Education Center
What is a “tombstone” doji and what do we do when we see one is a stock we hold?
A ‘tombstone doji’ is a type of candlestick pattern. A doji is where the open and closing price are close. The closer they are, the better the indication. When a doji appears after a run up or run down, it indicates a change in direction. A tombstone doji is a doji that appears at the […]
What is the relationship between volume and open interest [on options]? Is one more important than the other? What is the minimum number one should watch for, before placing an option trade. Should one exit the trade when the number drops below and remains below, the stated minimum number?
Open interests shows the number of contracts that have been opened on a certain option either by selling the option to open a position or buying an option to open a position. Volume as shown on programs such as eSignal is the volume in contracts for that session. Thus over time there are usually more […]
You write often about “averaging” stocks. What does it mean?
Last night we talked about how we average in, and did not explain what we meant. Averaging in means taking positions when it is believed a stock is near its bottom, but the precise price of that bottom is unknown. A whole position is not taken at once. Instead, positions are taken piecemeal when the […]
I’m confused when you say “That is why we buy time on our short term option positions.” It sounds like a contradiction to “buy time” on “short term” options. Could you please explain what you mean? I’d like to know what you consider short term and how much time do you recommend buying?
Right now with this market we tend to view our option trades as short term trades because even though things are looking better, there is a lot of work to do and upsets can still hit the market. Since options have limited life, we view even 4 and 5 month options as short term trades, […]
Will Mr. Greenspan’s 50 basis point hike prevent the “ship” from running into the “dock” as you explained most amusingly in your analogy several months ago?
That cut alone will not do it. What we like is the fact that it was an aggressive move (it was needed last year) and the Fed said it stood ready to do the same. It will take more cuts and quickly; there are still those last 75 basis points of hikes out there that […]
Are the indexes going to fall because options expire once again later this week?
Friday marks the end of the January option period. That historically generates more volatility. December’s expiration came at a very volatile time for the market anyway as it had just tapped the down trendline and was already coming back down. That added to the downward momentum the extra volume generated. This time around the Nasdaq […]
Tonight we combine the sections of Subscriber Questions and Team Trades because they cover a question on option volatility.
Volatility (specifically, implied volatility) is one of the elements that makes up an options price on that part of the option that is out of the money. For example, if a stock is trading at $100 and you are looking at a $95 strike option, $5 of the option price is in the money. If […]
I confess the bears are making me nervous. Red Herring twice noted the forecast of an unnamed technical analyst (“Mr. C”) who sees a third leg of this bear market coming with the NASDAQ at 1900. I also read the comments of Mr. Steve Leuthold, president of The Leuthold Group in Minneapolis. He speaks of this same third downward bear market leg. He forecasts that “One year from now, the Dow will reach 8000 on its way back from a projected low of about 7000.” Are we investing into a trap? What is this historical “third leg” of a bear market? I was looking at a 10 year chart of the Nasdaq and I don’t see any such pattern in past corrections.
There is a lot of noise out there. There is no shortage of prognosticators and it can be very, very confusing and distracting. Your email raises one of the biggest problems with technical analysis: guessing about where an index or a stock will be at a certain time. That gets off into the witch doctor […]
After having my head handed to me over the last 9 months, I am trying to develop a daily routine whereby I examine various indicators, stock sectors, indices and volume to help me get a better handle on market sentiment. Do you have such a routine, and if so are you willing to share it? I am a real rookie at this game and need all the education I can get. I just seem to be wallowing in a sea of information that I don’t know how to use or how much importance to attach to it. I have read each and every report that you have sent for the last several weeks and am impressed with your ability to analyze what’s happening. You’re far more accurate than your competition.
Yes. First, we look at the overall price and volume action on several indexes, e.g., Dow, S&P 500, S&P Mid-cap, Nasdaq, Russell 2000. We look at the A/D line and the candlestick chart as well to determine the overall health and action of the market. We have several sectors we look at each day after […]
Can you please address what it means for a stock to “fill a gap” and what the probability for this is?
A gap occurs when a stock opens higher or lower than the previous closing price. It is caused by either high demand for the stock or heavy selling pressure. How high or low it gaps depends on how high or low the market maker has to move the stock to find a seller (upside gap) […]
