Bonus Educational Charts June 20

Jun 20, 2007: 5:05 PM CST

Here are a few bonus charts for your education:

Potash (one of my darlings)

pot-june-20.png

We were stopped out of a 7+ day swing trade in Potash today when price was identified as ‘parabolic’ and we began trailing a stop beneath yesterday’s low which worked until today, and this method saved about $2.00 of profit that would have been lost without the stop. As mentioned earlier, Potash has a strong fundamental foundation and beautiful technicals. My only concern – and should be yours too – is that this stock is becoming “too popular” in the media and financial publications. I suggest looking elsewhere for large gains because the “fade the crowd” mentality is becoming too tempting on this stock. I plan to discuss more on how to trail a tight stop in a ‘runaway’ position.

Google (a darling of many option traders)

goog-june-20.png

Google fell just shy of the initial target for the “Impulse Buy” set-up trade. Notice the strong new momentum high and corresponding price high that set-up the entry when price fell to the rising 20 SMA. The initial target was the most recent swing high. Many analysts say that Google will stay above 500 now that it has clearly breached that level. I have friends playing options spreads on this theory (and profiting, as of June’s expiration). Worth a thought.

Wal-Mart (WMT – a darling of many retail shoppers… who don’t mind long lines)

wmt-june-20.png

I admit it’s not often we get impulse buy signals from steady Wal-Mart, but we have a potential set-up if you want to consider it for further study. The large buy impulse (momentum) has caught my attention and the pullback has been orderly as far as I can tell. Stochastic is registering a buy and price could find support at the flattening 50 EMA. No matter what happens, you have a tight risk/reward should you enter immediately. You would risk around 50 cents to play for a profit at $51, or $2.50, making your risk/reward 1 to 5. This assumes price retests the most recent swing high, of course. Do you think it’s worth 50 cents to find out?

Ford (a darling of those who love to go short… until now?)

ford-june-20.jpg

We are seeing massive triangulation (technical term: ascending right triangle) and contraction of price in Ford Motor Company. Price is expected to ‘eject’ out of this contraction zone either to the upside or the downside. I’d bet on the upside, but it’s best to establish a position once price has exited the triangle and retested back for a cleaner entry with less risk. Betting on price ejection is dangerous if you’re wrong (especially if momentum forces strong gaps against you). Often these things resolve in the opposite direction of which most people anticipate, and that’s exactly why failure patterns are more profitable and more violent than ‘proper’ patterns.

2 Comments

2 Responses to “Bonus Educational Charts June 20”

  1. Bill Says:

    Corey –
    As bonds and yields seem to be driving market (in down days) . What are your thoughts around this . Any charts that can show historical relationships ? Rates dropped for years , now seems we may be in an up trend . The bond market ultimately deciding interest rates charged ( and paid) to you and me, right ? Bonds are a very weak point for me . Any comments woulds be appreciated . Thanx- Bill

  2. Corey Says:

    I plan to post a more extended entry, but for simplicity’s sake, bonds tend to lead the stock market because of various reasons, including more sophisticated “in the know” participants, forces that move prices, close ties to direct economic reports/conditions, etc. The stock market has many more speculators (retail traders) that can drive prices strangely, and are not as tied to economic conditions (individual stocks, that is).

    StockCharts.com provides the Dynamic Yield Curve Charts as well as historical chart relationships.

    The theory is that ‘rising rates are bad for the stock market’ and in theory this is correct, but the historical charts do not show this relationship. Rates rise during rising, expanding economies (to cool inflationary pressures) and fall during poor economic conditions (to stimulate the falling economy). There is a short-term relationship (when the Fed raises rates, the market tends to drop if the rate hike is unexpected) but the long-term relationship is one of positive correlation.

    I will try to highlight and post more sources as time permits. Thank you for your comment and question, Bill.