Thursday, July 23, 2009

Commodities Rally - Potash Corp./Saskatchewan (USA) (Public, NYSE:POT)

The nice thing about mapping out all the support/resistance levels on your favorite stocks, is that you can quickly visualize the perfect entry when price consolidates at or near a previous S/R zone. Also, if you miss the perfect entry, you can gauge whether or not to jump in midway, depending on the profit potential to the next S/R level.

CNQ consolidated at base of resistance setting up an obvious trade with predetermined target (next blue line).

POT - I missed the early entry at $90.00, but found a spot midway to the next level of resistance in the form of a bull flag.

I hadn't planned on trading EBAY, but when it carved out a C&H pattern with NRIB (NR7) as the trigger, I couldn't resist. The pattern failed and I was stopped out. Why?

Well, if we look at the 24 hour chart with the pre-market action, we note that price reversed after topping out at exactly the same price level where the C&H pattern attempted to BO (blue line). I was too rushed on this trade and didn't take the time to look at the price action in pre-market. Important to review PM price action especially for gap trades.


anarco said...

Great trading and posts today Jamie!
I have a question regarding expectations. Although I try to be open and nimble, today I came into the session with the expectation that a pull back was "suppose" to come and I ended up passing a number of trades that I would have normally taken. My question is: How do you work with that? For example, in your post today you say "get ready for some profit taking." Does that affect your ability to pull the trigger in a different direction or you try to look at charts and let them tell you the story. Anyway, I hope you get what I am trying to ask. Thanks in advance!

Jamie said...

Good question Anarco,

The best way to gauge the market mood is through the SPY or S&P futures. We are definitely predisposed to our intuition and technical analysis, but at the same time we don't want to fight the tape. So having a chart of the SPY or ES on the screen at all times is a good idea. When major resistance gives way, the short squeeze takes over, propelling overbought technicals even higher. When major support gives way, stops get triggered and prices drop at exponential speed.

I was bearish going into today after all the negative earnings reports from last night. Surely, that would be a catalyst for some profit taking, but that trade lasted about 90 minutes, until the the ES futures carved out a tweezer bottom at support from last night's AH lows and bounced.

The bears are weak after yesterday's devastation. We as traders have to be nimble and follow the smart money. If our intuition proves to be wrong, exit and wait for consolidation so that we can jump in at low risk and catch some of the move.

It does affect my trading in that I might not be focused on the right sectors/stocks, but I try to adjust by following the market pulse as much as possible throughout the session using the scanner and

Hope that answers your question.

anarco said...

Your answer makes a lot of sense to me Jamie. I have at all times a small window with SPY, but silly me I did not think of marking that one with major S/R levels. I'll try to follow your guidelines.
Thank you!