Ding Ding Ding

Well, that's it. The markets are closed for 2006. I know I learned a lot this year. I hope you did too. 2007 should see the fruits of our labor and study. Of course, it's a never ending process and we must always be pressing forward.

I'm glad to have started this blog and am thankful that people take the time to read it. It is beneficial for me to articulate and show my ideas and the lessons I'm learning and hopefully it is helpful to any readers as well. If you have any thoughts or recommendations for the blog that you'd like to share with me, please leave them in the comments area or email me from the Profile page.

As this is an appropriate time to review our progress and current state, I'd like to make a few adjustments in our Watch list. Mostly just to ensure that we're dealing with leaders in their respective groups. We do have some really great ones among us, but others seem to be showing themselves as laggards. For example, ISE looks relatively weaker than some of the other exchange stocks while ICE looks much stronger than the bunch. For a simple comparison, look at where they sit in relation to a moving average. We can talk about this in the next meeting.

Before the commencement of trading again on Wednesday (Monday off for New Year's, Tuesday off in honor of President Ford), I will do a long term analysis of the market for a bit of perspective going into the New Year.

In the meantime, here is a look at the major indexes for the last three months of 2006 with weekly candles. Which one of these things is not like the others?
(Click it for a bigger picture)

F$#%&@& ININ, spread orders, Technical Analysis

Double Sigh. (See earlier ININ post "Whipsawed" for the first one)

With two confirmed candle patterns testing the new support, the bull flag was broken yesterday for a very good entry signal. Apparently the rest of the world saw that too. But I didn't trade it.
Another case for the lesson about watching a stock deliberately and taking the signals that are there, even if you got stopped out for a loss already. In fairness, I have been hesitant to take on aggressive positions in this holiday time when the volume in the market is so low, but there sure was nice volume here on this one. Granted, the stock has almost doubled in under 3 months. But with all that volume backing it up, who are we to say that it's tired?
(Click on the picture to make it grow.)


In hindsight, I realize that my mistake was setting a stop loss order too tight for a volatile stock like this. I assumed the old resistance would provide new support when I should have sized for a stop under the old support and kept a mental stop below the new expected support to allow for intraday noise like we saw on the big hammer day. 3% below support is different on a stock like this than on a steadier big cap stock. To see the other posts with the story of this ININ play, click on the ININ link at the bottom of this post.

After my post yesterday, I watched BHI for the Harami pattern to be confirmed with an up day. It was looking stronger earlier in the day, but even with some selling toward the end of day, it was still an up day. Because of my distrust for the market at the moment, I decided to play it a bit more conservative and do a bull put spread. This way, it doesn't have to make the big potential move I see. All it has to do is close above 75 at Jan expiration. Jan 70/75 bull put spread. I actually placed it in two accounts.

Let's talk limit orders and negotiating. With options and especially spread trades, we very rarely want to place an order at the natural bid or ask. There is usually room to negotiate.
The spread was 1.25 at the bid, 1.45 at the ask. I placed the orders for each account for a limit of $1.35 at 3:07 PM. They sat there. I decided to negotiate a bit. I moved one of them to a limit of 1.33. It sat. Seconds before 3:15 I moved the limit to 1.30 and it filled in exactly one second while the stock was at 75.57. I let the other order for 1.35 sit. At 3:29, 22 minutes after it was placed, the order filled for $1.35 when the stock was at 75.48.
To my knowledge, the bid/ask on the spread did not change in that whole time as the stock moved in a relatively tight range. Whether it was the difference of .09 in the stock price or just antsy market makers, I got the fill I wanted by waiting and still did better than the natural bid on the order that I did bring down my ask.
The moral of the story is that we must not forget that this is a market place and therefore a place for negotiating our price. Sometimes we have very little room to negotiate, but other times we have more. With the bid ask spread in options chains and the resulting spread in a combination of two options in one order, there is often room to negotiate, even on more heavily traded options chains. In a very heavily traded stock and options chain, the market will be tight, yet there will be a spread. Depending on the stock price the theoretical price of an option or spread position will always be right about at the mid of the bid/ask spread. We will rarely fill right at the mid since the market makers need something of an edge to want to play. But we can most often negotiate somewhere between the natural(bid in this case since we're selling a spread) and the mid. Notice on this options chain (after hours) that because the stock is very heavily traded, the options have quite high open interest. High liquidity makes a tight market. A tight market shows the bid and ask straddling the theoretical price. That's what we want to be aiming for.
Options markets are super efficient and any talk of market maker manipulating your position is nonsense, particularly if it is a liquid market.

Note that the shorter term in-the-money option has a slightly wider spread. It's hard to count on after hours prices as exactly accurate, but I'd read this as bullish. The ITM option has more intrinsic value and less time value to burn. Therefore, the seller of this Jan 70 option is taking on quite a bit of risk, more so than the ATM and OTM options with all time value, and widens the spread (the their cut of the action) to compensate for upside risk.

Now look at the chain for the Vertical spreads. The bid/ask spread is wider than for a single option on almost every spread. Yet the theoretical price is just about exactly in the middle. Because there are two individual sides to the trade the market can fill them individually or together. Whatever the case, we don't care, as long as we get the combination filled for our price somewhere near the theoretical.

Notice the odd fill I got for each individual side of the bull put spread. Someone out there in the market is willing to negotiate in odd prices. It's also possible that each side was filled in different places. Regardless, I got my fill for 1.30, better than the natural of 1.25.


I hope that was helpful. However, I want to make sure to distinguish between this kind of negotiating that with a normal stock purchase. Most stocks trade with a far smaller spread and this will not be nearly as much a consideration as it is with options. If you want to get filled on a stock order and don't want to wait around hoping for a dip and miss the boat(which I've done too many times...and then chased it like an idiot - don't chase it like an idiot), buy with a limit order on the ask price.

In other news, KBH looks read for a break of this flag and some upward movement. Ideal entry on the break of this line. Good reports from homes sales today and yesterday could mean a touch of enthusiasm for home builders.



Finally, if this chart of ISE doesn't convince you that technical analysis can be very useful in observing what's going on and being in sync with the market, I don't know what will. Do you think other people are drawing lines on this same chart too?

Some strength in the list

I won't go through them all, but we do have some strong ones in our midst.

The $SOX index has been struggling a bit lately. It broke both diagonal and short term horizontal support and has been drifting since. It's still above the 200 MA, though, and hanging onto the 50. So I'm not counting it out yet, but it's looking kinda ugly.


In contrast, however, our own VSEA has been very impressive. We're all so proud! Breakout on big volume. The news isn't obvious to me as to why, but the volume doesn't lie. It's a bit extended right now for an entry, but it's definitely one to watch for an entry point, particularly if the SOX and the Nasdaq get their act together. I wrote about the Semis in this post. Don't forget about the increased money for buy backs.



CRDN broke above a bull flag pattern I mentioned in Scrolling Through the List. I think it is probably debatable where to draw the flag pole, but the theory is that once the Flag (The area of consolidation between two lines) is broken to the upside, the stock should continue the distance equal to the height of the pole. Since late November showed consolidation after a big move up off the 41 area, it was a bit of a flag pattern too. I'll place the pole of the most recent flag from the low of Nov. 30 at 51.78. The high of Dec. 5 is 57.15. In round figures, the height of the pole is $5. Taken from the place where the flag was broken, about 55.80, the target would be 60.80. I almost took this trade on Tuesday, but chickened out because I don't trust the low volume in the market during this holiday season and the volume on this one was very low on the bullish candle. Regardless, resistance is at 62.50



Looking at it more closely, I think the move off 41 in November could be seen as a flag pattern with a pole that is about 13 pts. long. It was a big move on earnings and kicked off with major volume. From the breakout on 12/05 above 54, the target would be 67. The breakout was on more than 150% average volume and the subsequent pullback and successful test of new support was on average volume, a bullish sign.
It may seem a lofty target, 67. But looking at the 5 year chart, it doesn't look so absurd. They just announced a follow up order from the Army for 133 million bucks, the largest single order it has ever received. The PEG on the stock is under 1. The 67 area just may be in the cards.



With a positive New Homes Sales report out, the Housing sector looked strong today. KBH looks to be ready to move higher. There are many resistance points along the way, so an options trade will be trickier. Profit targets would be good. Otherwise, a stock position would be ideal.


Crude oil has been week in recent days.


Yet the $OIX confirmed a bullish Harmai pattern today by closing higher than the two day pattern.



Our UNT did form a bullish engulfing pattern today at support, but I'm not in love with the technical picture on the chart and I'm sure there are other oil stocks out there that are stronger.

Like the OIX, the Oil Services Index shows some good bounce potential with a bullish engulfing pattern right at the 50 and 200 MAs for support. The index is just below the support line I'd have liked to see hold, as well as the 200 MA, but it's not yet a convincing break.



From that sector, our very own BHI looks very promising. The harami formation today needs a higher close tomorrow for confirmation. The stock is poised on horizontal support and the 200 MA with the 20 rising through it. Very bullish potential. Low risk entry here with upside to the order of 7 or even 12 points.
Remember that this one trades at a discount to its group and has a PEG of about .50. Very low. Very good.


That's all for now.

AAPL news

Following the line of thinking in the last post, it's interesting to see the major gap in AAPL today come after a more severe sell-off than AAPL has seen in months. Perhaps the stock is just tired and all of the technical analysts saw the stock put in a lower high and then break horizontal and diagonal support and this accelerated the selling.
(Click image to see it larger)


(Kind of amazing that the stock gapped down to open right at the old resistance/support just above 78, no? Do you think other people watching AAPL are also drying lines on charts?)

Maybe it's all just a coincidence as often seems the case with Technical Analysis. But maybe someone or some very broad collective of smart people (the market) smelled something fishy and knew it would be good to sell some AAPL. The news today is of a further development in the options saga that seems to be sweeping the tech companies in particular. "The Recorder, a San Francisco-based publication owned by American Lawyer Media, reported late Tuesday that federal prosecutors are looking into forged documents at Apple related to administering stock options." Steve Jobs has apparently hired his own atttorney, independent of the company's legal team. Here's a link.

Again, perhaps it's just coincidence, but it's very intersting that news like this comes out after the stock has been selling off and not in the midst of a great rally.

So if you owned stock in this company, what would you have done to preserve your profits? I suppose it depends on your time frame and where you bought it. If you bought any time in the last 4 months, I would think a break of intermediate term uptrending support line and the horizontal support from old resistance would have been a pretty good place to get out. But if you owned the stock for longer and were playing it on a much broader time horizon, the trend support line on the 5 year chart would be reasonable to use and still be in the stock. All the same, looking at the weekly chart we see decreasing volume on the latest rally and the weekly candles show a clear turnaround and break of support on heavier volume. Selling covered calls on your position or even buying puts as a hedge would have been very reasonable. Maybe it still would be.


As I write this, the stock has recovered pretty impressively, up over 2pts. from the open. The market may well shrug this news off now and buy shares at this discount. What we'll now look for as trend traders is to see what happens when the next lower high is put in. That could be the more attractive bearish entry for a short term trade.
The Long term trend is still bullish, trend unbroken. It's worth observing, though, that the most recent high is not very much higher than the last high in January. The short term is definitely bearish and the intermediate term is right on the cusp of becoming bearish.
Whatever happens, we can play it in either directiton as long as we choose our entres wisely and manage our risk more so.

The Knews before the News

Market technicians (technical analysts) will say that all news and public knowledge are priced into a stock and that any "new" news is old news by that time that you or I read it and have time to act on it. I can't come up with too many reasons to dispute this belief. But still it somehow seems a bit cocky when I read or encounter traders that boast of never checking the news on a stock because there's no need. It's like flying blind to some extent. How are they comfortable with that? Well, like most things related to technical analysis, it becomes a lot more believable when you yourself witness an event as it unfolds among the lines you have drawn on your own little home schooled, not so confident chart.
Let me tell you about a recent observation of mine.

This is the weekly chart for OptionsXpress since its initial public offering.



This is the recent chart of Investools(IEDU) highlighting what happened to the stock when on September 19 they announced the acquisition/merger of online broker Thinkorswim. The stock quickly sold off somewhere around 20% on big volume for fear that the company had paid way too much in the deal. However, after the two day fear fest, there was a clear change in sentiment that this was a very good move and that Thinkorswim apparently has a lot of believers. How's that for a bounce!?! The clearing of resistance at 9.50 would have been a beautiful buy. Hindsight...



On that same day of the press release, OptionsXpress also sold off on heavy volume, but somehow a couple days of selling was all the news warranted and the overall trend really didn't seem to buckle.



(While we're at it, notice the double bottom reversal on this chart. Just like a double top, once it breaks the high point between the two bottoms, the target is the height between support and resistance of the pattern added to the price at the level of broken resistance, in this case 3 pts.)

Here's where it gets interesting. As an investools student, I was more or less shepherded toward OptionsXpress and used them as my first online broker. I was generally satisfied with their service, though I felt like they weren't very interested in hearing from me and my rookie questions whenever I called up for support. What led me to leave them, though, was that the commissions were too high for me and I knew I could do better elsewhere. I tried Interactive Brokers which was great for dirt cheap commissions, but you get what you pay for there and that's just about zero service. They definitely don't want to hear from you. I switched to Thinkorswim and quickly learned what a gem this outfit is. Not only did I get a warm, fuzzy feeling from my experience with them, but it was quickly apparent to me that they have a unique and very loyal customer base, almost rabid, I'd say. As I'm sure were many of their devoted and loving customers, I was a bit uneasy about the news that Investools was buying them for fear they would mess up a good thing. Regardless, it was clear to me that Investools had made a very smart move. Not only is Thinkorswim a force in its own right, but with a new and steady stream of Investools users being herded their way, the money would be flowing twofold, and threefold considering all those new Thinkorswim users will have already paid Investools for whatever educational services they purchased.
I haven't looked into it very hard, but I'm sure OptionsXpress has a customer base broader than just the Investools Sudents. However, I would think there are and were quite a substantial number Investoolers and I'd bet there was a relatively steady flow of new accounts coming from the Investools direction. With this in mind, I found it interesting that after the press release of the merger, both IEDU and OXPS had a hiccup and then continued moving up. Something was wrong with this picture. If TOS is going to getting a ton of marketing now AND a steady flow of new customers and the buzz that they'll then create, this can't be good for OptionsXpress.
I didn't really care to look into the details of what the numbers were and pretend that I could do the analysis better than all the professional market analysts out there. But I could draw my lines, which is what I did. I drew a resistance line from earlier in the year. Sure enough the rally stopped there. Just under two weeks later, on November 8, the stock had failed at making a higher high and put in a lower high. On 11/27 there was a big bearish candle for the official lower high in the trend. Looking back on it now and seeing the relatively low volume on that day, I would bet that all of the other market technicians who had any sense of what was in the air were playing this by the charts and not the news.
I drew in the new down trending resistance and the support line to form what looked like a descending triangle. (I should note that these triangles are continuation patterns, so to be an official descending triangle, it should already be in a downtrend. Nevertheless, the stock was sitting heavy on support.) I set an alert to email me on a move below 28.40 and it went off on December 11. I didn't take the trade intraday because it could have easily come back up at day's end just like it did on December 1. In fact, it did close a bit off its low. I hesitated to call support broken because of the lower shadows of the previous candles in that area, but using the candle bodies, support was clearly broken and a valid buy signal was there. I didn't take it because I didn't trust the chart and I feared losing money on a bearish trade in a bullish environment. (Note to self: Don't fear. Don't think. Read the charts.) The next day it confirmed beyond the shadow of a doubt but by that time it was far enough gone that the risk/reward was difficult to get past.



In any case, two days after my alert had me watching the chart breaking down, I watched and just about cried when on the morning of December 13 the company reported their monthly performance metrics and the stock gapped down in a big way with somewhere around 7 times average volume. Trading volume had grown but account growth had slowed. A Raymond James analyst downgraded their rating.

I don't know whether there were insiders who unloaded stock on those two days before the press release or whether it was just the mass of market technicians waiting for the same thing I was. But it's clear that the chart sent out a newsflash before the press did.

This is now a personal example where I had a hunch about something and it showed up on the chart before the press release came out with the bomb. Had I used my hunch and traded the chart, I would have gotten into a beautiful trade.

But there is another lesson here. Hunch or no hunch, news gets priced into a stock VERY fast. If we wait for the news to come out before acting, we can either miss the trade or get killed on a position we're in. So just as it goes for potential new trades, the charts just might tell you something about a trade you're already in before the news does. If you watch for it and listen to what the charts are telling you, you can get out before a nasty gap one morning. Have you ever stayed in a position when the chart was giving you signs of ugliness to come but you thought it still had a chance at coming back and then a bomb hit it? I have. That's something I'd like to see not happen again.

The moral of the story: Great phase 2 scores, rosey economic news, wonderful market, pending scandals, legal problems for a company, whatever. Trade the chart. Look for news and try to understand. But trade the chart.
And lastly....trade the chart. There's no news more up to date.

South Park - Oh Holy Night

And now for something a bit on the lighter side.

Merry Christmas, Happy Chanukah, Happy New Year, and a great whatever else you might be celebrating!

Double Tops

As we approach the year end and indexes are beginning to show signs of weakness, I though it would be good to look at the double top, a bearish reversal pattern.
Simply put, a double top reversal pattern is at the end of an uptrend where an M-like pattern forms. A new high for the uptrend is followed by selling off around 10-20% or more and a climb back to the high which then acts as resistance. If the stock or index then sells down from that resistance level and then breaks the low of the trough between the two peaks, it is a double top pattern.
Ideally, we want to see volume increasing into the selling off of the peaks and more modest in the buying up into the second peak. The pattern can take anywhere from a couple weeks to many months.
The pattern is confirmed on a break below the support from the trough between the peaks and, as always, a spike in volume makes the pattern all the more significant. Also, as with all support/resistance breaks, a retracement to test the line from the other side can be a great entry point.
To find the projected target from the pattern, measure the distance from the peaks to the low of the trough between them and then find your target at that same distance below the support from the trough low.
For a more official description, here is a good run down on the Double Top Reversal pattern from Stockcharts.com.
We've been pretty bullish in the short and long term lately, so finding lots of double top examples is not very easy. Here are a few, old and new:

The bursting of tech bubble shows us doubles tops on the NDX and the $NWX, the AMEX Networking index. The NDX(Nasdaq 100) firs put in its top in March 2000 with a shooting star and then a second effort at a new high, which failed. This formed a double top pattern when it broke below the lows between the two peaks. After that ran its course and reached the target fairly quickly, the market struggled back to about half its recent slide only to put in another double top pattern. The second peak of that pattern on 9/1/2000 was confirmed the next day as an evening star reversal candlestick pattern, giving further strength to the potential double top. It then moved down, broke support and completed the pattern by hitting its target fairly quickly.



While the NDX peaked in March, the NWX Networking index was still going strong until July of that year. Picture perfect shooting star candle with confirmation on 7/17/2000. (This pattern could be called an Evening Star Pattern, though the second day of the three day pattern is really supposed to have a gap up.) The second peak is completed with a bearish engulfing pattern on 9/5/2000, the same day the NDX put in it's final peak of the second Double Top pattern. All thoughts of bullishness in the tech world were gone from that day forward until years later.



There is no volume to support these patterns, but such is the reality with indexes. One could argue that the nature of an index being a group of stocks makes the factor of volume not as essential to the chart.

HP made a nice one early this year and shows subdued volume on the climb to test the first high and then ramping up volume in the sell-off at resistance. Picture perfect retracement to retest the broken support line for a bearish entry. Though it still hasn't reached the official target of $10 lower than the break, it made half of that projected move in the month of July alone.



It may be a stretch to call it a double top, but the NDX today broke what might be called a double top. The distance between the highs and the low in between them is only about 3% and this is a shorter time frame. But it would probably be a good thing if we were all on the right side of a 3% pullback in the market. The NDX 100 is referred to (so I hear) as "The Generals" since it is the big cap of the tech stocks. They are seen as leaders of the Nasdaq. If these guys are breaking down....Uh oh.
Here's a bearish article, Tough Times Ahead for Big Cap Tech.



To make it more fun and personal, we can look at ISE from our own little stable.
The formation is certainly there, but I'm not going to get too excited about this one just yet. Until it breaks the support, it's still just a potential pattern. Furthermore, the volume on the rise into the second peak was quite substantial and the sell-off volume hasn't been very dramatic. On the bearish side, though, we did break the uptrend and the stock with a P/E of 36.7 is trading at quite a premium to its group(P/E of 21.5). It has PEG of 1.65.



As these charts and others start to give us some potential bearish signs, now would be a good time to start looking for potential bearish charts for when the market does confirm a turn around.

Have a great weekend!

Scrolling through the list

As the Nasdaq is looking ever more questionable and the SOX has definitely broken its uptrend support line, AAPL seems to have broken down in perhaps a very significant way. It has Definitively lost the horizontal and diagonal support and now it looks like the 50 MA too. That makes three strikes. Next likely support is at 78. The 200 MA is all the way at 70.

(Click images to see them larger.)



BHI is holding above 74.50 support and the 200 MA. Yesterday's inverted hammer made a bullish Harami.



The continued strength from COH warranted a mention from Mike Coval in Wednesday's Market Commentary.



CRDN is in a bull flag and holding above the 20 MA.



CTSH has a trend that looks a little long in the tooth and might be ready to break its Uptrend support and the 50 MA in one shot.



CWTR doesn't look very pretty and just bounced off the underside of the 200 MA. Chart shows a couple bearish divergences with the MACD in the last year. Interesting to see how common these are and how powerful a signal they seem. Here's an article on the subject.



HWAY looks to be warming up to breakthrough the 200 MA with the help of the 20 MA and support just below at 46.50.


ISE looks more likely to test the 200 than climb back up to the 50. The intermediate uptrend is coming in jeapordy with a test of the latest low.
A few posts back, I suggested a 50/45 bull put. I paper traded it and on the break of the support line closed it for a small loss.



KBH seems to be respecting the 200 MA and looks inclined to use it as support now. There is decreasing volume on the pullback from the recent high.



NTAP is right a the crux of testing horizontal and diagonal support and shows a potential double top with a bearish divergence on the MACD. Volume spikes recently have been on buying days.



RIMM had earnings today after close. There are a lot of writers pointing out overvaluation. The stock has more than double since August. But with earnings coming in at a penny more than the analysts' expectation, the stock was up over 5% after hours. Here's a good summary of the announcement.
With a fresh bounce off the 50 MA, if Friday closes up above 141, this could be a nice bullish entry for further upside movement. A Bull Put spread might be a nice conservative approach.
Implied volatility on RIMM ran up above 55% into this announcement. Perhaps there will still be a nice level of it to sell tomorrow.



UNT still has a longer term downward bias, but may find support at 48.80 and its 50 MA.



VSEA broke out big today, 5.7% on a day when the SOX is down 1.3%. Only news I could find was of a live webcast for their coming earnings announcement in January.



WCC looks to be having trouble. Continued selling today on big volume. 56.50 is likely support. Peter R. at Shadow Trader always says that volatility contraction leads to volatilitiy expansion. Notice the three Moving Averages coming together over the past few months. With the price now below the 200 with the others likely to follow, could this be the beginning of a more meaningful move down?
Perhaps a bounce a bounce off the 56.50 area support level could be played with a bull put spread for a bounce with the intention of buying back the short on continued breakdown.




ZMH wants to go higher though couldn't quite make it beyond resistance today and formed a shooting star which technically still needs confirmation, though the past few weeks have shown a number of bearish candle patterns.



It's interesting to look through the list and find that I'm still bullish in the short term for 10 of the 15 stocks. However, some of those "bullish" stances could easily change very soon: NTAP, CTSH, CRDN

Hit ININ and run

It's been a long day. The second day of Advanced Technical analysis with Dave Johnson and a cameo from Thinkorswim's Tom Sosnoff was very good. The drive home was long and full of traffic, so I won't put up too much right now.

The workshop gave me plenty to think about, particularly in better establishing my rules and general trading approach. In the coming weeks, I'll try to share some of the lessons learned over the past two days.

Maybe it's a dead horse by now, but one last quick follow up on ININ. I asked Mike Coval about the trade, getting stopped out and whether or not to re-enter. It was while Dave Johnson was speaking, so we looked at the chart very briefly.



He felt that my biggest fault was assuming the new potential support would hold and setting the stop loss level based on that. Particularly with how the stock has reacted to new highs for the last year, with steep pullbacks, I should have had a stop at or under support at 17 or so.

I tried to make a quick, quiet case for the ascending triangle being broken on big volume with a pullback and a successful test of new support. But he didn't seem too interested in that and pointed to the high MACD and Stochastic turning down. I should point out that we didn't look at it on the interactive chart.

If I were to follow what I learned at the workshop, I would consider it both a confirmed hammer and a bullish engulfing pattern, which is a self-confirming pattern. New support. But I don't know that I will take the trade. Dave Johnson talked about that a bit. Seeing the signal but not taking the trade. However, I'm still wrestling with this and won't attempt any psycho-talk.

Anyway, as Dave Johnson said many times today, patterns and candlesticks are subjective. Everyone is entitled to a slightly different view and all can be "right."

Whipsawed

Sigh......

Ladies and gentlemen, I would so much have liked to have the first trade I show on this blog be a winner. A Gigantic winner! But, alas, "The Cost of Doing Business" has been paid.
ININ opened lower today and quickly darted down well past my stop order at 18.55 and triggered a market sell at 18.52 at 9:32 AM before pushing right back up to close near the high of the day's range, though still down a touch below my designated support line of 19.13. Truthfully though, I'm of mixed emotion about it. If this support area holds, I'll be forced to consider getting back into the trade having already lost on it once. If it breaks down, I'll be glad to be out already. My loss was actually less than my designated risk allowance since I positioned a bit conservatively, rounding down in number of shares. It feels a lot like I got whipsawed out of a situation that is now destined to use this level as support from which to make the expected move higher. However, it's strangely liberating to be out of a stock that is acting skittish. Let's explore.
As we know, support and resistance levels are areas and not exact numbers. In fact, to call the support line at such an odd number like 19.13 is perhaps a bit silly to begin with. Speaking of silly, I had to laugh at myself for writing in the post about doing business "If not now, then maybe the moment for this stock to make its move is still just around the corner..." Hello!?!? Note to self: The stock just put in a high of a 300% gain for the past year.
In any case, the high volume day today gives a mixed message. Certainly that it closed lower and is potentially breaking support on high volume is a major red flag. But today's candle also is a gigantic Hammer. Instead of the support line I proposed, if we were to use the closing daily highs for the resistance line (18.37) of the recent triangle, the stock actually closed above that support line today. An up day tomorrow would both confirm new support there and do it with some added strength of the hammer to back it up. This would be an ideal entry for a patient investor that chose to pass on the breakout day and waited for a test of new support.


Will I re-enter? Doubtful. I'll remain open to the idea, but I'd want some real convincing. I'm not getting great feeling about the tech sector. The Nasdaq broke below its recent trend support and potential triangle. It hasn't formed a lower low yet, but it's certainly going sideways.

The $GSO Software Index is definitely moving sideways now. (ININ is a software company.)


And the mighty SOX seems to be sitting heavily on the 50 MA after faulty bounce and lower high. Not necessarily a good thing for the Nasdaq. Tomorrow is make or break.

Another noteworthy tidbit is the after market close news today that Interactive Intelligence CEO Sells Stock, but even with all the selling this guy did November, he still owns a huge number of shares. You can look that up in the "Insider Trading" link from the left column of the Corporate Snapshot page.

In other news, Gold has pulled back during December and today bounced off it's 50 and 200 MA. This seems quite significant and looks like a no brainer on the chart(lightning strike me now). I'd imagine all the gold traders out there are seeing the same thing.
Here's the GOX. (The XAU looks similar.)



I like AUY for a gold play. Here's the bounce off new support after a big volume breakout. Based on the height of that 8 month channel, I figure a target of 16 is reasonable.



That's all for today. Thanks for stopping in to read the blog.