Saturday, April 13, 2013


Studies and Why I Generally Don't Use Them

You probably have noticed that I don't show a lot of studies on my charts. You know, the type that scroll along the bottom of the chart and provide all sorts of buy and sell signals (MACD, RSI, etc.). There are several reasons for his.

First, I have never found the perfect study. Every study has major limitations. What works in one situation won't work in another. If you rely upon studies, eventually they will bite you, and the more you rely upon them, the more they will bite. Their real value is to serve as a way to give up your decision making power, even if nobody else is involved in your trading. You are giving it up to whoever created the study and/or to the common wisdom that "this is a good study." This makes it easier to rationalize your losses ("Well, the MACD and RSI and Bollinger Bands all said to sell!) or to give you extra confidence to go through with a trade. I'm (usually) not looking for that.

Second, just give me price history and volume, and I'll go from there. That's all you really need. Everything else is built on those two facts anyway. Relying on the basic inputs also forces you to hone your pattern recognition skills. Studies aren't magical, they also usually use just past price and volume. Those that pull additional facts out of thin air are suspicious for that reason alone.

Third, fancy studies are distracting and take time away from looking at the chart itself. Stocks move in patterns that ebb and flow with the interest of buyers and sellers (and there are never "more buyers than sellers" or vice versa, there are always the same number of both in a liquid equity, it's a balance of motivation). Fancy studies may or may not catch how motivated buyers and sellers are, but looking only at volume and price certainly will tell you what is going on if you pay attention.

Fourth, different studies rarely are in total agreement. Then, you have to start picking and choosing, and your decision making gets even further removed from the fundamental factors of price and volume.

Fifth, studies have to be calibrated and fine-tuned for different instruments and time periods and situations. They are not, despite what you might think, "one size fits all." I don't have the patience for that, and besides, who's to say I would calibrate them correctly for different situations. Then, you are looking at a study that is removed from the fundamentals of price and volume, and the study is manipulating them improperly to boot. It's not worth it.

There are other reasons for not relying on studies, but I'll leave it at that. My point is, I don't rely on whether the MACD is peaking or the RSI is deteriorating or the price bar moved outside the bands. MACD can peak and peak and keep on peaking until you go broke, while using a 14-period setting may give you a different result than a 21-period setting, and so on.

I'm not a total study snob. If you become a true expert with a particular study and learn all of its ins and outs, it can become your trading right hand. Some basic studies are always useful, such as moving averages (upon which most other studies are built anyway). They organize price and volume in simple ways that have so many people looking at them that they develop predictive power for that reason alone. The more data manipulation is involved, however, the less I want to use a study.

A simple study used sparingly, as an adjunct to pattern recognition and to organize at a glance what I learned from simple price and volume, is pretty much my limit. I'd rather rely on chart patterns that recur and have high probability outcomes than use somebody else's tool whose limitations are not always apparent.

Friday, April 12, 2013

PCS April 12 2013

PCS is forming a nice Bullish pattern. PCS has consolidated its previous run and is forming a cup pattern. Volume is starting to pick up. PCS may be ready to make its move fairly soon. There is merger talk, but who knows how real that is.

CERN April 12 2013

CERN chart

CERN has one of those channel patterns off a bullish formation that is very orderly and tidy. Very easy to trade these stocks, you put your stop just under the channel or take your profits when it goes above the channel. Yes, you can still mess it up, but the odds are greatly in your favor - and that is all you can ask with equities.

SPY April 12 2013

SPY April 12 2013

Updating this chart. Nice, orderly channel, showing normal movement between the upper and lower trendlines.

SBGI April 12 2013

SBGI April 12 2013

SBGI holders have to be looking at this and thinking about taking some off the table, no matter how much they love the company. It certainly could go higher, but odds are good for a consolidation at some point.

MSFT April 12 2013

MSFT April 12 2013 chart

MSFT has a nice chart pattern going. Nothing is certain with chart patterns, but it is setting up nicely, with a well-defined uptrend channel and perhaps a larger bullish formation forming.

SBUX April 12 2013

SBUX has had a nice run since we were talking about it last year. No signs of it ending, and currently the cup and handle patterns suggests a ramp higher at some point. People like overpriced coffee, who are we to argue.

Thursday, April 11, 2013

JBHT April 11 2013


JBHT is on a nice run. Very easy to define channels and a clean volume profile. The run isn't over until it's over, they can last a long time.

TNK April 11 2013

TNK chart

TNK is a good play for bottom fishers who like value and don't want to overpay. Nice consolidation in progress. For someone with patience, good things may await. Nice, easy spot to put your stop, right under the low of November.

EXM April 11 2013


This is a cheapie play, but some traders like those volatile plays. Note the nice uptrend off the solid base. If you prefer playing the MSFT's and IBM's of the world, this is not for you.

Intraday April 11 2013

This is a typical intraday pattern we look at. Watch for a break of the channel - a break that is confirmed -  for a trade. The "confirmed" part is very important.

Wednesday, April 10, 2013

CRM April 10 2013


CRM yet another stock with a megaphone pattern. Those usually mean trouble for longs when they appear after a nice run higher.

CSCO April 10 2013


I'm noticing some megaphone patterns tonight, and here's another. CSCO has been struggling after its big run higher, which might not be obvious until you look at the broader chart. I wouldn't necessarily say that it is ripe for a fall... nah, yes I would.

SAP April 10 2013

SAP daily chart April 10 2013

SAP is sitting right on the lower edge of its High Volume Node. The larger Megaphone pattern suggests a reversal/market top, but that might not happen quite yet. Many traders like trading stocks at decision points, and this one can't fall much further without going into free fall. No matter which side you pick, long or short, you need to watch SAP closely here and let it make its decision, which will become obvious soon.

BBBY April 10 2013

BBBY Looks Strong

BBBY is in a Bull Flag off of an inverse head and shoulders with a double bottom. And, it is filling a gap. I've rarely seen so many concentrated Bullish signals in one chart.

Below, I added a few fancy studies for BBBY that also suggest a positive trend.

The Ichimoku cloud also is our friend on BBBY right now.

Very Bullish chart, and a solid company.

Tuesday, April 9, 2013

DANG April 9 2013


I can hear the cries of panic. "It's Chinese, they are all fraudsters, their accounting is a joke, the company probably doesn't even exist." Well, whatever. As a technician, you look at the chart and play it. DANG has held the low since November, which is pretty impressive and makes you wonder why. If you are into risky plays with potential quick payoffs, put a stop on DANG at the low (which is pretty dang close) and punch your ticket. If you prefer to avoid admittedly doggy Chinese stocks, kindly move along, nothing to see here.

ALU April 9 2013


ALU will make you pull your hair out if you hold it for too long. Some of us have history with ALU, and it isn't good. However, the chart looks interesting here, with it sitting at around the 50% retracement line. Dead cat bounce? Perhaps. Let's see if it holds around here. Reasonably tight stop on this one, this is a pure chart play.

GEVO April 9 2013


I don't know much about the fundamentals of this stock. Technicians don't worry about those too much, though they, too, should check them before entering any play. You should brush up on the fundamentals of any play before you enter. From a purely technical standpoint, GEVO appears to be a low-risk play scraping off the bottom.

NOK April 9 2013


An interesting chart, sitting at a clear turning point. The uptrend from the lows last summer appears intact. Nice, convenient spot for a stop.

IWM April 9 2013


The chart is a bit messy, but you can make everything out if you give it a look. The bottom line is that the small caps are underperforming big time. Small caps, the saying goes, tend to lead the overall market. I didn't mark it on the chart, but remember we still have a gap to fill way down there.I wouldn't bet my last dollar that we'll close it soon, but then again, I wouldn't bet it that it won't, either.

SPX April 9 2013

SPX Remains in Uptrend

The SPX moves in very orderly channels.

The market remains in an uptrend. I realize this is not a news flash when the averages are hitting all-time highs, but it pays to return to the charts to see what the parameters are.

Naturally, there are many who wish the market would drop quickly and forcefully. It will - at a time of its choosing. Trying to guess the top is possible only by pure luck and chance. Better to wait for the uptrend line to be violated first, then reap some easy profits.

UAL April 9 2013

UAL Has Done Well Over the Past Year

People no doubt thought I was crazy when I was talking about UAL a year ago.

Sometimes I like simple charts as above, but sometimes a bit more complexity shows you some things you can only intuit from the simple chart. Note where I placed that stop, and why.

The volume profile is very telling. You want to avoid the volume-less zones as much as possible on the way down.

Sunday, April 7, 2013

ZAGG April 8 2013

The ZAGG downtrend is still in place, but it is staging a slight recovery.

ZAGG may be worth a look, but those overhanging moving averages are death.

DRYS April 8 2013

DRYS April 8 2013

The continued weakness in shipping is troubling not just for them, but for the entire world economy. Unless transports such as DRYS do well, it's difficult to see an extended world economic recovery.

AA April 8 2013

AA Alcoa

This is quite a set-up for either a major tank or a quick shot higher. Careful, because triple bottoms don't necessarily hold.

ISRG April 8 2013


ISRG has been a buy on these dips. Looking for a move back to the 500s.