DummySpots.com

Just in after an all-nighter at work. Graveyard shift sucks. However, the interesting side is I’m reminded of those weird cravings I got back in the 90s when I worked night shifts for a few years. Right now I’m thinking of cooking up one of my favorite morning-after breakfasts: fried egg sandwich with mustard and jelly, washed down with a cold beer. Mmmm, bet I’ll sleep like a baby.

I had an open order yesterday afternoon to short Google if it failed thru 422, my “line in the sand” from a few posts back. Or so I thought. When I noticed last evening that GOOG had closed at 421.75, I logged on to see where I got filled.

I didn’t get filled. I was muttering “What the…” and “How the…” until I saw what happened. My order was to short Google at or below 21.90, not 421.90! I was too busy fiddling with the pennies and messed up the dollars. Needless to say, it didn’t quite make it down that low.

I’ll set my alarm for later this morning and see what kind of action we’re getting. Maybe I’ll find an entry then.

Good night, er, morning.

Skip The Takeovers

This morning OPEN (Open Solutions) is bid at over 37 from a previous close of 30.28. Put it on the watch list? Not so quick! Check the headlines: Open Solutions confirms deal to go private.

When a company is being taken over, you’ll see a big gap, but it’s not usually a tradeable gap. The price will open up and stay pegged (i.e. go sideways) for the entire day. The rare exception is when a company is being bought with another company’s stock, and the purchasing company begins falling precipitously during the day.

The upshot? We’ve got enough to worry about. When we see a big gap that’s due to a takeover, we should cross that stock off our list and move along to greener pastures.

(This one is old hat to experienced traders, or inexperienced ones if they’ve ever tried to trade a takeover, but it may save some frustration for someone who is just converting to daytrading.)

I just read this quote in an article on Teresa Lo’s PowerSwings.com site:

Many systematic traders spend the majority of their time searching for good places to initiate. It just seems to be part of human nature to focus on the most hopeful point of the trading cycle. Our research indicated that liquidations are vastly more important than initiations. If you initiate purely randomly, you do surprisingly well with a good liquidation criterion.
(from Dailyii.com)

Except for the $5 words, it’s an idea this old boy completely agrees with. With which this old boy completely agrees. Whatever. Here’s a quote from one of my own ramblings:

Our success doesn’t depend so much on which method we use to enter positions (except for “they say”). It depends on what we do with those positions once entered.

Few positions are losers from the instant we enter until we exit– most are in the money at some point. The gains or losses we eventually take on them are due to our exit strategy.

Simply put: It’s all in the stops, baby. It’s all in the stops.

Ok. I’m outta here for the weekend now, for real.

I have promised my favorite three young ladies that I’ll take them away for some serious neck-snapping fun over at Six Flags in Arlington this weekend, so I’ll see y’all Monday. For now, here are a few interesting charts to chew on:

Today Microsoft printed the infamous Gravestone Doji…

A “gravestone doji,” as the name implies, is probably the most ominous candle of all. On that day, prices rallied, but could not stand the “altitude” they achieved. By the end of the day they came back and closed at the same level.
(from StreetAuthority.com)

Yahoo, on the other hand, after all the recent weeping and gnashing of teeth, showed a strong bullish Opening Gap Reversal:

This candle could set us up for a good day trade on Monday, or possibly a swing trade entry.

Yeah, I know, I know. I’m hell-bent on finding a short entry on Apple. Today’s Opening Gap Reversal was my most recent excuse. If this bar were solidly at the top of an uptrend, it would be a Shooting Star. More rational and intelligent traders will wait for a break of this bar’s low as an entry signal.

Gold and the gold stocks are acting (again) like they’ve bottomed:

This gap-up bar is a big cue to put Newmont and the other metal stocks back on the watchlist. I’m hearing some footsteps approaching in those dry fall leaves again…

Just a quick post tonight. Teen drama, tired Dad, E-I-E-I-O.

The Qs provided a good late-day entry today. Had I been trading (I was at the “other” job), I would have been down to 30-minute bars by that late in the day, but the timeframe of the bars wouldn’t change the entry on this one. The sideways range from 1000 EST onward was bouncing off of 41.88. No thrust, no pullback, no Dummy Spot, no nuthin’. When the 1400 EST bar finally popped the top, we had a solid run thru the close. I’m sure tons of folks caught it. Today’s action broke us out of the last 5 days’ sideways range as well, making for a nice swing entry. I’m sure tons of folks caught that one, too. Dammit.

Note that Google didn’t participate. If you’re long, keep your pants up (i.e. watch your stops) and we’ll cross our fingers and hope you get another nice surge upwards. Sleep with one eye open, though.

The Market Today was a yawner, for the umpteenth time. The strengthening dollar and increasing bond yield are encouraging, at least for the Big Picture. 10-year bond all the way back up (!) to nearly 4.80%.

I’d said yesterday that a gap opening below 41.60 on the Qs would be a cue to watch for a short entry. Well, we watched, and we watched, and we watched…

I consider the previous close to be a deal-breaker, since crossing it means there’s no more gap, which means there’s still quite a bit of interest in the opposite direction.

I’ve used this line before, but… Danger, Will Robinson! Google is one gap-down opening from printing an island reversal:

Longs, watch 422 and watch your backs.

Anybody else remember when Qualcomm went from $400 a share to $700 a share in ONE MONTH? Then they declared a 4-for-1 stock split.

Then Qualcomm hit $200.00 exactly ($800 pre-split), and fell straight down to hell.

I remember that fateful December of 1999, because I had a good friend who loaded up on calls exactly on the day of Qualcomm’s all-time high.

So, if Google heads up to $500 like Cramer wants, congrats. But watch your stops, just in case.

The Market was boring as hell today. The Qs formed another topping-type bar. Hanging Man Doji long-legged Elle McPherson, I think it’s called. A gap-down opening below 41.60 would be an alert to look for a short daytrade setup tomorrow. A break of the bar’s low of 41.31 could be a swing entry, if the stop is right. We’ll see.

Apple made the prettiest pennant/triangle this morning. Here’s a screen capture I took:

It proceeded to break down and trade all the way down near 73.00 before rebounding into the close.

Of all the trades that appeared to be setting up this morning, I only saw a “classic” dummy spot trade on Amvescap PLC (AVZ), whatever that is. I don’t much care.

• AVZ gapped up on the open, above the 5/8/06 high of 23.12. Then it printed two sideways bars having the same high of 23.36 as the first bar, and rising lows. Finally at 1015 it printed a Dummy Spot with a range of only 2 cents.

• Entry would be just above the DS, at 23.35. Initial stop would be just below the DS, at 23.31. Total initial risk (tah-dah! “R“) of just 4 cents.

• Trailing stop was never triggered by the up and sideways action the rest of the day. Sale would be at the close at around 23.70.

• This gives a total gain of 0.35. Doesn’t seem like a large amount, but considering the low risk, and if you set your position size based on risk (as I do), it’s a whopper in “R” multiples — a gain of 8.75R.

Setups like this can be treacherous. If you size your position on risk, and if you get a exceptionally low-risk entry, you’d damned well better enter that initial stop as a firm order the moment after you get filled. If it were to turn and run down rapidly, emotions could make us give away a chunk of our trading account in just a few minutes. If reacting by emotion is a danger, do NOT take trades like this.

Later tater.

It looks like we may get to test the July 19 “high” of 1.2456 dollars/euro. If the dollar can gather some steam here, it would open up a little breathing room- for the Fed to delay its rate-reduction cycle and, maybe, for China to let the yuan rise a bit. Sounds like a complete contradiction, but we could actually become more competitive, trade-deficit-wise, with a stronger dollar, if China and Japan would use that opportunity to let up in their purchases of Treasuries with the dollars we export to them.

A stronger dollar will typically mean suppressed commodity prices, as well. It takes fewer strong dollars to buy a barrel of oil. Anybody remember 1998? Not that we’re headed there by any stretch of the imagination, but $12 dollar oil and $250 gold were due in large part to the strong dollar.