The Novice Bear

I’m fascinated by studies where that try to find something in common between all of the great traders.  It always seems to be a strange combination of controlling risk while at the same time tolerating high risk.  Yesterday, Tom O’Brien interview Ari Kiev, who used to be a sports psychiatrist and now advises traders.  Ari has some interesting insights into what makes successful traders successful. 

Tom O’Brien interviews Ari Kiev   

While reading this blog you might have observed that I tend to favor TD Sequential over TD Combo. Yes it is true, TD Combo gets much less attention because it seems to be more applicable to specific chart formations over others. This should not come as a surprise as TD Combo was developed after TD Sequential and was specifically designed to increase the likelihood of identifying a price extreme. Overall I find TD Combo to be less universal, but useful nevertheless.

I seem to find that the pattern most applicable to TD Combo are extremely fast moves, either up or down.  Tonights post is more of an experiment than anything else.  CWEI is making a parabolic move and has completed a TD Combo sell countdown in both the daily and weekly charts.  I wanted to post them and check back on them later to see how well the indicator did at picking the top. 

I’ve been playing around with some screencast tools. Here is a 10 min video. I realize that the presentation could be cleaned up a bit, but I would appreciate any constructive criticism.  Hopefully I’ll have more to come.

Intro to TD Sequential using Blocks 3.1

I work for a small nanotech company that is at the forefront of covert anti-counterfeiting efforts, which is why this chart in the latest Economist caught my eye. I was amazed to learn that “Switzerland and India account for three-quarters of the trade in fake drugs”. While I’m not surprised by India, what is up with Switzerland? Very strange.

Source:

May 22nd 2008

From The Economist print edition
http://www.economist.com/markets/indicators/displaystory.cfm?story_id=11412892

With the market flailing, I thought it would be nice to review some of the trades that I made since the last IBD-style “follow through” day.  I’ll start with CHRW, which first flashed on my daily screens when it broke out on March 24th.  I was quite bullish at the time and was ready to pounce on stocks with good relative strength.  I didn’t chase CHRW, but waited for a pullback after the break.  While CHRW climbed, I noticed that it’s industry group was performing very well, which gave me more confidence with this trade.   

As the market continued to climb on lighter and lighter volume I began to worry that we might not be out of the woods yet.  I was becoming more cautious and decided to take profits after a 20% gain (a standard CANSLIM selling rule).  I then turned to TD Sequential for more insights into the support levels of CHRW. 

While I often like to short stocks that have broken below their TD Sequential buy stop-loss points, the same rules apply to the reverse situation.  When TD Sequential Sell stop-loss points are violated, it often means that the equity has more upside.  As with shorting, the best entry is usually when the stock has retested the stop-loss point.  Turning our attention back to CHRW, you can see that it closed above its sell stop-loss point, indicating a very strong chart.  My strategy is now to see how CHRW acts when, and if, it comes back down to the stop-loss point.  If it does so on light volume, it might be worth re-establishing a full long position around 58, using a close below 55.87 as a stop-loss.   

I went through the energy sector and collected all of the weekly TD Sequential sell signals. Here is a gallery of charts that have recently flashed a medium term sell signal. Besides trying to pick out the best looking short, try buying DUG, the ultrashort Oil and Gas ETF.

CHK, CMI, CNX, CRZO, ECA, ENB, FLR, FTI, ME, MUR, NBL, NOV, NXY, PBR, PDE, PXP, SII, SLB, SU, WG, XOM, MON (I threw monsanto in with the energy stocks)

This figure was taken from a recent Futures Magazine article.  It is a cycle forcast for the Dow and seems to be nailing this recent top.  A link to the full article is given below. 

Dow Turning Point

“So what is the CPO telling us today? “Long-term outlook” shows 40 years of weekly data giving us an indication that the Dow will drop through mid March and will then trend higher into May targeting the low 13,000 area. The medium-term outlook, which uses daily data, is more bullish short term but does indicate some weakness in mid to late March (see “A closer look”). The daily chart is more precise about the timing of the next major high, near the end of May. “

FindArticles - Dow turning point
Futures, Apr 2008, by Rawlins, John

Watch the following video and tell me that you would vote for this clown.

 
I used to respect this guy!!! What a freakin’ joke!!! I’m net short and pissed!!!

Now that we are in a “confirmed correction” according to IBD, it might be wise to look for some short candidates.  I like to make trades with well defined risk.

Here are a few charts that look good to me.

We had some action today.  Good, things were getting a little dull.

In the meantime, I came up with a new ATR based trailing stop.  The indicator was inspired by a visual inspection of Jan Arps’ trender.   I did a quick “breakout and trailing stop” backtest using the Nasdaq 100 and got some pretty good results.

I love it when two simple rules give such nice returns.