Melf's Workshop

[Melf Elf]

I am not as familiar with the consolidation patterns on these larger stocks that have had GREAT runs.  Your post openend my eyes AGAIN (applaud) to the long possibilities, if it breaks 61 my first target would be around 65.  Will keep watching

Joe,

I had a similar situation in early August:

1. "Mystery Stock" (below) had a 600%+ gain over a two year period.

2. It MADE a Bearish pattern target in April (starting a Bearish trend?).

3. But, it also MADE a Bullish target at the end of July.  Hmmm-mm... 

4. It looked "Double Toppy" here (early August).

5. That huge gap from mid-July looks like it's begging to be filled.

6. Technicals are weakening, e.g. MACD had a cross below its signal line a few days ago.

Questions/Thoughts That I Pondered:

1. Although fundamentals looked good, a lot is priced into a 600% gain. 

2. Shorting is low risk and nice reward if the gap gets filled.

3. Any chance of much upside after such a huge gain (600%)?  If I'm stopped out on the short, should I cover and go long?

Got any thoughts on whether to play it?  How to play it?  Etc. (all others welcome!)

EDIT: I'll 'reveal" the Mystery Stock tomorrow.    

[joet]

Thanx Melf for keeping things Light and sharing info!  I look forward to seeing which stock it is!!

These are in similar boats:  AAPL and AKAM  bullishly hovering above sizable gaps and PNRA threatening to fill the GAP to the upside

Speaking of Gaps and Gaps getting filled check out the BAB chart!!

Melf if you have a minute could you share some of your technique/strategy.  I appreciate how you said that you do not want to brag about trades (on the GNBT thread) Yet you made a great day trade there and i am curious how you watch so much throughout the day?  Do you have an automatic trading system, filter and screeners ( I have wealth-lab and am slowly studying it, but should put more time there instead of buying and selling currently...)  Are you using multiple monitors/computers to keep track of intra-day candle patterns.  Do you find intra day patterns to be as strong/stronger than longer term patterns?  Do you use RSI at all (above 85 and blow 20 have been solid reverse plays for me, I am trying to build a screener that will identify these market wide for me...)  Thanx in advance 

oh yeah one more ?  On PNRA you mentioned that it finished a H+S, that was a perfect year long pattern that i can see...  does the completion of a pattern signal the next move to you at all or is it now a wait and see the next development...  Earnings are solid, but the chat rooms are split long and short on PNRA...
You might like ABBP

Cheers Joe

[Melf Elf]

Thanx Melf for keeping things Light and sharing info!  I look forward to seeing which stock it is!!

joe,

You'll get a kick out of this when you see the "Mystery Stock."  What I didn't tell you is that the chart that I showed you was from August of last year because it would have given the stock away, and because it also didn't matter, for the purposes of our discussion about ATI.

If you go back to the first post on this Mystery Stock, to what the chart looked like, and  to the questions/thoughts that we had when we looked at it, I think you'll see what I mean about the possibility of ATI simply being in a Bullish Continuation pattern in the current tme-frame.

Melf if you have a minute could you share some of your technique/strategy.  I appreciate how you said that you do not want to brag about trades (on the GNBT thread) Yet you made a great day trade there and i am curious how you watch so much throughout the day?

Actually, I can't watch many at one time.  On the Scottrade screen, they have a sheet where you can list 20 stocks, but you can have several sheets, and switch back and forth.  I mainly watch the 20 on my first screen, the "front burner," if you will, and then of those 20, I watch several a little more closely, if they're near an entry or an exit point.

Do you have an automatic trading system, filter and screeners ( I have wealth-lab and am slowly studying it, but should put more time there instead of buying and selling currently...) 

No.

Are you using multiple monitors/computers to keep track of intra-day candle patterns.

No.

Do you find intra day patterns to be as strong/stronger than longer term patterns?

I'd have to say no, that longer term patterns tend to be more reliable.

Do you use RSI at all (above 85 and blow 20 have been solid reverse plays for me, I am trying to build a screener that will identify these market wide for me...)  Thanx in advance 

Scottrade doesn't have any indicators for intraday charts, other than volume.  I don't think I'd use them anyway.  I'm mainly looking for patterns and specific prices when I look at an intraday chart.

oh yeah one more ?

Okay, but you're already well over your limit.       

On PNRA you mentioned that it finished a H+S, that was a perfect year long pattern that i can see...  does the completion of a pattern signal the next move to you at all or is it now a wait and see the next development...

That's a great question.  In my view, it's definitely a "take at least some profits" when targets get MADE.  Particularly if several get MADE.   I can't give you a percentage, but I'd say that more often than not, when all of the targets get MADE, or a couple of targets in the same price area, like KOMG in the low to mid-$34s (see my posts in that folder recently), you're at or close to a reversal point, or at least a nice bounce (KOMG bounced over $39, right near former support at 39.16).

Earnings are solid, but the chat rooms are split long and short on PNRA...
You might like ABBP

Cheers Joe

"So many stocks....soo-oo little time."

[Melf Elf]

Do you use RSI at all (above 85 and blow 20 have been solid reverse plays for me, I am trying to build a screener that will identify these market wide for me...)  Thanx in advance 

Joe,

Regarding RSI, I don't use any particular number for overbought or oversold, but rather, I use sequential Fibonacci measures of RSI (13...21...34...55...89 and 144), and look at how they are positioned with reference to each other, much like the 50 day moving average of a stock being above the 200 day moving average.  Then I view that in the context of what the price chart itself is doing.

Is there a pattern?  Is there identifiable/validated support or resistance?

Most textbooks seem to use 70 and 30, or 75 and 25 for overbought and oversold RSI.  Any number you want, like your 85, is fine to play with, to see if it works.

Here's the problem with using any number, though:  In stocks that are in a strong trend, it won't work.

"The most bullish thing that a stock can do is to get overbought, and stay overbought."

Conversely....

"The most bearish thing that a stock can do is to get oversold, and stay oversold."

Witness APPL, in the Autumn of 2004.

Using your 85 RSI reading for "overbought," it got overbought in October, at 25.31.  RSI fell to 75 (still overbought the way that most technicians use the indictor...70-80 for overbought), but AAPL rallied to 30.67 and got overbought again (above 85) in November, then went into a consolidation phase.

If we shorted 30.67 on the overbought reading of 85, we never had a chance to get out with a gain, or even with a break even.  The low of the consolidation phase was 30.87. 

And, if we stayed short on either of those overbought readings of 85, justifying our position because we felt that the stock had to sell off because it was sooo-oo overbought....

YIPES!!      

Using any indicator, or set of indicators, to determine whether or not to buy or short a stock can get us into big trouble if we don't view them in the context of what the chart is doing.

For example, we will read, "AAPL is way-y-y overbought, and RSI has given a sell signal (or MACD has given a sell signal, crossing below its signal line) or some other indicator "said" sell...." 

WATCH OUT!

If a stock is in a strong trend (like your AKAM), we don't want to be too quick to short it, just because some indicator got overbought, and "said" to sell.

Indicators don't "say" anything.  They just give us a reading, and the "suggestion" to sell.  The indicator has no idea what the chart looks like.  We, as technicians, have to interpret whether or not we think that it's a valid sell, then look at the risk/reward if we take the signal, etc.

Hope that helps, not only with RSI, but with using other indicators as well.

[nullzero]

Melf you taking up a short position in AAPL or already have one? Im still holding my short position in AAPL avg. around 64s. I believe AAPL is setting up for a big fall now all it takes is the straw that breaks the camels back (the right negative news). A minor correction of the NAZ would help push AAPL closer as well to filling the GAP in the 50s.

[joet]

Time for bed, but having too much fun reading all of you posts  

Are you going to keep us guessing...  after your clues today and your interest in AAPL i figure that is the Mystery sstock and hidsight says buy it last year... but this year???  Crammer thinks we will see 80, I feel that is a possibility but i also feel that the gap (similar % as last years)  will get filled this time around... as you pointed out AAPL is sitting on huge gains... Time will tell

Sooo ATI Are you in this week Long?  If it closes above 62 i may open a position.... Metal head had some convincing arguments that ATI should see 100, and we have had some nice accumulation... let us know if you enter ATI.  I still think it wil be a good short if it closes under 55

(not sure you noticed my previous post i mentioned APPB, a resturant) I know soo may stocks soo little time    Reverse Head and Shoulder... 24 in play??
Keep them comming  
Cheers Joe

PS not in bed yet... found an abandoned baby on the NGAS chart, i remember you bringing up the formation back on the ZMH thread...  think the NGAS baby will bet rescued, support at 8.5 seems to be holding and the year long trend id up...

[Melf Elf]

[nullz and joe,

I'll post a current chart of AAPL in the "APPL Of My Eye" folder.  I only put it in here as a general example for joe of a bullish continuation pattern in a big cap stock that was long-term bullish.

Time for bed, but having too much fun reading all of you posts   

Are you going to keep us guessing...  after your clues today and your interest in AAPL i figure that is the Mystery sstock

Right, it was AAPL.     I posted the name at the top of the last chart.  You must have been too sleepy to see it.   

Crammer thinks we will see 80

Yeah, he gave it the "See ya at $80" BOOYAH at least twice, that I saw.  Don't know if he still thinks that.

I feel that is a possibility but i also feel that the gap (similar % as last years)  will get filled this time around... as you pointed out AAPL is sitting on huge gains... Time will tell

That's certainly reasonable, but we don't want to get in the trap of taking a position because of what "we think" the stock should do.  For example, we've all seen "piece of crap" stocks that never earned a dime, and probably never will earn a dime, have HUGE percentage gains, despite the fact that "we don't think" that worthless stocks should rally like that. 

Sooo ATI Are you in this week Long?

No, I've never looked at it before this weekend.  It came up as a buy on my Equis MACD Histogram Scan.

If it closes above 62 i may open a position.... Metal head had some convincing arguments that ATI should see 100, and we have had some nice accumulation... let us know if you enter ATI.  I still think it wil be a good short if it closes under 55.

Metal head's posts in the ATI folder were interesting (Applauded).

(not sure you noticed my previous post i mentioned APPB, a resturant) I know soo may stocks soo little time    Reverse Head and Shoulder... 24 in play??
Keep them comming 
Cheers Joe

No, I didn't look at APPB.  Quit giving me more homework, will ya?   

PS not in bed yet... found an abandoned baby on the NGAS chart, i remember you bringing up the formation back on the ZMH thread... think the NGAS baby will bet rescued, support at 8.5 seems to be holding and the year long trend id up...

Hey, you remembered the Abandoned Baby! 

Yeah, NGAS hung on last week.  That 8.50 area is:

1. The bottom of the Symmetrical Triangle

2. The top of the Kumo (Cloud)

3. The 50DMA

[Melf Elf]

Trading Lesson: Taking Small Losses

As it stands, though, my assumption that the bottom of the pattern was in, was incorrect, and I'd be sitting in the trade "hoping" that I would end up being right about the pattern.  That's dangerous.  The bottom of the pattern was my "safety net," and it wasn't support.  This could go lower than I expected.

I took a 2% loss on the trade.

My 2% loss in BDCO last week now would be a 7.3% paper loss had I not sold the trendline break when I recognized that my assumption about the pattern was incorrect.

BDCO still could end up bullish, but it also could end up testing its 200DMA at 3.80, in which case I'd be sitting on a 22.6% paper loss, wondering if tha-at was the bottom.  UGH...

Taking these small losses when a trading plan goes wrong can save a lot of headaches.

[joet]

KUDOS
Plan the trade and trade the plan!!   I am working on adhearing to this with exit plans.
keep up the great posts Melf  Aplaud

[Melf Elf]

KUDOS
Plan the trade and trade the plan!! I am working on adhearing to this with exit plans.
keep up the great posts Melf Aplaud

I appreciate that, Joe.  My 2% loss in BDCO now would be a 14.3% paper loss at yesterday's close of 4.21.  UGH.

Some of my best trades are when I take small losses and not allow them to turn into big losses.

[Melf Elf]

Trading Lesson: Selling Breaks Of Key Support

I did a fairly lengthy analysis of FPP in that folder on The Stock Picking Board on July 7, if anyone cares to read it for TA study.

Dominant Bearish Features:

1. The break of the Descending Triangle, and key 6.75 support.

2. The Bearish Island Reversal in April


3. The break of 6.04 support, and the failed re-test of that, at 6.00, in early June.

4. The break of 4.80 - 4.81 support, in mid-June.

When I posted my July 7 analysis, there was a "possible" double-bottom at 4.25 - 4.35, but it's what I call "skimpy."  Very narrow, in terms of width.  Only two weeks of trading. 

If we buy FPP, or worse, if we "double down," we're buying a stock just below a "brick wall" of resistance.  EVERYTHING above, from 4.81 on up, is resistance.

Yes, stocks like this "can" go higher.  No, long postions against that kind of resistance are not favored because it is "fighting the trend."

Doubling down in this situation is begging for trouble.

[Melf Elf]

FPP is down 42.6% since July 6, 2006.  The Descending Triangle target of 3.33  MADE yesterday, September 11, 2006.

[Melf Elf]

FPP is down 42.6% since July 6, 2006.  The Descending Triangle target of 3.33  MADE yesterday, September 11, 2006.

At today's low of 2.55, FPP was down 54.16%, just from the July 6 analysis.  UGH. 

Trading Lesson:  "Don't Fight The Trend."  Yes, it hammered today, but....UGH.

[Melf Elf]

Trading Lesson: Cheap Can Get A Lot Cheaper.

It's tempting to buy stocks like CPST, becasuse they are "oversold," or because they are "cheap."

UGH.

The breakout above the black down trendline, generally, is NOT a breakout.  It's a "break above," but usually is meaningless in a stock with this much overhead resistance. (See post on the Trading Ideas Board, if interested).

"Skimpy" bases, like CPST had at 1.74 - 1.75, below TWO levels of heavy resistance, aren't favored to succeed.

Again, "The Trend Is Your Friend."

There's a reason why cliches become cliches, but we still fight the trend.   

From the break below 2.23-2.25 KEY support, CPST, at today's close, is down an additional 31.8%, on top of what it lost to that point!

UGH.

Try to avoid these horrible charts.

[joet]

Thanks again Melf, Your posts are giving me ooodles to study.   With NVAX i may be holding one of these...  need to examine it with my one charts at home tonight, it recently re tested 4.20 but is back down to 3.6  However, the past 3 sessions have seen lower shadows but only closed slightly lower which seems like a reversal possibility.  If 3.52 or so holds than we will have some consolodation, with higher lows and more promising to look above 4.20.  If 3.30 breaks to the down side NVAX is in a world of hurt...  Thoughts?
Also on the possible up side, the selling volume has been very llight and the fall seems to be good for Bio stocks.

Are you shorting FPP or CPST, (on paper?) at these low levels?   Following trends we want to take a bite out of the middle and would you agree that these two if not at their bottom are to far over sold to trust the trend in a short trade!
Cheers Joe