Speaking of Trading is back!

Speaking of Trading is back! 🙂

After a long break, the site was completely redesigned and now offers a lot of new excitement features!

It has 4 main sections:

– Stock Ideas

– Indices Analysis

– Speaking of Trading Market Indicator

– Speaking of Trading Oscillator

 

The Speaking of Trading Market Indicator & Oscillator are online. Stock Ideas and Indices Analysis will start very soon!

I hope you enjoy it!

 

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Go where the strength is: XLF

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The Fed will raise interest rates soon, and this chart displays how two rate sensitive sectors are moving YTD. There is a clear divergence between Financials (XLF) and Utilities (XLU). While the former tend to benefit from higher rates, the latter which competes with bonds and pay high yields, tend to perform poorly. So, if you want to profit from the sectors which are showing great relative price strength you know where your focus should be right now.

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Taser, a bright spot in this earnings season

taser

Taser (TASR) reported first-quarter earnings on April 30. The stock beat Wall Street’s estimates on both top and bottom lines by a wide margin and hit a 10-year high. Earnings and sales growth were also strong which caused the stock to gap up on massive volume. Each earnings season will present some major surprises that will caught the market by surprise. It’s one’s job to find them. Real surprises are rare, and you will need to go through some earnings seasons in order to distinguish the genuine surprises from the rest. Be aware that you need to jump over the companies-analysts game. After seeing thousands of earnings releases through the years, I got a very precise idea of what works and doesn’t work. In a market where stocks have stalled or broke down after earnings, Taser had a nice follow-through, which is exactly what we want to see.
The best trades are the ones that work immediately out of the gate. If a stock breaks out and starts to hesitate, moving in an erratic fashion, a warning flag should be raised. Many stocks will behave like that, and eventually will resume their uptrends but the real good ones won’t retreat and go straight north. This up move must be in very high volume, indicating that big money is jumping into the stock. In just four days the stock surged around 20% hitting resistance at $35 (in an environment very adverse for stocks).
Two conditions helped this huge move. The stock has a very low float (51.90 Million shares) and was highly shorted (anything less than 100 M is ideal). According to NASDAQ’ site, as of April 15, more than 12 Million shares were shorted which means that around 30% of the float was shorted.
With such a surge in demand, buyers created an enormous buying pressure due to the small number of shares available. As the price went up, shorts were caught in a trap and had to cover their positions to minimize losses. Covering added even more power to the move and the stock soared in a short period of time. At some point these stocks will sell-of or pause due to profit taking. This happens over and over and if you know how to spot these stocks, you can truly benefit from this recurring pattern. Have in mind that in order to trade these setups, you should have a well-defined risk management model with sound proven rules.

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The market is sending mixed signals

mixedsigns

Lately we have witnessed an improvement in market conditions, with more stocks coming out of bases, a rebound in oil prices, indexes closing near all-time highs and the decline in the number of distribution days. This move has been accompanied by positive breadth readings, which indicates the market has somehow shown a more healthy behavior. On Wednesday a very positive day occurred, propelling the market higher due to a very strong rally in the price of oil (with the corresponding rally in the energy sector). In a year that has been scarce on the IPO front, last week’s action proved the opposite with many stocks debuting with success. But if the IPO activity has been in a slow environment, on the M&A front the activity is on fire, particularly within the health sector, indicating that there is still value and opportunities out there. Yet, the Bulls have also reasons to be worried. The NASDAQ has been leading the army, which is exactly what I like to see, but the 5,000 mark has proven to be a weak support level for this index.
Although we have seen closes above 5,000, the index is having a hard time holding that level, which is an issue to bear in mind. Despite the uptrend is still in play, the general market seems tired. A situation that cannot be dissociated by the massive run the market has made since the bottom achieved in 2009.
The pattern continues to be the same from quite some time, a slowly uptrend move with minor pullbacks, followed by short lived rallies. This behavior denotes a division among market participants in which neither the Bulls nor the Bears have the stronger hand. In a more refined analysis, even the Bulls (or the Bears) are divided within their fields.
We’re in one the busiest weeks of the earnings season, and if the number of companies beating on the bottom-line is of no surprise, given the fact that expectations have been set in such a lower bar, the percentage of companies missing on top-line is more problematic. The increase in profitability should come from growing revenue (companies expanding their activity and growing organically) rather than cost cutting practices.
Current market environment is indeed complex and misleading for the unwary; just two days after Wednesday’s super day, on Friday the market plunged following the Global sell-off. With this kind of action it’s hard to be unequivocally optimistic. The market has shown resilience, but at the same time signs of weakness continue to persist. In a strong rally, it is rare to see such days. Even with all these issues, we are far from the typical action seen in strong corrections or bear markets, when individual stocks breakdown hard, falling from bases and making new lows each day.
So, what is the wisest approach right now? Play selectively and have a defensive approach.

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Earnings season will start soon

Wednesday with the release of Alcoa’s results will mark the official start of first quarter earnings season. As usual when the big banks and techs start reporting, we will have a more clear view of how big companies are faring. Expectations for this season are very low due to the impact of the stronger dollar on companies’ bottom lines. Although the market has already priced in earnings negativity, if the recent string of weak economic data continues, it will be hard to justify current valuations, and we may see further deterioration ahead.
This has been a difficult time for trading, with few stocks making solid breakout moves. The weakness can be seen in market leaders, which recently have stalled or cracked. Furthermore, the selling has been high across all sectors, sending the number of distribution days to an exceptional high level. Anyway, if you know how to spot and play earnings, this period offers a unique opportunity to take advantage of the recent market weakness.
Expectations overall are low, but selectively one can find stocks that will truly surprise the market and therefore start making new multi-year highs. Never forget the date when your company(ies) report and start preparing your trading arsenal tools to embrace this next season.

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Selling into strength

As a trader, selling is perhaps one of the hardest decisions you just need to deal. Timing the exact moment when you should sell is not an easy task. Many traders buy when they should be selling and sell when they should be buying. When stocks are in a persistent uptrend, people will start to notice. Assuming that you bought a stock at a proper buy point, like when it was coming out from a base (or a price consolidation area) and had a nice follow-through, at some point you will need to close the position in order to lock in profits. There are many strategies which one can use to sell, ranging from a full close to advanced scaling out techniques, but right now just focus in selling into strength. Basically you should sell when the stock is still in an uptrend and the momentum is in full force. Don’t try or worry catching the bottoms and the tops because the goal is to profit and ride the uptrend as much as possible. Once in a while you may be able to buy exactly at the bottom or sell at the top, but that won’t be the norm at all. Mark Minervini in his latest webinar talked about this and its importance.
During the last week we had a good example of how selling into strength works.
Biotechs have had a huge performance lately, which you can see by taking a look at two of the most popular Biotech ETFs: BIB and IBB.

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If you pay close attention to the charts, you will notice that after a very strong string of gains, the ETFs peaked and closed at the bottom half of their ranges for the day. This signals an exhaustion move and implies that the momentum is near the end. When playing with these high beta names, regardless of which sectors they belong, you should always sell when the uptrend is still intact. If you wait too much or chase (when buying) you will be decimated. After peaking, in the following four sessions, the ETFs lost more than 10 percent and erased all the gains of a month. The selling was fast accompanied by huge volume. This is a recurring pattern in the markets, and if you were able to read the early signs and paid close attention to the price action you could have avoided being trapped in these kind of moves.

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The market is held hostage of the dollar

 dxyspy

 

Of late, there has been a huge divergence correlation between the equity market and the currency market. The recent dollar strength continues to dominate the attentions, with stocks going up when the dollar eases and vice versa. It’s now clear that the Fed will not raise rates anytime soon and most likely the first rate hike in many years will only come at the end of the year or during 2016. Last Wednesday’s statement and following comments from Fed Chair Janet Yellen set a dovish tone which pleased almost everyone. Yet, market participants this week will try to search for hints among the data on signs that might bring some light when the Fed will hit the button. Meanwhile, earnings projections for the first quarter have been revised down by many analysts. Companies have also pre-announced weaker numbers for the current quarter and full-year. We are now in a no-man’s-land until earnings season, which will start on April 8 when Alcoa reports its results. It is my conviction that during this hiatus volatility will continue. Last Friday we had a big positive day for the market with big gains across the board on very high volume (it was a quadruple witching day). Let’s see if this rally has more legs to go and if the market can hold its gains. As I previously noted the next big thing everyone is waiting is earnings season. When companies start to report their results we will have a more detailed picture of the strength of the market. Don’t forget also that the quarter is ending and many of the recent high flying stocks tend to do well in this period.
Above is the chart of the dollar index (DXY) vs. the S&P 500’s ETF (SPY).

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Know your Time Frame

amp

I have found that one of the reasons why so many people fail in trading is due to a lack of perception on which time frame best suits one’s needs.
As you can see by doing a quick search on Google, day trading is very popular, yet many struggle when trying to implement it.
As a general rule of thumb, keep in mind that the shorter the time frame you trade, the harder is to make money. Of course, there are many good day traders out there, but despite its huge popularity, this technique may not be the best for you. The same applies for swing trading or any other form of trading. The easiest way to discover which is the best time frame that works for you, is by trial and error.
You may start trying swing trading just to realize that you cannot sleep at night because of the fear of what might happen while holding positions overnight. On the other hand, you chose to be a scalper and your blood pressure increased to levels which you cannot deal with.
We all will or have dealt with these and many more issues, and the lesson to learn is: despite the number of books about trading you have read, what others say, the moment of truth is when you go live and experience the real action by yourself. Trading is a process of self-knowledge, which only time will help. What it’s absolutely essential is once you find one method that makes you feel comfortable, stick with it and make the necessary adjustments to perfect it. Don’t start jumping from one method to another just because you made a mistake or you heard that someone else is making tons of money while you are having a difficult time. Believe in yourself and remain focused. This is the only way to be consistent and achieve great performance in the long run.

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