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Brice

Five Ways To
Pinpoint Long And Short Setups With TradersWire

By Duke Heberlein

While the
Insights From The War Room are a
great tool for traders to use in their pursuit of profit in the markets,
based on emails I get, many members are not taking full advantage of another
powerful assistant to their endeavors: the java applet alerts. Some members
are unaware of what this is and how to access it. Hopefully, however, you
will have a greater understanding of what this part of the
TradersWire is — and five ways you can
take advantage of the applet — immediately after careful study of the
examples in this article.

What The Java
Applet Is

The java applet is part of the
only service in the world that gives you up-to-the-second price action and
volume alerts, combined with real-time, actionable trading analysis. When
you click on the TradersWire icon
on the homepage, you will bring up the java applet at the bottom of your web
browser.

 

Via the applet you
will receive — continuously throughout the trading day — alerts on the
most important price-and-volume movements on a universe of over 5,000
stocks. These include up-to-the-second alerts of:

• 10 and 20 percent pullbacks
  off highs and lows within the last 10 trading days
• Stocks that trade 100% of
  their average daily volume prior to 1 PM eastern time
• 60-day new highs and lows 
• 52-week highs and lows 
• Stocks touching 50-day and
  200-day moving averages (something many institutions focus on) 
• Instantaneous alerts to
  large buyers and sellers on the exchanges
• Program trading alerts

Now that we know what the java
applet is, let’s jump into some specific strategies to utilize the alerts in
your trading.

Pullback Alerts

Trading pullbacks — pauses or
temporary reversals within trends — can be a high-reward, low-risk approach
if used in a proper fashion. One of the safest ways to employ the pullback
strategy is to use it in strongly trending markets, most often defined by a
three-month relative strength reading of 90 and higher for long
opportunities, and of 25 and lower for shorts, or an ADX reading above 30.
If you use the stock scanner to make up lists of stocks with these
characteristics to monitor, you can then watch the applet during the day for
pullback alerts, or use the search feature at the end of the day to see
which stocks triggered the pullback from high/low alerts.

Arch Coal (ACI)
had a three-month relative strength rating of 98 and an uptrending ADX
of 45 on April 3 when an alert is triggered as it trades 10% lower than the
March 28 high. The stock then gains more than 4 points out of the pullback.

 

With a three-month relative
strength rating of 23 on March 27, Adelphia Communications (ADLAC)
is a good short candidate. When the alert comes across the applet that
day as it pulls back 10% from the low of March 23, the stock goes on the
radar. Three days later the stock loses 20% when it falls out of the
pullback.

 

Comverse Technology (CMVT)
is stuck in a downtrend, with a three-month relative strength reading of
11 and a downtrending ADX of 36 on March 23, when the applet alerts a 20%
pullback from low. The next day the stock resumes its meltdown, dropping
almost 19 points to the April low.

100% Average
Volume Before 1PM Eastern

Heavy volume can exhibit both
heavy buying and selling pressure. When a stock trades more than 100% of its
average daily volume prior to 1:00 p.m. Eastern and is also in a pattern
setup, the likelihood for follow-through in the direction of the
accumulation or distribution is increased.

Micromuse (MUSE)
triggers one of these alerts on April 5 as the market is snapping back
after a sell-off. MUSE forms a Slim Jim just under the level of the intraday
high, undercuts the channel slightly without failing, then brings in more
big volume on the breakout from the pattern.

Siebel Systems (SEBL)
is up on the morning of April 19 as it trades more than its average
daily volume of 18 million shares by 12 noon. The subsequent breakout takes
it more than 4 points higher.

Use this alert when
it comes up. Search the daily and intraday charts for pattern setups, to the
long side if the alert happens when the stock is positive on the day and
look at shorting opportunities when the issue is negative on the session.

52-Week Highs/Lows and Two-Month Highs/Lows

New highs and lows
many times are a tip off to momentum yet to come. Traders of momentum will
look for stocks making new highs as possible long side trading chances and
new lows as shorting opportunities. Since there is no overhead resistance or
underlying support, they often will move in the short-term.

Applied Materials
(AMAT)
hits a new two-month high on April 18, then trades above it the
following day. When it breaks out of an intraday cup and handle, AMAT runs
for more than 3 points.

Sepracor (SEPR)
hits a new two-month low and then makes a two-day pullback off it. When
the stock falls out of the short pause, its meltdown resumes.

Gilead Sciences (GILD)
gives us two shots at upside action, as it moves for three days
initially after making a new two-month high, then explodes out of a 1-2-3-4
pullback for more than 10 points.

Touch and Re-Touch of 50-Day Moving Average

A stock that remains
above its 50-day moving average is perceived to be in an intermediate-term
uptrend, while those that remain below it are thought to be in an
intermediate-term downtrend. Institutional traders have historically used
the 50-day moving average as an intermediate-term support and resistance
level. Institutions will often buy a stock when it touches its 50-day MA,
and conversely, will often unload a stock when it fails to hold above the
50-day MA.

Genzyme (GENZ)
makes a nice bounce higher off its low, then pulls back and touches the
50-day MA. It makes one move upward out of the first pullback, then another
stab higher out of an inverted head and shoulders when it violates the
neckline of the pattern.

Comverse
Technology (CMVT)
is downtrending when it recaptures the 50-day MA and fails to hold.
After the first continuation short, two additional pullbacks from lows
provide substantial gains to the short side.

Buy and Sell Program Alerts

When buy and sell
programs hit the tape, the java applet will scroll an alert across the
browser window. Since program trading pushes stocks higher as arbs dump
futures contracts and buy the stocks in the underlying index, or creates
selling pressure when the sell programs do the opposite, any pattern setups
on the intraday charts are likely to head in the direction of the program
trading.

THQ Inc. (THQI)
is trading in a Slim Jim near its intraday high when program buying hits
the tape around 15 minutes prior to the breakout. Programs help to push the
Nasdaq almost 70 points higher in the last half of the days trading.

These are just some
of the ways to make use of the java applet in your trading. Regular use of
the alerts it broadcasts will help you to separate the wheat from the chaff
and sift through all the daily noise to find the best fish to trade in the
stock ocean.

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