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  • High Margin Use As Contrary Indicator?

    There are high levels usage of margin in the current equities markets.

    In March, margin debt was at $13 billion.

    We have reached these levels in prior years. We saw them in 2000, 2007 and were close in 2011. What happened shortly thereafter? Stock market declines, that's what!

    So, we now see high margin levels as we approach the trading anecdote of "sell in May and go away."

    Will this hold true for this May? Well, no one knows the future but with margin use very high most investors will have limited or no cash available to make additional equity purchases. This is a structural element that leads to what we call a market "running on fumes."

    Be careful. What does that mean?

    Well, if you have profits no harm in taking partial profits, scaling down positions, raising up your stops, etc.

    If you are ready to put on a new trade, why not plan out what you are going to do BEFORE you put your money at risk and get your emotions of fear and greed started?

    Good news! We now have our free trade calculator tool you can use to define your buy price, stop, price target and determine the risk you will take on the trade. Plan it out and then email it to yourself to follow along. Simple! Effective.

    Here it is at www.tradeplay.com/calculate

    If you want to receive our alerts and stock watchlist, all free, just sign up with your email only at www.tradeplay.com.

    (click to enlarge)

    Apr 30 7:03 PM | Link | Comment!
  • Facebook Employee's Gain A Trader's Mindest Experience

    Lots of interest on Facebook and its stock price. What I'm thinking about is how Facebook employees that had a lot of stock options and exercised them are now experiencing massive trader mindsets. What do I mean? Well, they saw their paper net-worth skyrocket on IPO day. But, these wealth is locked up for just under another 100 days. The stock price has been shaved in half. $100,0000 became $50,000. $500,000 became $250,000. $10 millions became $5 million. $50 million became $25 million.

    What does this do to their psychology? They enter a familiar mindset of the professional trader. Once you are losing money on a trade you tell yourself, "if this comes back to even I'll get out." What a different mentality this is compared to the thoughts going into the trade. Now, there are a LOT of employees holding a LOT of shares. In a few months, they can sell these stocks.

    Many will likely not wait until they get back to "even" on the IPO day stock price. Why not? Well, even the 50% IPO price is a life-changing increase to their net worth.

    The have a chance to "exit" the trade of their work for the equity traded.

    So, how many sell?

    What does extreme supply of sellers do to the stock price?

    Makes me think.

    No guarantee on what happens but this is a high risk environment. High risk does not help your odds of a wining trade. Let's remain observers of the Facebook flounderings or whatever you want to call what is going on.

    It's interesting indeed!

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: ipo-analysis
    Aug 03 10:23 AM | Link | Comment!
  • A Cup And Handle Pattern In Facebook (FB) Guides How To Trade The Stock

    Now that all the fuss about 'how" the Facebook IPO went down we can turn our attention on watching the price action. Specifically, look at how a trading range is developing.

    Look at the chart here scharts.co/MKai2C and you will find that a textbook example of a cup-and-handle pattern is forming. What is a cup and handle? Why is it important?

    The cup-and-handle pattern is one made famous by Investor's Business Daily founder, William O'Neil. Basically, you can view the price action in the chart as a cup with a handle to the right. The deep move lower and then higher is the part that forms the "cup" while the downward sloping price action right after the cup has formed is called

    the "handle." This is important for a couple of reasons.

    First, it is a very distinct pattern that is rather easy to pick up. This is very nice for the stock trader doing research by scanning a lot of charts. In fact, one can be quite successful in trading stocks by simply only looking for this pattern to act upon.

    Second, if the stock's price action breaks through the high point of price between the cup and the handle part of the pattern, it is very likely that the stock's price will move quickly higher and stand a good chance of it going a similar range higher from that high point as the range from the low point of the cup to the high point.

    Focusing these thoughts on Facebook (NASDAQ:FB), when you look at the recent 3 month chart from the link above, you will see a clearly defined "cup" and "handle."

    So, let's break this down and build up a plan for a new trade. A plan for how to safely play the stock market game on our idea.

    Here is the chart with the stock's price highs and lows tagged. httpscharts.co/MKblj2

    The low point of the cup was $25.52. The high point on the pivot between the cup and the handle was $33.45. Subtract the lower from the higher number and we get a range of $7.93. Add $7.93 to the high point of $25.52 and you get a price target of $41.38. Dividing $7.43 into $33.45 we get a potential gain of 22%. That got your attention, right? A possible 22% gainer is exciting but before you put your money into the market in trade for the stock let's figure out at what price will the market tell us our hypothesis for this trade is proven wrong. That is the step of setting in our stop loss.

    The cup and handle pattern is great for guiding us where to place this stop. So where is it? A great place will be to select a price just a wee bit below the low point in the handle. That price, per the chart, is $30.55. Subtract $30.55 from $33.50 (our expected buy price) and you get a possible loss of $2.95. Divide that into $33.50 and you get a possible loss of 9%. Okay, let's see, a possible 22% gain and possible 9% loss. That is a 2.4 reward to risk ratio. That's not bad.

    Add in the high probability of upward price move IF Facebook's

    stock price get above $33.45 this is an acceptable reward to risk ratio.

    So, greenlight to this trade idea. The plan is set. We made our plan before our emotions are turned up as they do once your money is in the stock market game.

    If you can learn to approach each trade in this same step-by-step approach you will find trading less stressful.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Jul 05 10:16 AM | Link | Comment!
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  • watching to go long Facebook ($FB) considering the cup and handle pattern forming in the chart
    Jul 5, 2012
  • GOOG broke down under its 200 day EMA today. be careful.
    May 26, 2012
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