Saturday, April 19, 2008

Lots and Lots of Chart to Check Out

After doing my scans this morning, I can't say that my outlook has changed that much from what I wrote yesterday. However, I was reading the blog of trader Josh Hayes of BigWaveTrading and formerly of the Mauitrader blog. I have read Josh's blogs since 2006 and have learned a ton - he is a tremendous CANSLIM-type trader. The point he made that stuck with me is that he asked William O'Neil if he would rather have a perfect chart with good but not great EPS ratings, or a somewhat flawed chart but with tremendous EPS rating. O'Neil said to always go with the one with great growth and fundamentals, even if its chart is flawed.

Ideally, you would love to find both - great fundamentals and a great chart. I thought I found one with WSCI, and it still may be OK. But one of the reasons I have stayed away from so many stocks like the agriculture (POT, MON, etc.), energy (shown below), and steel stocks (MTL, RIO, etc) is that I saw so many flaws in their bases - big volume selloffs, weak volume rallies, choppy patterns. My Telechart indicators made these flaws stick out even more. Along with the market being extremely difficult and choppy, I decided to stay completely away from them and in some cases even tried shorting them (I have since learned my lesson). I am not upset that I have missed these moves - I went with the charts told me, and typically charts do not lie. In the future, I will perhaps remember these moves and put a greater emphasis on fundamentals when looking for stocks. I am conscious of the fact that my troubles yesterday could influence my overall views of the market, and I have to watch that so it doesn't negatively taffect my performance. I don't want to get too negative on the market here - There are many positives, many stocks moving higher - there are just some questions I have right now, that's all.

Now to what I saw in my scans. These first two charts had tremendous breakouts on Friday. The only problem is that they are extremely thin and need more volume to come into them before I would consider starting a position. They are also low-priced, and as such, are not stocks institutions can load up on. They are ones to put on your watchlist and see what happens from here.


This next group of stocks are the best I am finding right now. They are not extended, have nice BOP and Moneystream patterns for the most part, and I like the way most of these charts look. I don't plan on entering any right now, but they will be on the watchlist for possible entry. JST is one that sticks out to me as it has gotten support near its breakout - I just wish it traded more volume each day.


With the creating of the ProShares Ultra ETF's, you can get overall market exposure even when many individual charts are extended. These are some that I am watching and may try a few of these until more individual charts suit my tastes.


This last section of charts contain the most because these are the type of stocks that I discussed in the first paragraph. I passed on all of these for the aforementioned reasons, but I am willing to keep an eye on them to see if they can rest for a week or two before moving higher. If they do, I would be interested. I do like the way their charts are beginning to turn green, which tells me accumulation is coming into the stocks. But there is NO WAY I would touch them up here. This first group is the agriculture sector.


Now some energy charts. Same deal - I would not touch them right now, but if they can rest quietly for a week or so, I would become very interested in these stocks. It seems like the Fed could care less about inflation, and almost want to force people to invest their money in either the stock market or commodities. Cash isn't much of an option right now because of the continuing pounding of the dollar, and treasuries in many cases are offering negative real returns. As such, I guess oil and the others have every reason to continue higher. Unless the Fed doesn't cut rates here in the next few weeks and make a real stand against inflation, I have to assume these stocks will continue higher.


These four stocks are actually near buy points. Two ways to look at that - they are about to breakout, or you could question why they haven't broken out already when so many energy stocks have skyrocketed.


Here are the rest of the high fliers in the energy sector. Just like the ags, the charts are starting to turn green in many cases and with some rest for a week or so, I would be interested.

All Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

I still stick by the premise I wrote yesterday - we are getting overbought and need to rest quietly for a few days. I would love to see this happen. If we could do that, I would not be surprised to see this market continue higher and for this rally to strengthen. However, how often do we get what we want in the market? I still could also see this recent momentum just continue, putting some of these commodity stocks into possible climax runs. There are a ton of people still shorting this market, and with that backdrop, it is very possible we just stay overbought. I just worry that if that happens, we will reverse quickly at some point as many traders are caught holding overextended charts, and we will start a bigger move lower. We shall see - still lots of earnings reports coming out next week. Can you buy stocks here? Probably, but just be aware that buying them here is riskier, and you are setting yourself up for a GU type reversal that can bring losses quickly. My average cost for GU was around $14.30, so yesterday wasn't a big deal for me. What if you bought at the open yesterday however - you'd be sitting on a quick 7% loss. Just be careful out there.

Finally, one of the reasons I started this blog was to discuss the market with other traders, because I really don't get a chance to do so with friends or family. So I encourage you to leave comments or questions if you have any. Perhaps you have chart ideas that you want to share - feel free to do so. Maybe you don't agree with my thoughts - that's fine too. I am always trying to learn and improve myself as a trader. Best of luck next week.


Patrick said...

Hope you will get some nice entries this week. Thanks for your thoughts on this market.

Mac said...

Thank you. I really can't see take any entries for the first few days of the week unless we pullback quietly. If I do, they would be just short-term trades. Good luck.

Andrew said...

Great blog, I am just learning myself. I have read and re-read O'neills book many times and I am just now trying to put the principles to work. FYI, I check your blog daily and truly appreciate your insights and thoughts.


Mac said...

Thanks Andrew. I am certainly not an expert, but please let me know if I can help you at all.