S&P was expected, however the NDX going negative is interesting. A potential short term bottom forming in the S&P was noted Friday. However, since the indices have been diverging - if the NDX futures should selloff to below 3800, we see a strong possibility for panic selling in Nasdaq stocks to occur (even if the S&P and the Dow have turned in a short term bottom). Please keep an eye on this interesting and developing condition so that you will be prepared to benefit should such panic selling occur.
Two key reports due out tomorrow - the Chicago Purchasing Manager's Report (if the numbers come in significantly above the expected 56.3% this could indicate inflation in the pipeline and trigger selling) - the February consumer confidence report (expectation is 143). Expect both reports at approximately 10am ET.
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 today's trading action relative to the top Trade Prospector signals:
Volatility - Volatility Compressions, Trading Range Patterns, and Multiday Patterns
ARBA Peaked its head through the 270.6 upper breakpoint and then plummetted through the 254.8 lower breakpoint, it later rallied back through the upper breakpoint - the breakouts were worth 14 points, the reversal at the upper breakpoint was worth an extra 15 points. EMLX Fell through the 152.9 lower breakpoint triggering short trades worth about 8 points BRCM Sold off through its 182 lower boundary for a 2 point breakout trade - NOTE: it's back inside its trading channel and traded in a narrow range most of the day, keep an eye on this one over the next day or so INKT Sold through its 141.2 lower breakpoint for 2 point shorts and then reversed and rallied to just short of its 148.4 upper breakpoint - that reversal was worth 6 more points MLNM Gapped beyond its upper breakpoint and rallied 2 more points before being hit with waves of selling that drove the price not only back through its 271.5 upper breakpoint, and its 258.5 lower breakpoint, but also all the way through its trading channel at 267.7 x 243.7 - after bottoming at 240 1/2, it rallied back into its trading channel - the short at the lower breakpoint delivered 18 points profit, taking the reversal from the upper breakpoint added 13 points to that JNPR Popped through its 238.4 upper breakpoint a couple of times but bounced off its 240.1 upper trading channel each time - it finally sold off through its 229.2 lower breakpoint to close just below it - if you took longs at the upper breakpoint they were worth breakeven to 1 point, the short at the lower breakpoint was worth a fraction, but the reversal off the upper trading channel was worth 11 points - traders should note that due to the proximity of the upper trading channel to the upper breakpoint, the best way to trade this stocks was to either wait for a long signal at a breach of the trading channel or if taking the long signal at the upper breakpoint, to exit quickly when the trading channel boundary proved to be strong resistance. VIGN Triggered short trades at the 224.8 lower breakpoint worth 6 points HYSQ Sank through the bottom of its trading channel at 94.5 triggering short trades worth 6 points BLDP Fell through its 103.9 lower breakpoint for 2 points
Momentum - Breakthrough Momentum and Momentum Intersections
SMTC Plummeted through its 61.3 downward momentum continuation boundary for 5 points, it then reversed to rally short of its 66.6 failure boundary ETN Bounced off its 71.4 downward momentum continuation bouindary and rallied through its 73.9 failure boundary triggering longs worth about 1 point (the reversal was worth 3 1/2) NTLI Lost its momentum and fell through its 91.1 failure boundary for almost 2 points before briefly recovering and then selling off again to close below its failure boundary CMRC Triggered a 7 point long trade at its 223.6 upward momentum continuation boundary PHCM Opened just short of its 154.3 upward momentum continuation boundary and then sold off through its 147.1 failure boundary - the short at the failure boundary was worth 5 points, the reversal was worth 12 NTOP Traded within its momentum boundaries - no trade
Trading Channel - Channel Breach, Near Trading Channel, and Near/Narrow Channel
AFFX Trade back and forth through its 289.3 upper channel boundary several times giving traders multiple long entry opportunities worth over 10 points VITR Sank back into its trading channel below the 182.8 upper channel boundary and even fell below its 172.3 lower breakpoint before rallying strongly northward after lunch - the short at the lower breakpoint was worth 2 points and the long breakout trade at the upper channel boundary was worth 29 points CMRC Danced back and forth through its 223.6 upper breakpoint giving traders several long trades worth about 10 points ITWO Broke through its 155.7 upper trading channel for 17 points HYSQ Plummetted through its 94.5 lower trading channel boundary for 6 points BEAS Also plummetted through its lower channel boundary at 127.3 for about 9 points PRSF Gave long trades at the 79.9 upper channel boundary in the morning worth 2 points and fractional short trades at the 74.8 lower channel boundary in the afternoon - if you played the reversal at the upper channel boundary you pocketed 5 more points CSCO Solld off into lunch and then bounced off its 127.2 lower channel boundary and then rallied strongly to its upper channel boundary - the reversal was worth 5 points - NOTE: it remains within its trading channel, keep an eye on this one for a day or two CMVT Fell through its 185.8 lower breakpoint for 9 points LRCX Gapped below its trading channel and fell through its 135.2 lower breakpoint for 4 points, it then rallied back inside its trading channel
Envelope - Breakout Patterns and Envelope Patterns
AXP Reversed its downward move by failing to pierce its 124.3 continuation boundary and reversing back through its 132.6 failure boundary triggering longs for 3 points FILE Continuted its upward push through its 42.3 boundary for 4 points METHA Oscillated around its 51.1 boundary but finally delivered 2 1/2 points to long traders DIA Gapped open and then sold off to within a fraction of its 98.1 downward continuation boundary and then reversed north through its 98.9 failure boundary triggering long trades worth 2 1/2 points ASDV Remained within its boundaries - no trade ADRX Poked below its 92.2 lower boundary for a fractional trade GMH Traded with its boundaries - no trade
Of interest to daytraders, from the Trading Index - CMDX (13 points), CRA (40 points), TERN (25 points), NSOL (15 points), SDLI (30 points), RMBS (45 points), INCY (15 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.
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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).