A Chart Only Takes You So Far — Here’s What You Need For Entry
Good things come to
those that wait. Yesterday’s HVT
trading was sorely needed given the last few weeks rather slim pickings.
Surprisingly, the afternoon session was far more active than the morning,
however, each session offered trades that had generous moves. Myself and the
members of my
Trading Room had several 40-50 cent moves in stocks.
Naturally the question is: “Was this a one-off
event, or is there some good rotation brewing which will continue this
movement?” I suspect that we are due for some good pockets of volatility so I
am ready to take full advantage tomorrow morning. Trading income can be “lumpy”
so step up and get your fill.
Here is one set-up that I saw yesterday afternoon
that gave a quick heads up as to an imminent rally after a prolonged sell-off in
the S&P’s that took them through the 50 day EMA at 1127.
As I had said earlier, there were a few stocks I
was watching in the afternoon, there was an awful lot of activity. However,
stocks like Capital One Financial (COF),
United Health Care (UNH) and
Harley Davidson (HDI) that offered some great
HVT entries. All the entries were textbook Rubber Band
Trades or as was the case with HDI,
simply buying the pull-backs off the 1-minute chart. HVT in its’ purest form.
^next^
On the opening there was a trade that forced you
to come out with your tape reading skills in order to catch the optimal entry
point, that stock was HCA, which opened down
nearly 3 points. Let me review what I saw that allowed for the entry.
Remember, a chart only takes you so far, the entry is always a function of tape
reading.
– It was obvious that given how far HCA gapped
down, there would eventually be a bounce that would provide a good trade.
– Since we are “bucking” the trend we need to
make sure that we have all of our ducks in a line first.
– 1 min stochastic needs to be severely oversold
and on the verge of crossing back up
– More importantly, the 5-minute stochastic
needs to be in the same position. This was both time frames are validating an
entry
– In the meantime, we should be watching how the
specialist is keeping his book. It became pretty obvious that a large offer was
doing a pretty good job of walking the stock lower. Big offer; small bid =
lower price, and so it went for several minutes
– Suddenly there was no big offer AND the spread
began to narrow.
– Up-ticks were now being seen, futures firming
– Offer being taken, 1-minute stochastic
starting to cross up and the spooze kicking into gear.
At this point you have to strike, your have
thought and analyzed for almost 10 minutes now, if you flinch, you will miss
out. Tape reading instills a tremendous amount of conviction.
FX (Forex)
Meanwhile in FX land, the extreme parabolic moves
began to wind down. Now the stage is set for stalking re-entries. Tops on my
list are shorts in the GBP/USD and
AUD/JPY. Both are trades that follow the
current trend. However, entering the trades at current levels would be a bit
risky. The GBP/USD alone has moved 500 pips
Tuesday and Wednesday alone, a bounce is likely, this will offer a far more
robust entry point.
I will have some better observations for
tomorrow’s column on FX as trades will begin to gel as today plays out.
As always, feel free to send me your comments and
questions.