Microsoft chart beauty!

Do you own MSFT and are getting fed up and thinking of selling? Do you think they are undervalued and wonder why the stock is not moving up? Did you inherit some stock and wonder whether to sell it or not? Well, it looks like MSFT is near an important inflection point, where the price could see some significant movement, hopefully to the upside. The price action the last two days is encouraging.

Part of my trading is based on technical analysis, a fancy term for analyzing stock price movement. I find it very useful for timing my entries into stocks, and setting an 'uncle' point to get out of the stock if I am wrong and the price is going down after I buy. I get nervous when I am underwater in a stock, and it helps to have a set sell point, it tells me I have planned out my trade and understand exactly how much I can lose.

The price of MSFT as drawn on a chart is setting up a triangle pattern. The price action is showing us that the people who want to sell the stock and the people who want to buy the stock are reaching a stalemate, a point where there are very equal amounts of both, and the tight action of the price is an indication of this. Typically, once one side exhausts itself, the price can move swiftly in one direction, offering a place to get into a trade, and showing some places where one could sell depending on ones tolerance to be underwater in price. You might get lucky and it may never look back, it does happen. If it happened all the time, we would all be rich, so there is no guarantee. Lets looks at the chart to see what I am talking about, then look at example of another stock that went through a similar price set up. You can click on the images to make them larger.

I went through charts of INTC, ORCL, AAPL, all have similar instances of what is happening with MSFT now. IBM I thought the best past example (all of the 1 minute I poked around, I am sure there are better comparisons).

There are lots of other things to talk of here. Where to buy? Break of the line? Over 28? Over 30? The stock may bump up against this line and fail. It may break up to 28 or so and fail. It may even break over 30 and then fail. Where to sell if you do buy? If it goes below the downtrend line again? Below the 200MA? Lots of choices to plan ones trade.

Also, what will happen with the trading volume once it breaks up and out? Will the next earnings quarter for MSFT provide a surprise upside and it will gap up overnight 3 points, or just the opposite, forcing us to wait longer for this pattern to trigger. What will the general market be doing? MSFT likely cannot go it alone and will need some support, at least from similar stocks. It may need another year or more before it breaks this downtrend line, but I am most certain it will at some point, and it may be about to happen. My guess is that things will get a bit agitated with MSFT, but it is a behemoth, a cruise ship of a stock where hedge funds, countries, high frequency algos, and traders in charge of large amounts of money all battle it out. Not my kind of trade, but I find the chart beautiful in its way and will follow its fate and maybe even buy a small amount just to be in. This stock has been dormant a long time. Will it die or rise from the doldrums here? Time will tell.

scanner trade

As said before, I have been using a scanner lately, and I have been finding it a useful tool in specific situations. Today we had a big gap up, and on these days I find little use for it at the open, but on weak openings I have the scanner set to identify stocks that have gapped up and are near highs of the day. On the 29th we had such a morning, and one name that popped up right away was DHI. I took a position on a breakout of the early consolidation and the stock never looked back. It turned out the homies were very strong that day and so with the help of the scanner I got in the hot industry for the day. Here is the visual:

I am starting to hold positions like this that give a good cushion in case the market is starting a serious uptrend. It would be nice to get a stable of 5-10 stocks or more as long term holds in hot industries. Not my strong suit. We'll see, the market has not offered that up in a while, so I will slowly build into it and only hold ones in the strongest industries with safe cushions.

2011 Carnac prediction results

Any bloviator worth their salt has to make a bunch of ridiculous predictions that don't count for much, so let's review how I did. My calls are below and my year end comments follow in Bold:

Gold/Precious metals: still upside

This was a no brainer, and my best long trade this year was in silver, my longest hold of the year, see the trade review here. Even if you blew it and held a GLD position all year you are still up 10%.

Food and Water: Biggest upside into 2012 and beyond, outperforms all commodities. Invest in water, hoard physical.

My worst call. Worse is that it is a worst call scenario for the world over. Shame on me for even inducing this sort of armageddon-like thinking, save that stuff for the malcontents. "hoard physical"... still love that. F+

Semi's may lurch back, but gain for the year.

Wrong both ways, it ripped in the first of the year, then ended down. F-

Market as a whole: May have a significant pullback, but ends up for year. My guess is N shaped, up, down, up. Second guess is V shape, down soon, then up. Cycle theory says this is most probable, but I am going with N.

Well, certainly had a significant pullback, and there is a N shape there, but this is a C- at best.

UNG and TBT: Still too early. Maybe TBT in last quarter. Oil up, but not enough to help UNG and solar.

UNG and TBT are dead, still. B+

Solar: still, and always, sucks (and I am a fan), ...until 2nd half, then start moving

D+. No second half bounce. This business needs to trim down and needs more time. The frakking nat gas bonanza is a game changer and it is hard to see how things will pan out on this, but it likely means a smoothing out of energy prices and an ill omen for alt fuels.

Homies: still suck, all year

My solar prediction would have been perfect for homebuilders. D+

Telecom: Outperforms in a boring way

Underperforms in a boring way. D

Retail: Outperforms in a no one can believe it way

Indeed, but not hugely. C

Energy: Good first half, bad second.

By XLU, spot on. A

Finnies: Gets everyone lathered, then breaks hearts.

Didn't even get anyone lathered, still braking hearts. B

Super Bowl: Ravens or Falcons... Falcons it is.

D. you picked the Pacs? I know, with the sports picks you just could say either A or F.

British Open: Els

F

Wimpleton: Murray, feel good story.

C

Tour: Schleck

B, second and third good but need more PED's for win. Evans? Wow, great pick for those that made it.

Bolt goes 9.54

9.7 is closest he got, needs to stop driving... and more PED's. C

ASP: Fanning

K11 = F

Coin flip: Tails

[flipping coin] Tails! A+ I needed that ;)

Surprise, there is a bull market going on....

Shame on me for not keeping a weather eye on my sectors lists, though an alert I set a while back did clue me in, but there is a nice bull market breakout going on right now in the XLU. Sure, utilities are your grandfathers stocks, but in this market, unless you are a savvy daytrader, trend following long setups have been in short supply. Check out the XLU:

Hey, maybe not the cleanest and most beautiful chart you have ever seen, but its something to go on for the long side. Check out DUK, one of the XLU components:

Compare the DUK chart with the XLU one. Notice how as XLU was setting up a nice flag under this resistance, DUK was leading the way. There are others like this in the sector, AEP and ED for example, and check out the day SD had. So utes are popping. Would have been smart to have noted the relative strength of the XLU, picked the ones near breakout, and maybe have got hold of a DUK or AEP. So the job now is to identify the best setups in this space, track the strength of the XLU during trading hours, and maybe you might get lucky. Might not be as poppy as biotechs, but following the bull always helps. Note that the XLU does have a history of false breakouts, at last resistance it popped and flopped, and I can even see another before that, so maybe this pop will need to fail once, rest, and then go. Time will tell.

...and more patience

Market is just flopping around like a fish. I am keeping it light and infrequent waiting for some conviction either way. I am not trading it well, but from the comments from the twitterstream to the Economist, very few are trading this well, so I am just not trading (much). I will post more when something is happening...

Patience

I think the best and most seasoned traders have been on vacation for the past couple months or more. When you read Market Wizards, and they ask these successful traders why they don't manage other peoples money, I recall the answer being that they did try it but their clients could not handle being in cash for extended periods of time. The clients would see the small picture (Headline: Market up 300 points!) but miss the big picture that it has also been down 400 cumulative over the past week, and is in a medium or long term downtrend. I am sure there are some trading geniuses out there, but for the most part only the compulsive, passionate, or foolish traders are trading now. I am one of those 3, or maybe all 3. I am making some ground, but it is like trench warfare, pretty ugly. I am keeping it small and tight, taking profits quickly. I trade because I love it and learn every day. Here is a typical gain/loss page for me, this one from today, Wednesday:

I posted some time back that my biggest mistake was not turning to the dark short side early enough. Better late than never. Here is a good one I got today:

Most of my successful trades lately have come not from my early morning homework on gappers, but from monitoring my scanner and see what is getting consistent heavy volume. I got a good one in NG the middle of last week from that. My biggest mistakes have been finding the right balance of position sizing vs room for stops. It seems like you either need to have stops very very tight, or very very loose, anything else gets stopped out. I tend towards tight. Remember, your bottom line tells you whether you are doing it right or not, very simple.

I have been very patient with trades, half to a quarter as many on a average day, and also waiting longer for setups. I have not been taking much in the first few minutes unless it is a very clear setup, the stock is acting stable (no whacky candles and stop probes), and I just scalp, trailing stops up the minute bars and getting out on any horizontal price movement.

I recall my post on the first day of earnings season. I had hoped I would be attacking the gappers the whole season, but I have had to turn to other strategies as the gappers have been weighed down by the market, and just slower to develop during the day , so I have been following the volume more to try and squeeze out more certainty in my setups.

Best and worst trades from November 1, 2011

My trading has been flat and uninspiring the last week. I have chopped about, and for every good trade there has been a bad one. Today is a perfect example. I caught a quick scalp in VRUS, only to go bottom fishing in MSFT (I know, I know, It is a POS but I am obsessed [warning] with this very long term setup on it and was going for an aggressive entry today).

Best trade:

Worst trade: