Those of us involved with Spike should surely be grateful to Alex and Kerry for their generous and enduring insights–not the least of which was Alex’s prescient warning last week that the potential was strong for a market crack, which hit hard on Friday. Thanks, Alex, for a nice payday (though my short in Spike was a bust!).Another of Alex’s insights that I appreciate is his Fallen Angel pattern, which I think was first described in Trading for a Living. If you don’t know and love this pattern, reread the book, learn the pattern and hunt these beauties down, because they can be treasures. As a refresher, Fallen Angels were once strong momentum stocks that soared parabolically, only to crash and burn as the institutions left them for dead. If the company stays in business, then the stock tends to trade sideways for months, slowly mending, and building enormous bases. The pattern looks like an elongated “L” with the bottom much longer than the top. Eventually, institutions and investors circle back, as the value players slowly accumulated the shares. Then as other investors start to notice, they burst up one day, break their range and work their way up the right side. Many recover 50% or so from high to low.Fallen Angels make miserable trades as they go sideways, but great trades if you catch them as they break the range. Now that market has lost its goofy love affair with the financials is the time to search for them. In the weeks ahead, money will rotate out of the financials and gold and into value areas.There are many Fallen Angels in the energy sectors, particularly the solar guys–LDK, HOKU, SOL, ESLR, ASTI, FSLR; oils like BAS, ALJ, HES, and coals like JRCC. None that I have mentioned are ready to buy just yet. Put them on a watch list and look for them to edge above the flatlining 200 SMA, pop up and drift back to oversold on the daily.
OTE is a Greek communications company with a market cap of $6 billion. OTE was one of Stephen M’s alternate selections this week. I review each Spikers’ weekly selection and alternates as well as several Spike members picks. I was intrigued with OTE immediately. See the attached weekly chart. OTE is in a very extended trading range. Price is right at support on the Weekly chart. Note the huge volume over the past several weeks. This is a definite change in character. Lots of volume with very little price change. My first thoughts are that institutions and professionals are holding the bag wide open for scared longs. The Greek crisis may be the right external event to transfer stock from the weak to the strong. The second chart is the one that drew me in, the one box P&F.
I have “boxed” the huge trading range. If this is accumulation, both the one point P&F and the three point P&F (not shown) is calling for an upmove to approximately $20 per share. IF this range represents accumulation that is. It could be just a trading range with price in relative equilibrium.But the recent change in character will be telling. It may be worth the risk with a stop around $5.68.Dave C.
Though not cheap, HES, an oil explorer/driller is very much a Fallen Angel, crashing down from $140 to $40. After forming a bottom in October 2008, HES has traded sideways, locked between 50-70, forming the classic “L” pattern. Now 16 months later, HES is starting to get perky, acting like it wants to rise, probably to around 90. Notice the narrowing Bollinger Bands that are foretelling a coming increase in volatility on the weekly chart. On the daily, we’ve jumped the fence as the squeeze kicked in and closed for two days outside the bands–a definite sign of strength. New buys should be on weakness, but pay attention because HES may not pull back much. These big base stocks are gifts and traders should work hard to exploit them.
Take a look in this chart. It is could be a good short opportunity.The last bar is – 0,03.Daniel S – from Brazil
Dear SpikeTraders,I am new to trading and have been struggling to find my strategy and get my admin in order. So I thought I would stop trading even in the very small amounts I am doing. I have been struggling with the MACD and how to work it. I decided that I should go back to the very basics and look at candlestick charts and found a book called Intro to Candlestick Charts by Clive Lambert. This is very basic but I have found it great. I have found that using black and white candles suites me better than colours that I find distracting.I love the psychology of the candlestick charts and this has given me an insight into what is happening in the market and now hanging man and shooting stars are a great way of breaking down charts. Once I have understood this I intend to learn a bit About MACD and add this to my analysis.I am also operating from England and some of the smaller companies are not available for me to trade. I am not unpleased with this as it will force me to look at a small number of companies for a start. Taking my inexperience into account I thought this might be of interest to some of you.3 companies have come onto my radar almost all together as shorts Boeing, Apple and Dendreon and in that order.
Hanging men are formed in an up market. The first is at the end of an uptrend and did signal the start of a downtrend the middle 3 had mixed results but I say they are in a downtrend and therefore not hanging men. Now we look to today and why I am so excited about this short. We have a triple top and 2 hanging men. The Bears are resisting any move higher and the bears are also trying to move the market lower and failing. However the bears are coming alive and any day now we could move lower.
The next example is Apple. There are not so many signals here but again the bears are waking up the hanging man is at the top of a fast uptrend and this is the first move the bears have made. I will need more bear signals before I move but this is in my radar.
The final company is Dendreon. This is very similar to Boeing with a triple or quad top showing the bears are digging their heals in and stopping the market going higher. After that the bears are testing the market with examples of both the Rickshaw and Hanging man. These have both failed so far.I may be seeing something that does not materialize but this market just requires more volume to confirm the down signals and I am going to re-enter this market as a short.
Sometimes in trading, it’s more important how little you lose than how much you make–which is a benefit I’ve learned from Alex & Kerry and Spike Trade over the years. Many times Alex & Kerry have pointed out key turning points in the market; points that if you heeded their warnings would have saved you a ton of money. We may be reaching such a point now, and both Alex and Kerry have mentioned the market’s heaviness and lack of upward mojo.This struggle to form a top after a multi-month run is also playing out on the chart patterns. As you can see the SPY may be forming a 1,2,3 Top on the weekly charts–a rare and powerful trend reversal. The #3 point has not been formed yet, and it won’t be confirmed until we close below the previous week’s low; however, we’re probably forming that # 3 point now. On the daily, the 1,2,3 Top pattern is a little more subtle since it is trying to reverse the up move from early February. The pattern on the daily is a 1,2,3 UT, with the #3 overshooting the initial, or #1 spike. Confirmation for the daily pattern would be a close below the #1 high or below 110.80. In any case, now is probably the time to tighten stops, trim long positions, or learn to hedge a long portfolio with inverse ETFs or index puts. Trading is all about finding edges to exploit, and knowing that a major trend reversal may be imminent is a definite edge.
[ this was sent by Rick K – a long-time SpikeTrade member.
I couldn’t help but notice that CVA, one of our Spikers picks is a variation of the 1,2,3 Bottom pattern that I like. I call this pattern the 1,2,3 Lower Bottom, or LB. Since pt #3, or the second spike down closes below spike #1, my rules won’t let me buy until it reverses back and closes above the low of the spike #1 bar. That condition was met with the last bar’s close, so various entry strategies can now be implemented. The pattern would be voided if CVA closed back below the spike #1 close, or around 16.60.
I like to trade the bond ETFs–TLT for long 20-year and TBT for short 20-year. They form trading set ups right out of the text books, move slowly enough so you can anticipate the set ups, follow supply and demand principles, and aren’t subject to stock risks. In fact, they usually go up in times of stock stress and down when stocks are in a bull run. The only real draw back is that they are expensive and you need a lot of shares to make any money; nonetheless, I trade them a few times each quarter just to stay in shape.While the 1,2,3 Bottom set up is found on all time-frames from monthly to 5-minutes, the longer term ones are rare and generally indicate a more substantive move. After a 14-week decline, TLT is forming a classic 1,2,3 Double Bottom on the weekly chart. The first spike happened in early Jan, then there was a bounce to the declining 15 week EMA, and the second spike down on bullish divergence found support just under 90. This week it looks like we will close strong in an engulfing pattern so the set up will complete with the pivot above the second spike. The early buy point was a daily close above the second spike, or around 90.45. TLT has now rallied for 3-4 days, so new positions should wait until it retraces to the daily rising 20 EMA.
This email came in from a friend – a very sharp professional trader who trades strictly his own account from the Isle of Man – a British dependency located between England and Ireland.