Trader Mike

The indices recouped a small portion of yesterday’s losses in a second day of very high volume trading. This morning I mentioned that the indices were stretched so far beneath their lower Bollinger Bands. That’s a sign of a lot of weakness and an oversold condition — both conditions could continue longer than bulls would like. I’m hard pressed to be an aggressive (short) seller on things that are below their lower bands. But one they bounce back to declining bands there’s potential for a walk down those bands. I’ll be watching those bands closely for potential entry points over the coming days.

The S&P 500 bounced just over half a percent to close right at resistance. Note that it stalled right at the lower Bollinger Band today:

The Nasdaq probed the bottom of the trading range it started back in November and bounced.

It was pretty uneventful when all was said & done today. The indices did their typical post-Fed decision gyrations and closed within their recent ranges. We’ve got options expiration this week so maybe that will get things moving.

Looks like there’s not much to do on the Nasdaq but wait for that symmetrical triangle to be broken. The Bollinger Band Squeeze signals a upcoming volatility expansion (range contraction leads to range expansion):

One use of the Bollinger Band study is to indicate when the market has entered a narrow trading range. A narrow range indicates momentary balance between buyers and sellers. As the trading range becomes narrower, and the market volatility lessens, the spread …

Steve wanted me to take a look at Google. Monday, in the DaytradeTeam trading room, I said that I thought it was destined to hit $500 in short order. Once it broke the old all-time high of 475, I figured that a short squeeze could easily push it several percentage points higher to the $500 level. I didn’t think it would get this close to 500 quite this fast but here we are.

The million dollar question is what happens after it hits $500. My guess is that it will probably run to $500, do a nice upthrust just to trigger all the stops at that level and then pull back. The stock …

Obviously there’s a lot of strength in the market right now. I assume that’s largely due to money mangers scrambling to participate in the rally and I won’t be surprised if the buying continues right up to the long weekend. One sign of the strength is the market is when an index starts to walk up its upper Bollinger Band. I always say that when you see the upper band “open up” (go almost vertical) and price starts chasing it you should either get on board or get out of the way. As you can see, the Nasdaq has been walking its upper band for six days now and the S&P 500 is just beginning …

Here’s my answer to the following question which was posted in my comments yesterday by Gary:

I’ve signed up for an evaluation of TC2000, which I was previously unaware of. However, after studying Worden’s videos and Help Contents on individual indicators, I’ve tried to find out if they would recommend where I could find info on how to interpret the combined indicators in regards to buy or sell points. Their reply was that they had none. Could you point out some of the useful indicator combinations that you’ve found to be reasonably accurate for determining buy/sell points?

For information about how to use indicators to determine buy/sell points it’s probably best to read some books on technical trading. A great …

I thought I’d walk through the NASDAQ chart for the last month or so to show you how I came up with my game plan. This chart will look a bit different than the charts I usually post because I’m showing Guppy’s Multiple Moving Averages instead of just showing the 10, 50 and 200-day moving averages. (That link gives a good, quick overview of MMAs.) This is actually the set of indicators I use by default when looking through charts every night in TC2000. The chart consists of MMAs (short term group is green, long term group is orange), Bollinger Bands (blue) with a 20-day moving average as the middle band (also blue), and stochastic in the lower panel, and of course Japanese Candlestick charts. The visual nature of these indicators, as opposed to looking for some specific indicator value, allows me to make very quick appraisals of a chart. (My actual charts also have volume and On Balance Volume on them.) So here’s the chart, followed by what I was thinking along the way (click for larger image):

It was an ugly day today as the NASDAQ erased all of yesterday’s gains and then some. Novellus’ earnings guidance and a slightly weaker than expected consumer confidence report were the reason for all the selling. The SOX is now back below its middle Bollinger Band and is sitting just 2 points above its 50-day moving average at 515. I think it could fall back to 500 without being technically broken. Should be some (more) interesting action in the semis over the next few days.

I’ve been wanting the NASDAQ to pull back to its middle Bollinger Band for a couple of weeks now. …

My crystal ball worked pretty well with regards to what would happen once the NASDAQ hit 2,000. It reached that level mid-day, closing a gap from way back in January 15th of 2002 by 0.01 points (damn those technical traders!). It was a very weak attempt to break out above 2,000 and the buyers quickly disappeared, letting the NASDAQ drop 2% from the high of the day. Besides the fact that the S&P 500 is still sitting above its November highs I don’t see much to get excited about on the long side. Here are some bearish developments I’ve been noting:

An outside reversal day on higher volume on the major indices today.
My …

For a while now I’ve been meaning to explain who I am and how I trade. After reading Dr. Steenbarger’s blog today, I’ve been inspired to do it, so here goes. It appears that my trading philosophy is very similar to that of Dr. Steenbarger. I’ll attempt to use similar headings so you can compare & contrast.