A good Defense can be a great Offense

Recently I was on a plane coming back from Florida. I was there on a project with my company. I got an upgrade to First class and found myself sitting next to an gentleman from Harris Corp. I promised him that I would look up the chart on Harris, ticker symbol HRS and put in a blog entry.

Harris Corp. makes sophisticated radios for the US Army. It is an international communications and informational technology company in the defense sector. The company has about $6 billion in annual revenue and 16,000 employees with about 7,000 engineers and scientists.

I am a technical trader. I trade from the charts, and not the news or the fundamentals. The chart includes all the information from the fundamentals. If the fundamentals are bad, the chart shows the weakness. If the fundamentals are strong and profit potential good, the chart shows that too with nice upward movements. Beyond that are of course the effects of the geo-political factors and the current state of the economy. So what do the charts say about HRS?

The daily chart of HRS has been on a tear lately and shows a nice uptrend. The trading system I am using here demonstrates the use of both major and minor signals. The major signal is currently an Up arrow and signals the direction of the trend. The minor signals allow you more precise entry and exit points for shorter term gains. The idea here is to trade in the direction of the major arrows using the minor signals to either swing trade or add to or take profits. Or one could just use the major signals for entry/exit. Right now the major trend is Up and the minor signals is also up, I would wait for a pullback and the next minor up signal to enter.

There is a point of caution however – the stock is now approaching its resistance line drawn as a blue horizontal line at a price of $54.50. If it breaks out past the resistance line, that would indeed be bullish and a great point of entry. HRS appears to have good fundamentals and is most likely going to get above $54.50. But it is best not to anticipate the breakout and just wait for it to happen. It could be a nice trade after it breaks out. A good defense could be a great offense..

SPY makes new Highs!

SPY has broken through its resistance of its previous high back on 2/18/11. Although there is a chance it could be a head fake, this is a promising development for the bulls.

I added to my long position a couple of days back and will wait for a small pullback to add more to my longs. This market wants to go higher. My SPY trading system remains unchanged as exit on long; but I wanted to acknowledge the new high as a bullish signal.

Ford (F) and IIF (India Fund) still show Up signals but CREE has been going down

Both Ford and IIF remain in up signals.

I was planning to add to my long position on Ford with a pullback but did not and missed out on an opportunity when it dropped to 14.50 – 14.80 range. Hard to say how long Ford can handle the headwinds of rising oil prices but it remains in a nice uptrend. IIF has shown some strength to get above its 50 day exp moving average but is still below its 200 day ema. I would keep a sell stop on long positions right below its previous support at 23.20..

CREE has shown weakness and a down signal from 1/14/11. I wish I could have pointed the signal out to my friend who owns it, when it was 63.77 but I do not trade CREE.

Update SPY 4/23/11

The chart on SPY remains locked in Exit on Long positions from 2/23/11. The market is now trying to thrust upwards based on earnings news. It remains to be seen if it will take out its previous highs and re-establish its uptrend.

In the meantime, I am still slightly long biased as SPY is above its 50 and 200 day exp moving averages.

Review - Jan Arps presentation on Technical Analysis at the MTA meeting

Rating: B+

A couple of weeks back; I attended Jan Arps' presentation on Technical Analysis at the local MTA meeting. Thought I would post a quick review of some of the key points mentioned. I find that meetings such as these help me refresh my trading intelligence as well as give me an idea of what others are doing. Without further ado, let me post his website link

http://www.janarps.com/main/

As you navigate the website, it will be abundantly clear that Jan is out there to make money selling his various trading tools as well as his book “Complete Idiot’s Guide to Technical Analysis”. There were a few laughs over whether you were an idiot for buying the book or not buying it. Since I have not read it, I cannot comment on it. Nothing wrong with the selling pitch either but be forewarned that information costs money, most of the time.

Jan started of describing the three strategies.

1. Breakout from congestion
2. Trading a pullback on a long trend up
3. Trading exhaustions after trends

First question he asks is are we in a trend or not? He talked about the Arps Triple Trender which are short term, mid-term and longer term stops or support levels drawn on the chart by his software. Reminded me of the Chandelier trailing stop indicator. By changing the length of period, one could get three different levels. When the stock price is above all three lines then we are on a long trend. One could enter on a short term pull back and exit when the short term signal going against the other two.

He has added entry points to this by using “show me dots’ which signal pullbacks and better entry points. I think they looked good to me. Similar to a contrarian entry signal once the trading direction has been established. I like it as one of my own systems for trading trends is based on this logic.

Next he described the logic for trading breakouts using a flagpole which is the breakout from the congestion and a flag which is the pullback. Again, I think his logic is sound. Wait for the breakout, then the pullback to enter.

He discussed the third strategy of detecting trend exhaustions using the price-volume relationship and what he calls a Fear-Greed Index which looked very similar to OBV (On balance Volume) to me. I like OBV. Of course I do not know what the Fear-Greed indicator is and would have to purchase the system to compare. He discussed price acceleration and deceleration of the stock. Again I found this similar to a custom indicator that I like.

Jan also mentioned spotting divergences between price and key price indicators like MACD, RSI or Stochastics as a sign of trend exhaustion. When the price reaches a new high but the MACD does not and turns down, a divergence is created.

Finally Jan put all of the tools together by pulling up Tradestation and using his scanning for profits tool. I did not particularly like the charts and the automatic drawing of the length of the axis. Although I felt somewhat lost on the page at the time, I think a scanning tool is very useful and I think his tools are good. They are based on price, MACD, RSI or Stochastics and can be done by any trader who is knowledgeable. The advantage of using his tools is it saves you the time to create your system. Negative of course is the price and the time it takes to learn to use them effectively. Still, I would give him thumbs up for a useful set of tools and methodology.

Stock Charting Software for Beginners (and experienced traders too)

When I started my journey in trading, I was fortunate that I got some good advice regarding trading software. Back then, there weren’t that many high pitched sales companies with catchy ads when they come to town. With promises of get rich schemes subtly through people who claimed they were incredibly successful, it was a hard sell. Anything that is incredible is also unbelievable.

I still prefer Metastock as my software of choice. With the add-ons that are available, it is a powerful weapon in the war against market variability. I started with the end-of-day version of Metastock and if my memory serves me right, it was priced in the $399 range. Not sure where it is now but if you Google Metastock and hunt it down, it is easy to check that out. By the way, I don’t make money from Metastock sales.

Over the years, I have bought quite a few add-ons. They are like Nintendo games that you can use on a Nintendo machine. Each one is a unique trading set of rules; with expert trading systems, back-testing capability, indicators and explorations (scans) too... Unfortunately quite a few are not so good, so be careful. There are a few that suited me and I was able to learn to modify and create my own quite easily. I would prefer not to pitch specific add-ons here. Maybe sometime later I might; but no commitments on that. I learned some of the glitches in Metastock the hard way. Same goes for the software add-ons. With time, I learned to maneuver around the thorns. I would suggest starting slowly and learning the software and trading simulation accounts. Wish I had!

My second software of choice is TC2007 by the Worden Bros. Again, if interested just Google the above and you will find the link. I liked the commentary that you get each day on the Worden daily report. Although I have to admit I liked Don Worden’s daily commentaries a lot more than Peter’s. Forgive me for the harsh comment Peter but Don was always willing to look outward into the future based on what he saw happening in the present. Peter dwells on what happened in the past. I don’t need someone to summarize what happened during the day. TC2007 has some proprietary indicators such as BOP (Balance of Power), TSV (Time Segmented Volume) and MS (Money Stream). The software is an excellent scanning software. You can scan for stocks that meet your fundamental as well as Technical criteria.

I like to download data into TC2007 and import it into my Metastock end-of-day folders. That way I just pay for one data service.  Yes, I have to pay money for a data source to get the stock, mutual funds, ETF data end-of-day. I know there is other good software out there; but these are the ones I like to use.

SPY Sell short signal fizzles out 4/4/11

The SPY sell short signal fizzled out as SPY never dropped below 132.83. Back to where we were before. Exit on long still holds. SPY is knocking against the resistance from the previous high 0n 2/18/11 of 134.69 and may fall back a little before summoning enough strength to break through. Once it breaks through and crosses a new high, that will be a bullish signal and I will get in long with more commitment. Resistance will become support and a good level to keep stops below.

Long signal on Ford (F)

Looks like there a nice breeze blowing into the sails of Ford. With the Japanese companies taking a hit and Ford just recently selling more vehicles in North America then GM, things are looking up for Ford, ticker signal F.

I just got a long signal to buy F using my ETS trading system on Metastock end-of-day. Think I’ll tiptoe in and buy some Ford.

There are some headwinds out there though. These are mainly the rising price of oil and commodities which takes away from Ford’s profits. Companies need to raise prices when steel, plastic go up in price. But strong competition from the Koreans and the extreme price sensitivity to sale of autos makes it hard for companies to do that. Still, I think Ford has been doing many things right. Putting emphasis on their product design, improving styling, fuel efficiency and quality are some worth noting. The competition is certainly tough and Ford cannot afford to relax.

Surprising alert signal on SPY 4/1/11

Close longs and sell short, sell short stop SPY at 132.83.

That means only sell short if the price on SPY drops below 132.83 which is the low from Friday. I will not sell short of course at this stage or otherwise. But there are times I will hold on to puts and make money on the downside. I find the signal quite unusual after the strength SPY has been showing lately. But that is the nature of some of these trading systems that look at much more than moving averages before pronouncing judgement.

The market is now approaching its 2011 highs and we will see if it strides through it or pauses. I may still go ahead and tighten my puts so that if it does drop, it will give me a better chance at retaining my profits. The negative of course is if the market rips up, I will be giving away some of my future gains, as I am still biased long, but sitting with puts protections on my longs.

I realize this commentary is a little advanced for the newbies; but that is part of learning also.