Active Week of Economic Reports Ahead

May 28, 2007: 10:14 AM CST

For you pure day-traders and even swing traders, I know you check the upcoming economic calendar and key earnings releases daily, but be aware that this upcoming (shortened) week, we have a lot of potentially major market moving data hitting us all at once which calls for extra caution.

Check out the article “Wall Street to Eye Inflation, Jobs Data in the Week Ahead” from Yahoo! Finance.

Here’s a sampling of the major movers:

Consumer Confidence (Tues), Fed FOMC Meeting Minutes (Wed), First Quarter GDP estimate (Thurs),  Auto Sales (Fri – and others).

For a complete list, you can always reference Briefing.com’s Economic Calendar. 

Costo, Sears, and Dell will also release earnings towards the end of the week.

We were treated last week with light data, only to be rewarded with many active reports this upcoming week.

If you don’t follow reports as part of your normal trading, realize that this week could cause very volatile gaps and price movements both in individual stocks you seek to trade and in the broad market itself, particularly if something is outside the range of expectations either good or bad.  Remember, good news can be bad news (especially if investors anticipate the Fed raising rates in the future).

Stay safe and trade well.

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Link: Heroic Dimensions of Trading

May 27, 2007: 9:35 AM CST

In case you’re wondering why we endure the sometimes stressful daily grind that is trading,  Dr. Steenbarger recently published four encouraging quotes from his recent texts in his post The Heroic Dimensions of Trading.

Read them over and meditate over them if they speak to you.  It helps to envision your trading as something greater than yourself; that you are taking part in an epic quest, rather than a get-rich-quick scheme.  You’ll last longer if you approach your trading professionally and with a life-purpose of devotion.

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Link: Series on Breaking Bad Trading Habits

May 27, 2007: 9:27 AM CST

I am really getting a lot out of Dr. Bruce Hong’s new site on Trader Psychology.  Here are three detailed posts (containing a six-step process) to help you break your bad habits:

How do Addicts Break Habits?

Bad Habit Breaking Part I

Habit Breaking Part II

Dr. Hong is addressing specific topics using academic biological/behavioral psychology as a foundation and discussing them in a structured series with actionable plans for improvement.

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Weekly Chart Views

May 26, 2007: 9:36 AM CST

Here are some daily charts of recent market action from a momentum-divergence standpoint:

dow-may-26.png

  • Momentum is diverging, as buying pressure appears to be subsiding.
  • Market is pulling back to possible support at the rising 20 period MA (has it already found support?)
  • Chart is extremely bullish
  • Resistance (three ‘scraping’ candles) at round number 13,600.  If surpassed, expect further strength

This is a daily chart of the Dow since 2006.  
dow-year-may-26.png

  • Notice the steep change in angular momentum in the lengthy price swings
  • Ask how much buying power is out there to sustain this lengthy and steep angular rise (angle of 75 degrees)
  • Notice the momentum divergence in the price swings at the far right of the MACD oscillator
  • Nevertheless, we made annual new momentum highs recently (as well as price highs).

The Nasdaq (Six Months Daily)

nas-may-26.png

  • The Nasdaq’s momentum divergence is clearer than the Dow’s
  • Price made a new high yet momentum is not making new highs (in terms of swings)
  • Traders rejected the 2600 price value to the penny recently – it is resistance that must be cleared
  • Volume increased while price sold on momentum on Thursday (only to rebound a bit) = Bearish short term
  • Support appears to be at 2520 with the lower Bollinger Band and 50 period MA
  • A Head and Shoulders pattern (short-term) MAY be forming, but needs validation
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Regions Financial Chart Speculation

May 26, 2007: 9:24 AM CST

Analyzing financial stocks can be helpful in determining trends in the broad market, but I also like to highlight interesting chart patterns or situations.

Regions Financial (RF) has been swinging in a tight yet relatively predictable swing trading range over the last year and neither has upside or downside momentum.  Most financial stocks provide comfortable dividends if held long-term, as well.

Here is a six-month chart of RF and I am highlighting a momentum buy divergence, as well as support below from moving averages (and a recent possible ‘stop-gunning’ price movement).

rf-may-26.jpg

Notice the ‘sweet’ swings in price – normal oscillations.  An oscillator (RSI or Stochastic) might aid you better in calling price extremes if you’re looking to trade this stock with range-bound strategies.

I don’t normally call trade set-ups or entries (I mostly provide overall analysis and want you to use your own thoughts and methods on stocks I highlight) but I wanted to provide a little assistance on this candidate.

From a risk-reward standpoint, you have a favorable swing trade if you desire to take it.  I would place a stop a bit below $35 (a little closer to price action if you are rather conservative, but odds favor giving trades a bit of room) and a profit target around $37 (initial profit at $36.50).  This sets up around a 2:1 reward:risk (which is more attractive if you use the moving average — if so, your stop is $35.50 and your target $37 which provides a 4:1 reward:risk).

Look at longer-term views of this stock and run your own technical analysis (including trendline verification… are we bouncing off a trendline or did we just violate one?).  This could generate trade ideas for you.

rf-year.png

This 1 1/2 year chart of RF shows possible “topping” action, so be a little cautious in executing a large position.  Keep portfolio risk parameters primary.

The volume (sell) spike indicates a possible selling climax and reversed trend (back to the upside) which we are seeing from that point (higher highs and higher lows relative to the sell climax).

Note:  Regions recently acquired AmSouth Bank, and the restructuring is currently taking place. 

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