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How
we Choose Our Trading Picks...
At
TheMarketMessenger.com, we provide you with long and short Stock
Picks, bullish, bearish and volatility-based Options
Picks, a Model
Trading Portfolio, and minor-trend, intermediate-trend and major-trend Stock
Market Analysis & Commentary.
In
addition, we have also made available to you a section on Trading
Education from the fields of Technical Analysis and Options Trading
Strategies, a Stock
Market Blog and a FREE
Stock
Market Newsletter.
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Our
Style of Market Analysis
We do
not rely solely on chart patterns or trend analysis. In addition
to those basic technical analysis tools, we run a battery of
tests on over a thousand of the most actively traded stocks
before arriving at a list of the most attractive trading
opportunities.
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Below,
is a presentation of the methods we use in selecting stock and options trading
picks and in deciphering stock market trends. You can use the following links to
skip to a section of your choice: Chart
Patterns, Trend Analysis, Momentum
Indicators, Moving Averages & Price Envelopes
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CHART PATTERNS
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This
section illustrates our use of popular stock chart patterns ...
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Chart
patterns are a group of commonly recognizable price formations that appear
on the charts of stocks, commodities and other financial assets. These
price formations can typically be divided into three groups based upon
the effect they have on the prevailing trend: i)
Reversal Patterns ii)
Continuation Patterns iii)
Neutral Patterns We'll
now take a look at how we've used each of these kinds of patterns to
provide profitable trading opportunities.
Reversal
Patterns:
Head
& Shoulders Tops/Bottoms, Triple Tops/Bottoms, Double Tops/Bottoms,
Bear/Bull Wedges
Reversal
patterns are price formations that bring about a reversal in trend. The
most widely seen reversal patterns are listed above. Rather
than take an in-depth look at the theory behind each of these patterns
(that is not the intention of this presentation), we'll provide you with
an illustrative look at how they can be used to eke out profitable trading
setups.
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We'll
begin with a couple of charts that displayed the most widely
recognizable chart pattern, the Head & Shoulders Top...
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NOK
broke out of a H&S formation on Jan 7, which was when a Short
Stock Pick was initiated on the stock. The left shoulder of the
pattern had completed in mid-Oct of the previous year, the head in
mid-Dec and the right shoulder obviously was completed when the
stock broke the neckline - at 35.50 - on heavy volume in
early-Jan. The
stock dropped a couple of points before returning to retest the
neckline a week later. The neckline promptly provided resistance
and the stock moved downwards quickly. Profits were booked when
the stock opened with a large downward gap on Jan 22nd.
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SAP
also broke out of an H&S pattern in early Jan. This setup was
a little more challenging than the one looked at earlier because the
stock hovered around the neckline for a few days in what was a
prolonged return move. The Jan 22nd washout caused the stock to
open with a downward gap of over 5 points, however, and this
allowed for a booking of profits on the trade.
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AKAM
broke out of a H&S formation and, for traders who played it
perfectly, left a profit of up to 20% in less than two weeks.
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The
Head & Shoulders formation on ABT was worth a good 4 points in
less than a month. We featured a Long Puts options pick that
provided a profit of over 180% over that period. Not
all chart patterns are textbook in nature and can be identified
clearly as one pattern or another; some show up as a hybrid
variant. The following chart is a good example.
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RIO
displayed a pattern that could arguably be called either a Triple
Top - first peak in October, second in November and the third in
December - or a head & shoulders top. A more accurate
description might be that it was a hybrid of those two patterns. Regardless, the
formation hinted at a bearish move in the stock. Typically,
the custom is to wait for a pattern to complete itself (such as by
a breaking of support or resistance) before entering the trade.
However, given certain developments on the momentum indicators in
this case, we
had a strong hunch that prices were ready to break to the downside and decided
to pre-empt the breaking of the neckline. The
fact that the pattern had not completed itself and that a pre-emption
was called for, meant that we choose to feature a limited-risk options
strategy - the Long Puts strategy. Two weeks later, the
underlying had dropped as much as 20-25%, and the Puts were
showing a profit of 300%. Double
tops/bottoms are another type of reversal pattern. They are
similar to triple tops in most ways, except for the most obvious
fact that they are characterized by two peaks/troughs instead of
three. Given their similarities, we'll skip illustration of such a
pattern. Rather,
let's move on to an example of another kind of trend reversal
pattern - the wedge... Wedges
show up as reversals as well as continuations, but a 'rising
wedge' is always bearish and a 'falling wedge' is always bullish.
As such, they are not classified as "neutral patterns",
a category that we will touch upon later.
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MBT
displayed a rising (bearish) wedge through Nov/Dec '07. There was
a breaking of the pattern in early-Jan. It took a while for the
stock to get going, but with a little help from market conditions
was able to move towards the target fairly quickly thereafter. Descending
Triangles typically show up as continuation patterns but on rare
occasions they show up as reversals...
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EFA
broke out of a descending triangle (reversal variant), when it
slipped below intermediate support - at 76.40 - on Jan 8.
Thereafter, prices fell quickly towards - and beyond - the target
of 68.00. Profits were booked at the open on Jan 22nd, when prices
hit support (near 66.00) from the mid-August lows. Having
looked at some of the setups that were borne out of reversal patterns,
let's now take a look at another category of price formation -
continuation patterns.
Continuation
Patterns:
Ascending
Triangle,
Descending Triangle, Bull/Bear
Flag, Bull/Bear Pennant, Bull/Bear Wedge
Continuation
patterns are price formations that mark a period of consolidation
before which the prevailing trend resumes. The most common types
of continuation patterns are listed above. Let's
start this topic with an illustration of a bullish continuation
pattern, the Ascending Triangle...
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The
Euro formed an ascending triangle - a consolidation pattern
consisting of a series of higher lows and lateral peaks - between
November and February. The
Philadelphia exchange lists a 'U.S. Dollar-settled Euro Currency
Options Index' (ticker symbol - XDE) on which options are traded.
We highlighted a Long Calls options pick on the MAR 150.0 strike
when the underlying was about to break resistance at 149.00. The
lowest point of the triangle was at 143.00, which called for a
move to 155.00. However, we took profits - of 500%, no less - when
a price level of 153.50 was achieved sooner than originally
expected. Over
the past couple of months, more bearish patterns have emerged than
bullish patterns. One continuation pattern that has showed up a
lot has been the descending triangle (regular variant). The next handful of charts
each features such a pattern. We'll comment on the first one and
let the remaining speak for themselves.
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HHH
dropped from 68 in Oct to 57 in Nov. For the next two months, the
stock consolidated between falling resistance and lateral support
- a descending triangle - before breaking down in early-Jan and
thereafter dropping 9 points in a couple of weeks.
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That
was a look at several short setups that displayed descending
triangles. Let's
now look at another kind of continuation pattern, the pennant.
Pennants (and flags) are shorter in height and duration than are
triangles. They represent a short pause in an otherwise explosive
bullish or bearish trend.
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ECA
ran quickly from 58 to 70 with only a short interruption along
the way. The stock stopped to catch its breath for a week or so,
trading in a narrow and constricting range of less than 2 points.
This pause formed in the shape of what is known as a pennant.
Once
prices managed to burst out of the pattern, a gain of as much as 8
points was seen in as little as four days.
We
now move on to another category of price formations - neutral
patterns.
Neutral
Patterns:
Rectangles,
Symmetrical Triangles
Neutral
patterns are price formations that are not pre-ordained as bullish
or bearish and can result in a continuation or a reversal of the
prevailing trend. The impending move is usually conditional upon
the direction of the breakout. The
most basic of neutral patterns is the "Rectangle", also
referred to as a "trading range".
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The
Rectangle, an example of which is seen in the chart of GD, above,
is a pattern that typically lasts several weeks or months and is
characterized by rather well-defined support and resistance. In
the case above, support resided just above 86 and resistance near
94. In
such a pattern, prices will generally flutter between support and
resistance several times before breaking out. Regardless of the
direction of the trend that prevailed prior to entry into the
pattern, the direction of the break out of the pattern typically
decides the direction of the ensuing move. It
is because of this facet that the pattern is considered a 'neutral
pattern'. Notice
the rapid decline experienced by GD soon after the stock broke the
lower (support) line of a 10-week long rectangle. Often,
the "height" measurement rule can be used in order to
project the target for a move out of a rectangle. XRX (below) provided a good
example of this.
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XRX
was trading within a rectangle that measured 2.00 points in
height. Using the "height" projection rule, the expected
target was a 2-pt drop from broken support at 15.70. The stock
virtually took a straight line path to the target of 13.65, which
was met in barely two weeks.
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This
trading pick on IGT (above) also features a bearish rectangle. The
stock broke support at 40.50 on Jan 15 and reached the target of
36 within a week. Another
type of neutral chart pattern is the symmetrical triangle... Symmetrical
triangles develop when prices coil within a pair of converging
trendlines. Symmetrical triangles on occasions lead to bullish
moves once the pattern has completed and on others lead to bearish
moves. While
the move into the pattern often dictates the direction of the
breakout and leads to a continuation of the prevailing trend, a symmetrical triangle can show up as
a reversal as well. Because
of their capacity to bring about a sharp move in one direction or
the other, symmetrical triangles often provide the opportunity to
implement a long volatility options strategy such as a Long
Straddle or a Long Strangle. We'll take a look at such an example
in the chart that follows the one below.
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ABB
broke out of what turned out to have been a bearish continuation
symmetrical triangle in early-Jan, when we featured the chart as a
short pick. Two weeks later the stock had moved 5 points, which
resulted in a quick 17% profit on the trade. options
pick
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DNA
was coiled within a symmetrical triangle for two months when we
featured a Long Straddle options pick on the stock. The
pattern was broken out of a couple of days after we featured the
trade. Prices then meandered sideways for over a week before finally
shooting upwards by 10%, leaving a nicely profitable trade. So
far, we've looked at chart patterns, which as a group are amongst
the most widely used tools of technical analysis. Let's now take a
step back and look at how the most rudimentary of technical
analysis techniques - trend analysis, including trend lines,
support and resistance - can be used in discovering winning
trading setups.
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TREND ANALYSIS
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This
section shows how we utilize basic concepts of support,
resistance and trendlines ...
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Trend
analysis is a basic concept of technical analysis.
If an issue is seen to
have been rising over a given period of time, it is said to have been in
an "uptrend" over that period. If it has been falling, it is
said to have been in a "downtrend", and if it has generally
been moving sideways, it is said to have been "trendless" or
displaying a "sideways trend". Three
of the main concepts from the area of trend analysis are: a)
Trendlines b)
Support c)
Resistance The
concepts that have been listed above are well documented and it is likely
that you have a thorough grasp of them. So
we'll move straight into looking at a few examples of how we've utilized
them in choosing several solid trading picks. The
next group of charts showcase several profitable short picks that were
initiated based upon the breaking of important support levels when the
markets tumbled early in 2008.
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While
the breaking of important support/resistance levels can provide
excellent entry points for short/long positions, the inherent
nature of support (a level at which buyers tend to come in) and
resistance (a level at which sellers tend to come in) means that
until/unless those levels are broken, there is always the tendency
that prices will rally once support is tested and decline once resistance is tested.
In
other words, traders have the opportunity to "buy at
support" and to "sell at resistance".
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SU
(above) was approaching intermediate resistance at 113.50 when we
noticed that the stock (and the industry, in general) had reached
overbought levels. We were confident enough that the
stock was going to find difficulty when confronted with resistance
that we opened a short position a couple of points in advance of
the resistance level. That
proved out to have been a good call, because the stock started to
drop right away, falling 20 points within a couple of weeks.
Often,
an old resistance level can turn into an support at a later date,
as in the case of an earlier trade on SU, seen below...
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SU
formed a peak near 96 in July '07. That resistance level was
broken in October before the stock rallied into a spike top that
peaked at 115.00. Over the next few weeks, the stock underwent a
strong minor downtrend, before finally finding support near the
level of the old resistance level. We
initiated a long pick a couple of days after it had become evident
that support had been found and thereafter saw the stock rally
back towards the highs within a few weeks. While
lateral support and resistance can provide solid trade triggers,
as we've seen in several cases above, sloping (downward or upward)
trendlines can also prove useful when properly utilized.
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EWZ
(above) and NUE (below) were each showing downward sloping
trendlines at the end of 2007 and in the beginning of 2008. In
mid-Feb '08, the stocks broke those trendlines and rallied further
for a couple of weeks giving members of our site two easy
profitable and "low-maintenance" long picks.
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So
far, we've looked at chart patterns and trend analysis; pretty
standard fare as far as stock picking methods go.
Now
we'll take a look at two other major areas of technical analysis
that are often neglected in the world of technical stock picking.
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MOMENTUM INDICATORS
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An
insight into the use of two of our favorite indicators ...
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Momentum
indicators typically measure the rate-of-price-change; in other words,
they measure "momentum". The
two momentum indicators that are most used at TheMarketMessenger.com are: a)
Relative Strength Index (RSI) b)
Moving Average Convergence-Divergence (MACD) We'll
take a look at how we have used these indicators, either individually or
taken together, in selecting several excellent trading opportunities based
upon the following list of signals that are generated by them: i)
Overbought/Oversold conditions ii)
Divergences iii)
Centerline Crossovers iv)
MA Crossovers (in the case of MACD) Overbought/Oversold
conditions When
a prevailing trend has gone too far, too quickly, momentum indicators tend
to reach an extreme. Such extremes serve as a warning for the trader to watch out
for a quick reversal in trend. In
our analysis, we often use severely overbought conditions on
RSI and/or MACD to signal potential bearish reversals (opportunities to
short the stock or buy
put options) and severely oversold conditions to signal potential bullish reversals
(opportunities to buy the stock or buy call options). Extremely
oversold/overbought readings can often lead to sharp short-term moves, as
you will see in some of the examples below.
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ANN
was deeply oversold, as per both RSI and MACD, in mid-January.
When a stock gets as deeply oversold as this one did, there is often a chance
that the slightest instigation will trigger a sharp rebound.
That's exactly what happened within a few sessions of our
featuring the stock as a Long Stock Pick (see above) and as a
Bullish Options Picks (see below).
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The
deeply oversold conditions on ANN, caused by an apparent capitulation in
the stock, soon gave way to bargain-hunting that level a gain of nearly
250% on at-the-money back-month (Feb 20.00) Calls that were featured as
part of our options service.
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TRMB
was another stock that had gotten deeply oversold after losing
nearly half its value between November and January. There were no
bonafide buy signals at the time but with the momentum indicators
having reached extremely low levels, added to the fact that
volumes were rising (possibly signaling capitulation), there was
an inkling that the downtrend had pushed itself to the
brink. As
such, we featured this setup as an aggressive Long Stock Pick and,
as it turned out, to good effect with the stock jumping
26% the day after we marked the pick as open. options
pick
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SGP
was showing deeply oversold readings on the momentum indicators in
late-Jan. We were expecting a moderately-sized rebound and,
accordingly, decided to feature a bullish options strategy on the
underlying. However,
upon doing some research we found that using the most basic
options strategy (Long Calls) might not have been the best course
of action in this particular case because implied volatility
charts showed that exceptionally high levels of premium were being
attached to options on the underlying at that point in time. We
felt that IV was unlikely to stay as such high levels and were likely to fall over
the coming weeks. Accordingly,
a Bull Call Spread strategy was chosen. Yes,
our analysis of potential options strategies does not begin with and
end with the chart of the underlying itself. We recognize the
importance of Implied Volatility in options trading and take this
factor into account, as well. However, in the interest of space,
we won't delve deeper into the topic of implied volatility here and will
leave it for another time and place.
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BIIB
was another stock that was showing oversold conditions, after
having left a large gap on the charts. We didn't necessarily
believe that a large rally was forthcoming, rather it was felt
that the stock would drift sideways to slightly higher. In the
case of this underlying, as with SGP above, IV had shot to very
high levels. The
combination of an expectation for a drift in prices and a
softening of volatility levels was, once again, seen as a prime
opportunity for a Bull Call Spread. The trade worked according to
plan and a decent profit was booked three weeks into the trade. It is important to note that overbought (oversold) readings, on their own,
are considered weak initial sell (buy) signals and we usually take
such extreme
readings on the indicators as only one piece of the puzzle. Often,
other more reliable indicator interpretations are
looked out for before a trading call is made. Divergences Positive
and negative divergences are considered to be strong initial buy signals
that can often bring about a tradable reversal in
trend. A
positive divergence occurs at the end of a downtrend when prices
form a lower low but the momentum indicator stops short of forming a lower
low. The
reluctance of the momentum indicator to join prices in forming a lower low
is seen as a challenge to the continuance of the downtrend and might be
read as a sign that the security is ready to reverse to the upside. A
negative divergence is essentially the opposite of a positive
divergence. A higher high in price that does not come with a higher high in the
indicator. Such a development alerts traders to the possibility of a
bearish reversal in trend. You
will find that a good number of our trading picks are based upon this kind
of trading signal.
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XLF
had experienced an intermediate term bear move, dropping 11 points
in under four months, when - late in January - prices fell below the early-January
minor low. RSI
had dipped into oversold territory during the first low before
recovering slightly along with the stock. However, when prices
went on to form the new lows later in the month, the indicator
moved lower but not as far as to make new lows. This was a
potential positive divergence in-the-making. Given
various factors, we decided to make a bullish call on
the ETF. This reading proved to be correct, when prices started to
turn upwards right away, completing the positive divergence and recovering
nearly 5 points within several days.
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GM,
above, was showing a completed positive divergence - a positive
divergence is said to be "complete" when the indicator
makes a new high above the height of the intervening peak between the two lows - when we opened a long pick on the
stock. As
you can see, it turned out to have been a very powerful
signal.
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The
positive divergence that had cropped up on SPWR in early Feb also
provided an excellent buy signal. This setup was featured both as
a Long Stock Pick (see above) and as a Bullish Options Pick (see
below). The
stock showed a gain of 20% in 6 days. That converted to a 500%+
gain on the particular options that were chosen.
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As
we'd mentioned earlier, a large number of our trading picks are
based on positive divergences on RSI. The next few charts are good
examples...
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The
past several charts each depicted a positive divergence on RSI.
The next one features an instance of a negative (bearish)
divergence.
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Having
looked at several examples of momentum indicator divergences,
let's now take a look at another type of signal that momentum
indicators provide. Centerline
Crossovers While
reversals out of overbought/oversold conditions and positive/negative
divergences provide initial sell/buy signals, cautious traders often
like to wait for a more solid confirmation of a trend reversal. Positive/negative
centerline crossovers provide such confirmations. While they are by no
means a guarantee (there is no such thing as a sure thing in the markets,
after all), these signals can sometimes be a precursor to the changing of
a minor trend move into an intermediate
trend move. As such, they provide
the opportunity for longer-term swing trades or position trades. The
downside of waiting for a centerline crossover is that, in some
instances, waiting for these signals causes the trader to lose
out on a good portion of the move.
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CTRP
was forming a base through the second half of January and the
first half of February. The stock kept running into resistance at
52.00 and was unable to move above that level. MACD was showing a
positive MA crossover but since that is only a weak buy signal, it
wasn't sufficient to warrant going long the stock right away. Then,
on a second attempt, RSI was able to move above its centerline (it
made a positive centerline crossover). That added another buy
signal to the list, strengthening the overall picture. Finally,
MACD moved above its "0-line" - a positive 0-line
crossover - and the floodgates opened, as buyers started streaming
in. That led to a 10-point rally in the stock in just over a
week. This
is a good example of how powerful a signal centerline crossovers
can be. In
fact, to help make the point, we'd direct your attention to the
action that followed the negative centerline crossover on RSI and
the negative 0-line crossover on MACD that occurred in
early-January. The stock dropped over 20% in a week following
those signals. MA
Crossovers MA
crossovers, which are of course only relevant in the case of MACD, are
weak initial buy/sell signals. A
positive MA crossover is said to occur
when MACD is at an oversold level and the faster (thick) line
moves above the slower (thinner) line; this is a potential buy
signal. You'll see an example of such a signal in the case of CTRP
(above) in late-Jan. A
negative MA crossover takes place when MACD is at an
overbought level and the faster line moves below the slower line;
this is a potential sell signal. The chart of CTRP (above) showed
a negative MA crossover on MACD in mid-December, at the start of a
large drop. On
their own, MA crossovers are rarely sufficient to
justify opening into a trade. However, when used in
association with other signals, they can prove quite useful. You'll
notice MA crossovers highlighted on a number of charts in this
presentation and so we won't go in-depth into any specific
illustrations of this type of MACD signal. Rather, we'll move on
to another category of trading signals...
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MOVING AVERAGES &
PRICES ENVELOPES
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A
look at moving averages and another favorite of ours - Bollinger
Bands ...
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"Moving
Averages" are price overlays that depict the mean value of price over
a given period. They help to smoothen price action and provide a more
comfortable reading of the general trend in prices over a chosen timeframe.
"Price
Envelope" techniques build on the moving average concept by adding upper and lower boundaries,
which are often statistically derived, around a moving
average. The Bollinger Band technique is the foremost of the price
envelope techniques. The
two concepts from the world of moving averages and price envelopes that we
use most frequently are: a)
20-day
Moving Average b)
Bollinger
Bands Technique These
concepts are relatively simple and straightforward. So rather than
getting overly theoretical on these topics, we'll illustrate their
utility through the use of a few examples wherein one of both of
these concepts have been used (we usually tend to use them
together). Before
that, a quick definition of the Bollinger Band concept...
"Bollinger
Bands" are price envelopes that are placed around a moving average,
typically the 20-day Moving Average. The Upper Band is typically placed
two standard deviations above the MA and the Lower Band two standard
deviations below. In
the following illustrations, we have shaded-in the area contained
between the Bollinger Bands, for ease of viewing. The 20dMA, when
used, has been depicted with a dark line in the middle (obviously)
of the Bollinger Band area.
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In
the second week of Feb, RIG
(above) seemed to have completed a minor downtrend and was showing
a positive MA crossover on MACD along with a potential positive
centerline crossover on RSI. However,
since RSI had not moved into oversold territory before reversing,
we looked to other aspects of the chart for confirmation. We
noted that the 20-day Moving Average was falling at the time and,
therefore, any move above the 20dMA might prove to be an early
confirmation of a trend reversal and could be used as a trigger
for a long position in the stock. The
stock moved above its 20dMA on Feb 11, triggering the opening of a
long pick on it. Within a couple of days prices had moved to the Upper Bollinger Band,
which was flat at the time. It then consolidated for a few days
before finally pushing the Upper Band upwards and out of the
way. For
the next several sessions, prices rallied along the outside of the
Upper Band. When this takes place, BBand theory says that the
uptrend is likely to continue, at least until prices move back
within the Bands. In
early March, prices moved back within the Bands and profits were booked on
the trade. At that point, the stock had rallied nearly 18 points since the
breaking of the 20dMA.
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While
prices trailing along a rising (falling) upper (lower) Bollinger
Band can be seen as representing an ongoing bullish (bearish)
trend, a sharp move outside one of the Bands, especially when
whole days of trading activity have taken place outside the Bands, can
be seen as a symptom of an overextended trend that calls
for a sharp reversal. The
OIH options trading pick, depicted above, is a good example. OIH
started to move outside a falling lower BBand in mid-January, when
it had become apparent that a sharp minor downtrend had begun to
take place. As prices dropped below 175, then 170 and thereafter
165, it seemed like the downtrend was secure since price action
was trailing just outside the Bands. However,
when the speed of the descent started to increase, as prices fell
below 160 and then 155, the lower BBand couldn't keep up (another way
of looking at it is that prices were falling too quickly) and on
the last two days before the spike low of Jan 23rd, the entire
days' price action were seen outside the lower Band. This
was the sign of a move that had potentially gone too far, too
quickly. While
aggressive traders might have looked to take the chance of buying the
ETF itself, we thought that perhaps a limited-risk options
strategy - Long Calls - was
an easier way to play the trade. The
timing was perfect as prices, aided by support from the mid-August
sell-off lows at 152, started to turn around
abruptly and move back within the Bands. We took profits (of nearly
250%) when the ETF shot up to our target of 170, just a couple of days
later.
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CAT
rallied from a low outside the lower BBand, which would have been
an excellent buy point by the way, straight to its upper BBand,
which was flat to slightly rising at the time. The quick rate of
increase and the potential for the upper Band to provide
resistance was used as a reason to open a bearish options pick. Long
Puts were purchased on the at-the-money (72.50) strike and within two
sessions reaped in a profit of nearly 150%.
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LXK
had blasted off from a low in late-January and pierced its upper
BBand by the end of the month. Once the underlying moved back
inside the Bands in early-Feb, we featured a bearish options pick
- Long Puts - that netted a nice gain of 200% when prices fell below the 20dMA, a few
days later.
As
you can see, when interpreted properly, the Bollinger Bands can be
very useful in providing solid trading opportunities...
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Let's
look at one more setup, before we conclude this
presentation. It
is of a long stock pick on RTP, which had first pierced its lower
Band and then moved back within the Bands a couple of days before
we presented the chart to members of our Stock Picks service. The stock quickly rallied to
and beyond its upper Band before moving back within the Bands, at
which point profits were taken. Although,
an MACD signal was used to trigger the trade, it was Bollinger
Band theory that provided the criteria for the initial buy
decision and for the exit.
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That
was a look at some of the methods that are used in choosing
potential trading setups that make it to the Stock Picks and
Options Picks lists at TheMarketMessenger.com and that are also
used in analyzing general stock market trends discussed in our
Nightly and Weekly stock market commentary segments. We
hope that this write-up has helped you in your quest to learning
more about how to read stock market trends and to becoming a better
trader.
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Charts Courtesy of Stockcharts.com
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