GOOG Has Trouble at Resistance

Apr 16, 2008: 12:45 PM CST

Media darling stock Google (GOOG) has staged a decent recovery off its March 2008 lows, but is the stock showing new signs of life?

Before getting ultra-bullish on Google, I’d like to see it close perhaps a couple of days above the key resistance line and also the declining 50 period moving average, both of which converge at $480.

To the eye, it looks like Google has indeed formed a bottom, complete with momentum divergences and consolidation. That may indeed be the case, but it’s still best to wait until the ‘preponderance of evidence’ is in your favor, which would mean waiting just a bit longer to see if the current down-swing forms a higher low. Should this happen, that would add to your confidence that the stock has put in a potential bottom.

The $480 resistance zone is critical for the stock to overcome. It may be a high-flyer, but stocks do tend to follow some basic technical analysis (charting/visual) parameters – at least use them for confirmation and risk-management.

A clean break above $500 would be even better for the bulls and probably for the overall market! Bulls, keep your fingers crossed!

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CROX Gets Bitten – Twice Shy

Apr 16, 2008: 10:40 AM CST

Crocs Inc (CROX), makers of the unique, comfortable shoes, has suffered yet another downside gap today. What should you do with the stock – if anything?

Notice the strong down-trend which has been prevalent prior to the start of 2008. Since then, the stock experienced two downside gaps which were unfilled (also known as continuation gaps – the February gap may also be deemed a “measured gap”).

This showed that momentum was strong to the downside as sellers were unrelenting in their campaign to rid their accounts of this stock.

The weekly chart shows an even more negative picture:

According to the Associated Press (April 15th): “Crocs Inc. announced guidance cuts that one analyst termed “stunning,” amid lower-than-expected demand. Crocs reduced its first-quarter outlook far below analyst expectations late Monday, citing weak sales and costs.”

Adam Hewison provides more information regarding CROX in his brief educational video entitled “I Love Their Shoes but I Wouldn’t Buy Their Stock!

Here are a few brief excerpts from the video commentary:

“We have been negative on Crocs (CROX) since November 2, 2007 when our “Trade Triangle” technology signaled a change in trend at 44.10. The downward trend for this stock in the past six months has been relentless.”

Hewison provides simple commentary to complex situations:

“One of the great things about MarketClub’s “Trade Triangle” technology is how it keeps you out of stocks when the market is headed south. Most investors tend to trade from the long side of the market, so their greatest risk and their Achilles heel has got to be when a stock they’re holding turns down.”

“Normally when this happens the fundamentals still look very strong. However, when you use our “Trade Triangle” technology you don’t have to guess at the trend anymore.”

Check out the video and moreover, see if Market Club’s service (which has earned my approval), trading signals, and daily news/commentary are right for you.

Oh, and always be careful of overhyped stocks! CROX was one of the darling “can do no wrong” stocks of 2007.

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Fascinating Intraday Action

Apr 15, 2008: 6:20 PM CST

As a trader, I thoroughly enjoyed today’s intraday swings and price action. Let’s take a closer look:

The day began with an overnight gap just outside yesterday’s range (just above yesterday’s high) and immediately filled, giving the first opportunity of the day for a high-probability trade.

When the ‘gap fade’ trade ended, one could have played (long) in the direction of the original impulse, which only gave a 50% move before reversing and breaking the lower trendline of a new bear flag pattern which terminated just above moving average resistance.

It’s impressive that the intraday low is formed at the termination (completion) of the ‘measured move’ of larger bear (and bull) flags, and this was indeed the case with this flag which actually spanned the intraday high and low.

The rest of the day’s action rotated within these ranges, turning back up in a ‘rolling bottom’ pattern which took price above the key moving averages (I would have expected more downside at moving average resistance. Price rejection of further downside laid the ground for shorts to cover and new longs to enter, providing a ‘pivot point’ or turning point for the day).

Price then surged above the averages and found scant resistance around yesterday’s close while forming a new bull flag which quickly got its ‘measured move’ before reversing down to find support yet again at yesterday’s close.

Price made a final push to the upside and formed a more manic bull flag which also achieved its target.

There were other opportunities in the action of the day that I haven’t highlighted (or else the chart would be full of annotations) so I suggest you print out today’s action and apply your own analysis based on your experience and insights.

As always, feel free to check out educational resources from INO TV (video education from top traders) and Market Club (analysis, trading signals, scans, portfolio, etc).

Be careful, as this week has been deemed an “Earnings Week!”

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Gap Fade Becomes Bear Flag

Apr 15, 2008: 11:07 AM CST

Today’s trading so far has been a dream come true for me. My two favorite patterns have played themselves out ultra-cleanly and as close to text-book as you can get.

Let’s see what I mean:

Earlier, I pointed out the Gap Fade Trade the market gave us like a gift this morning. The market wasn’t finished giving – that’s for sure.

The second set-up of the day came in the form of a rather massive and sudden bear flag which rose just above moving average resistance.

I describe more detail about this set-up in my educational post “How to Trade Bull and Bear Flags.”

As much as I have learned through education and experience, it seems strange that these two extraordinarily simple patterns and set-ups have made me the most money in my account this year.

I keep wanting all these esoteric and complex strategies and indicators to make it worth what I have learned about them but it often pays for retail traders to stick to simple knowledge and set-ups.

The more you see these patterns play out, the more confidence you’ll have in yourself when you perceive a pattern unfolding and you will join in with less hesitation.

Each time you see a clean or interesting pattern you recognize, print out the chart at the end of the day, annotate the pattern, and keep a ‘hard copy’ folder (or file) that gives you easy access to all the times you’ve observed the set-up.

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Market Cleanly Fills the Gap

Apr 15, 2008: 10:07 AM CST

Today’s price action so far has been nothing shy of stellar and ideal for those who love to ‘fade the gap’.

If you would like to know what a clean and ideal gap fade trade looks like, then keep this one for your records.

The market opened with a relatively large impulse up that was smoothly and quickly faded, with only two ‘up-candles’ on the way down (this is a 5-minute chart of the DIA – Dow Jones ETF).

Generally, I give 10 to 15 minutes (2 to 3 bars) before entering a gap fade and I place a stop 50% of the distance to my target, which is yesterday’s close.

In this case, entry would have been near $123.70 with a target near $123.20 (which is $0.50) and I would place a stop at or just above $124.00.

Recall that the reason I love gap fades is because they give a sort of rare ‘dual edge’:

First, the odds of filling (provided the gap is less than 100 Dow Points) are higher than 50% and

Second, the profit you gain when the gap fills is higher than the money you lose when it does not.

Also, gap-fades have the added benefit of being extremely easy to recognize, place targets, and stops and you don’t need a complex strategy or complex indicators.

For more information, see my previous posts:

Gap Fade Statistics for January (70% of gaps filled)
Gap Fade Statistics for February (53% of gaps filled)
Gap Fade Statistics for March (70% of gaps filled)

Gap fades are one of the market’s jewels in my opinion. This strategy likely won’t work forever, but in the current environment, it seems to be working quite handsomely for aggressive traders.

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