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us stock market, stock trading tool
Begin part 2 of 3
SUBSCRIBER QUESTIONS
Q. When you look at charts, do you prefer 3 month or 6 month charts? When you refer to a pattern, are you looking at a daily chart, hourly, other? Why do you use candlestick charting as opposed to other types like line or bar charts.
A. We look at charts from all different time frames: 1 year, 6 months, 3 months, 1 month because it keeps us from getting tunnel vision with respect to what has just recently happened. We need to put it all in the perspective of the big picture, but we also need to see the subtleties of the more recent moves. Looking at various time frames gives us the bigger picture. Sometimes you can find yourself focusing on the last two weeks, but when you back up, you see the stock is about to breakout of a base or is approaching resistance, etc. Looking at a longer term chart allows us to make a useful count of accumulation and distribution weeks, too, an important indicator that illustrates the character of institutional involvement in a stock.
As for patterns, it is important to note that whether you are looking at a daily chart, a weekly chart, or a 5-minute chart, the patterns are the same. When we are watching a stock during the day with a 5-minute interval, we look for the same type of pattern that we would look for when looking at a pattern that spans several days, weeks, months. When we see volume dry up as the trading range narrows, for example, it is a sign that the stock could be ready to break out to the upside, whether it's a pattern of weeks or just hours, or less.
We use Japanese candlestick charting because it gives us more information more quickly than other chart styles. When combined with volume and pattern, it's a powerful tool as it becomes a very accurate measure of a stock's momentum. Once one is comfortable with what these charts show, the momentum of a stock is revealed much more quickly. We like it especially with respect to helping determine when a stock may be turning up or down. Candlestick charts don't show different data from bar charts; they just show it in a way that is much clearer to see at a glance, and it is easier to see those momentum shifts.
We teach candlesticks in our seminar series and there are several good books. One of them is by Gregory Morris called 'Candlestick Charting Explained.' Another is 'Japanese Candlestick Charting Techniques' by Steve Nison.
THE PLAYS
Play Date: 01/03/2004
CKP (Checkpoint Systems--$19.61; +0.7; optionable): Security & protection services
http://biz.yahoo.com/p/c/ckp.html
STATUS: Flat base. Volume surged Friday as CKP rallied above the 50 day MVA (18.68) as it works toward the breakout from its 9 week base that formed over the 50 day. Accumulation in the pattern is a strong 3 to 1 (3 up price weeks on rising volume to 1 down price week on rising volume). Money flow is shooting up ahead of price as CKP probes the breakout. Looks excellent and ready to continue its upside move.
Volume: 607.5K Avg Volume: 198.064K
BUY POINT: $19.85 Volume=300K Target=$23.82 Stop=$18.98
POSITION: CKP EW - May $17.50c (84 delta) &/or Stock
http://www.investmenthouse.com/ci/ckp.html
Play Date: 01/03/2004
DNA (Genentech--$93.79; +0.22; optionable): Biotechnology
http://biz.yahoo.com/p/d/dna.html
STATUS: Testing the 10 day MVA. DNA broke out of a 10 week cup w/handle base three weeks back and rallied to 95. It spent the past week edging back to the 10 day MVA (93) on lower volume to test that strong breakout. Now there is an interesting thing that happens to strong stocks when they break the $90 barrier: they tend to run toward 100. 100 acts as a magnet and then a barrier, but it usually can break that barrier after a bit of a pullback. Strong 4 to 1 accumulation in the prior base set up the foundation for this breakout and run. This is the first test of the breakout, and the fact it is holding much of the gain indicates it is going to be a nice run. Looking to pick it up from here on a higher volume bounce. Our initial target is $100, and we are using some options to make that play. We can also take some stock positions and then get some more after it tests the run to 100 and starts back up.
Volume: 1.257M Avg Volume: 2.399M
BUY POINT: $94.55 Volume=3M Target=$100 Stop=$92.88
POSITION: DNA CS - Mar. $95c (52 delta)
http://www.investmenthouse.com/ci/dna.html
Play Date: 01/03/2004
NANX (Nanophase Technologies--$9.21; +1.12; optionable): Nanocrystalline materials used in sunscreens, etc.
http://biz.yahoo.com/p/n/nanx.html
STATUS: Test breakout. NANX is benefitting from mad cows. Its products are being discussed as a method to help in the fight against mad cow disease and thus it has seen some strong volume the past two weeks. Even before that, however, the stock started to show some tremendous volume to start December. Did word get out through 'unofficial' channels before the sick cow was made known to the public? In any event, it broke higher Monday from its 14 week reverse head and shoulders base, an accumulation pattern that used the 50 day MVA (6.84) as it formed the right shoulder during December. Accumulation in the pattern is a solid 5 to 3. Money flow is surging and relative strength is breaking out as well, demonstrating the stock is outperforming the overall market of late. The Friday move was a test of the Monday breakout, and we love to move in on successful breakout tests, i.e., where the stock holds near support (typically the 10 or 18 day MVA) and then resumes the breakout move on stronger volume.
Volume: 735.102K Avg Volume: 198.818K
BUY POINT: $9.54 Volume=300K Target=$11.45 Stop=$8.55
POSITION: NSY FB - June $10c (52 delta) &/or Stock
http://www.investmenthouse.com/ci/nanx.html
Play Date: 01/03/2004
NOVA (Novamed Eyecare--$3.61; +0.02; no options): Eye care service centers (laser, cataract)
http://biz.yahoo.com/p/n/nova.html
STATUS: Testing the breakout. NOVA formed a 4 month flat base from August to November, then blasted higher on a massive breakout to start December. It rallied form 2.50 to 4 and then spent that past three weeks testing that move, coming back to the 18 day MVA (3.47) on lower, below average volume. Accumulation in the base was an outstanding 7 to 0; very solid accumulation setting the stage for the breakout and subsequent run to come. We really like moving in on breakout tests; the breakout holds and is proved up and we still have a lot of room upside to make some good money. Excellent money flow moving up ahead of price. Outstanding move and now we move in on this test when we see volume jump back up on a move over 3.75.
Volume: 33.51K Avg Volume: 69.681K
BUY POINT: $3.78 Volume=105K Target=$4.74 Stop=$3.49
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ci/nova.html
Downside:
Play Date: 01/03/2004
TARO (Taro Pharmaceuticals--$62.61; -1.89; optionable): Drugs
http://biz.yahoo.com/p/t/taro.html
STATUS: Put. After peaking at 72.50 in early December, TARO has solid off to the 50 day MVA (64.99). After moving laterally just below that level for a week it imploded Friday on extremely high volume. It managed to rebound off of the low (60.70), recouping much of its loss but still in trouble below the 50 day. Looking for a break below some support at 62.50 to move into positions.
Volume: 631.207K Avg Volume: 264.818K
BUY POINT: $62.32 Volume=300K Target=$58.25 Stop=$64.88
POSITION: QTT NM - Feb. $65p (-63 delta)
http://www.investmenthouse.com/ci/taro.html
End part 2 of 3
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