DaytradeTeam Profitzzz

IBM Could Be Headed for Trouble--will Others Join?

2006-01-23T23:10:00.000-05:00

When looking for potential swing trades, the head and shoulders reversal formation is one of my favorites. The basics of the head and shoulders formation is that it is an indication that the current trend is about to reverse.

For a current example, let's take a look at IBM:

Notice how IBM has put together a decent move to the upside over the past 9 months, but has started to falter in the last month or so. Even more telling is the head and shoulders formation as outlined above. Now take a look at the 9 month charts of GOOG, AAPL, and QQQQ. It's still early, but these stocks may be starting into the 2nd shoulder of their own formations, and that's definitely worth keeping an eye on.

Here's how to play this for a high profit potential swing trade:

Watch 81.00-81.30 as a support level for the stock. This is the "neckline", the support level where both shoulders and the head of the formation have been built off of (and returned back to). The key for every head and shoulders formation is the break of the neckline. Until that occurs, the formation is simply a red flag that something bad might be about to happen.

If IBM can breakdown under the neckline on decent volume, look for short selling opportunities on any low-volume retracements back to the 81.00 area. Remember, once a support level is broken it is very likely to provide resistance--and that can be very helpful to shorts who take advantage of this formation.

Note that the head and shoulders formation is an indicator on any time-frame of chart, so feel free to use it for day trading or even options trading!

The Three Directions of Trend

2006-01-10T10:57:00.000-05:00

People most often think of the market as either moving up, as in an uptrend, or down, as in a downtrend. However, the stock market spends about one third of the time moving horizontal, or what is called a sideways trend. It is supply and demand that pushes the market into this horizontal movement. You may also hear this action called a trending range or sometimes, a line. Although sideways trend is the correct term, occasionally will hear it referred to as “the market is trendless”.

Traders experience their highest level of frustration when dealing with a sideways trend. Their technical tools are designed to work in a market that moves up or down

So which of the three possible decisions do they make here? Do they buy in the market, taking a long position? Do they sell here and go short? Or do they do nothing at all?. This can be a great opportunity to trade options spreads like Iron Condors or Butterfly Spreads that profit when the market or stock has very little movement, or to focus on day trading for intraday movement gains.

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Three Classifications of Trend

2006-01-10T10:47:00.000-05:00

There are three basic categories of trend: major, intermediate, and near term. Some trends last for only minutes, some hours, some months or they can even last for fifty years or more.

An long term investor’s idea of a trend’s category, for the most part, is the same as a stock trader with one exception. An investor defines a major trend as one which is in effect for over a year. The trader views a major trend as any over six months. Both, usually, define an intermediate trend as lasting three weeks to three months, and a near term trend as one lasting only two to three weeks. Then again, a day trader’s definition may be considerably less in all cases.

When looking at a major uptrend, you will see occasional pauses, or a somewhat sideways movement of highs and lows. The pauses are called corrections. The corrections are made up of a series of intermediate and near term trends.

In the figure below, you see an overall major uptrend reflected in the peaks and valleys labeled 1,2, 3, 4. An intermediate phase is found between points 2 and 3, and nestled between points 2 and 3, you will see a near term trend labeled A,B,C. Even though the intermediate and near term trends went down, a trader would still call this an uptrend.

Confusion occurs sometimes what a person asks what the trend is because of the different traders’ perceptions. Long term traders or investors may view a few days or even weeks movement in price insignificant. Whereas, a stock trader sees a major uptrend when viewing just 2 or 3 days movement, and a day trader in the movement over a few hours. The different perceptions makes it necessary to understand the degrees of trend so you will know you are on the same page as others involved in the same trade.

Want to learn more about the degrees of trend? Join our traders in our Live Trading Room and watch as they analyze the latest trends in the market by signing up for our trial membership now!

Trend in Stock Trading

2006-01-10T10:33:00.000-05:00

When talking about stock trading, you hear about uptrend, downtrend, sideways trend and popular phrases like “the trend is your friend”.

Understanding the concept of trend is extremely important to technical day trading. Traders will use a variety of tools to measure it, such as support and resistance levels, price patterns, moving averages, trendlines, etc., for the purpose of trading with the trend or identifying when the trend has ended.

Just what is trend, and why is it important? .

First let’s take a look at what it is. Generally speaking, trend can be defined as the direction in which the market is moving. More precise, trend is a series of zigzags, known as highs and lows which flow in succession. It is the direction of the highs and lows that constitutes market trend. These successive waves can be classified into a few categories:

An uptrend which is defined as a series of successively higher peaks and troughs:
A downtrend is a series of declining peaks and troughs:
A sideways trend is a display of horizontally moving peaks and troughs:

Note that trend analysis works across all charts, no matter the length of time. You can use this in swing trading and options trading as well!

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Easy Profit on BEAS by Using the #1 Exit Rule

2006-01-05T11:04:00.000-05:00

In one of my previous tips, I told you that my #1 exit rule for day trading was to exit into sharp waves. As you know, one of the things we love most about technical analysis is the fact that the principles that apply to day trading will also apply to longer-term swing trading of stocks.

In fact, our Small Cap Swing Trading System just exited an easy 5.0% winner on BEAS using that very same #1 rule of day trading exits:

Notice how we bought BEAS on a nice dip after a recent high in its uptrend. We then patiently waited as the stock struggled to make new highs during the end of the year as profit-taking took over and almost all stocks struggled. Then, almost like clockwork, BEAS exploded higher on nice volume today, and we exited into the sharp wave of buying for a nice profit.

Did we sell too soon? Maybe--but when you sell you only have two options: You either sell too soon or too late. Guess which of those I prefer ;)

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SIRI and XMSR Worth the Risk Here

2005-12-20T10:07:00.000-05:00

Sirius Satellite (SIRI) is currently being plagued with insider stock trading allegations and a bit of the old "buy on the rumor, sell on the news" syndrome with Howard Stern. Sometimes for investors, having a big news item like "Howard Stern is Coming" is a lot more appealing than "Howard Stern is here...(now what? we paid how much?, etc)".

Those two items have certainly had a negative effect on the stock of late, but from a technical point of view, the outlook from this point is certainly favorable from a risk/reward standpoint:

On the 9-month chart, you'll notice that SIRI is nearing its long term uptrend line here and showing some oversold signals with the 14 day RSI near historical lows where the stock price has bounced in the past. Look for opportunities to buy SIRI or enter bullish options spread positions with the mentality that if the uptrend line is broken on heavy volume, you'll exit quickly with only minor pain. A short-term target of 7.00-7.25 should be adequate.

XM Satellite Radio (XMSR) is in a little bit of a different situation technically:

Notice how XMSR has moved into a well-defined trading range over the last two months between 27.90 and 31.10. XMSR is currently nearing the bottom of this consolidation range, and could be in a very nice position to enter a bullish vertical credit spread or other bullish net-credit options trade. This allows you to profit from time-decay of the options premiums should the support level hold here, but exit with a very small loss (or even a gain) should the support level fail later this week.

Come try out a trial membership to the DaytradeTeam Live Trading Room and Options Strategies Today. I'll show you exactly what I'm watching for, the strategies that I use and send you my real-time trade alerts!

Stock Trading: AMAT has Solid Uptrend and Support to Lean On

2005-12-14T20:29:00.000-05:00

In stock trading, your enemies and your friends tend to switch roles quickly and often. No, I'm not referring to the analyst that finally upgraded your favorite stock or the market maker that can't make up his mind. I'm referring to price levels, specifically support and resistance levels, and one of my favorite rules of technical analysis:

Broken Levels of Resistance are Automatically New Levels of Support

For a current example, let's take a look at a 6 month chart of AMAT:

Notice how late this summer, AMAT was unable to make a significant move above 18.50, even making a double top and confirming it as a solid resistance level as the stock moved lower over the next few months.

Well, fortunately for AMAT shareholders, things have recently taken a turn for the better. If you look closely, you will notice how once the stock broke 18.50, not only did it breakout to new highs, but it also confirmed 18.50 as a new support level, bouncing upwards off of it twice. This is a great example of an old resistance level becoming support immediately after being broken.

Now AMAT is pulling back a little bit and starting to test the uptrend line that has held successfully for the past six weeks. At just under 19.00, this could be a good opportunity to start picking up some shares of AMAT on a pullback from their recent high. You will have an uptrend line as initial support, and a former double-top resistance line at 18.50 as primary support.

From a risk/reward standpoint, you can't ask for a much better setup than that.

This technical analysis rule can also be applied when day trading and options trading, so have fun!

Learn from me as you watch me trade and get my alerts in real time each and every day in the DaytradeTeam Live Trading Room.....

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Stock Trading Alert---KLAC Old Support Now Resistance

2005-12-12T11:25:00.000-05:00

KLAC Stock Trading Alert:

KLAC was in a very nice uptrend channel up until the middle of last week, until it broke under its uptrend line and moved sharply lower on fairly heavy volume:

Now KLAC finds itself in a difficult situation, bumping back up against the old uptrend line, where it is likely to find significant resistance.

We will be watching KLAC very closely over the next few days, possibly entering into a bearish options spread position or even short selling the stock for a swing trade. We will also be watching for day trading opportunities on KLAC--especially if the stock can penetrate back into its old uptrending channel.

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Halliburton Stock (HAL) Swing Trading Alert

2005-12-08T21:55:00.000-05:00

Halliburton is controversial because of its "big oil" label and ties with a controversial Vice President. Fortunately, there isn't much controversy about the performance of the stock recently:

The first thing I notice about the 20 day chart of HAL is the ascending triangle formation that it has formed. Notice how the stock continuously has made higher lows (the ascending line) while repeating highs at the same level (the flat upper line of triangle). This is a bullish formation.

HAL has broken out of the ascending triangle today to the upside (highlighted in yellow), indicating that a breakout toward 70 is very likely over the next few weeks. In fact, we sent out a bullish trading alert on HAL today at 65.35---about 10 minutes before it started it's big move to the upside before closing at 66.71! Look for a low volume pullback to the former resistance line of 66.20 as a great entry point for a bullish stock trading position.

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Still Bullish on RIMM (Call Options)

2005-11-30T15:07:00.000-05:00

A couple of weeks ago I told you why I was bullish on RIMM (call options to limit risk, stock alone is too risky).

Today I'm telling you that nothing has changed except the amount of discount RIMM calls are selling at due to the patent infringement lawsuit:

Notice how in today's stock trading RIMM moved down to the 60.00 support level and neckline of head and shoulders reversal pattern that it put in a few weeks ago, but FAILED to break that level even on "terrible news" (was this a day trader's dream or what?).

Here is how this will likely play out:

RIMM will now "see the light" that they should have seen 500 days ago and settle the case, write it off as a huge loss and get back to business. Wall St will be happy to have the dark cloud of litigation lifted from the stock and institutions will start moving in. Heavy short interest will be squeezed and a target of 87-92 in Jan 06 will be reached.

Of course, there is a TON of risk left in this stock to the downside--management hasn't exactly won any awards for their ability to avert disaster so far--so use call options that limit your risk!

I want you to see first hand what all the hype is about:

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McDonald's Setup Makes Me Smile

2005-11-28T23:24:00.000-05:00

MCD is setting up for an explosive breakout to the upside, and I want to make sure you get in on it when it happens. I know what you're thinking. McDonald's? The burger joint? Come on Andy--give me something with bytes or bits or clicks like AAPL or GOOG!

Well, the beauty of technical analysis is that you don't have to care anything about what the company actually does. The only thing that matters is the stock trading, and I like what I see on MCD.

The first thing you'll notice on the chart above is the 3 month consolidation pattern that MCD has made between 32 and 34. Typically these types of tight trading channels are the base for a large, extended move in one direction or another. Just look for a break of the consolidation range on above average volume and play the stock in that direction with a 4% trailing stop.

Look for a break (and hold) above 34.25 on volume of more than 9 million shares as your indicator to initiate a bullish position.

The key here is patience. Getting in now at 33.95 or 34 may be tempting because you will already have an extra .25 profit by the time the stock begins its breakout move. Unfortunately, this type of thinking gets a lot of traders in trouble because they are ignoring the power of the 34.00 resistance level that has made this consolidation pattern so appealing in the first place. By simply waiting for a move above 34.25 on good volume, you put the risk/reward ratio in your favor by a huge margin---where if you get in now you actually have a greater chance of the 34.00 resistance level holding and losing on the trade than winning.

If the stock never breaks 34.25 on big volume, we'll just keep on looking for other opportunities in a very tradeable market--including in options trading.

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Stock Trading Alert---QCOM Triple Top

2005-11-16T22:40:00.000-05:00

Qualcomm is in trouble here, and is setting up perfectly for a short sell or bearish options trading position after confirming a triple top formation over the past six weeks. Let's take a look at the six month chart of QCOM (click to enlarge):

Notice how QCOM has failed three seperate times to break the 46.00 resistance level. The first time, QCOM fell from 46 to 41.50 on a two week pullback. The second time, QCOM bounced off of the 46 resistance level and dropped all the way to 39.02 on very heavy volume and a large gap lower. Once again, QCOM has failed to break the 46.00 level, completing the triple-top formation and is currently sitting right at 45 in what looks like the beginning of yet another pullback.

Here's how I would play the stock from here:

I'm basically looking at two possibilities for an alert on QCOM for DaytradeTeam members late this week:

A basic short sell stock trading position that profits from QCOM's drip in price over the next few weeks. Our target on this trade would likely be 39, with a protective stop order at 46.46 to limit our loss should the 46.00 resistance fail. If the move down towards 45 is swift enough, we will likely look to sell December 40.00 put options against our position to generate some income from the trade.
A bearish options position. Over the next two days we will be watching the DEC and JAN options premiums on QCOM extremely closely to determine what type of spread would have the best profit potential with the lowest exposure to risk. Possibilities include a bearish vertical credit spread, a 40.00 butterfly spread or even a simple directional position on long-term, out-of-the-money put options.

I fully expect QCOM to continue to gravitate toward the 45.00 "max pain" strike level for options expiration on Friday of this week, so I will be watching for any moves over 45.30 on Thursday and Friday to enter my position. If we don't get a move up to 40.30+, I will most likely alert our members to the trade on Friday afternoon at 45.00 or higher.

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High RSI for QQQQ is No Problem!

2005-11-14T00:26:00.000-05:00

Many stock traders may be tempted to look at the RSI of 70 on QQQQ and determine that the stock (and thus the Nasdaq-100) is overbought and due for a pullback after the big rally we've seen. But what is important in reading an indicator like RSI is NOT the actual value that it is reading, but how the stock has reacted in similar situations in the past.

Let's take a look at the year-to-date chart of QQQQ:

Notice how in 2005 there have been two other times when the RSI hit the 70 level, both naturally coming after significant runs higher in the stock.

On the first occasion, in the middle of May, the RSI hit 70 as QQQQ hit 37.50. Was this a top for that cycle? No. The Q's ran over a dollar higher over the next two weeks before topping out, with the RSI holding above 70 the entire time.

The second instance took place in late June, with QQQQ hitting 38.65 as the RSI crossed 70. Again, this was not a top. The stock ran another 1.50 higher before topping out at 40.12--again about two weeks later.

Bet on History Repeating Itself:

Well, here we are again. A big run to new highs and the RSI hitting 70. As we've seen by looking back at the chart, the only other two times this has happened this year the Q's have seen an extension of the rally over the following two weeks by an average of about 4.2%.

When history repeats itself (as it tends to do), we'll have a nice continuation of this move through the end of November and up to 42-42.25 on QQQQ before we finally top out.

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CSCO Breaks mid-term downtrend off long-term support

2005-11-09T17:05:00.000-05:00

CSCO has been in a steady slide for weeks now, but as you can see, long term support trumps mid-term trend:

Looking at the chart above, we see that CSCO moved lower consistently for weeks in the mid-term downtrend. However, when long term support hit at 17 – 17.15, CSCO was able to bounce and bounce hard, breaking the downtrend line. This is a key lesson to remember: long-term patterns will often out-trump (dominate) mid and short term patterns and be the REASON that short term trends finally end.

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AAPL slowed by earnings, only temporarily

2005-11-09T17:04:00.000-05:00

AAPL had a solid uptrend, broken by a poor earnings report. But as you can see, investors are only more optimistic as AAPL resumes an even more aggressive uptrend:

AAPL was on a very nice uptrend for months before the Oct earnings slammed the stock. Investors and traders were not shaken from the bull-side, however, and jumped back in AAPL long. AAPL has now established an even more aggressive uptrend, outpacing the previous one. With AAPL trading at the low end of the uptrend, this could be an excellent opportunity for a "buy on dip" swing trade or as a opportunity for some aggressive call option trades.

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Stock Trading Alert---YHOO approaching major resistance

2005-11-09T17:01:00.000-05:00

Powering forward over the past month or two, YHOO has a challenge ahead, 39 – 40:

YHOO has been unable to breach the 39 – 40 resistance level this year. It has tried twice and failed twice, both times launching a new downtrend. With 39 approaching, YHOO could be a great opportunity for a short sell trade. Use 38.95 as your entry with 40.50 as a stop loss.

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EBAY Uptrending into major resistance levels

2005-11-09T10:07:00.000-05:00

EBAY is fast approaching 4 key resistance levels (1 down, 3 to go):

As you can see in the stock trading chart above, EBAY is on a strong uptrend since its lows earlier this year. However, 4 key resistance levels await EBAY. It was able to break through 42 recently, leaving 3 left---at 43.40, 44.10 and 45.00.

If EBAY is able to break all these resistance levels, look for a gap fill, likely all the way up to 52. However, keep your eyes open for selling opportunities at each of these key resistance levels for EBAY. Within the next month or so, EBAY will either break the uptrend line or the resistance levels, on of which will signify EBAY’s future movement.

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Stock Trading Alert: EMC Bottom of Trend Channel

2005-11-09T09:35:00.000-05:00

EMC is now testing the bottom of its 2-month upward trend channel after a dip yesterday on lower than normal volume:

This could prove to be an excellent buying opportunity on EMC, especially at 13.95-14.00 price levels. We will be watching very closely for an entry opportunity in our Small Cap Swing Trading System, and will of course alert members in real-time with the exact action to take. A stop loss on this trade should be set so that a break of the uptrend line AND closing price below the line is required to push us out of the position.

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DELL Testing Support and Oversold

2005-11-08T14:41:00.000-05:00

DELL is currently testing its most recent support level at 29.00 with an oversold RSI and heavy selling volume:

If you are looking for a swing trade on DELL---now might be a perfect opportunity to buy with a very tight stop of 28.94 and a target of 29.74. The odds of success will actually be under 50%, but the amount risked vs. potential gain will have ratio of near 3:1, so if it is successful you've got a shot at BIG profits quickly---perfect for stock trading

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Stock Trading Alert: PZZA Uptrend Breaking

2005-11-08T00:41:00.000-05:00

PZZA has been in a strong and steady uptrend for about the past 6 months, continuously making higher highs and higher lows on a drive up from 34 to 52....a solid 50% increase. But now we are starting to see some indications that perhaps the run is over for the Pizza Maker--at least from a short-term stock trading perspective:

Notice how the stock broke its uptrend line on fairly high volume as the markets continued higher. This is a signal that the uptrend may be over and that PZZA may be in for a pullback, or at least some consolidation at these levels.

So would we be short selling here? No way. Short selling on swing trades should be reserved for stocks that are in trouble, and PZZA is FAR from being in trouble. Just because a 6 month uptrend may be over does NOT mean that a downtrend is next....

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Stock Trading Tip: Exhaustion Gap

2005-11-02T22:28:00.000-05:00

The last two posts have told you about the breakaway gap, which typically starts a stock's run and the measuring gap, which typically occurs about halfway through the stock's run higher.

Today's topic is the exhaustion gap--the final gap in the run of a stock. After a big run, the stock will usually give you one more big overnight move before breaking the trend and heading in the opposite direction.

You can see the sequence of gaps on TASR as it has run downwards over the last year. The first highlighted area is the breakaway gap, the second takes place about halfway down the chart and is the measuring gap, and the third highlighted area is probably the exhaustion gap.

When a stock moves back through the exhaustion gap, it is a confirmation signal that the run is over. If TASR can get a move back up through its downtrend line here, it could spell a nice buying opportunity for quick stock trading profits. All thanks to the "the run is over" sign that an exhaustion gap puts up for us!

DaytradeTeam will often use the three types of gaps during analysis in its options trading and day trading systems. Be sure to check out a trial membership of DaytradeTeam right now and see what you've been missing :)

Stock Trading Tip: The Measuring Gap

2005-11-01T21:50:00.000-05:00

In our last post, we told you about the breakaway gap, typically the first gap open that a stock will make as it begins a new sustained move off of a consolidation period. Following a breakaway gap, the stock will often make a very nice move (up or down) before "stalling out".

The next gap typically occurs at the halfway point of a major run and is called the measuring gap. A measuring gap generally occurs right after the stock stalls in its downtrend. We showed you GOOG's breakaway gap yesterday, but if you look closely, you can see that GOOG has also made what looks like a measuring gap (2nd yellow highlight):

If this is indeed a measuring gap for GOOG, it has taken place about 140 points higher than the initial breakaway gap. In theory, this would mean that GOOG likely is halfway through a major run and has about 140 more points to go from the measuring gap at 340. This would mean that GOOG could easily make a run to 480/share!

Over a month (and 79 points ago), we told you why we wouldn't bet against Google. Now, we certainly do not expect GOOG to have nothing but an easy ride higher from here. We think that pullbacks to the top of the measuring gap (330-340) are certainly possible here, and we will be alerting members to stock trading opportunities on GOOG in real time.

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Stock Trading Tip: The Breakaway Gap

2005-10-31T19:57:00.000-05:00

A Gap Open occurs when a stock opens at a significantly different price than it closed at on the previous trading day---creating a "gap" on the chart. Most stock traders understand what a gap is, but very few understand what a gap might mean.

One of the easiest (and most profitable) gaps is called the breakaway gap. This type of gap usually occurs after the stock has been in a tight consolidation pattern or trading range:

From the chart above, you can sell that GOOG moved in a trading range for quite some time before its breakaway gap up above 220. Following the breakaway gap, GOOG has run from 220 up to 373, and we still wouldn't bet against Google from here.

Breakaway gaps are usually a key sign that the stock is ready to make a significant move higher, having broke out of its trading range and ready for a nice uptrend run.

DaytradeTeam traders will often send buy alerts to members when we see breakaway gaps that can turn into big profit swing trades. Get started with a trial membership to DaytradeTeam right now and see what all the buzz is about!

Online Trading Tip: Boo! RIMM Looks Scary!

2005-10-30T22:16:00.000-05:00

One of the main benefits of online trading is that you can actually profit from downward moves in stocks just as easily as you can from stocks moving higher--through a simple (but misunderstood) technique called short selling.

Well, we've found one stock this Halloween that looks pretty dang scary--Research in Motion, RIMM:

Notice how last week the stock broke down through its former support level, and has now retraced almost all the way back up to it. As we know, support levels tend to become resistance levels on stocks once they are broken, so now may be the time to start establishing a short position on RIMM.

"But wait!! How will I know when to get out of this position for maximum profit?"

That's easy. Just check out a trial membership to DaytradeTeam. IF we see the perfect entry point for a short sell on RIMM early this week, we will alert all of our members exactly when to get in AND when to get out of the position!

SIRI: A Sirius Head and Shoulders Reversal

2005-10-27T23:14:00.000-04:00

SIRI had a VERY bad day today, getting pummelled on news of XM satellites woes and establishing the previously broken neckline of a head and shoulders formation as a future resistance level in the process:

Our Small Cap Swing Trading System will likely be looking for short selling opportunities on SIRI if it can get a low-volume bounce to 6.40 or so in the next couple of weeks. Typically, stocks moving under the neckline of a head and shoulders formation like this will re-test the neckline at least one time (yesterday) and possibly twice.

Because our membership is all inclusive, every DaytradeTeam member will be alerted in real time at the exact moment that a short sell of SIRI looks most profitable.

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