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Issue #17 
April 29, 2007 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
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Market Tips |
Stock Indexes Update |
Stock Picks for Next Week | |
| The Mind Of A Professional Day Trader
Often PDT's work in pairs with one partner on the floor and the other in a room full of charts, technical indicators, and news feeds. More often than not PDT's have either leased or bought a seat on the exchange and the fees for trading can be as low as $1 or $2 for the trade, depending on the size and price. This allows them to trade in and out of the stocks many times a day without greatly increasing the odds of losses due to "churning" of the account.
PDT's can also be responsible for momentum in a stock as they like to push as far and as much as the stock will allow. Momentum can take a stock far past price levels that are reasonable by creating panic.
Understanding of how PDT's think and act is a tool needed in trading stocks. They are a big factor in the stock market.
1) NUAN - Purchased NUAN at 16.00 and liquidated at 16.09. Profit on trade of $9 per 100 shares minus commission.
2) ANGO - Purchased long at 16.16 with stop loss at 15.66. Stock closed Friday at 17.15.
3) MDTL - Purchased MDTL at 17.15 and liquidated at 16.55. Loss on the trade of $70 per 100 shares plus commission.
4) COGT - Purchased at 13.00. Stop is now at 12.86. Stock closed Friday at 13.26.
5) WIND - Averaged short at 10.03. Stop loss order at 10.35. Stock closed Friday at 10.06.
6) SONS - Averaged long at 8.04. Stop loss order lowered to 7.53. Might pick up 3rd position this week. Stock closed Friday at 7.97.
7) TGB - Purchased TGB at 2.98 and doubled up at 3.15. Stop-loss order at 2.80. Stock closed Friday at 3.15.
View Apr 01, 2007 Newsletter View Apr 08, 2007 Newsletter View Apr 15, 2007 Newsletter View Apr 22, 2007 Newsletter |
Chart Analysis DOW - No end in sight.
DOW Friday close at 13120
The DOW has now experienced a 700 point move straight up since the last minor correction down at 12428. The charts have not even given the most minor signal of a top so speculating as to where that temporary top might be is just a pure guess.
From a purely psychological view the DOW is likely to be trading between a high of 13300 and a low of 12700 but whether we see the high or the low of that range first is a pure guess. It has now been shown that 13070 is a level that might affect the "short term" of the DOW but so far, though that level was tested on Friday, it has not broken so continuation of the up-trend is still the main course of business.
On a fundamental note it must be said that much of this rally in the DOW has been due to positive earnings reports on blue-chip stocks. Since most of those are now known, the index will likely need some other source of positive news to continue to the upside.
Should the 13070 level be broken there is no visual support until the DOW gets down to the 12963-12985 level and even then that support is "minor". On the daily chart there is no support level that has been built so the previous high at 12795 (previous high) must be considered an objective on the downside should the DOW break from these levels.
On the weekly chart there is no support until 12487 (20-week MA) and previous weekly low. Other than the previous high close at 12767 there is no evident chart support level.
Though the DOW has had a huge run to the upside, due to the nature of the rally (positive earnings on blue-chip stocks) it remains a huge risk to the buyers as the risk/reward ratio on long positions is low and the slightest negative piece of news could generate a huge selling binge.
NASDAQ Friday Close at 2557
The NASDAQ has now been able to make new highs riding on the coat tails of the DOW. It is now on a breakout of consequence due to the "cup and handle" formation that is in place on the weekly charts.
The objective of that formation is somewhere around 2900 and because of the strength of that formation it is possible the NASDAQ will start taking the lead role in the index rally.
The one "caveat" in this breakout is that two weekly closes below 2515 would negate that breakout and formation and therefore the NASDAQ is now more committed to the upside than the DOW. Failure would likely affect the indexes strongly.
It is important to note, though, that the rally in the indexes has been fueled mainly by blue-chip stocks pulling the rest of the stocks up and if the economy in general does not receive good news over the next two weeks the indexes will likely topple.
The NASDAQ will now show strong support at the previous high of 2531 and major support at the previous weekly closing high at 2515. Below that the only support of consequence is 2444 where the 20-week MA as well as a previous important weekly low reside.
Nonetheless the breakout from the "cup and handle" formation will supply strong buying anytime the NASDAQ nears the 2515 area and therefore dips should be bought.
S&Poors 500 Friday close at 1494
The SPX, which had been the leader to the upside up until last week, this week failed to continue aggressively. While the DOW rallied over 150 over last week's close the SPX was only able to go up 10 points.
There is a very evident resistance level in the SPX at 1533 which was the previous all-time high made in 1999 but that still gives enough room for it to rally another 40 points before encountering visual resistance.
As will all the indexes there is no evident support level other than the previous high close. In the SPX that is down at 1459. There is one factor in the SPX that is different and can be used to measure the indexes better. In the SPX the 20-week MA is also around the same price (much higher than with the other indexes) and therefore a corrective phase down to that level would not only test the previous high but the MA as well. In this respect the SPX will continue to be a "clue" to what the indexes are likely to do.
The most probable scenario in the indexes is continued choppy action toward the upside with the DOW reaching up into the 13300 area (or higher) and the SPX up to 1533. Upon reaching those areas the indexes would likely have a corrective phase in which the DOW could fall 600 points and the SPX back off the all-time high. The indexes would then likely have sideways trading range lasting through the summer and then resuming the up-trend if the economy recovers. This is what the charts are saying is the most likely scenario at this time.
Nonetheless keep in mind that even though it is evident that the bulls have the psychological edge at this moment as the recent news on the earnings front has been positive, the market is still on the brink of inflation and an economic downturn. The fundamental picture is certainly riskier to the bulls than to the bears and it wouldn't take much to turn the situation around.
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Stocks CHART Outlooks
Due to the fact that many stocks closed the week in the red, even though the indexes closed strong, makes this coming week one where balance is probably the "key" word. Both the upside and the downside are good possibilities.
SONS (Friday Close at 7.97)
SONS is a stock that has a very decent up-trend in place. Back in November of last year it broke out of a 3-year sideways trend and since then has rallied almost $3 and went above a major weekly resistance at $7.00.
After a 12-week rally from 4.71 to 8.00 SONS had a 2-week correction that took it down to test the 20-week MA at 6.64. It then proceeded to re-instate the up-trend and generated a rally above the established high at 8.00 and up to a recent high of 8.77.
For the last 3 weeks SONS has been trading sideways and during that phase re-tested the breakout level at 7.69 with a drop down to 7.79. There was a gap between 7.82 and 7.86 that was closed this past week and therefore that obstacle has now been removed.
The SONS chart now seems to be ready for continuation of the up-trend as all the backing and filling above the breakout level seems to be complete. The 50-day MA is presently around 7.69 as well as several major weekly supports. That area of support seems highly unlikely to break without negative fundamental news.
On the upside there is some recent resistance shown at 8.39 and then at the most recent previous high at 8.77. On the weekly chart SONS has a flag formation that projects up to the $10 level if the stock breaks above the 8.77 high.
Purchases of SONS can be made at Friday's closing price of 7.97 with a stop-loss order at 7.53 and an objective of $10.
My rating on the trade is a 7.5 (on a scale of 1-10 with the strongest probability rating being 10).
TRLG (Friday close at 15.15)
TRLG has been teetering on the verge of collapse and Friday's close was near a breakdown point.
Back in November of last year TRLG must have had a very negative report as it gapped down from 19.76 all the way down to 16.60. After reaching a low of 14.65 TRLG was able to rally back up to 19.40 but was unable to close the gap up to 19.76 and began giving up all the gains it accomplished.
During the last 6 weeks TRLG has traded between a low of 14.90 and a high of 16.54 but just this last week it attempted to get above the 20-day MA and failed. It closed Friday at the lowest level in 6 weeks and one of the three lowest closes in the past 5 months.
In TRLG the lowest close in the past 5 months has been 14.88 and the lowest intra-day level has been 14.65. There is no support of consequence below 14.88 until the 12.00 level is seen. A daily close below 14.88 should generate a drop to that price over a short period of time.
Sales of TRLG should be instituted on a close below 14.82 or on an intra-day move below 14.65. If shorted, stops should be placed just above 15.62 giving the trade a 4-1 risk/reward ratio.
This is a high probability trade if the scenario explained above comes to pass.
My rating on the trade is a 7.5 (on a scale of 1-10 with the strongest probability rating being 10).
NKTR (Friday close at 12.72)
NKTR is in a downtrend on the weekly chart but for the last 3 weeks has traded between a low of 12.50 and a high of 13.00 consistently and has built a double bottom at 12.50 and a triple top at 13.00 during this time.
Because of the triple top at 13.00 it is likely that there will be break out of this trading range to the upside first but the 20-week MA is around 13.49 as well as a couple of small but pesky resistances between 13.10-13.25. Any break to the upside should be sold as the chart is leaning toward a break down to the support level at 11.70. If that support breaks a test of the 4-year low at 9.05 would likely be the next objective.
A sale of NKTR between 13.10 and 13.20 with a stop loss at 13.76 and an objective of 11.70 would offer a risk/reward ratio of 3-1. Since NKTR is on a downtrend and 11.70 is only the most recent support level it makes sense to believe it's a high possibility that support will break, if the stock is dropping. Such a break would offer risk/reward ratios of as high as 6-1.
This is the kind of a trade that a Professional Trader might be looking at as the trading range has been set in stone and a breakout to the upside would offer a perfect scenario to short into it and continue the trend down, in a slingshot fashion.
My rating on the trade is a 6 (on a scale of 1-10 with the strongest probability rating being 10).
JDSU (Friday closing price 16.69)
For several weeks I was short JDSU looking for a close of the gap down at 14.40. JDSU finally broke above its resistance at 15.70 (stopped me out) and generated a rally up to the next intra-day resistance level at 17.11 and closing resistance level at 16.98. Even though it was able to get above the 20-week MA, this rally has not broken the weekly downtrend in existence.
JDSU has neared the 50-week MA, has strong resistance on a closing bases at 16.98, and major weekly trend resistance between 17.73 and 18.23. Since technically JDSU is still in a weekly downtrend shorting this stock has a good probability of being successful.
It is very probable that JDSU will trade between 17.00 and 15.70 for the next few weeks but thereafter could continue the weekly downtrend.
Sales of JDSU between 16.80 and 16.90 with a sensitive stop loss at 17.24 has a very positive risk/reward ratio. There are two gaps below that will be working as a magnet. The first one is between 15.85 and 15.92 and the major one is between 14.40 and 14.85. Strong support will be found at 15.70 and major support down at 14.00.
Objective on the trade would be closure of the 14.40 gap and re-test of the 14.00 area of support. Risk/reward ratio is 6-1.
My rating on the trade is a 7 (on a scale of 1-10 with the strongest probability rating being 10).
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The opinions and commentaries by Mr. De Vito are not a recommendation to buy or sell, but rather
a charting guideline, based on his own knowledge and experience, regarding the stocks he is following or
that are brought to him by others. Mr. De Vito does not presently offer a track record of his trading experiences.
No inference of success and/or failure should be assumed. The
information enclosed above, regarding his background, length of trading, and experience, is correct
but is not meant to suggest, state, or infer any future success in trading, based on his opinions. The information herewith included should only be used by investors who are aware of the risk inherent in securities trading. Mr. De Vito accepts no liability whatsoever for any loss arising from any use of the information and/or comments he supplies. |
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