Here's the previous article showing the trade open for IBB: 

I got in at 101, and it's at 122. 

I'll update why I pulled it, but here's a quick summary

1. stock is well outside donchian channel.
2. surpassed my highest target
3. volume seems to be drying up a bit.
4. Pigs get slaughtered.
5. 20% in 2 months is pretty good.

I'm going to watch any dips in IBB to see if they're a nice correction. I would expect a pullback between 116 and 112.

How Not To Use Simple Moving Averages (as a trend trader)

The statement I'm about is going to conflict with the technical analysis 101 lessons you learned about moving averages as a novice technical trader. If you are attempting to trade with the trend, you do not want to using moving average cross overs as timing signals.

Let's examine a stock chart to see what is happening when moving averages cross over each other. In the chart below (click on it to see full size), notice what is going on with price at the points I've circled in red. These points are where a short term simple moving average (9 period) crosses over a longer term 33 period simple moving average.

As you can see from the chart, the stock isn't really trending nicely at the time these simple moving average crosses occur. In fact, it's just the opposite. Why is this?

According to Chuck LeBeau:

What we are really observing at the crossover point is that the average of the last 30 prices is exactly the same as the average of the last 10 prices. If we are looking for trends to trade, this equal relationship of the two moving averages is not a reliable or logical indication of a trend. In an upward trending market the average prices over the last 10 days should be much higher than the average of the last 30 days. By implementing new trades at crossover points we are limiting our trading to points that may not clearly reflect what we should be doing. For best results in a trend-following system we want to be trading when the trend is clear and reliable; not when the trend is confused and questionable.

Reading that paragraph was an ah ha moment for me; although the concept is obvious and simple, it's still easy to over look. The fact is, trading moving average cross overs is a trend reversal strategy, not a trend following strategy.

Trend Trading Simple Moving Averages The Right Way

Taking the information I learned from the article, I've been thinking about several ways of screening moving average data in order to time entries and exits. There are many variables at play, but all of them involve either the distance between short and medium term simple moving averages, or the slope of those averages. I am using stockfetcher to design the screen, and will be using it to do back testing as well. Let's look at an example of AAPL using the same moving averages but in a different time frame.

I have highlighted the areas in the chart below where the short term and medium term simple moving averages are increasing, and either getting farther apart, or are parallel. As you can see these are the places where the stock is trending nicely, and obviously these are the places where we would want to be long the stock. The trick then is to create a screen which can find these conditions near enough to when they start to be true.

Trend Trading Using Simple Moving Average Slopes

I have developed a screen for this system for both long and short trades. I am currently moderately bearish on the markets, so I decided to run the short simple moving average slopes screen to see what I could find.

A few potential shorts I see with this system are:

Walgreen: Symbol WAG. I will be looking to short WAG at the end of trading below the $31.92 level. The initial price target will be $29.46 or 8.7%, but it could easily go to $26.

Republic Services: Symbol RSG. I will be looking to short RSG below today's of $26.47 with an intial target of the August lows at around $24.75 or 6.5%.

Best Undervalued Stocks with Trend Reversal

As I stated when I opened the trade, this strategy combines the new monthly trade triangle stock screen with stocks which are undervalued by at least 50% compared to their industry, and other strong technical indicators supporting the monthly trade triangles as a trend reversal. You can see my initial post by clicking the link below:

Best Undervalued Stocks: TSTC

Trade Update

My initial price target was hit today at around $8.32. After entering the stock at $6.76, the stock began to go parabolic. The stock continues to rise on increased volume, showing significant upward momentum, and showing price strength by closing near its high.

As with any stock that goes through the roof, it's a good idea to take profits after a good day like today, and to buy into pullbacks. I decided to sell 1/2 of my position at the close today ($9.03), taking a $2.27 profit which is 3 day profit of 34%. I will look to buy into pullbacks as long as I see continuation type patterns developing. I will continue to utilize the chandelier trailing stop method to protect profits, but now I have adjusted the ATR multiplier from 3.25 to 2.25 ATR. The current ATR is $.515, so this places my stop at $7.87

Today I was running a few screens looking for a new trade to get into, and I found a chart with a really nice MACD / price divergence that need some investigation.

Why Undervalued Stocks?

You might be wondering why a technical trader is looking for undervalued stocks. The answer is that through my experience, undervalued stocks with positive technical signals tend to perform more predictably. the best undervalued stocks are those which have either a well known price pattern, or are showing significant signs of trend reversal.

Stock Screen:

Marketclub New Monthly Trade Triangles

The New Monthly Trade Triangles screen allows you to find stocks which are showing strong signs of trend reversals. When combined with an appropriate set of momentum and volume indicators, this can be a great way to find longer term trades.

Strategy

This is going to be a setup for a medium to long term trade. I will set initial profit targets, and buy into pullbacks up to a 33% retracement level.

Trend Analysis – Symbol:TSTC

1. INO Score +90, which indicates that it's in a medium to strong uptrend.
2. 20 SMA and 50 SMA are trending up, with the 20 looking to cross over the 50 soon
3. 200 SMA is flattening out.
4. New Monthly Green Trade Triangle on 11-2
5. Price crossed above 200 SMA on strong volume

Technical Analysis

1. Significant 12/26/9 MACD to Price divergence on the weekly chart.
2. Break out of descending channel and strong resistance now makes good support level.
3. There is plenty of profit potential before reaching the 38.2 and 50% fibonacci levels (drawn from November, 2010 highs to October 2011 lows)

Entry and Exits

1. I will enter this trade anywhere above yesterdays high of 6.75.
2. My initial profit target is the 38.2% retracement which is around $8.30
3. My initial stops will be placed just below $6
4. I will use the Chandelier Stop method of trailing stops to protect profits.

Chart

However, I also mentioned that I like HALO as a mid term trade as well, and to buy into any pullback. on Tuesday, 10/25, HALO did just that, and I made my purchase just before the close at $8.23.

Halo then gapped up yesterday, and VERY strongly today and is looking to break a long term resistance at around $9. The next area of resistance is at around 9.15 and then again at 9.45.

Even after a huge 4 day move, I continue to like HALO, which, as I write thise post has broken through the $9 level. The technicals are all pointing the the right direction.

1. price has broken through the 200 day SMA on strong volume
2. There is a 20 / 200 day SMA cross, and the 50 / 200 is not far behind
3. Trend strength according to the Aroon indicator is increasing
4. Momentum, using On Balance True Range is also increasing.

This chart is simply lovely, and I see no reason why not to buy into pullbacks, and ride this puppy all the way to my $10 target.

If you would have made the purchase on the close, you would have picked up CRM for 136.56. So far, even though the markets are off about 1%, you would have made a 2% profit on CRM.

Remember the rules for trading this system. You must sell CRM tomorrow.

Happy trading,

Steve

Gold Uptrend Divergence in MACD

In the chart above, I've marked the price trend and the MACD trend in blue. Notice gold prices continue to reach new highs, but momentum is declining. That is a classic sign of trend reversal. I have also marked 1360 as a line in the sand for the uptrend. IT coincides with several Bearish Engulfing Patterns, and a very long doji candle.

Another Win For the 52 Week High Rule

IF you're not familiar with the 52 Week High on Friday Rule, check it out immediately! This strategy is a nice adjunct to my Record Price Breakout strategy, and it would have turned in a profit right at the top of the move. Remember the rules for trading the 52 week high friday rule are:

1. On a new 52-week high, when the market closes at or close to its high on a Friday, buy long and go home long for the weekend.
2. Exit the long position on the opening the following Tuesday.
3. If the market opens sharply lower on Monday, exit the position immediately.

Following this rule, you would have entered gold at $1393 and exited at $1416, for a nice $1900 profit per contract.

Today I wanted to tell you about a perfect compliment to my Record Price Breakout Stock Screen and Trading Strategy, the 52 Week High Friday Rule. The setup for this trading principle is very simple, and follows similar principles to the Record Price Breakout strategy. The difference is that the 52 Week High Friday Rule has a very specific setup, which makes it very easy to trade.

The 52 Week High Friday Rule was brought to my attention by my friend Adam, and the details for this trading system are available on his website for free.

Simply click here now,  fill out the form, and you'll be forwarded to a video describing this trading technique.

"I was a former floor trader on the IMM, IOM, NYFE and LIFFE as well as a risk manager of a large, multinational corporation in Geneva, Switzerland. I also have written books on forex trading and trend following. In 1995, I founded INO.com and later co-founded MarketClub. I’ve been in the trading biz for over three decades and have seen it all. I am sharing these trading tips and techniques that are making money in today's markets. I hope you enjoy them"

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Our "Trade Triangle" technology flashed a buy signal on gold at $1,210.52 on August 12. Since that time the gold market has rallied some $15.

I think you'll find this video on one of the most emotional markets in the world to be right on the money.

Please feel free to add your insights on this market in the comments section.

As always our videos are free to watch and there are no registration requirements.

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