Trader Mike

We got some broader participation on the upside today as the Nasdaq made a new 6-year high and the Dow made a new all-time closing high. I’m seeing a lot of headlines crediting today’s rally on the slide in oil prices. While that may be a part of the reason for the buying one has to wonder why the broader market hasn’t been flying all year since oil has been getting crushed since the first trading day of the year.

I’m still having a tough time finding swing trade setups that I like but I managed to find two tonight. Their charts are below along with charts of the Nasdaq, S&P 500, Dow, Russell 2000 and crude oil…

Mike, who’s looking to mix in some technical analysis (TA) with his fundamental analysis (FA), sent the following:

Just getting into “trading”, having been “investing” longer term in value stocks for the last few years.

My value stock mentor (he has averaged over 17% per year for years and years) looks for solid companies that for a variety of factors are undervalued. Then he either buys stocks or frequently SELLS puts. He does not even glance at the charts. Once they get cheap he buys.

I’ve been trying to learn TA so once we find a stock which is seemingly undervalued I can see whether it is likely strong or weak and whether to buy at that point or wait. Anyway two of his favorites right now are HD and AIG. They are both fundamentally very cheap. But, I’ve been watching them fall and fall over the last 4 to 6 weeks. Was wondering if you could analyze them and even let me know when a reasonable Technical bottom could be expected.

I think it makes a whole lot of sense to use FA to find what to trade (invest in) and use TA to tell you when to initiate the trade. The trick will be finding the right indicators to use that suit you. I like to use moving averages to tell me if the trend is up or down and then look for trades in the direction of the trend. That may not work well with certain value situations. For example, there’s no way I would have jumped in AIG after the thrashing it took in October because I would have been bucking the intermediate and long term trends (as defined by the 50 and 200-day moving averages respectively). It rallied about 33% from the October lows to the February highs. Anybody who bought into that October slide would have certainly been looking for a contrarian/counter-trend play so using moving averages wouldn’t have made much sense. Perhaps some kind of extreme oversold indicator works in those type of situations?