Rebel Traders – Analysis Without The Hype

And what a day is was indeed… I have some very interesting market analysis tonight. Be sure to check out all of the charts in this post!

Tonight I am not going to talk about individual stocks. Instead I am going to focus on some of the market sectors and the broad market health. Before I dig my teeth into that I will highlight the events of the day.

In the pre market we had earnings from more home builders and as expected the results were terrible. Perhaps even worse than some were expecting. But one thing that stood out was that the housing problems appears to be spreading into the commercial construction now. This was further reinforced when the Durable Goods data was released this morning. It was showing capital expenditures had declined whereas business spending was concerned.

Then we also had today the growing fear that the sub prime (and now the prime) lending issues could erode some of the big M & A activity. Large company buyouts, mergers, etc. would be impacted by more problems in the lending sector. And today a lot of companies that are already in a takeover (but not yet finalized) pulled back some as investors were growing fearful that the money needed to make the acquisition may not be there now. This may be more fear than reality but it is still worth mentioning as it is important. Once private equity and/or other companies can’t secure the assets they need to do take overs, mergers, and acquisitions then the bull market will then be running on only 3 legs.

These events sent the market into an outright selling frenzy. At the end of the day all three of the major indices recovered some but in my view this was not all bargain hunters stepping in to start buying. It was a lot of shorts covering at the end of the day to take their profits. When the major indicators today showed the panic selling was underway hedge funds and other very large money movers started shorting just about anything with downside room. And these hedge funds that shorted large amounts of money today made a good deal of cash today when in the last hour they started covering and banking their profits. Remember that on just about any down day that at 3pm you will see a bounce. The last hour is when shorts start covering and bargain hunters come in for the kill. Today I feel it was more short covering than bargain hunters.

So that is what got the selling started. Early in the morning RebelTrader swing trade NightHawk Radiology (NHWK) gaped up at the open (last night they released good earnings) but I quickly saw what was looking like heavy profit taking and the price was going to fall through the floor. So I sold my entire NHWK position. That swing trade provided me a 5% gain today. Later I added to my position on FEEC when it broke above the next buy point. Because of the market conditions today I raised my stop level to $1.60 so that if FEEC fell back too much I would exit the trade at break even. And that is what happened. FEEC is still good, I will re-enter when the time is right.

That leaves only one currently open swing trade and that is WWAT. And that is sitting today at a 16% gain.

Ok, now I’m going to move on to some in depth analysis of the market in general. Some of the things I’m going to say in the next few paragraphs may be a surprise. What I mean by that is some of my analysis goes against some of the talking heads on TV. But I call them like I see them and I feel we still have trouble ahead of us. There are some significant resistance levels that need to be overcome in order for me to believe that the tech sector is ‘hot’ as some are saying. I’ll start off with that. The chart shown here is the “SOX” as we call it. It is the Semiconductor Index. Look at the chart and observe that currently we are right up against a resistance level. If the overall market continues to be weak then this resistance level will be strong and the index will turn around (and the tech stocks with it). If however the index is able to “break through” the resistance then I will be bullish on tech. But until it does tech remains questionable and I will trade it with extra caution.

The next chart is the Philadelphia Bank index ($BKX). It shows that this week we fell below a major trend line. Once a major trend line is broken we are in new territory whereas we are no longer in an uptrend. Now the index will trade sideways, fall more, or have trouble getting back above the trend line (remember that once support is broken that support line then becomes resistance).

The next chart is the Housing Index (a good index for all things housing, construction materials, etc). The chart ($HGX) shows a head and shoulders pattern. In technical analysis a Head and Shoulders pattern is the name given to a chart that exhibits three main events. A rally that peaks (left shoulder) and then another rally that is even higher (head) and then followed by another rally that is lower than the previous one (right shoulder). From those three events one can draw a neck line. When a stock or index fails the neck line the trend is taking a turn for the worse. This chart says we have larger troubles ahead in housing, construction materials, and in turn the mortgage business.

Next is the S & P 500 Large Cap Index ($SPX). On this chart notice how we have come to rest right on top of a very significant support region. This support must hold otherwise we will be in for an even bigger market meltdown.

Next chart is the NYSE Composite ($NYA). Same thing as with the S&P. The index has come to rest right on top of a significant support line. This must hold! Otherwise lookout below..

Next is the Volatility Index ($VIX). I present this chart in a new way tonight. I examine this chart in terms of when bull markets and bear markets have been in control. Remember the big market bubble that came crashing down in 2001 / 2002 (that was the big tech bubble burst). That was a bear market. Notice on the VIX chart the volatility in 2001, 2002, and 2003. See how high it was back in the bear market. Then at the end of 2003 and early 2004 we started a new bull market and the volatility declined all the way until 2005. Then the volatility started trading in a rectangle pattern up until now. But today the volatility broke above the pattern! Could it be that we are seeing the very early stages of a new bear market approaching? Wait until you see my next chart!

This chart is the NYSE index of new highs – new lows ($NYHL). Look at this chart carefully. I have indicated where the bear market was and the current bull market is. But what I want you to notice is the blue trend line drawn above the new highs. See how over the past 3 years the trend has been declining. This tells me the economy is declining and taking companies with it as reflected in the decline of new highs over the past 3 years. Some interesting things to ponder.

Now I am not saying that we are on the verge of an outright bear market. But I am saying that we are at a difficult time and finding good swing trades will be tough. But I will do my best to find them for you. There is always money to be made… finding the right plays at the right time is what I am here to help teach you how to do.

Good night Rebels!

I’m selling NightHawk Radiology (NHWK). It has gapped up on good earnings but it looks like it will fade with the rest of the market. Selling at $21.06

The financial sector finally had some upward moves. That in addition to some good earnings pre market helped the market move into the green zone today. The DOW maintained the gain for most of the day however the S&P and the Nasdaq gave up some the of gains from the peak of the day around mid day. But at least it was an up day on all three of the major indices.

Also in the pre market was the news of the merger of Transocean (RIG) and Global SantaFe (GSF). A deal worth $53 Billion.

Today was just a taste of what is yet to come this week with many companies releasing their earnings. It will indeed be a busy week with companies reporting.

RebelTrader swing trades:

FEEC closed at $1.65, which is a gain of 5.7% from the entry price just this past Friday. When FEEC moves over $1.65 I will enter the second 1/2 of my swing trade.

WWAT continues to be a good mover. Closed today at $2.45 which is 33% up from my original entry point.

WDC closed up today at $22.89 and this swing trade stands at 12.3% gain from the original entry price.

NHWK closed up today at $21.36 and this swing trade is currently a 10.1% gain from the entry price.

I closed the AKS swing trade today because earnings are due tomorrow but the main reason is that there has been some recent earnings from other companies in this sector that had bearish outlook on the metals sector. I did not want to risk holding AKS through the earnings and possibly being exposed to bearish outlook from the company. AKS was closed at a break even (less than 1.0% gain).

The Rebeltrader portfolio continues to rack up good gains. Tomorrow I will continue to work on the new watch list items and more trade ideas.

“May the Bulls be with you” (yes, I’m a Star Wars fan!)

At lunch time the markets were in good shape. Even the financial sector was showing some signs of life!

The sectors doing poorly are housing, and Oil services/suppliers due to the drop in crude oil price today. Coal and Natural gas also down today.

Most of the other sectors are in the green at this time.

The big movers today in the Rebeltrader swing trades is WWAT, WDC, NHWK.

FEEC is pulling back on low volume so I have no worries about that. Does not need to jump up overnight (even though we would like all our plays to do that

I am patiently giving BIG some room to make a move. However if there is no significant movement by the middle of the week I will close the trade. Too many other moving stocks to play to just let this one sit and collect dust while it waits for the market to stop bouncing it around.

The Rebeltrader portfolio is making a nice gain today so far.

RebelTrader plays WWAT,WDC,BIG,NHWK, AKS all trading up. I expect to see GRP trading up soon.

WWAT already working on new highs again. NHWK running up quickly again this morning. Some good gains for the RebelTrader portfolio again.

The day started out with Biovail (BVF) releasing bad news stating that they received a letter from the FDA rejecting their drug submission. I announced this morning that I was selling my position in the pre market trading to close out the trade. I got multiple fills on my sale but the average sale price I got was $23.35. Recall that the trade on BVF was started on 7/13/07 with a 1/2 position. BVF never made it to the next step where I would have added the remaining funds to the trade. This is one reason why I scale into a trade. You grab the low price upon the technical parameters for the trade being met, then you add to the trade upon confirmation the trade is working out. With BVF it broke above the buy point on 7/13/07 and I entered the trade with only a 1/2 of my normal swing trade funds. Then BVF started pulling back when the markets came back down. So my trade on BVF never reached ‘full swing trade size’. By scaling into the positions I reduce the risk to my total capital until I see more evidence that the trade is going in my favor. Bad news from companies can’t be avoided, it happens to all of them at some point. That is why as swing traders we slice up our total capital into pieces and never put more than 10% of our total capital into any one trade. Limit the risk to your total capital… That is the only way to win in the long run. Never put all your money into one trade!

Even with the 10.9% loss on BVF today the overall RebelTrader portfolio gained an additional 1.02% today. Not bad considering the market was terrible today. Good gains from WDC, NHWK, WWAT helped the portfolio stay green today in this otherwise bad day in the markets.

This morning I highlighted a small cap stock that had a technical setup which looked right for consideration as a swing trade. I set two buy points, the first at $1.55, and the second at $1.65. The first buy point was reached today and I scaled into FEEC with a 1/2 position. When FEEC moves up past $1.65 I will scale in with the remaining 1/2 of my swing trade funds. FEEC is a company in the foreign energy market and is involved in the exploration of natural gas. This stock may not move instantly upwards overnight but the chart was right for an entry. I will keep a close eye on this one. The potential for large gains is there as is the case with many small cap stocks however it comes with extra risk, and that is why one should never play small cap stocks with all of your money. You should only have one active speculative play at a time in your portfolio. WWAT is the other speculative play I did and that has paid off very well. Even though I still have half of my shares in WWAT it is now in self sustaining mode. I have a stop loss set and the trade will close itself out if the price falls (and that will still be a profit) or I will sell the remaining shares upon the next price advance. Note: Today WWAT started moving back up again and is still looking good on the chart.

In the late afternoon I added to my position on NHWK. After the large move up yesterday I was anticipating a low volume pullback today and would wait for the next ideal point to scale in the remaining funds. But NHWK defied the broad market today and continued upward today. I added the remaining 1/2 of my trade at $20.76. I see NHWK being a trade that will probably be a couple weeks to reach it’s full potential. After a move like it has had the past two days there will be some profit taking in the stock but the chart is showing an increase in demand so I am looking for at least 10% total gain on this trade within the next couple weeks.

The broad markets were reacting today to the news from Caterpillar and Google. Both had less then perfect earnings and shock waves went through the markets today. In addition to that the financial/broker sectors continues to be an anchor on the markets dragging them down. We need to see a rebound in the financial sectors soon, otherwise this drag on the markets will start pulling harder on other sectors.

I want to thank Daniel and Michael for your nice comments today. Earlier in the month I said that I was going to post a series of articles on the basics of swing trading, a ’swing trading 101′ based on my studies and experience. But time has been hard to find and I have not had a chance to get the first installment posted here yet. But I will indeed keep my word and in time you will see here my series of articles on how I swing trade, what do I use, what I look for, technical analysis, and money management.

I wish all a great weekend !

Chuck (Fp80)

I am adding the second 1/2 of my swing trade to NHWK here at $20.76.

Not much to report here. Markets are generally down across the board. Computer hardware is one sector that is doing well as evidenced by my swing trade on Western Digital (WDC). Today it is up over 7%. That brings the gains of WDC up to about 15% so far.

FEEC is slowly moving up and as this attracts attention and buyers take a piece here and there I see this as being a good swing trade over the coming weeks.

WWAT is getting new buyers today and is working it’s way back up. Remember, I still have 1/2 of my position in WWAT and will essentially just let them ride the stock. When the stock seems to be done then I will take the gains on the remainder of the WWAT shares.

NHWK, the swing trade I opened yesterday is also doing well today. I was expecting at least a small pullback after yesterdays huge gain, but so far no one is selling. Good for us! That just makes the gains run up even faster for the RebelTrader swing trade.

A good day for the RebelTrader portfolio. This morning I entered a new swing trade on NightHawk Radiology (NHWK) at $19.40 (1/2 position to start with). NHWK continued upward throughout the day and closed the day up 7.4% ( up 3.9% from my entry point). I had NHWK on my watch list since Tuesday and today it performed very well and met my buy point. I will monitor NHWK for the next entry point for the remaining 1/2. With the big gain today I expect to see some pullback on profit taking but I don’t see that lasting too long before it continues up again.

Today I sold NetGear (NTGR) because I saw what was starting to look like it was topping out. That means that there just was not enough buyers left to out number the sellers and that we were going to end the day with a doji (doji: The name given to a chart pattern which signals indecision). With that trading pattern developing I decided to take the gains and close the trade. NTGR provided a 5.1% gain in 10 days. Remember that it is not important to squeeze every penny out of a trade, what is important is that you have more winners than you do losers. Don’t focus on how big the gain is, instead focus on keeping the losses small. The gains will add up.. Every gain is a winner!

SanDisk (SNDK) released good numbers and investors were happy as in after hours the trading was up 6.5%. This will help the PC hardware sector, and may even rub off a little on my Western Digital (WDC) trade..

Nighthawk (NHWK) was a buy this morning at $19.40. NHWK is now up over 8.5% on the day. These are the kind of swing trades which are best. To get a 10% gain in a short period of time is how we get to big annualized gains. NHWK had the right chart setup for making a move once it cleared the buy point. And that we got.

Nighthawk Radiology (NHWK) has reached the buy point on my watch list.

I’m buying 1/2 position here at $19.40