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Strategies & Market Trends : Technical analysis for shorts & longs -- Ignore unavailable to you. Want to Upgrade?

To: Johnny Canuck who wrote (40966)	4/6/2004 11:11:27 PM
From: Johnny Canuck	Read Replies (1) \| Respond to of 70763

April 7, 2004 by Chris Curran Stock index futures were pressured at Tuesday's open after a Q1 earnings and revenue warning from tech giant Nokia. Also adding heat was the Challenger report that indicated that corporate job cuts are subsiding, but companies are still reluctant to take on new people. Daily pivot resistance capped the attempt to fill the opening gap on the ES and after testing and holding S1 support 3 times, the session started to look like a repeat of Monday. But, a break of the session high and a strong close in bonds wasn't enough to attract any new buyers, and the contract spent the last hour chopping in a downside channel. The June SP 500 futures closed Tuesday's session with a loss of -3.50 points, and finished right at the mid-point of the tight daily range. Volume in the ES was estimated at 469,000 contracts, which was just under Monday's anemic pace and well below the daily average. Looking at the daily chart, the ES posted an inside market structure high as well as a "NR7" day, so I'll be looking for some range expansion. I'm leaning to the short side unless we can get a close above Monday's high at 1149.50, which would set up a test of the March high. On an intraday basis, the broken 30-min uptrend line capped the upside while the 60-min uptrend line held as support. June bonds (ZB) posted a technical bounce with an inside market structure low and settled right at 200-day MA resistance. The U.S. Dollar posted a market structure high after testing the upper end of its 1-month trading range. The Banking Index (BKX) extended Monday's reversal off of MA support, but needs to settle back above 102 to temper the near-term bearishness. The Semiconductor Index (SOX) posted a market structure high just off of weekly resistance and settled on its 100-day MA. The futures were seeing some after-hours pressure after Alcoa's earnings report triggered some plain old "selling on the news." Is Your Trade Management Active or Passive? Trade management is ACTIVE management. My stops fall into 3 main camps. The 1st type is the worst case scenario of the amount that I'm willing to risk. This means that I want to use as wide a stop as possible so that the market can move without hitting my stop. The 2nd type of stop is a technical one. It's placed where the market shouldn't go. In other words, it's placed at the point that my original analysis would probably be proven wrong. Using the Average True Range for the time period I'm trading is especially useful in setting a stop. Money management decisions should be automatic and mechanical. Don't subject yourself to making risk judgements under pressure. A person simply performs differently when under pressure. Once I have a resting stop in, I like nothing better than to turn the trade over to the "market gods." It relieves the anxiety and I don't feel compelled to watch each and every tick. I can let the trade do its thing, and when I'm stopped out, I'm normally glad that I was stopped. Sometimes, I find that by placing a resting stop in the market, it allows me to stay with the trade a bit longer. Another type of stop I use is a time stop. I give the trade a certain amount of time to do its thing, and if it's not working after that period of time, I start reducing my size. Limited time exposure in the market equates to limited risk. The main point is to start thinking about where you're going to place your orders BEFORE the market gets to your price. Swing Strategy Our strategy is to enter with an initial risk of 2-3% and a first profit objective of 5-6%. At 5-6%, we want to take profits on ½ the position, and then follow the rest with a trailing stop, preferably just under/over the previous day's lo/hi. This is nothing but a guideline. Market conditions and the stock's behavior should be considered at all times. If a stock gaps significantly through the entry in the direction of the trade, wait for it to take out the first 15-minute high on long trades, or the first 15-minute low on short trades. This simple rule will ensure that there is follow-through, and will avoid many gap reversals that are so common. DISCLAIMER: This column is an information and education service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. Tradewinds is not a registered investment advisor. Tradewinds shall not be liable for any damages or costs of any type arising out of or in any way connected with the services of the company. Reprint or reproduction of this newsletter is strictly prohibited. As always, do your own due diligence, and if you have questions, email me at Chris@tradewindsonline.net