INO.com President Adam Hewison launched a new series of educational videos he calls the “Trader’s Whiteboard” videos, in which he briefly discusses a trading topic and annotates a chart in real time for you, describing the concept and showing examples.

The new page entitled “Complete Trader’s Whiteboard” series compiles all seven of Hewison’s free educational videos into one portal.

While I hope there will certainly be more videos, the current seven videos are as follows:

1.  Welcome:  Charting Knowledge – Sharing Wealth
2.  Money Making Chart Set-ups
3.  The Most Important Things to Know About Any Market
4.  How to Avoid the Most Common Mistakes Traders Make
5.  A Key Element to Put to Use Everyday (Game Plan)
6.  Three Forces that Drive the Markets
7.  Chart Patterns that Produce Profits

Each video is about 10 minutes in length and is designed to give you a quick, new thought to spur more analysis and research.

If you’re feeling stuck, or just need a little more inspiration, feel free to check out any or all of these videos as an educational resource.

The US Indexes opened this morning slightly lower via an overnight gap, yet as of 11:00 EST, all had virtually filled this gap, creating a profit opportunity for nimble traders.

Let’s look at two different chart views to see the difference:

StockCharts.com reports yesterday’s close as a hash-mark around $126.20 (in the DIA) but it appears that the market filled the gap based on the way the service reports the data.

Nevertheless, the first play when there is an overnight gap of less than 100 Dow Points is to play to fade the gap back to yesterday’s closing price. How you play the trade is up to your method, but I generally give the market 10 to 15 minutes to shake-out overnight excess and to wait for a little confirmation before entering (looking for initial price movement into the gap direction). I typically place a stop ½ the distance to my target (if my target is 80 points away, my stop is 40 points ($0.80 and $0.40). Experience will allow you to develop your own strategy.

Today’s gap did not fill completely (yet), but the resistance (and price failure) via the 50 period moving average was enough for me to exit due to the two ‘long upper shadows’ on the candle bars was enough for me to exit.

The S&P 500 and the NASDAQ actually completely filled their gap this morning.

     

Now, let’s view the Dow Jones’ (DIA) data via TradeStation:

TradeStation and other vendors show data a little differently, in terms of where you ‘cut off’ the price action for the day. Although the day closes officially at 4:00 EST, some vendors show you the post-market chart which can skew your prices a bit.

Nevertheless, here is the pure price action and the gap fill trade zoomed in on the chart. Notice that the 200 and 50 period moving average (on the 5-minute chart) provided initial support and resistance, which also could have served as decision support for your trade idea.

Gap fade trades are popular and well-known strategies that try to take advantage of order flow and price movement that goes counter to most newer traders’ expectations.

UBS (UBS), a major financial and investment company with headquarters in Switzerland, announced April 1^st that it will write down another $19 billion dollars in ’sub-prime’ investment losses, yet their stock rallied sharply on this news. Why?

According to a New York Times article yesterday, which was one of many sources to report this development, UBS has written off a total of $37 billion since the start of 2007 in losses due to the ‘credit crunch’ and the sub-prime markets.

As a logical investor or trader, your first instinct was probably to ‘get short’ this stock because it’s going to plummet! Unfortunately, the market just isn’t that simple, and the seemingly obvious play often is anything but.

First, Wall Street hates uncertainty. Investors were unsure how much UBS was going to report as losses, and so that likely caused them to sell stock and wait for ‘better news’ or at least wait until a clearer picture emerged before putting that capital back to work. Recall that the Stock Market is a discounting mechanism, and often anticipates future news or releases well in advance of their announcement. In other words, this news was already priced into the shares prior to the actual announcement.

Second, now that the numbers were released, a clearer picture emerged and perhaps the figure was not as bad as anticipated. Either way, the market prefers clarity (even if the news is bad) to murkiness. That was helpful to investors.

Third, UBS reported that it will be raising $14 billion in ‘fresh’ capital (and Lehman Brothers, another financial/investment company, will be raising $4 billion through stock offerings), which means that the new capital will help cover some of the losses and will likely be put to use effectively by mangers who are aware of the lessons of the past. This move may also have been generally unexpected by market participants, which increased demand for the shares.

Fourth, I suspect the rampant bearishness on the financial industry has caused more than a few hedge funds to be net short financial stocks, and when large volatility upward moves like this occur (or a stock violates its technical 20 period moving average), then these funds are forced to buy back shares to ‘cover’ their short positions. I’m sure that added to stock demand.

Fifth, traders may be using this news to anticipate a ‘bottom’ in the financial market and expect prices to reverse from here. The New York Times article addresses this point by saying, “Even so, some analysts say that the optimism may be premature, reflecting wishful thinking more than economic realities. ‘The market has been consistently wrong each time they tried to find a bottom,’ said Meredith Whitney, an analyst at Oppenheimer & Company.”

I’m sure there are many other reasons why UBS rallied when the news (headline) appeared on the surface to be so bearish. Refer to my earlier post entitled “Why Might a Stock Fall on Good News” which actually took the opposite side of this situation, but recall that stocks can rise on bad news for the same reasons.

Don’t be discouraged or frustrated – use such situations as a chance to realize that when the market does the exact opposite of what you think it “should” do, then that is often a more powerful signal to tell you to heed what the market is doing and trade (if you’re willing) in that new and unexpected direction.

The US Dollar Index ($USD) showed signs of life recently, forming a potential short-term reversal pattern. Let’s look:

The Index formed an all-time low just beneath 71 on March 17^th before reversing upwards to form a semi-hammer (or long-legged doji) pattern which can mark reversal points in a market.

Following the doji reversal, price rallied sharply to test the falling 20 period moving average before inflecting back down, but price has now formed a Failure Test of the lows.

Failure Tests occur when price is anticipated to test a prior zone but fails to reach that zone, but reverses ahead of the actual test. The market is said to have “failed” the test, and these can sometimes serve as early indications of a potential trend reversal.

Also, the failure test has set up a positive momentum divergence, which has carried price back to its target of the falling 20 period moving average.

The whole action from late March has created a type of symmetrical triangle, which is a further indication of market consolidation. Often, the longer the consolidation, the more likely a pattern is to be a reversal pattern (keep in mind we are just beginning a period of consolidation so don’t expect too much action too quickly).

With commodity prices (especially gold and oil) falling over 10% recently, a stronger dollar would play in to this inter-market relationship quite nicely. In other words, if these commodities are showing ‘topping’ patterns (which some analysts believe they are) and the US Dollar Index showing a potential reversal pattern (to the upside), then this would mark a key shift in Inter-market Analysis.

Adam Hewison of the Market Club recently released a trade signal video on FOREX (Foreign Exchange) analysis of the both the Euro/US Dollar and the British Pound/US Dollar and highlighted a couple of new trading signals, one of which is a sell-signal for the Pound (which actually translates into a Buy Signal for the US Dollar).

He actually relased two educational videos:

The Euro/US Dollar Analysis
The British Pound/US Dollar Analysis

Even if you’re new at FOREX insights, Adam does a good job of simplifying what the relationships mean and what a shift in these trends may mean for the broader market.

Recall that a significant shift in the downtrend of the US Dollar Index will have profound affects across not only US markets, but also global futures markets (especially commodities) and potentially global stock markets. If this is really a true shift, it would help your account to try to be as early as possible and receive as much confirmation you need to adjust yourself and your accounts accordingly.

Whether or not you trade any of the markets listed above, it is still crucial to know what the trend of the US Dollar is and how shifts can affect markets or stocks that you do trade.

 

The Financials Sector (XLF) has received considerable attention as of late, but let’s look at the chart for a few more insights:

The small horizontal hash-marks represent the series of lower lows and lower highs which have defined the prominent downtrend, and this structure has not been broken yet.

Price recently formed a higher low, but the pattern appears to be forming a consolidation pattern – perhaps a symmetrical triangle in development. After the large volatility move down in this sector, a period of consolidation is welcome.

Recall that there has been a relationship between the Financials Sector and the overall Stock Market, so if we see any signs of strength here, that would be an excellent (bullish) sign for the overall market.

What would look encouraging? A solid break above the declining 50 period moving average and a decisive break above the developing triangle consolidation formation. In fact, if we saw price stay above $28, that would be a rather bullish development.

The weekly chart supports this thesis that the $28 level is quite critical to overcome:

There is a significant down-trending channel that has been in place since October, 2007.

$27.00 seems to be a critical level to overcome, as it is the price where the declining 20 weekly moving average appears, as well as the top of the declining channel. Taking out this level with force and stabilizing above $28 would trigger significant technical (chart) significance and could cause funds (and traders) to act in concert, whether they initiate new buying or buy back old short-sale positions.

To help the bull’s case, there is a positive momentum divergence forming on the last two price swings.

Also, volume has surged through 2008, which could indicate the potential for a capitulatory bottom (where everyone sells indiscriminately, leaving few traders left to sell).

Keep an eye on this sector, for I believe a significant break of the $27 or $28 level could change the calculus for the broader stock market.