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understanding the stock market, trading system
Begin part 2 of 3
SUBSCRIBER QUESTIONS
Q: You've said or implied on various occasions that the market won't be ready to move up again with any real conviction until the investor complacency is shaken out and some real fear comes back into our collective mindset. I don't really understand this concept []. Would you be kind enough as to explain the reasoning behind this concept? Thanks a million for your help.
A: The market moves when investors with the big money buy or sell stocks. Of course. The real understanding of the market, however, comes in understanding when they are showing they are ready to buy or ready to sell. Those decisions are driven by two extreme emotions, fear and greed and the gradations in between. If you look at charts long enough you can see that fear and greed manifested whether it be a blow off top on a stock that has run hard and then continues to shoot higher in massive, high volume run that is its last gasp. The examples are multitude, but when you start to understand that the market is driven by human emotion that has not changed since the Japanese traded rice futures thousands of years ago and that charts display that emotion, then the picture starts to get clearer.
What you are looking for in major market moves is emotion at extremes, either everyone overly confident or overly scared. With the current pullback on NASDAQ we wanted to see fear ratchet up as it sold; that is why a second leg lower that really scares investors is good because it gets those out of the market that are not really committed to the upside. That did not happen and the market bounced on low volume. Now it is moving laterally on low trade, frustrating many that hung on. It is basically supply and demand: when those 'weak' holders sell out either through a violent sell off that scares them out or a slow lateral and lower move that frustrates them out and only those committed to the stocks are holding them, the market is ready to move. It then only needs a catalyst to get buyers coming back to the market to buy. Stocks are in the hands of those who believe in them longer term, and they require a higher price to part with them. That demand causes price to rise and that is how breakouts occur.
After a long rally as in 2003 investors are not as hungry for stocks. They assume they are going to continue moving higher but buyers are getting saturated. There has to be something that makes buyers want stocks again, and that is usually a selloff that gets those that are easy to sell to go ahead and sell. When they are so scared they don't want to be in the market, that is just about the time stocks have sold back and moved into the hands of those looking for more value. That is when that supply and demand takes over.
CONTINUING PLAY TABLE:
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LEGEND
DATE: date play first appeared on report.
PLAY: Denotes the type of pattern or play.
Upside play types: A Wedge=Ascending triangle/wedge; BO=Breakout; Cup=Cup base; Cup hdl=Cup w/handle; DB hdl=Double bottom w/handle; Dbl btm=Double bottom; Flat=Flat base; FlyPlat=Flying Plateau; Pennant=Pennant; Rv H&S=Reverse head & shoulders; Saucer=Saucer base; Test 18=Testing 18 day MVA; Test 50=Testing 50 day MVA; Test BO=Testing the breakout (could be 10 day MVA test, etc.)
Downside play types: CCall=Covered Call; DWedge=Descending triangle/wedge; Dbl Top=Double top; H&S=Head & shoulders; Put (generic downside);
PIVOT=Buy point
Tgt=Target stock price for the play. Applies to stock and options.
Vol=Volume for the most recent session.
TgtV=Target volume to enter the play.
Stop=Stop advisory point. This is advisory and we may or may not exit a play if it hits this level depending upon market conditions.
Upside Plays
Stock Date Play Close +/- Pivot Tgt Vol TgtV Stop
$SOX 04/07 Test 50 515.24 +3.46 519.25 545 0 0 508
Buy Not Issued. Still consolidating. Volume was not there to enter the play. Raised pivot since stock has not established break out point.
ACR 03/30 Flat 5.35 -0.01 5.62 6.78 113K 290K 5.23
Buy Not Issued. Beginning to make a lateral move on the 10 day MVA on much stronger, but average volume.
ACXM 03/17 Test 18 24.38 +0.63 21.29 25.55 1.8M 800K 22.42
Current. Continue to move up the 10 day MVA for a nice gain on stronger above average volume.
ANSR 04/03 DB hdl 7.81 +0.05 8.29 10 143K 425K 7.66
Current. Tapped 7.60 at the low and rallied holding above the 10 day MVA on low volume. Moving up after testing the break out.
ARRY 02/25 Test 50 8.45 -0.48 7.9 9.48 166K 300K 8.79
Trailing Stop. Took the rest off table as it broke the 18 day and
sold toward the 50 day MVA.
ASKJ 03/18 BO 39.5 -0.55 31.44 37.95 1.6M 3.7M 36.72
Current. Pull back on low volume. Still in uptrend.
AZR 04/04 Test BO 25.61 -0.07 25.56 29.55 210K 400K 24.75
Current. Pull back on low volume. Routine pull back after nice run.
BBOX 04/07 Cup hdl 57.83 +0.86 56.98 65 132K 354K 54.72
Buy Not Issued. continue to move up the 10 day MVA on low volume. Have not entered the play, because volume is not there. Will drop, stock, but will keep our eye on it.
BEBE 03/13 Cup hdl 33.52 +0.31 31.88 36.55 191K 200K 32.72
Current. Tested the 18 day MVA and rallied holding above the 10 day MVA on lower, but still above average volume. Moving up after testing the break out.
CBR 03/17 Cup hdl 11.16 +0.26 10.65 12.78 209K 750K 10.78
Current. Moving up the 10 day MVA on rising, but still below average volume after testing the break out.
CERN 03/25 Test 50 47.25 +2.17 47.06 53.88 731K 986K 44.72
Entered today. Gapped up at the open for an explosive move on stronger above average volume.
CHIC 04/05 Test BO 17.28 -0.39 18.88 22 257K 375K 17.56
Buy Not Issued. Fell below the 18 day MVA on rising, above average volume. Stock has not performed so will drop, but will keep our eye on it.
CHT 01/22 Cup hdl 17.84 -0.04 15.75 18.92 219K 1.1M 17.44
Current. Pull back showing a doji just above the 10 day MVA on low volume. Pull back after nice move.
CHTT 02/14 Cup hdl 27.7 +0.05 22.25 26.48 238K 282K 26.72
Current. Making a lateral move on stronger above average volume.
CRXL 03/24 Cup hdl 9.18 +0.18 8.35 10.06 75K 350K 7.77
Buy Not Issued. Continue to move up the 10 day MVA for a nice gain on low volume.
CYTC 03/17 Test 18 22.71 +0.17 21.84 26.22 856K 2.2M 21.88
Current. Moving up showing a doji on low volume. Still in good shape.
CYTC 03/01 Cup hdl 22.71 +0.17 20.24 24 856K 1.7M 21.88
Current.
EASY 04/05 Flat 2.02 +0.07 1.86 2.45 1.1M 557K 1.78
Current. Big gap up at the open, but gave most of it back on much lower, but still above average volume. Moving up the 10 day MVA.
FSH 03/29 Flat 58.05 -0.2 54.52 62.75 641K 1.6M 56.58
Current. Pull back on low volume. Routine pull back after nice run.
GTI 03/20 A Wedge 15.5 +0.12 15.03 17.62 828K 1.8M 14.54
Current. Still in uptrend pattern. Came off the day's high of 16.
HMP 03/08 A Wedge 2.6 +0.18 2.16 2.84 254K 150K 2.18
Current. Tapped 2.43 a the low and rallied for a nice move up the 10 day MVA on stronger above average volume. Came off the day's high of 2.80
HYSL 03/01 A Wedge 42.26 +0.34 38.72 44.38 247K 1.1M 36.68
Buy Not Issued. Continue to move up the 10 day MVA on low volume. Have not entered the play, because volume is not there. Stock has not performed with volume needed so will drop, but will keep an eye on it.
LTD 03/22 Test 50 20.54 -0.03 21.16 25.15 2M 3.9M 20.22
Current. Showing a tight doji on low volume as stock begins to make a lateral move just above the 10 day MVA.
MAMA 03/16 Test BO 15.43 -0.47 10.04 13.12 3.2M 6M 13.96
Current. Pull back on very low volume. Needs to break through resistance at 16.
MIL 02/07 Test BO 53.78 +0.08 50.44 58 124K 500K 52.26
Current. Moving up the 10 day MVA showing a doji on low volume. Still in uptrend pattern.
MPS 03/29 A Wedge 11.72 +0.27 11.28 13.55 332K 550K 10.49
Buy Not Issued. continues with low volume ascent. Volume is not there to enter the play, The stock has not performed so will drop, but will keep our eye on it when it pulls back.
MU 04/09 Test BO 17.19 -0.16 17.64 21.15 7.6M 15M 16.88
Buy Not Issued. Pull back testing the 10 day MVA and rallied on low volume. Testing the break out.
MXT 03/22 Cup hdl 7.85 -0.02 7.77 9.32 615K 1.7M 7.75
Current. Tapped 7.55 at the low and rallied holding just above the 10 day MVA on higher, but still below average volume. Moving up after routine pull back.
NCOG 04/03 Dbl btm 24.36 +0.34 24.06 28.45 114K 250K 22.96
Buy Not Issued. Gapped up and rallied as stock moves up the 10 day MVA on much lower, below average volume. Needs to pull back or will look to drop.
NGEN 04/06 Cup 8.76 -0.19 10.12 12.22 1.7M 5.5M 9.41
Buy Not Hit. Pull back holding the 10 day MVA on low volume. Stock has not performed so will drop, but will keep our eye on it.
NIPNY 04/09 DB hdl 8.56 +0.11 8.94 10.75 123K 453K 8.31
Buy Not Hit. Tapped 8.37 at the low and rallied on low volume as stock moves up the 10 day MVA. Needs to break through resistance at 8.85.
NMSS 04/09 Cup hdl 7.98 +0.38 8 9.58 1.2M 592K 7.42
Entered today. Explosive move on strong volume surge.
NSTK 03/20 Test 18 13.5 +0.14 13.42 16.12 60K 135K 12.48
Buy Not Issued. Bounced off the 18 day MVA and rallied holding above the 10 day MVA on low volume. Volume needs to increase before we can enter the play,
NVDA 03/24 Test 50 26.24 -0.5 23.94 28.75 3.7M 6M 25.48
Current. Gapped up at the open, but reversed on low volume. Still in good shape.
NVTL 03/27 Flat 27.18 +0.73 21.95 26.22 726K 1.1M 25.38
Current. Nice move up the 10 day MVA on average volume. Trading higher after hours due to Q1 guidance
ODP 03/27 Cup hdl 19.13 -0.02 18.65 22.25 1.1M 2.4M 18.65
Current. Pull back on slightly higher, but still below average volume. Pull back after nice run.
PHMD 04/07 DB hdl 3.16 +0.46 3.02 3.82 1.1M 322K 2.79
Entered today. Tested the 10 day MVA and rallied for a great move on excellent volume surge.
PLXT 03/03 A Wedge 11.69 +0.42 11.26 13.42 217K 218K 10.58
Current. Nice move up the 10 day MVA on stronger above average volume.
QLTI 02/17 FlyPlat 28.43 +0.01 26.48 31 569K 2M 27.22
Current. Showing a tight doji on low volume a stock begins to make a lateral move.
QSFT 04/03 Cup hdl 16.42 +0.17 16.92 20.32 581K 1.5M 15.74
Buy Not Hit. Tapped 16 at the low and rallied holding above the 10 day MVA on low volume. Still in the pattern.
R 03/30 Flat 39.76 0 38.33 44.85 173K 600K 38.88
Current. Continue with lateral move on low volume.
RECN 03/22 Rv H&S 44.33 +0.22 36.16 43.38 89K 225K 42.54
Current. Continue with lateral move showing a doji on low volume.
RHAT 04/05 Test BO 25.06 +0.81 24.88 29 4.1M 8.8M 23.14
Buy Not Issued.
RHAT 03/24 Flat 25.06 +0.81 20.66 24.85 4.1M 7.3M 22.98
Current. Moving up the 10 day MVA for a nice gain on rising, but still below average volume.
RHI 03/31 DB hdl 25.11 +0.19 25.48 27.65 365K 1.1M 23.7
Buy Not Issued. Moving up the 10 day MVA showing a doji on low volume. Came off the day's high of 25.43. Needs to break through resistance at 25.36.
ROV 03/27 Flat 29.53 -0.09 28.12 33.65 288K 705K 28.66
Current. Pull back tapping 28.95 at the low and rallied on low volume. Routine pull back after nice run.
SCUR 04/09 Cup hdl 17.05 +0.21 17.45 21 815K 1.1M 16.28
Buy Not Issued. Still in uptrend moving up the 10 day MVA showing a tight doji on stronger above average volume. Came of the day's high of 17.89.
SGMS 03/01 Dbl btm 20.49 -0.49 18.85 22.62 573K 1.1M 19.98
Current. Routine low volume pull back after nice break out.
SKIL 01/03 Cup hdl 13.1 -0.15 9.32 11.24 552K 518K 12.52
Current. Gapped down at the open showing a doji on low volume. Still in uptrend pattern.
SLTC 04/01 A Wedge 5.43 -0.09 5.72 6.95 287K 242K 5.32
Buy Not Issued. Gapped up at the open, but gave it back holding the 10 day MVA on stronger above average volume. Needs to break through resistance at 5.60.
STSI 03/13 Cup hdl 4.27 +0.07 4.46 5.44 501K 285K 4.22
SWIR 03/18 Test BO 45.03 +2.65 32.22 37.25 1.4M 1.3M 38.86
Current. Nice move up the 10 day MVA on stronger above average volume.
SWIR 03/06 BO 45.03 +2.65 31.88 36.85 1.4M 1.1M 38.86
Current.
SWKS 04/05 Rv H&S 12.27 +0.04 12.55 15.12 1.5M 5M 11.67
Buy Not Issued. Moving up the 10 day MVA on low volume. beginning to make a lateral move.
TASR 03/25 Cup hdl 97.5 -2.3 66.29 76.25 5.2M 6.8M 94.22
Current. Routine pull back on low volume. Still in uptrend.
TELK 03/29 A Wedge 28.06 -0.28 28.82 33.12 415K 880K 27.64
Current. More volatile session with 27.11 at the low and 28.50 at the high. Pull back holding just above the 10 day MVA on stronger, but still below average volume. Testing the break out.
TEO 02/23 Test 50 10.99 +0.25 10.61 12.72 120K 520K 10.62
Current. Tested the 18 day MVA and rallied moving up the 10 day MVA for a nice move on low volume.
TGA 04/09 Dbl btm 2.91 +0.01 3.06 3.85 241K 585K 2.84
Buy Not Hit. Beginning to make a lateral move on low volume.
TLCV 03/11 Test 18 12.06 -0.12 12.11 14.34 539K 1.2M 11.96
Current. Pull back testing the 18 day MVA and rallied holding the 10 day MVA on higher, but still below average volume. Routine pull back after good run.
TMWD 04/06 Cup hdl 8.04 +0.27 8.22 9.85 714K 556K 7.64
Entered today. Tested the 10 day MVA and rallied for an explosive move on excellent volume surge.
TOM 02/28 Cup hdl 18.23 +0.18 16.84 20.12 198K 850K 17.54
Current. Continue with uptrend patter on low volume.
TSYS 04/07 Cup hdl 7.9 +0.05 8.46 10.18 144K 570K 7.87
Buy Not Hit. Moving up on rising, but below average volume after testing the break out.
VOXX 02/21 A Wedge 20.49 +0.59 16.29 19.62 163K 160K 19.12
Current. Moving up the 10 day MVA for a nice move on low volume. Needs to break through resistance here.
VRNT 03/15 Cup hdl 33.49 +3.6 27.88 33.45 420K 200K 29.22
Target Hit. Took some of the money off the table as stock makes an explosive move on excellent volume surge.
WAT 03/20 Cup hdl 41.15 +0.3 40 46.12 387K 850K 39.88
Current. Moving up the 10 day MVA on low volume. Needs to break through resistance at 41.47.
WEBX 02/25 Test 18 32.38 +0.43 27.27 31.35 612K 1M 30.88
Current. Continue to move up the 10 day MVA on low volume.
WIND 03/13 Test BO 12.42 +0.23 11.98 14.32 582K 850K 11.68
Current. Moving up the 10 day MVA on rising, but still below average volume after routine pull back
WSTM 03/08 Cup hdl 3.19 +0.04 2.78 3.65 264K 234K 2.78
Current. Moving up the 10 day MVA on lower, but average volume.
Downside Plays
Stock Date Play Close +/- Pivot Tgt Vol TgtV Stop
AZO 03/10 Put 83.41 -0.84 84 81.28 1M 1.1M 83.66
Current. Nice move down the 10 day MVA on rising, but average volume.
BWA 03/31 Put 86.46 +1.31 84.55 81.28 242K 250K 85.12
Buy Not Issued. Bounced off the 18 day MVA holding below the 50 day MVA on rising, but still below average volume. The stock has not performed so will drop, but will keep our eye on it.
DO 04/01 Put 24.53 +0.7 23.12 21.06 816K 1.5M 24.02
Buy Not Issued. Rallied on rising, but below average volume tapping 24.84 at the high, Held below at the simple 50 day MVA. Stock has not made the move we were looking for so will drop.
OII 04/05 Put 30.44 +0.19 29.75 27.72 124K 275K 30.95
Buy Not Hit. Showing a doji on the 10 day MVA on low volume. Tapped the 18 day MVA at the intraday high, but could not hold the gain. Held below resistance.
TXT 03/15 Put 53.43 +0.86 51.7 48.65 381K 800K 53.36
Current. Relief bounce tapping the 50 day MVA at the high, but could not hold the gain on low volume.
End part 2 of 3
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understanding the stock market
trading system
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