Link: View Dozens of Blogs in 5 minutes or less!

Jun 2, 2007: 8:48 AM CST

Craig at Swing Trade Stocks provided an excellent summary of how to set-up blog feeds (via Bloglines or his favorite, NetVibes) and view headlines and updated content of your favorite blogs (which should have an ‘easy to subscribe’ feed button).  Doing so will keep you more up-to-date faster, and as we all know, speed and efficiency helps us more in today’s active society.

Check out his summary at “How to Read 100 Stock Blogs in 5 Minutes” and start subscribing and reading more in less time!

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DJ Utilities: A Lesson in Momentum Divergences

Jun 1, 2007: 1:35 AM CST

I wanted to point out the recent action in the Dow Jones Utilities Index – it is a lesson on how momentum divergences play out.

First, the chart:

dow-utilities-may-31.png

I have not annotated this chart (with trendlines) to show the divergences – note both oscillators making lower swing highs while price makes increasingly higher highs.

Divergences in momentum tend to correct down to where the momentum divergence (on the 3/10 Oscillator – bottom pane) first was observed.  Even the trusty stochastic indicator made clearly visible divergent patterns.

It is a known theorem from the Fathers of Technical Analysis to Linda Raschke and others today: Momentum Precedes Price.

This occurs both in the form of momentum highs leading to new price highs (indicated also on this chart with a new price and momentum high on March 26th) and the form of divergences, which are nothing more than a coming balance of buyers and sellers (and a reversion to the mean type of price behavior). This is evident with the ‘snap’ decline and rolling upper peaks in price throughout the month of May.

Now, we are observing new momentum lows and a potential “Impulse Sell” style trade where momentum makes a new low, corrects back upwards, and then makes new price lows. This could happen with a failure test of the (now) declining 20 period moving average.

Study your charts in terms of momentum readings and indicators. They are not the ‘magic bullet’ of course, but they can alert you to some greater than normal probabilities of potential upcoming price movement.

Of note, we are seeing clear momentum divergences just like this in the major indexes. I recommend caution, but I do not attempting to short this market yet.

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Overview of Major Indexes

May 31, 2007: 10:29 PM CST

We have survived this ‘heavily ladened’ week of economic reports, and the S&P along with the Dow Jones have made new lifetime highs.  Such action is impressive when reports indicate that first quarter GDP grew at 0.6%, or the worst reading since 2002.  We still have one trading day ahead of us before the weekend.

Dow Jones

dow-may-31.png

  • We are making new price highs, yet momentum (both 3/10 MACD and Stochastics) are clearly diverging now with price
  • Volume on the last 3 up-days was clearly decreased – consequently, volume on today’s ‘down’ day was markedly increased

nasd-may-31.png

spx-may-31.png

All indexes are showing clear and present momentum divergences.  A divergence is no reason to run for the hills and short, but it is a yellow light of caution.

Here’s a bonus chart of AAPL (Apple) which has absolutely been on a roll since late April.  It is now making new momentum highs.
aapl-may-31.png

Study well.

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Link: Identifying Transitional Structures

May 30, 2007: 9:31 AM CST

Dr. Steenbarger at TraderFeed posted a set-up (post:  Idenfitying Transitional Structures) using volume, momentum extremes, and the NYSE TICK readings to identify possible exhaustion and reversal points in daily price action which can be very helpful for day-traders (and even swing traders looking to enter a position at momentum extremes/reversal points).

It is recommended reading for those looking to better your information of short-term price patterns and possibilities.

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Link: 26 Cognitive Biases – Why What You Think is Wrong

May 29, 2007: 9:46 PM CST

TraderMike recently linked to a great, short post from Wade Meredith on cognitive errors entitled “26 Reasons What You Think is Right is Wrong” and includes such known biases as the bandwagon effect, confirmation bias, loss aversion, outcome bias (etc) and provides a Wiki (encyclopedia) link for each cognitive bias.

It’s a great resource and reference, and I think worth a bookmark for future reference.

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