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Thursday, June 17, 2004
Good evening friends,
Market Recap
Another day of nothing is pretty much what this market added up to again. The Dow traded flat for the second day in a row and the NASDAQ was down -14 points. The NASDAQ was able to find support at the 50 SMA near 1976 and bounced slightly to close the day at 1983. There is not much else to say about the market right now – it is the same old story. So rather than boring you with the same broken record tonight, I think it is a good time to start our series on chart critiques
I will be doing chart critiques from time to time on trades that we have made so you can see the step by step process of what we look for and why we enter and exit a trade. Tonight I start this series with XYBR.
XYBR Critique
We recently played XYBR for a +13% gain (See chart in chart section). Let's take a look back at this trade to examine what we saw in the chart to peak our interest. The stock opened up at $1.31 with pretty good volume. Joe saw this stock clawing its way through a major pocket of resistance at $1.35, and I set a buy point of $1.36. Our buy point of $1.36 opened a position into the stock just after the major resistance was taken out (and that resistance became our support). The stock closed just off the HOD at $1.40.
The MACD showed a divergence because the price had been slightly down to flat, yet the MACD was improving. Also, the On Balance Volume was on the move again. Looking at the RSI, it was showing a lot of strength, even as the price had not yet moved. Finally, the ADX was crossing above DI- with DI+ above DI- (see my last indicator commentary). It had just cleared the major obstacle of price resistance and with all the indicators lined up this was an ideal play for a quick move up.
A minor pennant formed in the following few days, before the next leg up. There was major resistance at the 200 SMA so I planned to sell then because I did not think it could get through that level. We sold the position at $1.54 for a +13.2% gain in 7 trading days near this key resistance area.
XYBR blasted through the 200 SMA the following day on good volume which may have looked like we sold too early. This move above the 200 did get my attention, and I was following the chart for a possible re-entry. The next day it slowed and tried to base, but the following day it fell back below the 200 and has been going down ever since. It was obviously a false breakout and our exit, although not perfectly timed, was good for a +13% gain.
We may not sell at the perfect top, but what is important is that you know when to get out of a stock. Technical Analysis is nothing more than mathematical probabilities. We will never be 100% right but our chances are excellent that we will profit if we play the stocks with the best probabilities of moving in the direction we want them to move.
In the current market conditions, our goal is to make +20% on long trades and +10% on short trades while risking 5% and 2% respectively. In a flat market like we have been in, that is our expectations. The big gains will come when the bull busts out of the stall and we will be there riding him as far as he will take us but for now, we will keep trading for the small gains - they all add up.
As always, thank-you for your support past, present and future! Have a great night everyone; we will see you all Sunday evening.
OTC BB Watch List
- None
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