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Issue #15 
April 15, 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
PDT's often use 1-minute, 10-minute, daily, and weekly charts as well as 20, 50, and 200 minute, day, and week Moving Averages (MA's) using those same parameters.
With these tools they hope to uncover where the strengths and weaknesses were in the past and decipher if those same strengths and weaknesses still exist. It is like using a road map to see the right path to take.
PDT's also use every possible means of information at their disposal such as breaking news, rumors, and current perceptions to discern the likely intra-day direction of the stock. They will use that to go either with the flow of the market or take advantage of the misinterpretation of the news.
Using these tools PDT's can map out a strategy to take advantage of important price levels and scalp trades where the profit probability is high and risk probability is low as well as clearly defined.
Human nature being what it is, the next step involves manipulation, strength in numbers, and a strategy of fear and greed.
In trading venues where big money is involved, PDT's are looking for opportunities to take advantage of the fear and greed (F&G) that is prevalent with most investors. F&G has always been one of man's greatest weaknesses and therefore a tool that the PDT's exploit consistently to help multiply the amount of profits that they can make.
Keep in mind that working as a group or as an entity with the same goals, Professional Day Traders have a level of strength in trading that often can affect markets adversely, though there may be no real fundamental changes in the fundamentals to warrant those actions.
Most of the time PDT's are simply trading with the strengths shown in the market but on those occasions where F&G is particularly strong PDT's can make additional profits by manipulating those feelings.
Such action will generate additional profits for the PDT's and unexpected losses for the general investor.
1) JDSU - Shorted at 15.36. Stop loss at 15.70. Stock closed Friday at 15.48.
2) MOT - Shorted MOT at 17.87 and 17.94 with stop at 18.31. Stock closed Friday at 17.74.
3) MMC - Short at an average price of 28.84. Stop now at 30.21. Stock closed Friday at 29.95.
4) COGT - Purchased at 13.00. Stop is now at 12.86. Stock closed Friday at 13.42.
5) RADN - Holding short position shorted at 9.63. Stop loss order now at 9.54. Stock closed Friday at 9.27.
6) FTEK - Shorted at an average price of 26.755. Stop loss order now at 23.82. Stock closed Friday at 22.51.
7) WIND - Shorted at 9.99 and 10.07. Stop loss order at 10.35. Stock closed Friday at 10.10
8) NDAQ - Stopped out at 30.86 for a loss of $229 (including commissions.
View Apr 01, 2007 Newsletter View Apr 08, 2007 Newsletter |
Chart Analysis Indexes - Likely to be a decision week!
DOW Friday close at 12612
The DOW had another strong week and closed 52 points higher than last weeks' close. In addition it tested both the 20 and 50-day MA's successfully and rallied thereafter.
It still seems highly illogical, fundamentally speaking, to see the indexes doing what they are doing as the news that has come out since the break of 850 points has not been particularly bullish. In addition, since the low made at 11938 there has not been one single re-test of that low.
After a 6.8% drop in price in just a few days and without a major fundamental piece of news to cause the rally, this is highly unusual action in charting of stocks.
In looking at the chart today I see there is only one resistance level of consequence, at 12660-12666 left before the previous high is approached. That was the last level of resistance built in the DOW before the 12795 all time high was made.
With a close on the highs on Friday it stands to reason that a test of that level is likely to occur early in the week. Should 12660-12666 be broken on a closing basis the all-time high at 12795 would then be the objective.
Even though there have been a few recent divergences when comparing the 2007 chart with the 2004 chart it is important to note that the second high in the correction phase in 2004 came on the week of April 9th. If the similarties are to continue that would mean that we have seen the highs.
If we continue to rally and don't give up the gains this week it means the two years have diverged and a new scenario must be considered.
In 2004 the DOW went through a correction phase with four valleys, and each peak was lower than the previous one. The correction phase lasted about 6 months before the up-trend continued.
If this is not the same case scenario then this move up this year can have two different meanings.
It's possible this week we will get an inkling of which of those two scenarios will come to be as there are many earnings reports of big companies due to be released which should set the tone for the coming quarter.
Resistance in the DOW will be strong at 12660-12666, on a closing basis. Support will now be 12536 and major at 12428. This last support level (12428) has now taken on a new meaning as it is not only the most recent major low but also the area where the 20 and 50-day MA's currently reside.
It is important to note that both the 20 and 50-day MA are about ready to cross and the action seen a few days after that happens is usually indicative of what direction a new trend will take.
This week, should be the decision week in the indexes.
NASDAQ Friday Close at 2491
One of the major negatives in the NASDAQ has now been removed with the closing of the gap left 7 weeks ago. The NASDAQ now has a scenario very similar to the DOW as there is only one resistance left before the 6-year high is reached.
In addition, the "cup and handle" formation that was being bandied about a few months ago is once again very evident on the weekly chart.
A break above the high at 2531 could propel the NASDAQ up into the mid 2800's, based on that measurements of that formation.
The NASDAQ now has strong resistance at 2508 and major resistance at 2531. Support will now be found at 2470-2478 and major at 2448 where the recent low tested both the 20 and 50-day MA. A break of that level will also break the 20 and 50-day MA.
Just like the DOW> the NASDAQ is showing that the 20 and 50-day MA are now crossing.
It is probable that the 2508 level will be tested early in the week. What happens at that point is difficult to predict.
S&Poors 500 Friday close at 1452
The SPX could be the index that gives us the first inkling as to what the indexes are to do. The SPX is within 9 points of its 6-year high at 1461 and if the indexes are continuing the up-trend it is likely to be the first of the indexes to break out. In addition, the SPX has now been able to get above all previous resistances other than the resistance left at 1461
During this entire move up the SPX has shown itself to be the leader. It was the first index the break above the 20 and 50-day MA and the corrections downward have been the weakest of the three as well as the strongest on the way up. Also the 20 and 50-day MA crossed on Thursday whereas the DOW and the NASDAQ have yet to cross.
Support on the SPX will now be found at 1443-1448 and resistance at 1461. Major support is now at 1433 but even if that support is taken out the 20 and 50-day MA would still be below (around 1430).
It seems to me that the bulls have now committed themselves to taking the indexes into new highs. If they are able to rally this market above the levels above mentione but fail to make new highs the consequences will likely be more than if they had simply allowed the indexes to have a normal correction phase.
If they win and make new highs the bears will likely go into hibernation.
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Stocks CHART Outlooks
Mentions this week will not be based on the indexes as that picture is clouded. I have chosen stocks that seem to be working on their own charts.
SONS (Friday Close at 8.29)
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 2 weeks SONS has been trading sideways and re-testing the breakout level at 8.00 with drops down to 7.95. The last drop tested the 20-day MA successfully and now seems to be once again on the way up.
You have to go to the weekly chart and back close to 4 years to find the major resistance in SONS. That resistance is at $10, though there is also some resistance at 9.24.
Purchases of SONS can be made between 8.22 and 8.29 (Friday's closing price) with a stop-loss order at 7.89 with an objective $10, and a possibility of new highs as well. Risk/reward ratio is 4-1 with the possibility of more.
My rating on the trade is an 7.5 (on a scale of 1-10 with the strongest probability rating being 10).
GIGM (Friday close at 14.44)
GIGM is also a stock on a very well defined up-trend. Objectives are not easy to measure as the stock has been making new 4-year highs almost every other week. This is a stock that is likely to be affected by the indexes so keep a close eye on them. Nonetheless the risk is so well defined that the trade is worth making even if that is the case.
GIGM has rallied from a low of $.65 cents to a recent weekly high of 15.28. There have been 3 corrections on the way up but each correction was followed by a new high being made. It is possible that the stock is in the middle of a correction from the new high recently made but it is still too early to tell.
On Thursday of last week GIGM tested the 20 day MA, held and rallied.
The 14.44 level seems to be an important pivot point on the 10-minute chart so purchases should be made at that price (Friday's close). A stop loss order at 14.05 should be placed as breaking that support and 20-day MA should generate additional follow through to the downside. The most recent high at 15.28 should be the minimum objective on this trade with the possibility of more due to the up-trend nature of GIGM.
Risk/reward ratio of the trade is a minimum of 2-1, using the previous high as an objective, but due to the consistent up-trend in place breaking the recent high should be expected if the trend continues and the DOW rallies.
My rating on the trade is a 6 (on a scale of 1-10 with the strongest probability rating being 10).
ANGO (Friday close at 16.78)
ANGO is starting to show some bottoming out action though the recent downtrend is still in effect as a new low was made this week at 16.22. ANGO came within a few ticks of last week's entry point mention at 16.04-16.18.
ANGO shows two weekly support levels of consequence at 16.04-16.16 and 15.22. On a weekly closing price the 16.16 level seems to be the most important and with the oversold condition that now exists it is probable that dips to that level will not only be supported but that rallies will be seen.
A rally up to the 18.00-18.42 is highly probable and a rally back up to the previous island gap area at 19.16-19.34 could also easily be seen. The 18.00-18.42 level was a previous resistance just prior to the drop to 15.22 and will act as decent resistance, even though it cannot be considered a major area.
Purchases in ANGO between 16.04-16.18 should be attempted and a sensitive stop at 15.96 should be placed. If that level is broken purchases on dips close to 15.22 should be attempted using 14.90 as a stop loss point.
In looking at the chart it is probable that ANGO will break below the most recent low at 16.22 unless the DOW continues to rally. Whether it breaks below the 16.00 level or not is something that at this time cannot be measured.
Both a purchase between 16.04-16.16 with a stop at 15.96 as well as a purchased around 15.22 with a stop-loss at 14.90 should be attempted as this stock has a lot more upside than downside potential at these prices.
My rating on the trade is a 6.5 (on a scale of 1-10 with the strongest probability rating being 10).
TGB (Friday closing price 3.00)
TGB is what I consider a very conservative mention but one that has a great risk/reward ratio as well as a breakout signal.
TGB is basically a copper mining company that has, over the years, had a few missteps regarding production and delivery as well as being affected, just a few months ago, with the price of copper at 9-months lows.
During the last 11 months TGB has traded in a tight range between a closing low of 1.99 and a closing high of 2.82. A week ago Wednesday TGB broke out of that range with a rally up to 3.13 and has now closed on 7 straight trading days above the 11-month closing high resistance at 2.82. This sequence of closes has now confirmed a breakout and likely continuation of the trend up.
In reading some of the fundamental comments regarding TGB it has been said that their production of copper has just about doubled since last year at this time and many of the production and delivery problems they encountered over the last year have now disappeared. In addition, the price of copper has moved up from $2.5 a pound to over $3.15 over the last 2 months and still seems to be in an up-trend. The high of the copper price, made in May06, was around $3.80 a pound.
The 4-year high of TGB was made last May at 4.25 and that certainly needs to be looked upon as a very viable objective. There is a gap that TGB is trying to fill between 3.13 and 3.15 but after that there is literally no resistance on the chart until the 4.25 level is seen.
With the positive upward movement in the price of copper and the recent good news about the company's production, I anticipate that TGB will react to the breakout with continued upward movement in price, thus making this stock a relatively conservative investment with good risk/reward ratios.
The next earnings report is not due out until the second week of May. It is being anticipated that it will be positive to the company.
Using the 10-minute chart it is unlikely that TGB will get below 2.95 any more so a purchase at the closing price on Friday at 3.00 should be made using a stop loss order at 2.76. With an objective of 4.25 it makes the risk/reward ratio on this trade almost 5-1.
The 2.82 breakout level should continue to act as major support and therefore a 2.76 stop loss order seems to be placed perfectly.
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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