Q&A

Topics:

• Gap Fill or How we might trade (NASDAQ:LEND) on Monday
• Momo Stock Watchlist
• Timeframes and Moving Averages

Q. Further to my previous post, a reader asks me to explain "Gap Fill" in the context of (NASDAQ:LEND).

A. The first chart below explains the gap fill area of interest marked in red. A good portion of the gap from Thursday's closing price to Friday's opening price has been filled already. The key take away from the gap fill is that it lines up perfectly with pivot point support (blue arrows), and falls in between the the 38% and 50% Fibonacci retracement of the last leg up (from Tuesday's low to Friday's OR high).

What does all of this mean? Well, on a normal retracement, we fall into pivot point support, which could initiate a reversal back up. The only caveat here is the convergence of all of the moving averages (MAs). This could slow down the reversal process as we don't want the MAs hovering above price on a long entry. Last Thursday we only had to contend with the 5 MA, but now we will have the 50 and 200 in play as well.

The second chart highlights the short-term target ($14.75) of a reversal back up. The three red arrows served as support on the way down and will be resistance on the way back up, . This is the maximum we can expect (notwithstanding a major news item) and there will be pockets of resistance such as Friday's high, in between.

A gap down below the pivot point zone $9.30-9.40 invalidates the setup. It's almost impossible to find shares to short at this point, so if support doesn't hold, just move on to something else. I'll also mention for newbie traders that you do not want to buy unless a clear reversal pattern presents itself.

Click on charts to enlarge

Q. Another reader asks me to list some of the key stocks by sector that I monitor in pre-market.

A. In general I prefer highly liquid stocks (volume > 1 million shares per day) with an average daily range > 1 as measured by the ATR (average true range) . The following is my current momo watchlist of stocks by sector. I don't often trade oil and gold, except when they show up on the gapper scans, so they might be conspicuous in their absence from the list but that is intentional.

Sector	Stocks
Semiconductors	LRCX, NVDA, SNDK, VSEA, FSLR, BRCM, KLAC
Networking	QCOM, JCOM, RVBD
Biotech	AMGN, CEPH, CELG, GILD, AFFX
Communications	RIMM, GRMN
Internet	AKAM, AMZN, BIDU, WEBX
Media & Advertising	FMCN, VCLK
Energy	ENER, STP
Industrial	JOYG
Metals & Materials	EXP, TIE, X, STLD
Airlines	CAL
Financial	GS, LEH, ICE, MA, NYX, NMX, LEND, FMT
Food & Beverage	HANS, WFMI
Retail	GES, URBN
Software	ADSK, CTXS, CKFR, CTSH, ERTS
Hardware	AAPL
Pharmaceuticals	AMLN

Q. A reader asks me to discuss my favorite timeframes and what moving averages I use.

A. For intraday trading I prefer the 15 minute timeframe because it is not too fast and not too slow and allows me to assess the setup in a meaningful way. For highly liquid and orderly stocks, I also like to use the 5 minute timeframe. For example, if the 15 minute view has triggered an entry, I will often use the 5 minute chart to time the entry.

For my nightly review of stocks, I mainly focus on the daily chart and sometimes the 60 minute timeframe.

I used to use the 10 period EMA as my main MA for support and resistance on the 5 and 15 minute timeframes, but after following Trader-X, I realized that his use of the 5 period EMA was much more precise for timing the entry on gap dummy setups. I still use the 10 period EMA for the daily timeframe. The other two most important MAs for me are the 50 and 200 because these are industry standards, ie. everybody is watching them. For the 50 and the 200, I use the SMA because they are farther away and I don't need the smoothing effect of the EMA.

I use the MAs for timing entries, support/resistance, as well as crossover and convergence, the latter two of which can alert me of an upcoming move.