InTheMoneyStock...'s  Instablog

Sometimes stocks will break out or break down in a very sharp and steep angle on the charts. These type of patterns are often referred to as a parabolic move when they surge to the upside. When these patterns occur to the downside they will often be referred to as a falling knife or waterfall decline. The actual name is irrelevant, however, understanding the chart pattern is very important. As a general rule, if you ever put a protractor up to your screen from any pivot low or pivot top and the angle is more than 60 degrees it is usually unsustainable. It does not matter if the stock or commodity is rallying or declining. The technique I will show you here will help to identify when the equity is running out of steam in either direction, and will need to retrace and consolidate some of its move.

Step 1. Scan through stock charts and find a time when a stock was extremely extended from its 20 (SMA) simple moving average.

Step 2. Determine the distance of where the stock was trading from the 20 moving average. If you use eSignal charting software this can be done easily with the segment tool; simply right click, hit copy, that line will be duplicated and can be placed where you want it. If are not using eSignal, simply calculate the distance of the stock from the 20 MA and draw a vertical line to reflect it.

Step 3. Take this distance and place the line on your chart. Follow the 20 SMA with the line; if at any point the stock price exceeds the length of the line from the 20 SMA, this will be your opportunity for a trade. Wait patiently, anytime price gets above or below the distance of the line, go long or short the stock. In this example, we are looking to enter a short position when price exceeds the distance of the line to the upside. Note the example below.

Example, take a look at the TLT chart below. On February 9, 2011 the TLT traded down to the $88.14 level. If you draw a straight line up to the 20 moving average from that $88.14 level you will see that the distance from that low pivot to the 20 moving average was $2.74. That is the distance that will be used for evaluating a future trade entry.

On March 23, 2011 the TLT spiked sharply higher and became extended from the 20 moving average. If you simply copy the $2.74 measurement from the February 9, 2011 extended move and place that line on the 20 moving average of March 23, 2011 you see that it is extended and into resistance. This tells us that the TLT will likely pullback before moving higher. Therefore, if you own the TLT you can take profits on the trade or simply trail the stop loss. Traders that are aggressive and want to short the TLT can do so at the daily chart resistance from the last pivot high which was on December 21, 2010 at $94.70 a share.

This technique can be applied to all time frames and used on all types of equities such as stocks, commodities, forex, and futures. Test it out a few times before adding it to your trading arsenal. By locating equities that are extended you will add more probability in favor of your trade succeeding. I am confident that once you start using this technique it will become one of your favorite methods for finding overbought and oversold equities.

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This morning, two market leading restaurant stocks are selling off sharply lower. Chipotle Mexican Grill Inc (NYSE:CMG), and Panera Bread Co (NASDAQ:PNRA) have both been major winners in 2012, however, today these stocks are falling significantly lower. When stock market leading stocks decline traders should always take note as these stocks are often falling out of favor with investors.

Today, Chipotle Mexican Grill Inc (NYSE:CMG) is declining lower by $18.75 to $396.54 a share. Short term traders should watch for intra-day support around the $392.00, $389.00, and $384.50 levels. The daily chart of CMG stock will have support around the $380.00 levels.

Panera Bread Co (NASDAQ:PNRA) is trading lower by $4.35 to $139.13 a share. This stock topped out in late March 2012 at $166.00 a share. Short term traders can watch for intra-day support around the $138.00, and $135.50 levels. The daily chart for PNRA stock will have support around the $130.00 area.

Some other leading restaurant stocks that are trading lower include Tim Hortons Inc (NYSE:THI), and Pizza Inn Inc (NASDAQ:PZZI). Most other stocks in the restaurant sector are holding up rather well today. This tells us that CMG, and PNRA are isolated stocks and most other stocks in the sector are not falling in sympathy.

Nicholas Santiago
InTheMoneystocks.com

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If you ever wonder what type of day it is going to be in the stock market you can simply follow three stocks. When these three stocks trade higher on the session together the markets are likely going to finish positive. The opposite is true when these three stocks trade lower on the session, the major stock indexes will usually finish in negative territory. When these stocks are mixed then the markets are usually going to finish slightly higher or lower. The three most important stocks in the market are J.P. Morgan Chase & Co (NYSE:JPM), Exxon Mobil Corp (NYSE:XOM), and Apple Inc (NASDAQ:AAPL).

J.P. Morgan Chase & Co (NYSE:JPM) is the most important financial stock in the United States and possibly the most important financial stock in the world at this time. This stock is still the leading financial stock despite its recent trading loss that is be highly publicized. When JPM stock moves the markets listen. Today, JPM stock is trading higher by 0.08 cents to $34.39 a share.

Exxon Mobil Corp (NYSE:XOM) is the largest energy company in the world. The company has the second largest market capitalization in the entire stock universe at $377 billion. This stock is a major component of the S&P 500 Index and the Dow Jones Industrial Average. Today, XOM stock is trading higher by 0.56 cents to $81.19 a share. Short term traders should watch for intra-day resistance around the $81.37, and $81.75 levels.

Apple Inc (NASDAQ:AAPL) is the leading technology stock in the world. This company's growth has been responsible for putting companies such as Research In Motion Limited (NASDAQ:RIMM), and Nokia Corporation (ADR) (NYSE:NOK) into a possible bankruptcy. AAPL stock also moves the markets when it trades higher or lower as it is a huge part of the NASDAQ 100 and the S&P 500 Index. Every trader and investor must follow the action in AAPL stock as it is the largest stock by market capitalization in the world. Today, AAPL stock is trading lower by $1.41 to $570.75 a share. Short term traders can watch for intra-day support around the $569.40, and $564.00 levels.

Nicholas Santiago
InTheMoneyStocks.com

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