DummySpots.com

The Market Today

Short and sweet: The NDX and S&P are both still short of a much-needed breakout if the recent uptrend is to continue.

The ideas posted last night for today have given me a lot to write about.

First, a rule that I don’t think I’ve clearly stated: a trigger for a swing trade is when the target price is crossed in the proper direction (i.e. from below for a long entry). A gap, even in the “right” direction, is cause for pause.

Think of it as a stop-limit order with an activation price at a penny above your trigger price, and with the limit at the same price. If the stock gaps 50 cents above your trigger price, the order will not be executed.

This rule was exemplified today by two of the stocks I mentioned yesterday:

HOKU had a trigger price of 4.40. It opened at 4.51. The only way to trade an open like this is if the gap holds. For instance, if it had opened, dropped a bit, then reversed through the open to finish positive, one could go long with the day’s low as a stop.

HOKU did exactly the opposite. It opened way up and basically fell all day. Nowhere to enter and still have a decent stop. That’s my clue to wait.

SWC acted similarly, but with a twist at the end:

SWC opened gap up, then fell. However, it rose again into the close and crossed the trigger price of 9.14 from below, so a trade could be taken. The weak volume and the day’s action make this one look much less promising than if it were a good strong up day. We love our Long White Lines.

Now how about the good stuff?

Today EMKR (Emcore Corp) provided a perfect entry into a beautiful trade, based on my ideas post last night. Entry at 7.51 with an initial stop of 7.38, today’s low. That’s a total initial risk (tah-dah! “R“) of only 13 cents, allowing a nice fat position size. I would cover half that position at twice my initial risk, or 26 cents above the trigger price, or 7.77. We’ve now locked in a profit equal to our initial risk, and have a free position that’s currently 45 cents, or over “3R” in the money. In just one day!

Trades like this make up for 3 or 4 of the ones where you get stopped out with a loss or an agonizing, small gain.

LTXX (LTX Corp) triggered a trade today, and although it’s not as perfect as the EMKR trade, this one’s still legit. Entry was triggered at 5.51. Today’s low is 5.33, so that’ll be our initial stop. This gives a total initial risk (tah-dah! “R“) of 18 cents. The spot to lock in some profits was 5.87, and today’s high was 5.86. Too bad. Let’s watch…

Update on the CSCO (Cisco Systems) trade:

Another new high for Cisco today, although on a short little bar. Using the same method described before, trailing stop comes up to 21.15.

Update on the CVTX (CV Therapeutics) trade:

New high of 12.13 on CVTX today. Notice that it had an opening gap reversal. Today’s bar opened higher than yesterday’s close, then rose to the day’s high, and finally failed back through the open to close within yesterday’s range. That’s ugly.

• New high (12.13) minus prior stop (10.80) times about 20% gives 27 cents, which I’ll add to the prior stop.

• This gives a new stop of 11.07, which I’ll round up to an even 11.10.

The Market Today

The NDX needs to break back through the 8/17 high of 1585 (about 39.00 even for the Qs) in order for this young uptrend to grow some legs.

The S&P has me concerned. I’ve said the selling at 1300 was normal. It was. Now it’s time to move. The overhead resistance around 1325 is weighing heavy, and so far the SPX is running out of air like a beachcomber hiking at 14,000 feet. Here’s a longer-term chart, with weekly bars (I’ve used the SPY so we can see the volume):

Notice how the volume was increasing as the price declined thru the spring, and has been fading as the price rose thru the summer rally. That’s gotta change if this is anything other than a pullback into a BIG downtrend.

This anemic rise in the overall market is the major reason I play my stops so tight. If a big rally hits, the prices will run away from your stops… no worries. But as this thing goes sideways or rolls over, more swing trades than not will get stopped out. And if it rolls over, stopped out on my longs is exactly where I want to be.

Update on the MSFT (Microsoft) trade:

Speaking of stops, Microsoft hit mine today. I had left the stop at 25.69 from yesterday, and MSFT promptly ran down and took it out at 1030 EST this morning.

A break of 26.00 could mark a place for a long entry, but that’s a different trade.

Update on the CSCO (Cisco Systems) trade:

Big ole Cisco has been my poster child for textbook trades this month. This move today gets us solidly in the money, and it’s my cue to do two things:

1. Bump the stop, using the old tried and true dummyspots bread and butter swing trade trailing stop method (just coined that, who knows if it’ll stick). Previous stop 20.85, today’s high 21.69. Take about 20% of the difference- 17 cents. Adding that to the prior stop gives 21.02. I’ll round that to an even 21.00.

2. Pull a pseudo-Landry and cover half my position at twice my initial risk (That’s “2R” for you “R” fans). Initial risk was 35 cents (see the post where the trade was triggered), entry was 20.90. Covering half at “2R” would hit at 20.60 today. I’ve now locked in a profit equal to my initial risk on the entire trade (70 cents on half equals 35 cents on the whole), and have a minimum profit of 10 cents (current stop minus entry price) on the remaining shares.

Update on the CVTX (CV Therapeutics) trade:

This pop on CVTX is just beautiful, no? Now where are all the naysayers who wouldn’t have touched it with a ten-foot pole because of the “bad news“?

This bar is an opportunity to do the same as I did with Cisco today- bump the stop and cover half:

1. Bump the stop. Previous stop 10.45, today’s high 11.95. About 20% of the difference (30 cents) added to the prior stop gives 10.75. Now, looking at the last few days one can clearly see that 11.00 was a significant level of resistance. That level failing would also be significant, so I’m gonna exercise some executive privilege and round the stop up to 10.80.

2. Cover half my position at twice my initial risk (That’s “2R” for you “R” fans). Initial risk was 39 cents (see the post where the trade was triggered), entry was 10.37. Covering half at “2R” would occur at 11.15 today. I’ve now locked in a profit equal to my initial risk on the entire trade, and have a minimum profit of 43 cents (current stop minus entry price) on the remaining shares.

What about those Fresh Ideas?

Right now, it’s late and I’m wiped out. I’ll post these charts in the morning if I can, but here are some stocks that I think are worth looking at:

• HOKU - RIPE swing trade setup
• EMKR, LTXX, SWC - potential swingers
• AGIX, EGY, NVAX, TQNT - potential daytrade candidates
• AAPL - potential short setup around 66.15

NOTE: Charts have been added. See “Ideas for 30 Aug 2006” in the sidebar. Thanks.

So many times the market is an elephant and we are blind men.

This chart of NETL (Netlogic Microsystems) caught my eye the other night:

Here’s what I noticed:

• (A) Monster volume on these two days. Likely to mark some kind of bottom.

• (B) Even bigger volume on the breakout, then a couple of wimpy little pullback bars (this would be perfect if the second one were a Dummy Spot… darn).

• (C) A multi-day thrust upward followed by this sideways to downward action on declining volume. Now my ears are perked up and my gaze is fixed. Come to papa, baby, come to papa.

Now, for those who’d prefer this be drawn on the chart:

We broke the downtrend line with a nice gap up, spiked upward and have now pulled back. A whisper from the Holy Grail.

Moving averages, you say? Aren’t those Multiple Moving Averages and Rainbows and Bowties pretty? Here y’go:

The rainbow flipped and now we’ve dropped down to give it a kiss.

What’s the point of all this? There are an infinite number of ways to look at a setup and see that it’s a setup. People spend their lives looking for the Next Great Indicator to show them… a setup. Then they blindly buy and hold at the very first trigger, and over the course of a few trades, lose their money. They then damn the indicator to everlasting hell because they’ve proven “it doesn’t work.” Au contraire. “Setups is just setups.” The magic is in the execution of the trade. We’re talking precise entries, position sizing and stop management here. That’s your true Holy Grail.

What is it with these huge, boring stocks? First Cisco, now Microsoft. When’s the last time two of these behemoths broke out, then gave us a nice little pullback? Should be interesting trades if the overall market holds. I jumped at this one this morning:

I call yesterday’s bar a “near Dummy Spot” because it doesn’t strictly meet my requirement of a DS being an inside bar. Its bottom was 2 cents lower than the prior day’s. Pity. Doesn’t stop me from taking this trade, though.

Note that this is just an intraday picture thru about 1000 EST. We don’t know yet how this bar is going to look for the entire day. However, we must have an initial stop in place to take the trade.

The most logical place to set an initial stop for this trade is at the bottom of yesterday’s bar, since the trade is taken off the top of that bar. That would give a stop of 25.50 and an entry of 25.87, which results in a total initial risk (tah-dah! “R“) of 37 cents.

I’m not always logical. All the youngsters may be wearing low-riders, but I pull my stops right up to my waist. I’ll drop back out of this trade if MSFT reverses and falls through its open of 25.71 (corrected[ed]). In my book, a pretty white (blue) candle breaking a pullback and resuming the prevailing (up) trend should not reverse on itself if there are sufficient buyers and they are sufficiently commited.

Update on the CSCO (Cisco Systems) trade:

Yesterday (8/23) printed an inside bar (lower high and higher low than the day before). I generally don’t mess with my stops on inside-bar days. However, today did print a higher high of 21.42. Based on today’s action, I’m going to bump the stop. Today’s high (21.42) minus the previous stop (20.70) is 72 cents. [Notice how close that figure is to the last time I moved the stop (0.72 vs. 0.79)… that’s not uncommon.] I’ll take 20% of that (14 cents), add it to the prior stop and get a new figure of 20.84. I’m going to round that down to the nearest nickel, or 20.80. Why? Just because it’s my trade, my stop, and I think I’ll give it a little more wiggle room. Bing, bang, boom.

Update on the CVTX (CV Therapeutics) trade:

Due to my being busy at work, with the “chillens,” and working on the *&%^!! coding behind this site, I made no updates yesterday (8/23). Yesterday’s high of 11.07 warranted a bump of the initial stop via the dummyspots bread and butter trailing stop method:

• New high (11.07) minus prior stop (9.99) times about 20% equals 22 cents, which I’ll add to the prior stop.

• This gives a new stop of 10.21, from which I’ve just gotta round. I’ll round this one all the way up to 10.30, because I consider any failure of the 10.37 breakout point to be a sign of weakness.

Today’s (8/24) bar was an inside bar, so I’ll use my normal practice of not moving the stop for that one.

Followup on AAPL (Apple Computer) Trade:

Since this one reversed on me the first day, I ate my entire initial risk (tah-dah! That’s -1R for you “R” fans) of 0.55/share. C’est trading, mon frere. Apple is still set for a nice move. I would shift to watching the 8/3/06 high of 70.0000000 as the level for a potential long breakout, and the low of the past few days’ sideways range (66.15 on 8/21) as a potential short. I say “potential” because I may or may not take a trade, depending on the price action and where it allows me to set my initial stop. Stop too wide, no trade. Nice tight stop, I’m back in the saddle. But that’ll be a different trade. Stick a fork in this one and flip it over, ’cause it’s done.

Cheers!

You can’t have it both ways. You can’t have your cake and eat it, too. As my favorite Western interpreter of Eastern philosophy Alan Watts might say, the tail goes with the cat.

So it goes with the Pluto fans. OMIGOD, they can’t take Pluto away! Alright then, but if Pluto’s a planet, so are a bunch of other stupid little crusty rocks on the fringes of the Solar System. Then we’d have 12 planets, at a minimum.

NO! Not 12 planets, 9! We only have 9! (Picture the hitchiker from Something About Mary going, “No, no! Not 6-minute abs!!”)

Yes, sweetheart, you have to choose. Either Pluto is a planet, in which case we’re going to have to start buying tons more styrofoam balls for our kids’ new models of the million-planet Solar System… or Pluto is NOT a planet, and we’re left with the Big Eight, with Pluto relegated to the status of Most Famous 4th Grade Science Trivia Question for the next 500 years. Either, or. Can’t have it your way. Not Burger King.

Today, it seems that the International Astronomical Union has chosen science over sentimentality and made the right decision. Get ready for the weeping and gnashing of teeth. Maybe some candlelight vigils. Perhaps a lawsuit or two. Pluto always did have a funny orbit, after all. This could be billed as class warfare and discrimination on a Planetary Scale.

The 3-column layout I coded last week is working nicely. However, the clump of trades I’ve been trying to follow on the blog is rapidly making this thing unwieldy to read, even with the in-page links and anchors.

I’m working on an idea where I’ll have one permanent post per trade, from setup to trade trigger thru followup and the epilogue. I’m planning on using the blog posts to link to updates in the permanent posts.

If I can get to it later tonight, I’ll post the charts and full comments from today. For now, a summary:

• AAPL trade stopped out
• CSCO trade in the money, time to bump the stop
• GIGM trade stopped out
• TDW trade still on, slightly in the money, not much action
• CVTX long trade triggered on 10.37 break!
• ASEI prints nr-gazillion tiny bar, watch it like a hawk

The Market Today

The NDX has entered the murky waters of the sideways range of 1520-1620 established back in May and June. Also it’s had a nice 90ish-point run in the last few trading days. A pullback is natural here. The volume is dropping off rapidly (check the Qs), so this is still very healthy so far. A point of interest: Note that the NDX move was telegraphed days ahead of time by the 800lb gorilla Cisco. Waiting until an index breaks out can often put you a day late and a dollar short on catching the leaders’ moves.

The selling kicked in at 1300 on the S&P, of course. No problem in that reaction. Perfectly normal. What does concern me is that this thing looks weaker as it tries to claw back towards the May highs (around 1326).

Trade Updates for 21 August 2006

AAPL (Apple Computer) setup triggers short entry:

Apple triggered my short trade today. A trader who’s very liberal with his stops would probably set the initial stop on this trade at 68.66, the (8/17) high of the previous move. I’m much more aggressive with stops, and have mine just above the high (67.31) of today’s bar, at 67.35. My entry was a little ugly, at 66.80, so I’ve got a total initial risk (tah dah! “R“) of 0.55/share. Let’s watch…

CSCO (Cisco Systems) setup triggers long entry:

Cisco triggered a long trade today, a day or two sooner than I would have liked, but hey, c’est la vie. The strong late-day rally is promising, especially given the market’s ambivalence. The entry is above yesterday’s high of 20.90. The initial stop is at 20.55, just below today’s low of 20.57. This gives an initial risk (tah dah! “R“) of 0.35, very nice as it would allow you to pile into quite a few shares.

I know that being pointed different directions in CSCO and AAPL is likely to mean I’ll get stopped out of at least one of them quickly. Don’t know which, though, and I gotta stick with my rules.

Was about to shut the old ‘puter down and call it a night. Almost forgot this one:

TDW (Tidewater, Inc) setup triggers long entry:

This one is from one of last week’s posts. Originally highlighted by Dave Landry. I can’t say where he would call an entry, I can just speak for me. Here ’tis: Entry above 49.76, initial stop at 49.60, just below today’s low. Total initial risk (tah dah! “R“) of only about 0.16. Yummy.