Interesting Stocks Stronger Than The Market & Trading on Volume


September 12, 2011


By Geoff Bysshe

Today the markets gapped lower then struggled to get back above the prior day’s floor trader pivot level. The markets closed on a strong note near their high of the day, but just a fraction above their one day pivots. You should be able to see commentary and charts covering today's market action in another post here today.

The lower open, strong close creates a pattern of the market potentially bouncing off key support. This is a good time to to use HotScans look for stocks trading on volume that have outperformed the market. Strong volatile stocks in a weak market can have potential for day trading or swing trading set ups.

Fist I scanned for stocks that closed on good volume over the prior day’s high and that yielded a lot of interesting patterns, but since the market has just experienced a pretty big swing from its highs two day’s ago to its opening low today, I decided to make the scan a little more strict.

The image below shows the results and the settings for scanning for stocks that closed over their 5-day high. This means they have cleared their intra-day highs of last Thursday which was the market’s recent swing high.  I also required greater than average volume so I know they were trading on volume as they moved up today.

This is nice tight list of stocks with potential for day trading breakouts, or trading reversals on a day trading or swing trading basis. I don't expect the scan will result in stocks to buy right away. I'll find those that fit best for the day trading and swing trading systems we follow.

Note that I've focused on the long side in this post. I'm doing similar a scan for stocks on the short side using the 30 day lows as a frame of reference.

Screen shot of HotScans finding stocks with good 5-day relative strength and trading on volume today.Stocks Trading on Volume with good 5-day relative strength

Market Consolidation


September 9, 2011


By Geoff Bysshe

Market Consolidation

Here's the plan...

  • Consider the weekly trend and or market phase via the 50 and 200-day MA's.
  • Consider the daily trend with 10, 20 and 50-day MA's.
  • Consider the 3-day condition relative to the 3-day range by using the 3-day pivot range.
  • Consider the 2-day condition with the floor trader pivot rules (i.e. stack, S1, and R1).
  • Consider the intra-day action relative to the 5, and 30-minute Opening Range.
  • Ask the President and Fed Chairman not to say what they are thinking out loud.

There are a few other factors that come into play, and I don't always talk about each of the conditions listed above, but I do consider that list every day as I approach the markets.

And then...

I listen to what the market has to say.

There are many ways to listen to the markets. One way is to look at how your short focus list and long focus list are performing. Whether you're looking at the focus list, the evening watch, or your own list of stocks that you have categorized as having a long or short bias, you can often tell the condition of the market by looking at the performance of your list.

Today in the trading room as the Q's hit R2 I pointed it out. I should have mentioned the LCC (lower candle close) at the high of the day in the Q's but failed to (sorry). But the reason I pointed out that IWM had not been able to break out of its 30-min. OR with the same conviction as the other 3 (SPY, QQQ, and DIA) was because its LCC at the OR high made me think the rally was tired. And as a result, I emphasized shorts as the market was near its high of the day. Additionally, when I looked at my short Focus List I saw a dramatic under performance!

When the short Focus List stocks under perform during a rally, this means that...
...the weak stocks are not rallying with the market
...the rally is suspect (be careful with longs), and
...if the market pulls back these weak stocks are good shorts

All of this turned out to be true. This should not have come as a surprise because if we look at the plan...

  • The market phase is bearish.
  • The daily trend is mixed based on the 10 and 20-day MA positively stacked and sloped, but under a negatively sloped 50-day.
  • The 3-day pivot confirmed a bullish bias with the OR breakout over yesterday's high of the day.
  • The pivot stack was bullish but two wide range days in a row should lead to consolidation. And at the high of the day, the Q's were at R2 while the SPY and DIA where only at R1 and thereby demonstrating relative underperformance by 3 of the 4 market indexes.
  • The 30-minute OR's were broken but a serious divergence existed in the IWM, and thereby demonstrating more relative underperformance.
  • And finally, your short Focus List as a list of stocks is rolling over from lower levels than the market.

If you add it up, you see a short term rally succumbing to a longer-term bearish trend.

On Friday we'll start the day on a slightly more negative footing with all 4 market watch having closed below their FTP and the pivot stack only clearly positive on the QQQ. The other three are flat to slightly negative.

While the pivots are slightly negative, the net result of the day today was one of consolidation in the indexes so Friday could be a trend day, with a good chance of being a negative one.

This means I'll look for opportunities to sell 5-min OR breakdowns more aggressively than I would have today. And be very selective about long OR reversals.

Island Tops in TLT and GLD


September 8, 2011


By Geoff Bysshe

The TLT's and GLD have interesting island tops in place. It they continue lower tomorrow it could indicate a top in so much as the risk on trade is back on pushing stocks higher.

The market watch is getting back up to the resistance of the swing highs of last week and the August 17th swing highs so we should expect some resistance slightly higher. The pivots are positive, they are above the 3-day pivot high and above a now positively stacked and sloped 10 and 20-Day moving average.  Bases on this it seems the market is building short term momentum to the upside.

After the straight up action since yesterday's gap lower open I'd expect the market to chop or move higher so we'll look for OR reversals and quick 5-min. breakouts.

I do not, however, want to go into the day with any strong bias so right now that's all I need to know.

Is The SPY Flagging or Basing?


September 7, 2011


By Geoff Bysshe

Is the SPY flagging or basing?

If it is flagging the implication is the next big move is lower. If it is basing the implication is the next big move us higher. I see a very well defined flag pattern in the context of a bearish phase, the 50-day moving average is below the 200-day MA.

However, as a trader I want to see the flag break down in the direction of the trend for confirmation that the flag will resolve itself to the downside. This is why the trend line from the lows on the daily market watch charts are so important. See the charts below.

While the longer term trend is negative, the trends defined by the 10 and 20-day  time frame have been consolidating and creating support above the flag defining trend line. The trend lines and the big gaps into support have had me trading the exceptions to our rules and buying the lower opening, and reluctant to get too heavily short with OR breakdowns. Tomorrow is a similar dilemma.

The pivots are negative so my bias should be negative. But my initial support target will be the low of today which also represents the break of the trend line so for short trades I'll favor trades where there is enough distance from my entry to that support to justify the trade, or trades were the market has already broken down below the daily trend line or swing low support.

From the bulls perspective the market is holding support, and there are quite a few strong trending stocks with positively stacked pivots. In fact, there are a lot of good looking bullish charts so it is very much a stock pickers market out there for the day trader.

Tuesday Will Make Up For Friday


September 6, 2011


By Geoff Bysshe

I hope Tuesday will be more helpful in revealing the market's short term direction than Friday. While the main trend is down, the last few weeks have created a wide range consolidation pattern which will likely result in a large move in either direction.

Friday wasn't all that helpful because with a report of the worst job data we've seen since Sept. 2010 it's natural to expect a gap a lower, and essentially that's all we got. No volume. No real attempt to rally. No real follow through to the downside.

Friday was the last "summer" trading day and the day before a long weekend so it is not surprising that the markets lacked volume and follow through. We'll look out for it on Tuesday, especially on the downside.

However, there is a bullish case to be made here that should not be ignored. If you look at the SPY's you'll see its 10-day MA is now positively sloped, over the 20-day, and the market held there Friday. This plus the fact that it has not taken out the daily trend line from the recent lows should be watched for support.

Pop Quiz


September 2, 2011


By Geoff Bysshe

The last day of summer trading, a three day weekend and a big jobs report all on the same day. Tomorrow. I'm not going to try to call this one.

Purely by the numbers, all 4 market watch...

1. The Fibs: Have stalled at the 50% retracement from their July highs and the Q's have the distinction of making it back to kiss the 50-day moving average. So as I said yesterday, this would be a logical level to retreat from.

2. 3-Day Pivots: Closed below their 3-day pivot lows, so an OR Breakdown and trade below today's low would be a confirmed 3-day pivot bearish bias in the context of a daily trend that's down.

3. Floor Trader Pivot Stack: Have negative stack.

4. The Prior Day's Range: Closed below the prior day's low.

5. The Phase: Bearish

6 .The 10-20-50 day MA condition: 10-day positive slope just crossing negative sloped 20-day, and both below the negatively sloped 50-day.

Your quiz!!! -- >>>>

Considering EVERYTHING stated above, which is the most compelling piece of information?

Answer: To be discussed in the AM in the Live Trading room. If you can't make it to the trading room then email your answer, and the your favorite feature of either the product your are subscribed to (MMM, CSTS, ORSF, DTHS). ? In return I'll give you the answer and the "WHY" which is the most important part of the answer  (feel free to include the"why" in your answer if you wish).

All the above considered, here's how I see tomorrow...

1. A big gap beyond the range of the last TWO days could be considered to be traded in either direction.

2. A gap within the TWO day range should be either faded or not traded.

We'll have to see where any gap begins relative to major support or resistance levels. But unless the market really picks a direction, this I not a day I'd expect much follow through because it is a holiday week.

Markets Move Up And Consolidate


September 1, 2011


By Geoff Bysshe

Today was a tough day for day traders because the market traded above its OR and then back below the OR low. This is price action that is typical of a market that needs a rest, and as I highlighted yesterday, the SPY is sitting at the 50% correction level from the recent lows which is a good level for us to expect it to stall or reverse.

Regardless of what I think of the possibilities for the market to correct, I have to stick by the basic rules that a positive stack in the pivots requires a break of S1 to move to a bearish bias. An additional reference point for the short bias is the low of 8/30 because it is the last low before the market broke out from its range defined by the 8/15 high. Until that low is broken I will not get too bearish.

With the market somewhat extended in the short term, I’d prefer OR Reversals vs. O.R. breakouts on the long side. For the most part I’ve tried to select focus stock that are not too extended, may have had a rest day, and have the pivots stacked in the direction of the trade.

SPY at 50% Mark


August 31, 2011


By Geoff Bysshe

What will you do if the market gaps below today’s low?

I don’t have any reason to believe it will happen, but it could. And if it did, would you know what to do? You should.

The markets have moved up nicely in the last 5 of 6 trading days, and the 1-day pivots are stacked positively. This means that the bulls are in control until the markets trade below S1 which happens to line up relatively close to today’s low. Additionally, today’s low represents the first daily low below the breakout level of the 8/17 swing high. This makes it a very significant low for defining the bullish and bearish bias.

If you add that all up, and a move below S1 will not only mean that our rules say you should have a bearish bias, but it could lead to a significant move lower.

So why might the markets turn lower from here?

If you put your Fibonacci retracement lines on the move from the 7/21 high to the 8/9 low, you’ll see that on the SPY today’s high was right at the 50% retracement level. I’d never just assume the market will sell off from the 50% mark, but if it does begin to sell off you should pay attention.

On the bullish side, when markets gat back over 50% mark in a convincing way it should mean the down leg is done. We’re not there yet.

As I’ve said all week, the closer we get to the 3-day weekend the lighter the volume may become so be careful about illiquid stocks.

Through The Roof (The Top of The Range)


August 30, 2011


By Geoff Bysshe

Ok, so when I said the markets would have to get above R1 to be bullish, I was not anticipating they would all gap open above R1!

Despite all the excitement in price action the volume was incredibly light. This should not be a surprise given that the East coast of the U.S. is still recovering from a massive storm and it’s the pre-Labor Day week. However, as I said in yesterday’s Focus List, don’t expect that low volume will mean low volatility. A perfect example of this WYNN. If you put the Long Focus List in HotScans you’ll see WYNN had the lowest relative volume yet with Keith’s help today in the Live trading room is was a home run O.R. reversal trade.

I’m not trying to say volume doesn’t matter. Please don’t read that in what I’m saying.  Volume is all relative. This week is a lightly traded week, big volume should be treated with extra respect and low volume should be viewed as the norm. Unfortunately, however, low volume does still leave stocks susceptible to sudden and exaggerated price moves so be careful.

With all the market watch charts closing above the Aug. 17th high and having strongly stacked pivots, the game plan for tomorrow is pretty straight forward. Long until S1 is broken confidently.