Smooth Swing Action Trading Today

Mar 27, 2008: 5:52 PM CST

Today’s intraday price swings were smooth, pronounced, and stable. It was an ideal day to be an intraday ’swing’ trader.

By ’swing’ trader, I mean simply trying to capture the market’s most probable sustained price action in one direction until that direction is reversed by the opposing force. The trend was down overall, but there were amazing swings that the nimble traders were able to capture both up and down.

I know I’ve said this 100 times but the first play of the day when the market gaps is to trade against the gap to “Fade the Gap” back down to the opening price. That trade working out instantly today, giving you almost 70 points of potential profit right off the bat.

The market continued its swing lower before forming a new momentum low and then ralling up to find resistance near yesterday’s close (a common phenomenon). Rather than continuing downward, bulls found prices attractive and then forced prices to eject upwards at key support (from the confluence of the 50 and 20 period moving averages) which completed the “measured move” portion of a bull flag that most people – myself included – didn’t see coming (because my bias was strongly to the downside today).

Nevertheless, the bull flag terminated exactly at the price that it was projected to do so (measured move), which happened to correspond with the falling 200 period moving average. A dual test of this zone (and failure to rise above it) set up a more powerful short-sell trade which trended down and tested the morning session’s lows (and helped validate some of the earlier pessimism in the market).

Price turned, forming a momentum divergence and swung back upwards to test yesterday’s closing price, and failed at this point to tread any higher. The failure swing hinted that lower prices were yet to come.

Unfortunately for the bulls, the market closed once again on its lows for the day (despite the after-market up candles after the 4:00 bell rang), which certainly depressed some of the buyers and validated the sellers.

Nevertheless, there were still clean swings and clean patterns within the structure of price that set up profitable, low risk trade ideas.

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Get to Know Chuck LeBeau

Mar 27, 2008: 12:18 PM CST

–Who is Chuck LeBeau?–

Source:  Futures MagazineChuck has appeared as a featured speaker at numerous futures seminars throughout the world and has frequently been a guest lecturer at the University of Southern California where he teaches fundamental and technical analysis to graduate students in the MBA program. He has been a paid consultant to several financial institutions as well as many individual futures traders and has trained interbank currency traders for the Bank of China in Beijing and for the Abu Dhabi Investment Authority in the United Arab Emirates.

Chuck served on the National Futures Association Business Conduct Committee from its inception in 1983 until 1994 when he was appointed to the National Hearing Committee. He is also an NFA arbitrator and sometimes serves as an expert witness in futures and options cases. (Among his noteworthy cases he was an expert for the prosecution in the famous “Billionaire Boys Club” murder trials several years ago.)

–Why Chuck?–

Chuck is a registered Commodity Trading Advisor (CTA) and a noted developer of trading systems. He has influenced some of the most successful traders in the world, opening their eyes to new methods that they still apply today. Chuck’s “down to earth” teaching style appeals to everyone because he genuinely wants people to succeed.

–Where can I find Chuck?–

Street Stories profiled Chuck in their Trader File Series, but you can see him give a free seminar on a topic on which we all could learn more insights

INO TV (Free) has one of the best Chuck LeBeau videos on the web:

A New Look at Exit Strategies

In the brief video, Mr. LeBeau details some of his tactics he has used and then instructs you on strategies that may be new to you for your application to your own trading.

While at INO.com TV, feel free to browse around and see videos from other instructors you may find useful to your education as a developing trader.

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Signs of Life for General Electric

Mar 27, 2008: 8:53 AM CST

General Electric (GE) is showing strong relative strength over the past month, and could be waking up from a long downward slumber. Let’s check out this surprising new development on the charts:

Price underwent a “Power Buy” swing, which took out the most recent two prior swing highs, showing signs of sudden and powerful life.

Momentum carved out a new high, suggesting that higher prices are yet to come. Odds would say “buy the first pullback” following this formation, especially if price can retrace to the solid support zone of the confluence of the 20 and 50 period daily moving averages. That development would set up a “super buy” opportunity (what I call the “Impulse Buy” Trade) similar to the “Super Short-Sell” trade in late December which occurred for the same reason (notice the triple combination of the major averages).

There also was a two-swing momentum divergence (shown) that hinted that a more powerful bull rally was ahead. The momentum divergence only projected prices to return sharply to the falling 50 period moving average, but buyers became more aggressive.

Also, volume is strongly confirming this move to new highs via a large increase in activity – also, notice the strong ‘drying up’ or reduction in volume on the down-days. This alone is cause for strong potential bullishness.

Let’s take a quick look at the weekly chart to see the larger structure:

Again, we have strong support via the $35 – $36 area where the moving averages converge. A weekly momentum divergence was also evident prior to the large momentum (price) move up. This appears to be more than a short-squeeze developing.

I focus almost strictly in technical analysis (price, volume, chart), but Kirk Lindstrom in a post at Seeking Alpha entitled “Insider Buying Makes the Case for GE” discusses some news related and fundamental analysis developments that you may wish to view to learn more about the recent developments. Lindstrom shows graphs of recent insider buying and notes a prior example of this phenomenon in Valence Technologies (VLNC).

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Recapping Wednesday’s Price Action

Mar 26, 2008: 8:48 PM CST

Wednesday was a very interesting day in the US Stock Market Indexes. A few classical patterns played themselves out, which provided lucrative trades to those who were nimble. Let’s look at some of them:

This morning’s impulse gap down, with large range first 5-minute bar was the first clue that the day could be a potential trend-day down.

Recall that the first trade with a gap is often to fade the gap to play for a retracement (or closing) of the gap. Should your stop be hit, it can often signal a more powerful trade in the opposite direction, indicating that you should play in the direction of the larger impulse, which was stronger than the ‘fade the gap’ crowd.

If you missed initial entry, that’s fine. When there’s a strong impulse, the odds often favor playing against any reaction of that impulse. In this case, you should have been looking for a spot to “get short” the market.

One of my favorite patterns – the bear flag – set-up as price meandered its way back to the falling 20 period moving average (couldn’t quite make it there) and then broke the lower trendline, signaling entry (short-sell with a target of the initial impulse, or a “Measured Move”).

This trade worked out like a charm, and I highlighted this action earlier this morning on the open blog. I called for sideways action to occur, noting that the positive momentum divergence was likely to halt any further downside action. It turns out that the bear flag price target was actually the intraday low, which was quite unsurprising.

Price completed its ‘back and fill” and completed a “rounded swing” type pattern that created a lengthy positive momentum divergence (cluing you in to the potential of higher prices yet to come).

Those prices came swiftly into the 3:00pm hour, and were immediately reversed almost as quickly as they came! Nevertheless, you could have captured a small piece or ’scalp’ of that move.

The market closed near its lows, meaning the bears (sellers) virtually had full control of the day’s sessions.

Price is consolidating, and the moving averages (on this time frame) are flattening out. Perhaps the market is waiting to digest the next bit of news that’s upcoming.

Stay on your toes and try to focus on the next probable swing, and mitigate risk accordingly.

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AAPL – Fibonacci and a Secret Weapon?

Mar 26, 2008: 11:46 AM CST

Apple Inc (AAPL) has been on a steady recovery since its mid-February $115 ‘bottom,’ and has formed a rounded saucer bottom which could turn into a classic ‘cup with handle’ upon the next retracement which seems likely.

Price rounded up off the Feb. 25th low to enter a powerful and sustained ‘bull move’ up. Resistance is overhead via the 38.2% Fibonacci retracement (near $150) and the stabilizing 200 period daily moving average.

Also, notice the key lengthy positive momentum divergence that has been forming since early February.  That was a hint that higher prices were likely yet to come.

I would expect price to swing down temporarily off these levels before potentially heading higher. There is probably a lot of fight left in the Apple bulls, and I know many people have declared this is “not your old generation of stocks” and that “old fundamental rules don’t apply.” We’ll see how true that is in time, but it is true that Apple is a unique and distinct company that has captivated a large number of consumers with deep loyalty.

Adam Hewison of Market Club fame released an educational video today on Apple and potential bullish price targets he has on the stock.

Entitled “Apple’s Secret Weapon,” Hewison discusses some key chart points including support and resistance, throws in some Fibonacci analysis, and discusses signals generated by Market Club’s Triangle Technology that would have resulted in strong profits on the stock. The Triangles are signaling a new signal in the stock, Hewison reports. Check out the video for more insights from Adam, and to find out what he believes is Apple’s ’secret weapon”!

As always, if you feel Apple stock is trading too high, or may have too much risk for you, there are various options strategies you can use to lock in profit and minimize risk if need be.

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