Make Money, Not Predictions
I received a phone call this morning from a fellow trader. As soon as I
picked up the phone, I heard “Would you believe that I shorted Emulex at
100?” I quickly glanced at the chart of Emulex and laughed. The next thing
I heard, “I covered at 51, I’ll buy lunch today.”
The setup was quite simple. Emulex consolidated for a short time and then
broke down from its trading range on news. Please note that the media is
currently reporting that the news was a hoax, nothing is confirmed as of 11:00AM
ET, so check your various sources. We will not concern ourselves with the news,
rather the technicals..
Would I have tried to jump in this action? Absolutely not. This
type of extreme movement does not cater to my conservative style of trading. I
still wanted to show it, because this is every short-side trader’s dream.Â
Qlogic
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PowerRating) was also affected. These two charts remind me
of one key tenet of daytrading, “Preserve Your Capital.” With this
concept always in mind, I want to limit the risks that I take with my capital.
This is the reason that I rarely take trades like this. If I miss the initial
move, I do not chase it down. My theory is simple, “There will always be
another trade.” Many daytraders that I know are not aware of the fact that
there are roughly 11,000 stocks in the market.Â
Of course, each person must trade based on his personality and
account size, so while this type of trading is not for me, there is someone out
there who will be buying a new Ferrari Modena with the profits that he took from
this move. As for me, I just look to make 25 to 30 conservative points a week.
Today’s Watchlist:Â Â
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PowerRating),
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PowerRating),
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PowerRating)
The green line on the charts is the 200-day MA and the blue line is the
50-day MA.
In Week Three of the Baker/Ten Electronic Trading Course we took
a look at trading channels. Sapient
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PowerRating) is in one of the channels that
we looked at. This retracement to the trendline tells me that it’s time to watch
for a bounce. Now, as my readers know, I am not a heavy pullback trader. I
prefer to trade other setups, but its always good to watch different setups to
learn from them.
Pullback traders should watch for a bounce off the trendline.
Consider waiting for a move back above the 50-day MA to confirm the bounce is
going to last. Watch for resistance over 140, should you take a position. Another
strategy would be to watch for a break of the trendline to result in a move
toward the 200-day MA.
Vertex Pharmaceuticals
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PowerRating) broke out on Thursday but
shows a reversal on Friday. Of course, being Friday we expect light volume and
somewhat erratic trading. Watch for the stock to reverse again intraday and
close near its highs. If this does occur, we’ll watch for day 3 of the initial
breakout on Monday. In a powerful retracement scenario, it may trade for to the
breakout level highlighted in red. The key, though, is for it to hold Thursday’s
closing high. This type of close could signal continued strength.
Celestica
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PowerRating) broke out from a high-level cup formation
last week and then set another new high on Wednesday. Again on Friday, we are
seeing a thin-range consolidation day. We will watch for continued consolidation
followed by a breakout to another new high. Often following a sharp move a stock
will consolidate, which is when we set our alerts and prepare for a move. If it
does not consolidate much, momentum traders will want to watch for another
high-volume move higher.
Until later,Â