Saturday, January 06, 2007

Weekly Calls Jan. 8-12, 2007

On the Market:

The holiday-shortened first week of 2007 ended with mixed results featuring wild swings, high volatility/volumes. For the first time in nearly 2 months, NASDAQ was noticeably stronger than SP500 and DOW with a nearly 0.8% gain, while the other two suffered 05.-0.6% loss. On the weekly charts, both DOW and SP500 show bearish candle formation, but NASDAQ posts a doji. Indicators show continuing bearish divergence for all indices. The daily charts show some very interesting development:

(1) NASDAQ: its second test of MA50 around 2400 was a clear success, however, its 3rd attempt to break the Nov'06 high got foiled on the Friday.
(2) SP500: It tested key support around 1408 every day during the week and managed to close above it each time. However, it looks on its way to test MA50 (1398) for the first time since early Aug'06.
(3). DOW: It actually made a new intra-day high this week.

Some basic statements can be made here:

(1). the momentum for the 4 month long up trend continues to diminish, but it may be still early to say that the tops for all major indices are set since they are so close to the new high.
(2). bearish divergences for all major indices are persistent and growing.
(3). As the market leader, NASDAQ found strong support at MA50 and seems ready to once again test the Nov'06 high.
(4). The reversal of the up trend requires, at the minimum, that NASDAQ closed below it MA50, something yet to occur. However, it NASDAQ does close below MA50, I would expect some sharp declines in all major indices.

On next week:

The tug of war between the bulls and bears is intensifying as the volumes started jumping high, but at this point neither side can claim clear advantage. Basically, the bulls will win if NASAQ can break the Nov'06 high around 2467, and bears will win out if it closes below MA50 around 2400. Until these happen, the market will continue exhibits choppy and high volatility.

At this stage, the following strategy should be followed:
(1). Don't go long with the break-outs and don't chase the bears just yet.
(2). Look for the short-the-top setups for stocks that attempt to rebound, but use small size in the initial entry.
(3). Play long-on-bottom for some very strong stocks that have fallen to their key support levels, but be quick when taking profits.

Some changes regarding the trading calls and executions

To make it easier to follow the trading plan and overcome the "fear factor", I decide that I will include position size and risk/reward (RSK/RWD) ratio for trading calls as much as possible. I will also list the project loss number which takes both the position size and stop loss point into consideration. With such new information, I will have clear ideas on the potential P/L for any setups, and by doing so dispel the "fear factor" to some degree.

Risk/Reward Ratios (RSK/RWD) -- To maximize the overall successful rate, the minimum RSK/RWD ratios for (1) swing trade (SW, 2-5 days) --1:5; day trading (DT)--1:3; speculative trading 1:7.

Full Position Sizes: $5-$10: 2000 shares; $10-$20: 1500 shares; $20-$40: 900 shares; $40-$60: 600 shares, $60-$100: 450 shares; $100 and above: 300 shares.

DT Trading Position Size -- L1/S1: full position; L2/S2: half position; L3/S3: one third of position; speculative short or long: 1/4-1/3 position.

SW Trading Position Size -- the sizes should be further reduced to about 50-80% of the DT sizes.

Weekly Trading calls Jan. 8-12, 2007 (stocks in BOLD font are the focus ones)

Group 1 -- The short-on-top plays (No long plays allowed for this group)

1. AAPL: DT-S2 (200 share) on top when it approaches key resistances around 86.7 and 89.5 OR when it breaks and closed below MA50=83.9. PL=$150 ($0.6 stop). Pay close attention to its much anticipated news event on Jan. 9. It the market sell on that news, it probably will go down to test recent low around 77 or even MA200=73.6.

2. AFFX: S1 on top (500 share) if it spikes towards 23 with a stop just above, IT=20.5, MA50=24.1; RSK/RWD=1:5 or better, PL=$160 ($0.3 stop).

3. ANF: speculative SW-S2 on top (150 share) if it spikes towards 77 with a stop just above it, IT=71.5, RSK/RWD=1:12 or better, PL=$150 ($0.8 stop)

4. GOOG: speculative SW-S3 (50 share) on top if it spikes towards 493/499, stop just above 493/500, IT around MA50=468, RSK/RWD=1:12.5 (entry near 493) to 1:15 (entry near 498); PL=$120 ($2 stop)

5. SHLD: SW-S2 (150 share) on top if it spikes towards MA50=170, stop just above 170.6, IT=165. RSK/RWD=1:6 or better; PL=$150 ($0.8 stop)

Group 2 -- The long-at-bottom plays

1. ADSK: L3 at bottom (300 share) if it sparks down towards 40 (use MA50=39.5 as stop reference), IT=42, RSK/RWD=1:4; PL=$160 ($0.5 stop)

2. AKAM: SW-L3 at bottom (200 share) when it approaches key support levels at 50, 50.5, 51; use tight stops, IT=53, RSK/RWD=1:5 (near 51) to 1:7 (near 50); PL=$120 ($0.5 stop). MA50=51.2

3. AMZN: L2 at bottom (300 share) if it spikes towards MA200=36.4 with a stop just below, IT=38.5; RSK/RWD: 1:7, PL=$150 ($0.4 stop)

4. BIDU: SW-L2 at bottom (100 share) if it spikes towards key support around 116 and 119.5, IT=125; RSK/RWD=1:5 (near 119.5) to 1:8 (near 116), PL=$150 ($1.2 stop). Keep an eye on its recent high around 128.68 and MA50=109.4. Because of its volatility, use 100-200 shares only.

5. CRM: L2 at bottom (300 share), IT=41, entry point zone 1=37.1-38.01, stop just below 37, RSK/RWD=1:3 or better; entry zone 2=38.4 (MA50) -39.01, stop just below MA50, RSK/RWD: 1:4 or better; PL=$180 ($0.5 stop)

6. DVN: SW-L2 at bottom (200 share), entry zone 64.5-65.1, use MA200=64.4 as CS, IDS just below 63.75, IT=MA50=68.4, RSK/RWD: 1:5 or better. PL=$140 ($0.6 stop). Last Friday's action seems putting an end to the 5-week slump, but the weekly chart seems to suggest a more patient entry or wait till it breaks 66.25?

7. ESRX: SW-L1 at bottom (200 share) if it spikes towards 67.5/66 with tight stops, IT=71, RSK/RWD: 1:7 or better; PL=$120 ($0.5 stop). MA50=70.2, MA200=72.9.

8. FMCN: SW-L3 at bottom (100 share) if it spikes towards MA50=65.8 use 65.5 as stop reference, IT=70, RSK/RWD=1:8 or better, PL=$120 ($1 stop).

9. MRVL: L3 at bottom (400 share), entry zone 19.11-19.25, stop just below 19, IT=20.1, RSK/RWD=1:3 to 1:10; PL=$150 ($0.3 stop)

10. NCTY: SW-L1 at bottom (200 share), IT=32; entry zone1=30-30.5, stop just below 30, RSK/RWD=1:3 or better; Entry zone2=28.1 (MA50)-28.5, stop just below 28, RSK/RWD=1:9 or better; PL=$150 ($0.6 stop)

11. RIMM: SW-L2 at bottom (100 share) if it spikes towards 131 use 130 as stop, IT=140, RSK/RWD=1:9 or better; PL=$140 ($1.2 stop).

12. SNDA: SW-L2 at bottom (200 share), entry zone 19.7-20.1, stop just below 19.6, IT=22.4, RSK/RWD=1:5.5 or better; PL=$150 ($0.6 stop)

13. SONS: DT--L1 at bottom (1000 share), entry zone 6.96-7.11, stop around 7/6.88, IT=7.5, RSK/RWD=1:3.5 or better; PL=$200 ($0.15 stop).

13. STP: SW-L2 at bottom (200 share), entry zone1=31.6-32.1, stop just below 31.5, IT=34.5, RSK/RWD=1:5 or better; Entry zone2=30-30.5, stop just below MA200=29.9, IT=33.5, RSK/RWD=1:5 or better; PL=$150 ($0.6 stop). Be patient with the setup.

14. UNH: SW-L2 at bottom (200 share), entry zone 1=just above 52, stop just below 51.9, IT=53, RSK/RWD=1:5.5 or better; entry zone2=50.1(MA200)-50.4(MA50), stop just below 50, IT=53; RSK/RWD=1:6 or better; PL=$140 ($0.6 stop)

15. VRTX: speculative SW-L3 at bottom (100 share) when it spikes towards 33, stop just below 32.5, IT=37, RSK/RWD=1:7 or better; PL=$100 ($0.8 stop)

16. WLT: SW-L3 at bottom (200 share), entry zone 24.7 (MA50) to 25.1 (MA200), stop around 24.5, IT=27.5, RSK/RWD=1:5 or better, PL=$120 ($0.5 stop). Be patient with the entry.

Group 3 -- The range-bound CTT plays

1. ENER: CTT between 32.5 and MA200=37 use very tight stops, 300 shares, PL=$100 ($0.3 stop). MA50=36.3, also key resistance around 35. Bias on the short side. Don't trade the mid-range.

2. JCG: CTT between 35.2 and 39 use very tight stops, 200 share, PL=$100 ($0.4 stop). Bias on the short side. Don't trade the mid-range. MA50=36.4.

3. NVDA: CTT between MA200=29.2/31 and MA50=35.3/37.5 use tight stops, 300 share, PL=$150 ($0.4 stop). Bias is on the short side. SW on the short side, DT on the long side.

4. X: DT-CTT between MA200=64.2/68 and MA50=70.9/72 use tight stops, 200 share, PL=$120 ($0.5 stop). Don't trade the mid range. Bias slightly bearish.

5. XRTX: DT-CTT between 19.4/20.4 and MA200=21.9 use very tight stops; 300 share, PL=$120 ($0.35 stop). MA50=21.6. If NASDAQ makes new high, go long when it closes above MA200.

1 comment:

Lauriston said...

Curious how you determine the negative divergences you mention in note #2 about the indexes. Great analysis, all ready for the first full week of trading! Visit my blog sometime.