The stock market was traded on average volume, however popped heavily ahead of the election. Dow Jones was up +130.14 to hit 13,242.99 and the SPX up +10.80 to hit 1428.02. There were definitely some great buys out there that popped out.
December 6th, 2012
December 5th, 2012
Bank of America has been stuck under the $10 range August 2011. It did try to pass it in March 2012, but there was not enough strength or buyers. With over 462 million shares traded on Dec 5, Bank of America was able to pass the $10 mark once again. Looks like there will be more upside for this stock from here.
December 5th, 2012
First Solar was once a stock that was over $300 a share, tumbled to $175, and then to $11. Over the last two years this stock has seen some terrible times, but finally this stock is getting a light little pop to the upside.
After a a few months of consolidation near the teens and twenties of this stock price, it finally broke its resistance at $26. Looks like there should be some more room to the upside from here, only time will tell.
December 5th, 2012
Support and Resistance are the building blocks needed in order to read chart patterns properly and to trade effectively.
- A psychological level where people believe the demand is strong enough to hold the stock price up
- This is similar to a price floor, but it isn't government controlled
- A healthy support line hits multiple points at the same level
- It is the opposite of support
- A psychological level where the sellers are putting the stock down
- When a stock hits the resistance line, buyers no longer want it because the price is too high, and sellers step in
- The more times a stock hits the resistance line, the stronger it is becoming
Support and Resistance are the Same
- Support is actually resistance and vice versa
- They both equal one another
- i.e. once the stock breaks through the resistance level, the resistance line becomes the support line
- Resistance lines continue to become support lines as the stock continues to go up
- The same is true on the downward level; support lines become resistance lines as the stock goes down
- The more trading that is done in a certain level, the stronger that level becomes
- Support and resistance do not have to be horizontal
- They can be elevated at different angles and still be support and resistance lines
- If the support or resistance is broken that means the perception of the stock has changed
- When stocks tank, people are selling their shares and they want less of that stock
- If stocks have a lot of resistance and break through the resistance line, there is a high demand for the stock (new product, positive news, etc)
December 4th, 2012
What Is the Double Top Reversal Pattern?
- You need a prior trend that is positive in order for it to be a reversal
- There are usually two points that force a stock to reverse
- As the stock climbs upward, it hits the first top, the stock goes down (sentiment is saying the stock is too high), the stock isolates, and eventually creates a second top
- Remember that it creates an "M"
- More tops create more resistance
- The stock can break through the support line
- If you are trying to enter this on the short side, you want to be careful because there is an area of confluence beneath the support line. Make sure the stock clears the support line before entering.
- Usually the double top is shorter and takes less time to develop than the double bottom.
How to Trade a Double Top Reversal Pattern
- Take the distance between the resistance and support lines (one distance level) and bring it down under the support line.
- That is your ideal goal for where the stock may head.
December 3rd, 2012
Stocks v. Options
- Both are trade-able securities.
- Both have bid and ask prices and a bid-ask spread
- Listed on the same exchanges
- Options have expiration dates, stocks do not
- There is no set number of options
- With stocks, you own a piece of the company and you have voting rights
- With options, you do not own a piece of the company
December 1st, 2012
Cup and Handle Pattern
- It is a continuation pattern.
- Discovered in 1988 by William O’Neil. I recommend his book How to Make Money in Stocks.
- You need a previous trend in order to have a continuation pattern.
- When the pattern trickles down the “handle” the volume will be slowly declining.
- Once it breaks the “handle,” the volume needs to be very high.
- Remember that the “cup” of the pattern needs to be a “U” shape and not a “V” shape. A “V” shape is likely to be a Double Bottom or a Double Top.
- The “cup” is gradual, it is about a 1/3 retracement from the previous uptrend, and goes back down to re-calibrate itself.
- You want to enter or add to your position when it breaks the “handle.”
November 30th, 2012
- LEAPS = Long Term Equities Anticipated Securities
- Stock options that are longer than one year
- Buying out option premium on a longer term horizon
- Bought a year or more in advance
- Options that expire and many of them decay over time much slower than shorter term options
- LEAPS allow you to have more time within the contact
- Can also be used to purchase protection for your stock
November 29th, 2012
What is the Head and Shoulders Reversal Pattern?
- The stock bounces off of the support line three times, making a head and shoulders pattern
- On the first shoulder, the volume is high
- The volume is lower on the uptrend that creates the head
- People are not voting for the stock to go up. This low volume creates the head
- Important to understand: If the stock bounces and hits the support line again (after the last shoulder), the line becomes a resistance line. You want to make sure it doesn't bounce down again because that would mean the stock is going below the resistance line.
- A three month pattern is healthier than a two day chart pattern
How to Trade on the Pattern
- Typically, people wait to trade until the stock breaks the neck line region and they trade on the down side (if there is enough volume)
November 28th, 2012
The double bottom reversal pattern is similar to the double top reversal pattern, but it goes in the opposite direction.
What Is the Double Bottom Reversal Pattern?
- It's a reversal pattern or bullish pattern
- Begins with a downward pattern and typically ends with an upward pattern
- There can be double tops or triple tops between the double bottom
- Double bottoms take longer to develop than double tops
- Even if there is a double top between the double bottom, it is more important that there is a double bottom because it spans a longer period of time than the double top
How to Trade a Double Bottom Reversal Pattern
- Enter the stock somewhere off the second bottom
- Ideally, you should enter it after it crosses the resistance line (from the two tops that occurred earlier)