Art & Science of Active Trend Trading 5-14-14: Free Edition

Good Day Traders,

Today we’ve got some great information to share in Art & Science, hope you enjoy both the substance and “Off the Wall”.

Moving forward the Art & Science of Active Trend Trading will continue providing a Free weekly edition and add a bi-weekly subscription called “Art & Science of Active Trend Trading—Traders Report”.  The Traders Report edition will provide more in depth observations of stocks from the Running List and my “Go-To” list.  Additionally daily updates on stocks and ETF’s that are setting up at potential entry action points and status of current trades will be provided.  Later this week we will be posting our results so far this year at http://activetrendtrading.com so come by and check it out.

Remember every Friday at 1:30 p.m. PDT, the Active Trend Traders co-host the free “Market Stock Talk” Webinar.  I want to invite you to attend register here:  https://attendee.gotowebinar.com/register/5621178788547196162

 

General Market Observation:   Two day run up and then stall!  Care must be taken if you dip you toe in the water at this point.  The market continues in correction and one look at the up and down distribution of stocks on the indexes reveals that more was going down than going up again.  Sounds like a broken record but, the S&P and Dow again outpaced the Nasdaq and Russell today, so the Indexes remain mixed.

A quick look at the S&P shows that it hit a new high today and then finished the day with a little Shooting Star doji which signals indecision.  This new high on the S&P can be deceiving because the S&P is a weighted index.  The stocks with the most weight like AAPL have been moving higher or holding up well, however the majority of stocks on this index are actually living below their 50 day moving average.  This is not a great picture of health.

The Nasdaq remains below the 50.  The current rally attempt is rapidly approaching a resistance zone identified by the top of a triangle pattern.  If price action breaks out the index will move back into an uptrend with an upside target back at the highs of 4372.  If prices stall here the downside support of the triangle looks like a good target.  A severe sell-off could result in moving back into the support zone at 3950.

SPX

Nasdaq

 

Outs & Ins:   This section will be replace in the Trade Report by a section on Running List Stocks that have Weekly Options.  If a stock makes a weekly debut to the Outs & Ins list and trades weekly options then it will be added to this list.  Each stock on this new list will be an IBD quality stock and will be provided to subscribers on the Active Trend Trading website.  Focusing on great growth stocks that have weekly options accomplishes several things for us traders.  First it provides a limited number of stocks to focus on thus lessening the chance of missing a move, secondly with weekly option greater flexibility is provided for choosing strategies and lastly, weekly options provide excellent opportunities to design Income Generating Trades.  It all gets back to “Clarify, Simplify so we can multiply”!

It’s Off the Chart:   With the market in correction, the number one objective for all traders is to conserve capital and trade only when set-ups at Action Points are as close to perfect as possible.  The key is to properly interpret your analysis and trade with the prevailing trend of the entity.  All too often traders will see a big drop below a benchmark moving average like the 50 day SMA or below a long term trend line and immediately start planning to get long.  The problem is that while buying the pull backs when the stock has just started into a new uptrend works well, when the character of the stock changes to a downtrend buying support bounces can be problematic.  The reason is because the trader has not taken into account the character change of the stock and thus adjusted their mindset to a bearish stance rather than a bullish stance.    

 Does having a bearish stance mean the trader doesn’t enter bullish trades?  Not necessarily.  There are times when bullish trades in a downtrend are appropriate, but the trader’s mindset and game plan must accommodate the fact that the trend is down.  When a stock or index is making new highs and lows a “buy the dip” strategy works well and the trader can often hold on for a nice 20-25% gain, this is expected.  However when a downtrend begins, (defined by lower lows & highs and moving averages turning over and falling) buying a stock and expecting a 20-25% return is unrealistic in most cases. 

Comments and opinions written below this line of text may be provocative and only obliquely related to trading.  Some may find these “Off the Wall” comments challenging to their outlook on life.  I will not post any comments made on subject matter below this line to the group, so if you disagree blast away. 

 

OFF THE WALL

 Main Wall

Off the Wall:   I like to observe and then ponder what’s going on with circumstance both on the surface and below the surface.  That may be one reason I like analyzing stock charts so much.  As I look about today I’m reminded of the ancient text where it says that in the later days we humans will go through a period when what’s right becomes wrong and what’s wrong becomes right.  What’s up is down and what’ down is up.  In our current culture it seems that this phenomenon is a clear and present event.  The truth is often sacrificed on the altar of agenda in so many ways.

This weekend while watching a golf tournament one of the sponsors was Price Waterhouse Corp.  In some of the PWC commercials they were touting a partnership with schools to help teach children “responsibility”.  Clearly kids need to learn responsibility and schools do a play a big role in this learning process.  However the examples that PWC used to show what responsibilities should be taught to all kids were laced with an agenda to form a certain mindset and belief structure that was weighted to a particular point of view.  While points of view can be based on truth others can be purely based biased beliefs.  So should parents resign their role in teaching their kids responsibilities to an accounting firm?   Hmmm…like I said plenty to ponder!

So what’s the link back to trading?  It’s simple the truth present on a stock chart doesn’t lie, it is what it is!  So in this truth confused world, there is one place where truth seekers can find an absolute.

Share Your Trades:  Many of you have sent me notes regarding the success you are having with the Active Trend Trading System.  Please send you stories to me at dww@activetrendtrading.com so I can share them with our fellow traders.  Plus, if you are considering a trade that appears to be at a proper Action Point, send that alert also!  Thanks!

 

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