Newton's third Law for the Markets

Where is the market now?

noreply@blogger.com (Dave C.) — Tue, 03 Jun 2008 01:54:00 +0000

It looks like the DOW is going to continue down and could hit the 12,200 by the end of July. Or it could trade sideways and not reach that low. The DOW continues in a down trend until it breaks through the trend line shown as the yellow line in figure 1. Right now I can't tell if the DOW is going down further toward the 12,200 level. We need to watch and see if the price goes through the upper median line on the red pitchfork or heads down to the intersection of the red and blue pitchforks. I have circled the area in yellow.

Figure 1.

Now let's look at the Qs. Figure 2 shows that the Qs may test the$50 -$51 highs later this week in to next week. Or this may be the start of a downward move toward the bottom ML of the pitchfork. Again, we will have to wait and see.

Fig. 2

Lastly, my updated watch list. Baxter(BAX), Intel(INTC), Colke(KO),Companhia Vale Do Rio(RIO), McDonalds(MCD), Illinois Tool(ITW). I dropped Johnson and Johnson(JNJ) it made its move too quickly for me to catch it.

Winners and Stocks to Watch

noreply@blogger.com (Dave C.) — Tue, 27 May 2008 15:14:00 +0000

So, I was wrong about the DOW. It hit 13,135 on May 19th. Now, it is heading down. How far? I can't tell yet. It is at the 50% retracement level from the high on May 19th. You can see the from The chart in Figure 1 that DOW is still in a down trend and could from the pitchfork in blue that it could go back down to the 12,000.

Figure 1.

Did better with the Qs. I was right on target. It hit $50.47 on on May 19th. So, I'm 50% right so far.

Second, let's look at some recent winning trades.

International Game Tech (IGT) - bought 1/10 30.00 on 5/8 and sold it on 5/13 for a 8.79% profit in 5 days.

Western Digital (WDC) - bought 1/10 30.00 on 4/21 and sold it on 5/14 for a 20.93% profit in 24 days.

Coke (KO) - bought on 5/21 the 1/10 55.00 and sold it on 5/23 for a12.16% profit in 2 days.

Next, here are 2 new trades that I have not exited yet. First, Colgate Palmolive (CL) bought the 1/10 70.00 on 5/21.

The other trade is Saint Jude Medical(STJ). Bought the 1/10 40.00 on 5/23. The chart in figure 2 shows that I believe it headed to 45 by the middle of June. Of course, remember using the system I use I don't have to wait until it reaches 45.00 to make my 5% profit so, if I am off on my prediction I can still have a profitable trade.

Figure 2.

Lastly, some stocks I that am watching Johnson & Johnson(JNJ), Baxter International(BAX) and Intel(INTC).

I missed it on the DOW. Qs Still look good.

noreply@blogger.com (Dave C.) — Thu, 15 May 2008 03:21:00 +0000

Fig 1.

It looks like I fell short on my Dow prediction. I predicted that the DOW will reach 13,300 by the middle of May. I did hit 13,132 on the 2nd of May. I could declare victory because I got close but, I won't. If you look at Figure 1, the DOW seems to be starting to trade sideways around the 12,950 level. If the price goes through the lower median line(ML) on the red pitchfork then, the market will continue sideways or it could start to trade down toward support on the lower ML on the purple pitchfork. If the support of the Red ML holds up then, it should reach the target area. For now I won't give any specific numbers, just a general target area.

Also, recently, I added some additional indicators to help make my trading more effective. MACD and SRSI. When the SRSI drops below 15% from the 85% level crossing the positive (green) histogram, I take that as a sell signal. Then, if the price drops below the lower ML of the red pitchfork I read that as confirmation of the sell signals given by the SRSI/MACD. If the confirmation happens then, I believe that we have peaked on the DOW for a while and I will have to re-evaluate where the DOW is going. I will continue to monitor this and see what happens.

The Q's seem to be headed for the target I had predicted $50.50 by the End of May. If the goes over $50.00 I will declare victory as shown in Figure 2.

Fig 2.

Lastly, I wanted to boost about some winning trades IGT and WDC. I bought the Jan 30 call for 9.10 on 5/8 and sold it on 5/13 for 9.10 for a 8.79% profit over a 6 day period. On WDC I bought the Jan 10 30 call on 4/21 for 8.60 and sold it on 5/14 for 10.40. That's a 20.93% return over approx 3 weeks.

I am looking for a new trade haven't found it but when I do I will make a blog entry on it.

Is the DOW on track? How about the Qs?

noreply@blogger.com (Dave C.) — Wed, 23 Apr 2008 15:29:00 +0000

It looks like the Dow is right on track from my last entry. In my view it has broken out of it trading range and headed higher. I predict that the DOW will reach 13,3000 by the middle of May. If you look at Figure 1. the short, medium and long pitchforks all intersect on 5/13. We will continue to monitor this and see if I am right on this or not.

Fig.1

According to the Pitchfork, the Qs looks to continue right on track to hit the 50.50 dollar mark by the end of May as I predicted last entry as shown in Figure 2. We will continue to monitor the Qs progress to see if I am right or wrong.

Fig 2.

Next, I want to look at 2 trades I went in to last week. The first one is Figure 3, Western Digital(WDC). I bought the Jan 10 30 call for 8.60 It seems to be headed for 34 dollars per Andrews Pitchfork by the first part of May. I should be out of the trade before then with my 5%min. profit and on to next trade before then. We will see.

Fig.3

The other trade I wanted to go is one that is not going the way I predicted. Yamana Gold, (AUY). Look at the chart in figure 4. As you can see the price has dropped and is starting to move the wrong way away from the median line on the pitchfork. The price ihas fallen below the lower line on the pitchfork. If the price breaks the trend line drawn in yellow then the trend is headed down, not up. I will have to start to manage this position by selling call options against my position. So, much for listening to all the experts that say to buy gold related stocks.

Weekly Pitchfork update on the Market. Happy days Again?

noreply@blogger.com (Dave C.) — Wed, 16 Apr 2008 17:32:00 +0000

I thought I would change my focus a bit on this blog. I will look to see where the DOW and Qs are headed on a weekly basis using Andrews Pitchfork and Action/Reaction lines. In addition to looking at the the market I will look at stocks that I am looking to buy.

Are happy days here again? First, let's look at the DOW. As I write this entry the DOW is up 170 on the day at 12,532. But is it going to go up or down from here. Well, I can't tell yet from the daily chart. Looking at the chart in Fig 1. we see that the Dow is at a reaction line.

Fig. 1.

It is marked on the chart as R2. The DOW touched the ML of the pitchfork on the 7th of April and has followed the reaction line down since. The high on April 7th was a test of the 12,700 level that seems to be a main level of resistance for the DOW at this time. It has reached this area 3 times since Feb of this year. If we can break though this area I feel it will signal that we are back in an up trend in the DOW. Until then it looks like we will continue to stay in this sideways channel.

We may be able to predict the Dow by looking at the weekly Dow chart. We see in Fig. 2 that if the Pitchfork holds, we will break out of the resistance level I mentioned earlier on the daily chart by the end of April/begining of May.

Fig. 2.

Now for the Qs. Looking at the chart in Fig 3. we can see that the Qs are headed up and if the Pitchfork is right the we should be at $50.50 by late May when the 2 pitchforks intersect.

Fig 3.

Update on GE. I'm half right

noreply@blogger.com (Dave C.) — Sat, 22 Mar 2008 19:14:00 +0000

In my last entry I went over a trade I made on GE. I said the stock would reach a target price of 38.25 by the 15th of March. Well, I was wrong. On the date at least. GE shot almost straight up this week and looks like it will reach that target soon. Look at Fig 1.

Fig.1

The stock shot straight up starting on the 17th of March, Monday. I hit my stop on the 17th for my 5% profit and was very happy. Since, then I have heard from the TV experts to buy GE including my favorite, Jim Cramer. I alway feel good when I call it right. With the market the way it is these days, it has been hard to find a stock that is headed the right way for me.

If the experts are right about the market then we have hit the bottom and happy days are here again. We will see. Just bought Pepsico(PEP) last week. We'll see how that trade is going on my next entry.

Trade Updates - DOW

noreply@blogger.com (Dave C.) — Mon, 10 Mar 2008 23:47:00 +0000

Well it has been ugly out there. I thought I would look at some of past posts and see if I was right or wrong with my predictions.

The first one is the DOW. I predicted that the DOW would reach the 13,400 level by end of Feb.
I was wrong. It did go up to 12,750 level but, failed to reach the mark I had set and seems to be headed down to the 11,600 level with in the next week.

Fig. 1

Looking at Fig 1. you can see I have drawn the long, medium and short term trend lines. According to Dr. Andrews, the lower prong of the pitchfork acts as support. So, the next move I am following is to see if the Dow will bounce off of that level of support or will it go through it and head further down. You can see that the 11,600 is also the level of resistance that was hit in Nov., 06. Even if the market goes back up to 12,500 we will still be in a downtrend on the DOW. Conclusion. I missed this one at least for now.

GE.trade. Was I right or wrong?

noreply@blogger.com (Dave C.) — Mon, 03 Mar 2008 16:13:00 +0000

In my last post, I said I would go through a whole trade. Well, I was traveling and my internet connect was intermitten but, I did have time to buy GE while I was traveling. So, let's look at the trade so far.

Fig.1

I Bought the GE Jan 10 $30 call leap for 7.00 on the 19th of Feb. with a target price of 38.25 on March 5th. If we look at the chart(Fig.1) am suppose to reach my target on March 5th. Will I? No way! Will it reach the target? Yes, I think eventually it will. The stock is in an up trend and when I look at an earlier Action line I see the the Reaction line formed early. Approximately, 11 days early. Because the first Reaction line was early I expect the next Reaction Line to be late by 11 days. Looking at Fig 2. what I have done is I have made an adjustment in my target day by the eleven day gap and now the target date is the 15th of March.

Fig. 2

I will monitor this GE trade and update the blog as the trade progresses.

ADP going to $43 by mid-March

noreply@blogger.com (Dave C.) — Wed, 13 Feb 2008 15:18:00 +0000

One trade that I am currently and would to discuss is ADP. I got in to the trade on December 3rd of 07. I bought 20 contracts of the Jan10 $40 leap for $9.50 each and the stock went up and on Dec 10th I sold it for the 5% profit I was looking for. Well, unfortunately I only sold 1/2 the position and then the market turned down. Looking at figure 1, You can see the stock traded sideways for a while then dropped like a rock. It dropped so, did I sell options against my position? No, I missed it. Missing moves like that is part I the reason I started trading using action/Reaction Lines and Andrews Pitchfork.

There are 2 other things I want to point out from the chart. First, I wanted to point out areas in red. Look at the action area. Next, look at the reaction area. They almost mirror each other. Also, the reaction area hit the lower prong of the pitchfork and bounced off of it. You can see that the MACD went up and did not go negative. Since the lower prong is a support level, it confirms that the stock is headed for the target. The second thing I wanted to point out is my prediction and it s $43 on or before March 10th.

Also, I had a position sell today for a profit, STJ. So, I have some cash that free up. I will be looking for a new position to trade. I will be waiting for a down day(DOW and Qs) to trade per the rules of Compound Stock Earnings. As soon as I find a trade, I will post it and we will go through it from start to finish.

Longer term predictions for the DOW's and the Qs'

noreply@blogger.com (Dave C.) — Fri, 08 Feb 2008 18:10:00 +0000

Fig 1.

Not too long along ago I gave a my short term prediction for the DOW. Now, I thought I would take a look at the DOW to see if I could tell if where the DOW was going in the next 6 months. So, looking at a weekly chart and applying the tools I use, I have come to the conclusion the DOW has hit a bottom, the bias is up and is now trading in a sideways channel You can see this in Fig. 1
Looking at the action/reaction lines the DOW ends Feb. begins March at the 13,400 level. Then it should retrace that upward move. How far down the retracement goes, I can't tell yet. But, then it will reverse and climb to the previous levels of Oct. ,14,200 by the end July of this year.

The scary thing about this prediction I was watching TV and some of the talking heads were making the same prediction. They must have been reading my blog.

Fig 2.

Now for the QQQQ. It looks like the same story as the DOW. We have hit bottom and the Qs will climb to the $50 level by April and then will test the highs of Oct 07 of $55 by Sept.

Well, I hope I am right and my bank account hopes I'm right and the mortgage company hopes I'm right and the credit card companies hope I'm right but, we will see.

Where is the DOW going now? The Qs?

noreply@blogger.com (Dave C.) — Wed, 06 Feb 2008 15:33:00 +0000

Fig.1. Charts generated by Track 'n Trade

In a post last week, I said I would make a prediction of where the Dow is going next. Well, my crystal ball is still a bit fuzzy, but here I go. According to Dr. Andrews the price will touch the median line of the pitchfork 80% of the time. The other 20% of the time there is price failure and the price will reverse and go in the opposite direction. I hope this is one of these times. (Fig. 1) shows the newest Pitchfork(in red) based on the pivot point high that formed 2 days ago. Using the action/reaction lines I get a target price testing the lows of late Jan. of 08 near 11,600. That's why I hope I am wrong. So, since it is such a steeply drawn pitchfork I am going to call the reversal point using the upper line of the pitchfork and not the median line which would be approx the 12,050 level on or before the 18th of Feb. That area noted by the square on the chart also, is the 60% fibonacci retracement area from the pivot point. So, let see where the DOW goes now and this is one time I hope the Pitchfork is wrong.

Fig.2. Charts generated by Track 'n Trade

Now, I want to look at the QQQQ. Looking at the chart(Fig. 2), using the the red pitchfork, I think the Qs are going to stay around where it is and end up at the $45 level. This should happen around the 20th of Feb. You can see it hit the target price at the beginning of Feb and has gone done since I believe it will reverse back up and end up at the $45 level. Again we will see.

Is United Technologies headed to $70 by 2/13/08?

noreply@blogger.com (Dave C.) — Mon, 04 Feb 2008 20:47:00 +0000

In my last post, I said we would look at some trades that I am active in. So, lets look at United Technologies(UTX). As I mentioned before I use some trading strategies by Compound Stock Earnings. ( I won't give you a review of their material here. I' ll save that for a later blog entry.) Using their information I entered in to a Leaps trade buying the Jan 09 75 call on Nov. 5th of 07 for $11.20 looking for a 5% return. I entered the trade violating a Compound Stock Earnings rule that states only trade in the money/at the money LEAPS under $10. In the book and at their seminars they don't explain why under $10 but, I figured it out on my own after I got in to this trade. The reason for the under $10 rule is we are looking for a 5% move up in the stock and if the LEAP is priced over $10 the underlining stock has to move to far to get a 5% return easily.

I entered the trade using Compound Stock Earning technique of looking for a stock that meets certain fundamental criteria, that is in an uptrend and is in the lower 25% of the trends price channel. Figure 1. shows the channel. It is the shaded area between the white lines. I also highlighted the day I entered the trade.

Fig.1. Charts generated by Track 'n Trade

The idea is that UTX will hit support and reverse toward the upper part the channel giving me a 5% profit in the trade. When the LEAP sells I'm on to looking for the next trade. If the stock goes the wrong way I can still make money. Why? Because I sell call options against the LEAP position. If the stock continues to go down I can manage the trade by selling Call options until the stock goes back up. I don't use a stop loss, I just manage the trade, making money by selling calls against the LEAP until the stock goes up to where I can get out for my 5% profit.

I told you the ideal, text book scenario. As you can see the stock went down. So, let's see if I had used an Andrews pitchfork instead would I have avoided this trade or made this trade anyway. Figure 2, shows the the Pitchfork and the Action/Reaction lines. Now, we can see on the 5th of Nov. the target price was not reached. It reached the target price late, on Nov. 19th. and didn't reverse trend until Nov. 29th.

Still it reversed from the $73 level up to resistance given by the upper fork of the pitchfork, the $79 level. By my calculations that up side move should have been large enough to give me my profit target of 5% and it would have been a successful trade. But, even if I waited, trading on the Pitchfork feel I would have been taking more risk because the white uptrend support line was broken.

Fig.2. Charts generated by Track 'n Trade

That brings us to where am I now. I didn't buy on the pitchfork but, on the trend channel. The stock is trending down. I still own the LEAPS. So, now what do I do. I sell call options against my UTX position until the stock goes back up to a price point where I can sell it for a profit. The stock went down to the $65 level. Now I need to wait for the stock make it's next high pivot point and that is happening now at $74. Figure 3. shows that it hit the upper resistance fork and should now reverse to target at $70 and the MACD looks like it has reached it peak. I am hoping to sell calls on the move to $70 is not too quick and the Pitchfork shows me it will head lower than $70. Will it head to $70 or lower or will the trend reverse itself? We will see.

Fig.3. Charts generated by Track 'n Trade

Where Will the DOW Go From Here?

noreply@blogger.com (Dave C.) — Sat, 02 Feb 2008 00:05:00 +0000

As an Investor I go to investing sites and they say "look if you bought XYZ stock following my system you would have made all this money because it went up 10,000% over the last 1 month. Just look at the chart." But, what about the trades that went wrong? Oh, I won't find out about those trades until I pay you a lot of money. Great. Sometimes, I wander if the market gurus make money not from their trades but, from selling you their secret systems on how to trade. I like to watch them recommend stocks on Saturday morning. One guy says this is a great stock and the next guy says I hate it that stock, it stinks. But, I digress.

I hope this site is not going to be like that. This blog is my personal trading journal where you can follow along on my trades as they unfold. You will see my mistakes, my wins and loses. So, with that in mind here I go.

Let's start with the DOW(Fig 1). First I look at the trend. It is still down. Then I draw an Andrews Pitchfork and somewhere along the center line is my target price. Dr. Andrews stated that the price will touch the center median line 80% of the time. But , what I want to know is when and what price are going to touch the median line.

Fig.1. Charts generated by Track 'n Trade

Next, I add the the Action/Reaction lines(Fig. 2). By adding the Action/Reaction lines(yellow lines) I now have a target price and time frame. My target is shown by the yellow circle on the chart. The price target of approx 12,610 was hit on Weds. Jan 30th. The target time I came up with is next Weds. Feb 6th. So, starting Monday, I will look for the DOW to start to reverse it's upward movement. It should start to go back down following the yellow reaction line on the chart. I will use the MACD histogram to confirm this change in direction. Now, as to how far the Dow will go down. I will be able to make that prediction when a new pivot point forms. The pivot point forms when there are 2 straight trading days of lower highs. At that time I can draw my next pitchfork and get a new target price and time frame.

Fig. 2. Charts generated by Track 'n Trade

We will wait and see if the reversal happens and if so, I will post the DOW with a new pitchfork and prediction with it. If I am wrong I won't need to tell you. You will know. But, next I will Post a trade I am in the middle of. One that I was in before I started this new way of trading. A trade that went wrong and now I am Managing until it is profitable.

What Tools I Use to Trade.

noreply@blogger.com (Dave C.) — Wed, 30 Jan 2008 19:08:00 +0000

In my first entry I said I would tell you what tools I use to trade and to predict where the markets are going. I am not going to go in to details here on the tools but, as I show my trades I will expand on the indicators I am using.

As I said earlier, I look at a stock because of it fundamentals and then trade the stock based on its technicals. So, from a fundamental standpoint I pay for a stock/leaps screener from compoundstock earnings using the default values given.

Now, what do I use from a technical standpoint. I primarily use Andrews Pitchfork, action/reaction lines and MACD.

If you are not familiar with Andrews Pitchfork go here to learn how to draw the Pitchfork. If you really want understand how Dr. Andrews traded and what he taught people I suggest you take the pitchfork primer course.

Dr. Andrews said that prices will hit the median line 80% of the time before reversing. So, I learned from Dr. Andrews where the price was going but, my problem was until recently was knowing when the price is going to hit the Median Line. Well, I found my answer in a Book By John Crane, Advanced Swing Trading. It falls right in with trading the Pitchfork by using Action/Reaction lines he talks about to predict time. Now I have a target price and a time frame of when I am going to reach that target price.

Now for the MACD. I use the MACD to help confirm what the pitchfork and the action/reaction lines are telling me.

So, where do I go from here. Next, I will make a prediction of the DOW this Friday.

Can a Part Time Investor Predict the Market ?

noreply@blogger.com (Dave C.) — Tue, 29 Jan 2008 04:26:00 +0000

Predicting the stock market is very difficult since it depends on several known and unknown factors. The sheer success of stock market commentators, authors, websites and newsletters dedicated to predicting the stock market is testament to public demand for this kind of information. Until someone develops a crystal ball that works, predicting the stock market is going to remain extremely difficult or is it?

Of course, predicting the stock market is such a hard and potentially rewarding problem that its appeal will never cease. There is no one who can precisely predict stock trends consistently, all of the time. The philosophy that you can “beat the market with market timing” often leads investors to apply risky, short-term strategies such as day trading — where investors attempt to predict the market’s day-to-day fluctuations. But, is there a way to predict which way a stock will go, constantly?

That' s what I working to accomplish. A way to predict which way a stock is going to go and when. Then, profit from that move before it happens. I plan on doing this by taking a fundamentally sound stock(Leap) and applying technical analysis to the stock to determine it's future short term direction.

Technical analysis is the practice of trying to predict stock prices by examining trading patterns and comparing the shape of current charts to those from the past. By applying the tools that I use to those patterns( I will share them with you in my next post) , I hope to predict a stock's direction enough times to consistently profit from it. Can I do it? We will see.

So, as I progress I hope you will join me and give me your comments along the way. Can a investor predict the market? We will soon find out.