Bobby's Trade Journal – Page 2 – It's not the destination but the journey…

Technical Indicators That Don’t Work – RSI

Technical indicators are what really helps in technical analysis in a chart for a security or commodity or ETF, etc. However, some indicators are more helpful than others based on the person using them. Some indicators might be better suited to a certain style of trading vs another style of trading. Some might be more for investing analysis. The RSI is an oscillator for showing overbought and oversold conditions. However, it normally doesn’t really mean all that much to see something in overbought territory. Sometimes, prices stay in overbought territory for along time. Or even in oversold territory.

If you think that using an indicator will really enhance your technical analysis and it will really help you determine the correct entry price and exit price, then your mistaken. An indicator by itself cannot do that. It can contribute to that decision. But it cannot decidedly tell you the specifics of your next trade. It can help you a little in which side of the price you want to be on. When more indicators are used, it can seem to solidify your position in entering a trade or exiting a trade only to prove that wrong after you’ve entered the trade.

Anyway, this is nothing new. it’s an well known item. Consider this just the ramblings of a bored trader. Personally, I am just not seeing the kinda of performance I’d like to see from the RSI indicator. Thinking about switching to using Full Stochastics with MACD.

Friday’s Small Rally

So Friday was a down day for the most part. And then towards the end it gavea surprise and closed green. From a daily chart point of view, that shows a green day but it doesn’t show that the entire day the erratic behavior was favoring a red close. In the end it was green, and to some people that might be the only important item of note.

At this point, that chart just looks too confusing to me. I can’t figure out what it would really do. To be honest, the market has fallen a lot and it would only mean that it should slowly go up. Even if the economy were to go in a recesion (and it’s not in a recession at this point), the markets wouldn’t continue to fall at the astronomical rates that were seen in Sep. – Oct. period. It would be much slower decline in prices and that would mean business as usual for traders. Why is that? When the market settles in a trend, just as it was in an uptrend before the recent fall, it will continue in a direction with the normal ups an downs. The traders would normally use those up/down moves for trading. The investors would then start their investing buys at this low prices. The investors that have already bought will simply average down little.

However, a more likely scenario is that the market will teeter around this point for a little bit and then continue slow uptrend. That’s the scenario that I am currently, envisioning.

Let’s look at the DOW for two years. From a technical point of view, one could say that it fell, went back to Fibbo retracement, and should continue to fall. However, that would be the case absent any fundamental analysis. Fundamentally, the market cannot simply go to 0. That would mean the same thing that it would in case of a stock – the stock is worthless. The entire economy going worthless sounds a little dramatic. So then are we seeing a bottom yet? No one can tell for sure, but one of my previous post shows that some investors are starting to see the bottom.

Thursday’s Performance

Let’s take a look at Thursday’s performance.

So the red candle broke below that up trend line. That would be bearish. It came close to resistance around 8380 that was identified in my previous post. This was bearish but not too bearish. It didn’t break below that line. Volume is also on a downtrend. RSI is 48. MACD is uptrending.

DOW Analysis – A Non Rally

So today’s close was a pretty small green close. It was up and down during the day. In the end, it closed green. However, it’s riding into the wedge corner. It’s going to have to break up or down.

The down trend line (blue) is holding. The up trend line (blue) is holding. Tomorrow should break out of the almost symmetrical triangle. If it breaks up, then it will have to break thru and closed above 8950 level to be bullish. If it breaks below the ascending trendline, it will probably head down to 8380 support line. If it heads down, it will also be possible to break below the other support lines. It will need multiple days to do that.

In the short term, it would appear the path of least resistance is down. Mainly, because the bailout should be announced by tomorrow. Once it’s announced, the market will probably closed red as the bailout was seemingly already priced in.

In other technical analysis, the price touched 50 SMA, didn’t cross it. It would seem to go down from here.

Volume was low today. Mostly, because the bailout announcement is going to help the next buy of sell frenzy in the next few days.

Red Tuesday – Has The Uptrend Stopped?

Has the uptrend stopped? No. It isn’t confirmed in the first palce. There’s signs of uptrend starting. But until confirmation, it isn’t an uptrend. There’s a reverse head and shoulders patterns unfolding. If it forms correctly, then it might give an indication of an uptrend.

Looking at DOW today, the down trendline has been broken by the candle yesterday and today’s candle stopped above it. It also broke the resistance/support line that it broke yesterday and thus that line is no longer a support at 8850.

The uptrend line of the ascending triangle shown in blue is holding ok so far. If tomorrow’s candle breaks below 8640 and or the bottom blue trend line (from lows), then it might short-term go to 8160. If it holds above that line, it will have to close either in the red by few points or green.

Many of my charts are drawn each day so the lines are almost in the same place. However, the numbers might be slightly off. With the numbers being in 8000 range, it doesn’t matter for the number to be off by 50 or so points.

And the market recap.

DOW Dec 8th – Does This Rally Have Any Legs?

What a day! Was expecting the DOW to be red today. However, it just kept going. No bailout news or other news would slow it down. This doesn’t mean that it will continue going up. It might have a little correction. It pierced thru the 8845 level mentioned in the yesterday post. It also opened above the previous close and stay above the 8580 mark. It opened and closed above the trendline. The gap open is normally filled and that might not be a good thing here. But red or green, to a trader only movement matters. The direction doesn’t. Especially, options traders do not care so much about the direction but more about the movement/volatility.

Volume is interesting to note. Volume is slightly higher and holding ground since the last 700 pt drop.

Tomorrow might be red to do a short term correction – just a little. Or it might continue on with the green candle.

DOW Analysis For The Next Week

So looking at DOW, what does one see? It’s up, it’s down, it’s up, it’s down…. what is it really saying?

The DOW in the very short has been bullish. In the very very short term. In the long term it has been bearish. It’s at crossroads of sorts. From this point there’s not a lot of downside left. Wait, that comment requires a clarification – there’s not a lot of downside left unless we’re in for a full blown recession. And with experienced and heavy weight investors calling a bottom already and with people’s inclination to run for the quick fix, it is unlikely that much more severe downside will continue. It might put a few more lows, lower than the 7550 or higher. But it should slowly rise from here. It may have bear rallies and then fall again slowly and continue on the sideways move for a while in the long term.

What does this mean to a trader in the short term for day trading? Well, that depends on how the Monday session goes. A break and close above the blue trendline will be a short term bull sign. The next resistance will be 8845. A break and close above that might clear the path till 9260. It’s highly speculative but this might even turn out into a reverse head and shoulder pattern. But let’s not speculate for the moment. Besides that’s on the weekly timeframe.

How were these support and resistance lines drawn? Simple support and resistance. No Fibos, no pivots, or other retracements. Those are nice too. I just would like to keep things simple.

Positive divergences forming on RSI and MACD. RSI is also getting ready to cross 50. Almost at 50. These signs indicate bullish tendencies.

In addition, there’s has been much talk of the auto bailout being approved. It would appear that many politicians think it to be a somewhat catastrophic thing for an automaker to fail. So there would seem to be more in favor of the bailout getting approved.

U.S. Markets Bottoming Out?

http://www.reuters.com/article/vcCandidateFeed2/idUSTRE4B61FB20081207

This week, Legg Mason’s Bill Miller, a celebrated value investor but whose stock picking is far off the mark this year, said the “bottom has been made” in U.S. equities, and forecast opportunities for strong gains once markets rally.

Miller said that all long-term investors believe that stocks today are cheap, but credit markets must regain health before equity markets can rally. It “looks as if the bottom has been made” in U.S. stocks, said Miller, who runs Legg Mason’s $7.6 billion Value Trust fund.

At the Reuters Investment Outlook Summit this week, 15 prominent portfolio managers including legendary hedge fund investor and philanthropist Michael Steinhardt will discuss if U.S. stocks have indeed hit bottom.

So it would seem that many large investors are starting to think this is either the bottom or bottom is in sight soon. I have also been thinking, based on the divergences, for a while now that the DOW has been signalling buy. However, to make money from that, one would have to buy and hold. Investing is the right thing for this time of markets. Daytrading requires a different strategy. One must find daily movements and make use of those.

The past month of real trading has been an eye opener for me. I have really realized that daytrading stocks and options are really different. The stocks can be held for profit if the trade goes against you a little. The options simply keep losing money. So with each passing day, the underlying security must make a more drastic move than the day before for the options to show profit.

Market Recap – Dec. 5th.

533K jobs lost in Nov. That’s a lot of jobs. The market rallies anyway. Either this means Monday will be red as in blood red, or that the traders/investors are tired of hearing negative news and just want to buy a little at this point.

Very aggressive!

Holding spider Puts for Dec. in practice account. On the 4th it went down. There was the symmetical triangle and then then the descending triangle. Sounded like it would break below the support line. But it would appear that the bottom is forming. It might still fall a bit for a few days but it would seem that it is reversing trend here. Of crouse, the reversal is not shown in this chart, this is from the 4th. The char on the 5th shows a good green candle.

Market Recap – Dec. 2nd.

So the short trade didn’t pan out well. This market is starting to put in some rallies. Is the down pressure done? Or just letting up a little for a while. Looking at the chart, it seems it might go up a little before trend line, and Fibonacci resistance.

If DOW breaks above the trend line and Fibonacci level .5 and closes, it might be a reversal here. DOW will have alread put in a higher low. Last higher low (if it can be called low) was around Nov. 9th and was immediately broken. CMF shows some buying pressure building. Although, with 700pt move, the CMF swing wild.

This couldn’t happen at a more inoppurtune time for my Puts. Oh well.

Another almost 200 points! So yesterday’s 300 points and then today! That’s almost 500 points after a 700 point down. Only 200 points left to break even.

Will there be a minor pull to the downside? It’s very possible. I will look to exit my positions on the Puts.