Trade of the Day
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We’re trying a new format here to help expedite making more posts to our Trade of the Day area to give you more examples of current trades to help you in looking for different signals that we watch. We hope that this will help you in your trading.
We’re using Jing Pro to record short videos of actual called trades so that we can quickly post these on a much more frequent basis. Enjoy and please feel free to leave comments or suggestions that we may do to help you in your trading.
Towards the end of last week the S&P was pushing towards a major support area in the 650-665 area as reiterated in my daily commentary. As most of you know, everything has been hurt the past nine months, but especially the financials. The last few days of last week we saw some increase in the volume in certain financial stocks as it seemed as everyone was throwing in the towel on them. Watching for a pickup in volume and what I like to call a waterfall or free fall in the price of a stock can often be an alert that at least a short term bottom is near.
Of course one of the problems is that often you’re not quite sure from where. Below are the charts from both the BKX and AXP for the past few months. Notice the volume bars on AXP from mid February. No huge spikes, but definitely an increase for a couple of weeks. As you can see in the first AXP chart, it had fallen from the 40 in just the past 6 months. Often times major whole numbers such as 20, 10, etc will act somewhat as support points. Of course, it’s not unusual for the stocks to undercut those prices slightly, to pick off all the stops people have placed just below, a lesson that all new traders soon learn.
The heavier than usual selling of the financials, including AXP, along with the $10/ share psychological level aligned with a major support area in the market converged to give what I like to call a reasonable expectation of a successful trade. However, as I suggested to some friends I trade with, the safer play was to buy AXP under $10 and to write some July 10 calls against at least part of our position for $2.50. That way, in case we were wrong, we had downside protection to $7.50 on AXP or maybe higher, depending on what % you wrote against, and if it went up and we got called away we still made 25% on your money in 4 months as long as the stock was still above $10 and we’d see what happened on the stock we didn’t write against. So far it has worked perfectly. The stock has rebounded 30% in a week so we’re up that much on the stock we didn’t write against and feel pretty good about even the rest that we did write against. It’s always easy after the fact to look back and say, I wish I hadn’t written the calls against any of it, but I like to remind everyone of the Rule of 72. A 25% return in 4 months is not bad in any market and a 30% gain in a week is fantastic. I’ll gladly take either these days.
AAPL has been a great trader the past 10 days giving very good conservative signals as seen below on a 10min chart, though in actuality I was using a 5min chart, they’re very similar and the 10min shows up better here because of size restrictions. As you can see it broke above its 200ma (moving average) on Feb3. at approximately 92.50ish and then made a quick move up to the 96 range. That was more than I could resist for a short trade so as it pulled back and broke the 20ma it was time to book some profits.
Now notice that on the pullback during the early AM selling on the 5th that it bounces right from its high on the morning of the 3rd, so the horizontal trend line held. Later that day it comes up and takes out the high from the previous day. That told us that there was more potential in the stock if the market cooperated. As you can see in the chart, it did, rocketing up another almost 7 points in the next two days. Of course, it always helps to have Mr. Market on your side. You can also see the advantage of using trend lines in your trading as it helps to really give you good confirmation visually when an up trend may be coming to an end for the particular time frame you’re trading in. Besides breaking the trend line, it also broke back below the 20 and 50ma, so it eas time to say goodbye once again, primarily because both of the shorter moving averages were so far above, what I like to call extended, from the 200ma. As you can see however, AAPL did hold the higher horizontal line and had a good day yesterday, so I’m still keeping a close eye on it.