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Michele “Mish” Schneider is the Director of Trading Research & Education for MarketGauge.com, where she provides in-depth trader training as the market analyst, writer and host of Mish's Market Minute – Premium [http://mish.marketgauge.com]. A former Member/Trader of Coffee, Sugar and... More
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  • Trading Tips for Key Indices and ETFs

    SPY had an accumulation day in volume, the first time since May 31. Plus, it held the 200 day moving average. I'm still not happy about the declining slope on the 50 day moving average so I'm not ready to get too excited about a possible bottom. But, looking at the volume patterns, yesterday's spike in volume followed by today's attempt at lower prices followed by an impressive comeback on big volume at the end of the day, at least gives me pause for a possible correction and an opportunity to sell into another rally.

    QQQ a very different picture. Confirmed now in a distribution phase with a distribution day in volume. The pressure of the Chinese stocks and now I'm afraid, a further decliningRIMM after disappointing earnings in the aftermarket, is giving NASDAQ a very tough time indeed. The March low 53.77 was penetrated today on an intraday basis even though we closed above it.

    IWM held the 200 day moving average and although it had the biggest percentage of gain, which we anticipated in last night’s blog, it could not close above the floor trader pivot. Now, if cannot rally past 79.00 and then breaks 77.30, I will be looking once again to the ultrashort TWM which stopped exactly at Monday's high today.

    ETF's: XRT** put up a good fight but now we have a declining 50 day moving average once again and a close beneath the 10 day moving average. If it opens beneath lower, can would not be surprised to see a selloff down to the 200 day moving average.

    IBB has a neutral slope on the 50 day moving average after today's activity plus a close beneath the 70 exponential. Again this would not be one that I would necessarily look to short, but at this point would only be buying if it can hold above 102.33.

    SMH broke the 200 closing beneath yet hanging onto the March 16 low at 32.32. If we cannot rally from this level than that will also start to look heavier than it already does.

    XLF held 14.63 and closed up on the day. The financials still have the power to keep the market from completely falling apart therefore will be watching 15.00.

    The Euro held 1.42. I've been writing that that is an important support level against the dollar. Now, will be watching to see whether 1.42 holds and if so what happens the next time the Euro gets to 1.44.

    For more detailed analysis join me, along with hundreds of other subscribers, at Mish's Market Minute and get my daily trade picks, trade alerts, training videos, and exclusive analysis tools. Sign up for Mish's Market Minute now and get a free 2 week trial!

    Jun 17 1:38 PM | Link | Comment!
  • The Power of the 200 Day Moving Average

    by Michele “Mish” Schneider [09.28.10] 

    The 200 day moving average may be the granddaddy of moving averages. Simply put, a financial instrument that is trading above it is healthy; below it, anemic. The 200 day moving average measures the sentiment of the market on a longer term basis. This is where major players like pension plans and hedge funds need to look in order to move a large amount of stocks. I display it on all my workspaces proudly, formatted in emerald green and real thick so I can't help but notice. 

    Not only am I always interested in a stock, ETF or future's price movement in relation to the 200 day moving average - I also study the slope, the distance it is from price action, and its correlation to some other moving averages, particularly the 10 and 50 day. For instance, where the 50 in particular is in relation to the 200 day moving average determines the phase of the overall market, ETF, or financial instrument. 

    Longer moving averages like the 200 lag. They tend not to predict price direction, but rather reflect current direction. Therefore, when you hear "the trend is your friend," technically put it really means that the price over the last 200 days is indicating an upward trend, therefore look for buy opportunities; versus the price is below the last 200 days, therefore look for sell opportunities. 

    Moving averages are also good indicators for support and resistance. Since so many traders and investors watch the 200 day, once a price point reaches, fails or holds it, the collective psychology creates an immediate impact. Over the longer term, even psychology won't sustain the price action as the collective group is fickle. But, for a short term play, it works out amazingly well. 

    Furthermore, if the price of an instrument is far above or below the 200 day moving average, the reverse happens: a price way above could signal an overbought condition and way below - oversold.
     

    Let's Examine 3 Ways I Use the 200 Day Moving Average:
    • Trend - Where is the price in relation to the moving average: below, above or touching it?
    • Slope - Turned up, down or neutral (no slope at all)?
    • Crossover - The relation of the shorter term moving averages to the 200 - have they crossed over, under, touching?



    FXI:
     The price is above the 200 day moving average - trend is up. The price is well above the 200 day moving average and the slope of the line is down. That tells me not to chase it at current levels. The 50 crossed over the 200 day moving average-trend can now change back to bullish from accumulation, but with a downward slope, patience is called for. One can either wait for the price to get closer to the 200 day moving average, which should now act as support or, wait for the slope to turn up along with another signal like consolidation around a daily support level or a test and hold of the adaptive moving average. Ideal scenario is that FXI finds support at the 41.40 level, doesn't fill the gap left from September 13th and the 200 day slope turns positive - all with an entry point that gives us good risk/reward.



    GS: The price is below the 200 day moving average - trend is down. The price is considerably lower than the 200 day moving average at time of writing, but on September 21st it rallied up to the 200 day, thereby acting as a perfect resistance point - with a low risk short opportunity. Slope of the 200 day moving average is down and has been for quite some time, but now it is turning more neutral. Plus, the other shorter term moving averages (10, 30, 50) are all beneath the 200. Furthermore, although the 10 crossed over the 50 day the week of September 13th, the slope of the 10 is down - so a weak indication. Now, the slope neutralizes on the 200 could mean that the bear trend is coming to an end. For signs that GS momentum to the downside is waning: watch for a move in price back over the 50 day moving average, and/or the 10 day moving average to turn up and then cross back over the 200. Of course, a move back over the 200 day moving average would be considered a phase/trend change. For signs that the weakness will continue with the possibility of the price heading back to the lows look for: A failure for the price to cross back over the 50 day moving average, the slope on the 200 day to turn down, and/or the 10 day moving average to cross below the 50. 

    When one considers the trend, slope and relationship the 200 day moving average has to price and shorter term moving averages - whether you are a day, mini or swing trader - employ it as a compass for your trading. 

    Happy Trading!

    Michele “Mish” Schneider



    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Tags: FXI, GS
    Dec 10 3:58 PM | Link | Comment!
  • Another Post Earnings Trade: Timeframe-Daytrade (Earnings Article Pt. 2)

    [This article was written on August 6, 2010 (http://mish.marketgauge.com/postearnings_top.php), and is the 2nd of a 2-part series. Current market conditions as of Dec. 1, 2010 confirm its prescient information.]

    In my last article on how to trade both before and after a stock reports earnings, I talked about a mini-swing to swing timeframe with GOOG and BIDU as examples.  But what can one do if the stock reports well, yet has a negative market phase, looks oversold, and the Dow Jones Industrial Average just closed down $265 with the pre opening call indicating another $80 lower?

    That is when one looks to daytrade based on solid risk/reward parameters using a 2 minute opening range breakout.  That can apply whether the stock has either gapped up or down.   The important factors are twofold: the risk must not exceed the reward (stick to a 2:1 ratio); and the momentum must occur immediately.

    Here’s a perfect example: 


    This is a screenshot of our scanning tool HotScans.  Before the market opens, especially during Earnings Season, checking to see which instruments are up on good volume is a great way to gauge a possible daytrading strategy after the opening bell.  CAGC is highlighted in yellow.  Earnings had come out at 9:00am EST before the open and had reported positive.   CAGC was already up 2% with 884% greater than average volume on a day when the market was due lower.


    On the daily chart, CAGC had a great potential setup.  First, it spent 3 days under the Floor Trader Pivot, yet held the 10 day moving average (denoted in cyan).  Plus, the 10 had crossed the 50 (blue) day moving average a couple of weeks prior; and even with overall weakness, the 30 (pink) had managed to also cross the 50 day moving average the day before.  A slightly oversold stock that held key moving averages - a scenario I look for.  Also note that CAGC was therefore under the 200 day moving average (green); a daytrading first target and area of resistance was clear as well. 


    On the one minute intraday bar chart with all of the reference points we use, I could see that CAGC opened above the Floor Trader Pivot after 3 days of closing beneath it.  The previous day high, the 2- and the 5-minute opening range high all corresponded around the same price.  I placed a buy stop over that area and got filled at 14.80.  The risk is to under the opening range low or 14.10 - not an amazing risk for a daytrade given that CAGC has an average true range of $1.15.  However, with a post earnings play, time and momentum are equally important.  Had the stock floundered after I got filled, I could have gotten out sooner than the initial stop, figuring that the earnings play could not yield enthusiasm given all of the other aforementioned parameters that also lined up with the breakout of the opening range. However, CAGC did begin to run up.  First target was R3, where - considering the Dow Jones Industrial Average had begun to drop - I thought it was a good place to lock in ½.  Now, I could place a no loss stop on the balance and let it go, playing with “their” money.  As the stock continued to rise, I sold the remainder at 16.90 using a limit order.  I chose that price as it had been a level of resistance dating back from May 13th and May 17th, when it spiked up to 16.97 and 16.86 respectively.  The DJIA closed down 265 points that day.

    Ordinarily, for a stock such as CAGC, I would consider a miniswing or swing trade on a post earnings play with the type of technical setup I describe, but one must always consider the overall market.  On this day, I took advantage of the post earnings volatility, yet kept in mind that I needed to see the momentum immediately as CAGC was going counter to the market.   As a daytrade, I had no overnight risk or angst - just a clear intraday risk with good profit potential!

    Happy Trading!

    Michele (Mish) Schneider


     



    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Tags: CAGC
    Dec 08 1:42 PM | Link | Comment!
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