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Strategies & Market Trends : Stock Attack -- A Complete Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Chris who wrote (12193)	7/16/1998 1:50:00 PM
From: Robert Graham	Read Replies (2) \| Respond to of 42787

MAIR gapped down today continuing its slide. So far volume has not come in yet, but the gap directly below the price bar of the stock did not hold. Notes on the positive aspects of this stock: 1. Long basing period of a stock in a longer term uptrend which followed by a breakout into a good strong uptrend. 2. A strong bounce at the bottom of its trading range validate by volume which lead to its breakout which was also validate by volume. 3. RSI and ROC has been in a well-established uptrend. 4. MACD at the point of breakout confirmed an uptrend and very quickly left its signal line behind. MACD are not in "trends" that often, just swings up. When the MACD has validated its own uptrend, this is usually a very good sign. When at this juncture it shows unusual strength its upcycle, this is good evidence that a strong uptrend in the stock will continue. This happened at a breakout of the stock from a basing pattern with length. All good signs. I am sure a StochRSI treatment of this stock around its breakout would be very revealing. 4. Note the location of the Stoch at the stocks breakout. It dipped below its 80 signal line to bounce off of a resistance and move back up staying a distance above its 50 signal line. This combination of the breakout and the MACD and the Stoch are all very good signs. I have been noticing this type of composite pattern show up on charts that I have looked at in the past. I think there is something here of significance. 5. Weekly chart looking strong and in an uptrend. Notes on the negative aspects of this stock: 1. Overextended run up as evidenced by the overextended MACD and the overbought indication on the Stochs which had been topping out. 2. Gap up on very light volume. Big warning signal here, particularly if volume does not come in the following day. The next day the volume came with selling. IMO both of these days would of been a premature entry into this stock. 3. Volume did not continue to validate strong uptrend. 4. OBV and MF diverging from the strong uptrend. Normally I see this as danger pending down the line but will not keep me out of a very short term trade. However, with this strong runup, I would place more emphasis on this and look for confirming indicators. Notes on entry: My idea here would be to wait until a stock bounced off of something like its 9 day MA or a significant support before entering at the base of a cycle up. I got this idea of the 9 day MA from someone here (Judy I think) talking about their strategy on playing momentum stocks. As an observer of this type of play, I have seen many traders take the type of entry provided a couple days ago where they would enter late in a strong uptrend to get whipsawed out of their position. The addition of a gap up in this situation could be misleading tothe trader as I will detail further. Acting on this combination of events IMO is motivated by reacting to the strong uptrend you want so much to be a part of instead of being patient and waiting for a better entry. I would never enter several days into a runup like this until important support has been tested. I certainly would never enter a stock after it has peeled away from its 5 day MA. Also gaps do not necissarily provide resistance to selling pressure. When they are made, they are still vulnerable during the next day of trading. IMO the longer the stock remains above the gap and continues its move up, the more valid it becomes. If the stock having stayed above the gap for a few days then moves down to test and bounce up from the gap, it has even more significance since it has been validated by price action which probed the gap. Also I said earlier, I would want to see much more volume on that gap up in order for me to take it seriously. Any comments on my above strategy of the 9 day MA? I do not play very strong momentum stocks even though this will change in the future. I usually play the large cap stocks that are slower but in a well-defined uptrend with good tape action indicating large blocks are moving into the stock. Anyone else with strategies to enter the strong uptrend of a stock? I see beginners jump in when they see the stock gap up the next day. Perhaps they used the intraday gap trading strategy of waiting at least 1/2 hour before playing the gap up if the stock remains above its gap during that period of time. Allot depends on the trading action of the stock. IMO this strategy at best is good for the day trader, not the position trader. What is deceiving on this stock is the long trading range days. This is where obviously money can be made day trading this stock. However, for a person looking at the intraday picture, the stock looks like it has tested intraday support and continued up during this uptrend. But this can be very deceiving and give a technician not the same results as a day to day chart of the stock with its high, low, and closing price. This is where the trader IMO has to be a good tape reader to anticipate the price action of the stock intraday with respect to the daily charts. I see that are new traders that get caught into this trap of letting the intraday price movement of a stock fill in for the daily price action of the stock on the technical framework provided by the daily chart. It works when the going is good but can give a false sense of security. When selling enters the picture, the trader can get caught unaware. This is why I always wait for my daily chart to confirm my entry. I never anticipate using intraday data. You cannot see the forest for the trees doing this. If you are a good tape reader you can anticipate the price action with reference to the daily chart. Or your approach needs to be strictly based on the intraday price action of the stock and perhaps use the daily chart as a validation of trend. The two should not be confused together, and intraday S&Rs are not the same as validating daily S&Rs. Many mistakes are made not keeping the "context" of a trade in this way. So I think this stock would of been a good choice on its breakout and still looks like it can have future possibilities. One good entry would of been on the breakout from the consolidation. Another may be at the end of this pullback. For the risk tolerant, there would of been two entries: a couple days after the breakout and a day before the gap up when both times its 5 day MA was validated. Both days the stock closed at its high. A good tape reader could of made these plays, but then this would of been before the daily chart validated such a position. If someone entered this stock a couple days ago on the gap up day, I think they should of exited yesterday due to the price and volume action of that day realizing that it was a premature (or late) entry into the stock. Of course this is easy for me to say standing on the side here and speaking after-the-fact. But I have seen this setup before and I am always present to the dangers in entering a strong runup in its more advanced stages. I am also particular about the validation of support and volume as many of you here know. Furthermore, an entry two days ago is the type of entry I see many traders lose out on because they end up getting whipsawed out of a position. Just my opinions of course. Bob Graham