BOOKS TO READ

Here is a selection of books that are important in getting a trader started.

1. How to Make Money in Stocks by Wm. O'Neill
2. How I Made $2,000,000 in the Stock Market by Nicolas Darvas
3. Reminiscences of a Stock Operator by Edwin Lefvre
4. Secrets for profiting in Bull and Bear Markets by Stan Weinstein
5. CMT books
A. Technical Analysis The Complete Resource for Financial Market Technicians
B. Technical Analysis Explained
C. Technical Analysis of Stocks Trends 9th Ed.
D. MTA Code of Ethics

So far things are going well in the markets so I am not making any changes in the portfolio as of yet. Did you catch on the WNR? Are you watching the handle being formed in CRM? or MR? Did you catch RIMM or MA?

Good luck trading.
JD

FOREX

For 6/1/2007
Tomorrow’s US Employment report could be the catalyst to spark the USD out of this trading range. As most economists are forecasting approximately a gain of 138 thousand jobs, a number greater than 138k would be viewed as USD positive. Coupled with the new yearly high in the 10 year yield (4.91%) and subsiding speculation of any interest rate cuts in the near future by the Fed, the USD could catapult out of this narrow band.

The RESULT: EUR/USD and GBP/USD actually rose despite the prediction above. The non-farm payroll measures the number of jobs created in the last month and this number came in strong at 157,000 versus the expected 135,000. Looking underneath this raw number into the multiple dimensions of the report, it suggests so-so growth will continue. Just a slow, steady grind upward. This report is important because it influences policy decisions made over the next several weeks; therefore, it removed any lingering possibility of a rate cut in the foreseeable future.

On the other hand, the core PCE deflator came in low at .1 percent versus .2 percent. The deflator measures consumer inflation, excluding energy and food. This is important because energy has seen a huge run-up, which greatly impacts inflation. The dollar dipped on this data but without the energy component, it's not a full story.

The ISM index simply measures manufacturing strength and came in strong at 55 versus the expected 54. Some of this strength was anticipated after yesterday's strong showing in the Purchasing Managers' Index (PMI), which is very similar in nature.

Higher oil prices are typically dollar negative, since petro dollars typically flow out of the greenback. Thus, higher oil prices = long GBP/JPY, GBP/USD

Higher oil prices are good for the GBP/JPY pair since Japan has to import their oil and the UK has strong oil interests.

MARKETS HAVE MADE A NICE RUN

If you look at the overall markets, they have had an amazing run in the past few months since the February downturn. The slope of this ascent is rather steep and there may be need for some rest. Despite this potential resting point, some stocks appear to still have wind in their sails, but be prepared for a downturn by protecting your portfolios with tight stop losses or by selling covered calls.

RATE has officially broken out of a cup and handle with the close today above $43.64. MCO is also a current buy as it has done the same thing. MR has filled its breakout gap and is within buying range, too. Watch OMCL to start, this stock is bouncing off its 50 day moving average and may offer more returns. Even better yet, NVEC has appeared to have made some great gains in the past few months and may be shaping a cup and handle. Watch MGM to see if it will come back down to near "support" at $75.50 after it broke out in huge trading volume 2 days ago. Look at the post from 5/22/07 re: the article in the magazine TASC. ICON is bucking the downtrend and may be near a buy point soon.

On the downside, AZO is an excellent short candidate. i.e. you want the stock to go down.

Good luck trading.
JD

SUPPORT FOR DARVAS

I just got my magazine TECHNICAL ANALYSIS OF STOCKS AND COMMODITIES JUNE, 2007. On page 17 is a perfect article to support the Darvas theory as described in previous posts. If you want to find out more about the theory, search "Darvas" in the search area in the upper left hand corner of this blog and it will bring up all the blogs with Darvas in them.

So here is what the article by Markos Katsanos had to say about "rectangles".

FORMATION CHARACTERISTICS:

1. Breakouts are triggered by news or some event.

2. At least two points are required to define each line, but three points are more common.

3. Rectangles can be either a CONTINUATION or a REVERSAL pattern.

4. RECTANGLES ARE MORE OFTEN A CONTINUATION RATHER THAN A REVERSAL BY A 1.5 TO 1 MARGIN. Meaning, if the previous trend was up, the breakout will probably be towards the upside.

VOLUME:

1. Trading volume declines as the pattern develops.

2. The average trading colume during the consolidation declines to 90% of the usual trading volume.

3. A BREAKOUT on LOW volume is suspect (support for the Darvas theory)

4. It is usual for the berakout voluem to surge as much as 2 to 3 times the average volume in the rectangle.

DURATION:

1. Can last 3 months to one year.

2. AVERAGE WAS 6 MONTHS.

STOCK CHARACTERISTIC:

1. HIGHER PRICED STOCK IS MORE LIKELY TO BREAKOUT IN DIRECTION OF PREVIOUS TREND.

2. Lower priced stocks are more likely to experience a reversal of the previous trend.

PULLBACKS AFTER BREAKOUT:

1. Once a breakout from a rectangle occurs, there is normally a "pullback" where the stock will retrace for 4 TO 5 DAYS and then resume the direction of the breakout.

2. Pullbacks lasted 2 days on average and for an average of a 3.6% pullback.

3. Trading volume contracts 50 to 80% from the volume on the day of the breakout.

Here is an example of a stock that has just broken out of a 3 month rectangle and is currently in a pullback creating a perfect buying opportunity. double click on the image to enlarge it.

GOOD MOVES TODAY

RIMM moved more than $7 today on higher-than-average trading volume. Buying now would be too risky, but congrats to those who got in.
If MR breaks above $29.22 on high trading volume, consider this a breakout from consolidation.
IFOX failed to break out above previous resistance so still watch this one.
ICE has returned as being a strong stock and appears to be building a perfect cup and handle. (To find out about cup and handles visit the education section at www.investors.com

HERE IS THE LIST OF STOCKS THAT POPPED UP ON THE PRICE AND VOLUME BREAKOUT SEARCH:
ANST bounce of 50 day moving average is a positive sign eventhough it is not a 52 week high.
OMRI This is too risky of a trade so I wouldn't take it.
RIMM, but this one is outside of a comfortable buy area for me.
SOLF - two words - Bottom reversal?

There is a saying in the investment world: Cut your losses short and let your winners run. I need to take that into consideration looking back at TAM.

GOOD LUCK TRADING.
JD

GREAT DAY

Today was an amazing day for the stocks that were searched under the PRICE AND VOLUME BREAKOUT. VCLK went up 14.3% today alone. MIR up 1.3%, ICON 0.25%, BSM 5.3%, RATE 1.25%.

WNR broke out of consolidation and was up 4.9%. ORCL came out of a high handle; however, trading volume was not that high. If IFOX, breaks $17.14 on high trading volume it will have officially broken out of a cup and handle. CRM ripped past the buy point of $46.18. Any buying above $47.25 is way overextended. Watch MR very closely to pitch out a handle. BBND has had 4 straight up days. ICE has lots of accumulation going on.

RE-READ DARVAS AND SETTING UP TRADING SYSTEM

I have been pondering this problem over the whole weekend. Metastock software has a 52 week high search, but it requires changing a parameter in the search EVERY SINGLE DAY ONE WISHES TO SEARCH FOR STOCKS BREAKING OUT OF 52 WEEK HIGHS. So I think I may have come up with a logical explanation.

It is the PRICE AND VOLUME BREAKOUT that is explained at http://www.sharetradingeducation.com/ValuedPartners/MetastockSoftwareFormulae.aspx

Once I pick up a stock on this one, I will look to see if this is a 26 week/6 month new high. Once that is determined, the Darvas theory is going to be implemented.

I performed the search, but none of them were new 26 week highs. With that in mind, watch MIR (not MR), ICON, BSM, RATE, and VCLK.

RE-READ DARVAS ARTICLES

I was flipping through some information and this is a note to myself. Check out the TASC from May, 2005 and June, 2005.

CONSOLIDATING STOCKS:
WNR (Buy target = close above $41.49, Sell target= close below $39.52)
ORCL (Buy target = close above $19.39, sell target = close below $18.39)
MCO looks to be creating a bull pennant. So watch for a breakout in either direction.
FXE which is an ETF based upon the Euro currency. Let's see where this is going to take us.
NLY hasn't made a move for a month and a half. Just keep an eye out.
IFOX seems to be forming a bull flag.

CRM may be on the sell/short list soon.
BLUD: Staying away as the gap that was created in early April looks as if it being filled
MR may also fall back to fill the gap.

Good luck trading.
JD

SOLD SOME, BOUGHT SOME

I made some changes in the portfolio today. I see my old stocks trading sideways so I am getting out of those and getting into those stocks that I see are going to make a run. Hope the markets just hold out.

Here is my trading diary
Buy HOLX at $54.04 on 2/13/2007
Sold HOLX at $56.32 on 5/16/2007
4.2% profit
(Reason for selling - broke 50 day Moving average and also sold to buy RIMM)

Sold to Open June 55 call for $5.80
Buy to Close June 55 call for $3.00
48% profit

Bought TAM @ $27.46 on 5/10/2007
Sold TAM @ $28.96 on 5/16/2007
5.4% profit in 6 days.
(Sold it to buy RIMM)

Bought RIMM @ $149.50 on 5/16/07
(Reason - Broke 52 week high at $148.95 so that is nearing the top of a Darvas box and that is seen as support. Higher trading volume and positive EPS also helped.)

Just some quick notes.
CRM is a buy if and when it breaks above $46.18.
GOOG - A strong move today so this is one to keep an eye on for the next few days.
IFOX breaks above $17.14, it's a buy in my category.
COMV - If you enjoy IPOs, check this one out. Today it passed old resistance.

Just to be a contrarian. I am nervous about this big upswing that has occurred after the February downfall. I wouldn't be surprised if the market takes a down turn for a little while since the Dow Jones is at an all time high.

GOOD LUCK.
JD

STOCKS STILL TIGHTENING UP

BLUD, HMIN are still tightening up for a big move. Which way? I don't know. Just be ready when they do.

I am closely watching JASO, TSL, and IFOX to breakout to the upside. Buy if JASO closes above $28.19, TSL above $61.25, and IFOX above $17.14

BIDU officially closed above previous resistance and is now a buy. MR has also broken out of consolidation and is considered a buy as it has broken the ADX above 25.

No position changes in forex.

Good luck trading.
JD

DARVAS WEBSITES

Here are some fun websites to talk about the Darvas theory.

The story: http://www.nicolasdarvas.org/stockmarketarticles.php


How to do it: http://www.darvastrades.com/darvas_boxes.htm

Free Darvas Box plotter: http://www.sethi.org/investments/darvas/

I searched again on Sunday and noticed that BLUD has an ADX of 12. If it closes BELOW $33.65 go short. If it closes ABOVE $34.35 go long. Expectation - ??? No really, I would probably say upward continuation save a huge drop in the stock market.

HMIN has an ADX of 10 and has been for 3 weeks. Big move comin' up? You better believe it.

Good luck trading.
JD

WHAT A COUPLE OF SCREWY DAYS

Big drop in the market on Thursday followed by un up day on Friday. No wonder no one can predict the market. The major stock indexes finished Friday with decent gains and near session highs, but trading volume was lower than Thursday's precipitous drop on high trading volume.

There are a few noteworthy candidates that need to be discussed.

I bought in today on UEPS. Click on the chart to find out why. I mentioned UEPS back on April 25th to watch the stock as it may break out of the Darvas box it was in. It took 16 days to break out of the box, but that is why I keep a watch list.

LFC kicked into gear today and is a buy candidate. RIMM (Z's choice) broke out of a consolidation period and is at a 52 week high (perfect Darvas candidate) ICE (Z's choice) is coming up again as a buy candidate in a potential bottom of a cup. BIDU (Z's choice) may be making a run for a new 52 week high soon. Hello again the MCRS. UGI made a 52 week high a few days ago and it may go on to break into a new high. RVBD is also making 52 week highs. For a low-priced stock check out JADE.

MR has now entered the middle of the Darvas box that was outlined earlier. The top of the box is at $25.07. So if a trader wanted to get in on this one when it broke out above $25.07, the best bet would be to place a BUY STOP ORDER 10 cents above the highest level of the box. So, if the top of the Darvas box is $25.07, one would place a BUY STOP ORDER at $25.17.

On the short side, THQI made a run for the door and probably will continue to do so along with KCI and GLDN. GLDN is my best bet for shorting.

As for my current positions: TAM has treated me well in the past 3 days since it broke out of a downtrend. Granted, these are riskier trades than what Darvas was doing trading stocks that were making 52 week highs. This technique that I have formulated does occassionally pick up the bottom of a cup-and-handle as described by Wm. O'Neil with Investors Business Daily.

ARNA is still on a tear and I like it. I love it. I want some more of it. But stop loss it at $13.11 to keep a profit.

If I only coulda been in on RBN.

I got stopped out of my EUR/CAD trade after it made a run back up after a large downturn. I made a total of a 59 pip profit which amounts to $535 profit. I am looking back on that trade and I probably should have taken my profit of 120 pips a few days ago since this is not a highly liquid pair. I am still long USD/JPY and entered a long trade (USD/CHF) today at $1.2190. Let's see where these take us. I entered the USD/CHF trade based upon my template in Metastock I named "DEER - ADX Forex" I am trading based upon technicals and not upon fundamentals. It is the hardest thing to do, but I have to trade based upon signals - not emotions.

Remember - you can always go and look at these stocks for free at www.stockcharts.com

www.investors.com also offers free education in the IBD learning section.

STOCK WATCH LIST: AAPL, AF, BBND, BLUD, COMV, CRM, FCSX, FSLR, GOOG, GS, HSR, ICE, IFOX, JASO, MCO, MCRS, POT, RIMM, SAY, SOLF, SPWR, TALX, TSL.

I hope that you forgive me. Embedded within this post are notes to me for the actions I need to perform. The blog is my trading journal and I don't want all of my secrets known. I am posting my actions as I would trade, but I obviously want to get into a trade before everyone else does.

GOOD LUCK TRADING.

JD

TAM IN BUY TERRITORY

TAM broke above the top of the Darvas box and thus should be starting a new trend. Granted it is not a 52 week high like Darvas liked, but it was after period of consolidation and the accumulation/distribution ratio is climbing.

Click on the chart to enlarge it.

WW broke out of a 4 month base where the stock did nothing but move sideways. Since this is a new 52 week high this truly is a new Darvas box.

KNOT appears as if it is going to start trending up. It has popped back above the 20 day moving average for the second time in a month and this may be the bottom of a cup and handle. The reason it popped up on my search was the "Trend Reversal" search I created in Metastock. Picking stocks at the bottom of a cup-and-handle is risky so this trade is only for those who wish to risk it.

HSR moved back down into the previous Darvas box, but trading volume was weak. This could be expected in a stock that trades in low volume. Place a stop loss if a CLOSE below $10.60 occurs. That's the bottom of the new Darvas box.

MCO is looking good. The technical trades of IFOX and RBN were good performers. Too bad I didn't get in.

No change in Forex positions.

Good luck trading.

JD

INFO FOR ME:GLOBAL INTEREST RATES; NZD 7.5 > AUD 6.25 > GBP 5.25 = USD 5.25 > CAD 4.25 > EUR 3.75 >CHF 2.25 > JPY 0.5

38631529 FM, 38623275 FM, 38627642 FM, 38628670 FW, 38630224 FW, 57692517, 24491787, 24491775, 24491790, fx 10060819 optionaddict

HSR IS A BUY, WIT TESTED ITS LOWER BAR OF DARVAS BOX

HSR hit a buy today as it closed at $11.70. If you are using the Darvas theory along with the ADX model that I worked on, it is now above the level of the old box of $11.60. The other thing that occurred is that there are three white soldiers.

WIT tested the lower end of the Darvas box, but still closed above it meaning that a trader would still be waiting to get in on this one. If you are looking to short this stock, wait until it closes below $16.30.

If you got in on MCO as suggested a few days ago, you were rewarded today with a 4% rise in price on higher trading volume.

BLUD has also retraced in lower trading volume. It might use $31.50 as support/lower end of Darvas box.

No changes in Forex today. There may be some big moves with the Fed talking about interest rates tomorrow.

Good luck trading.

JD

INFY HITS SHORT TRIGGER, BOUGHT GBP/USD

Well, INFY hit the short trigger and closed below the $52.20 mark that I set out in the Darvas technique. So a trader could either short the stock or buy puts. I didn't do it, but I am going to follow the stock.

AF still has a $28.21 trigger, but the 3 days of rising prices has now set the lower bar of the Darvas box at $26.34. So any CLOSE below $26.34 means you would close out your position.

BLUD popped onto the low ADX radar and is a strong candidate. If you wanted to play it the Darvas way, you would have to wait until the $36 top of the box was broken. If you wanted to get in a little earlier, you could buy in at $33.85 as this is a triangle being formed.

HSR has an ADX level of 11 and it is currently touching the top of a Darvas box based upon the low ADX, not a new 52 week high level. $11.70 is a buy point here, but there is a large stop loss clear down to $9.67. Can you handle it?

In fact, if you are using the Darvas theory with a breakout from a low ADX, ICE has just broken out of a consolidation past the buy point of $135.75 and has a stop loss of $121.93. That is just over a 10% stop loss order, FYI.

Bought the GBP/USD pair today at $1.996 for these reasons: (click on the chart to enlarge)

1. ADX is trending down and getting ready to cross back below 25.

2. The slow Stochastic (a non-trending indicator) has bounced of the oversold area and is heading back up and a buy signal denoted by the "B" says to buy.

3. The GBP appears stronger as inflation pressures in the UK are higher than here in the USofA.

Good luck trading.

JD

OLD TECHNIQUE NEEDS TO BE REVISITED

I received an email the other day and noted that it said, "Get back to basics and trade the Darvas way." I remember that this was one simple way of getting started in trading stocks without having to buy stock software. Granted, it can be more time consuming than one wishes to do, but I believe it is still worthwhile to get used to stock trading. Once you lock onto 5 stocks, just follow them. If they fall off, pick up another stock or two to being looking for new 52 week highs.

Here are the steps:
1. Screen for 52 week highs. http://moneycentral.msn.com/investor/finder/deluxestockscreen.aspx?query=New+52-Week+Highs

2. Draw the top of the "box" when there are 3 consecutive days of falling prices after a new 52 week high.

3. The bottom of the "box" is then drawn after 3 consecutive days of rising prices.


4. Buy when a box is firmly established, and a break out above the upper line of the box. A drop below the bottom of the box is a sign that the stock’s trend has changed and is a sell signal.

One can also utilize volume of shares trades as an additional indicator. Increasing volume on a rising stock indicates buyer interest. Increasing volume on a falling stock indicates seller interest. Once a box is created, place a buy stop order to buy the stock when it breaks out of the box, or a sell stop order if the stock breaks below the box.

Here is a good link to read on the subject. http://breakoutreport.com/articles/darvasapplied.htm

I am going to modify the system. Instead of looking for a break above a 52 week high, I am going to search for stocks that have an ADX less than 15 and wait for the breakout. Currently WIT has and ADX of 11. It's previous high was $17.24 and the previous trend was up. The previous low was $16.25. So here is my trading plan:
1. If the stock breaks above $17.34 I am buying in. If you notice, I place my buy stop order in $0.10 higher than the previous high. IBD recommendations.
2. If the stock breaks below $16.15, I am going to short the stock. I am going to short if the stock pierces $0.10 below the previous low. My recommendation to the flipside of IBD.

TAM is also consolidating as its ADX is 13 and the previous trend was down. However, if you tack on an Accumulation/Distribution line, you see that the slope is up for A/D. TAM may be bottoming out. So, trading plan:
1. Buy if $26.83 is broken to the upside.
2. Short if $24.61 is broken to the downside.

MCRS is oscillating between $53 and $56. ADX is 13. You ought to be able to figure out the plan now.

INFY ADX is 14. Buy above $56.19 and Short below $52.20.

AF above $28.21.

NOTE: THE DARVAS SYSTEM DOES NOT WORK WELL ON FOREX. USE A TREND-TRADING SYSTEM ON FOREX FOR BEST RESULTS.

Good luck trading.
JD

ADDING A FILTER TO MY METASTOCK STOCK SEARCH TO LESSEN SIGNALS

During my most recent modification of my search does bring up quite a few buy/sell signals during a sideways moving stock. My idea is that if I add a "filter", I can decrease the number of buy/sell signals during sideways movement.

Here are what some searches on Google provided:
Higher Volume Exploration
Required: today's volume to be greater than the highest high over the past 21 days.
MetaStock Explorer filter: V>Ref(HHV(V,21),-1)

Let's see if this helps.

Glad I waited on TS. It looks as if there may be an upturn instead of a sell-off. Congrats if you got in on ANST. If you didn't get in on AF, now would be a good time. Same for MCO. Go ARNA, go ARNA, go ARNA!!! ??Double-bottom on TWGP at $30?? A purely technical trade is IFOX based upon the ADX cross that I follow along with higher than average trading volume along with RBN. I wish I could just trade everything I see. Watching WW is showing some good signs as of late. It looks as if WW is using its 50 day moving average as a springboard. A break above $50.71 would be beneficial.

I am still on the buy-side of USD/JPY and it is currently trading at $120.40 up from $120.18 where I bought it. The Asian markets were quiet this week due to holidays, so there may be another move tomorrow. My EUR/CAD trade is also in the positive territory. If you wish to look at forex:
www.fxcm.com gives one the capability to check out forex charts for free.
http://forex.tradingcharts.com/quotes/ provides real-time quotes to check out forex quotes for free

Good luck trading.
JD

SELL TO OPEN EUR/CAD AND BUY TO OPEN USD/JPY

Due to the buy signal received for the USD/JPY pair, my "buy" was at 120.18 today. The intent is for the pair to rise in price so I am "buying to open" my trade.

Due to the sell signal in the EUR/CAD pair, my "sell" was at 1.1514 and I am hoping for the pair to fall in price. I and "selling to open" the pair and want to "buy to close" at a lower price to make a profit.

I am sitting back on the TS trade as the markets today are showing a powerful move up. Let's wait and see.

Good luck trading.
JD


INFO FOR ME:
GLOBAL INTEREST RATES; NZD 7.5 > AUD 6.25 > GBP 5.25 = USD 5.25 > CAD 4.25 > EUR 3.75 >CHF 2.25 > JPY 0.5

38631529 FM, 38623275 FM, 38627642 FM, 38628670 FW, 38630224 FW, 57692517, 24491787, 24491775, 24491790, fx 10060819

COMMODITY CURRENCIES SHOWING WEAKNESS

I was looking at a few things on my software program. I was noticing that I am getting buy signals on two of the commodity pairs: EUR/AUD and GBP/AUD. Then I ran my search on the stocks. TS came up as a "sell." There are a lot of traders that perform intermarket analysis meaning that they look at one market - forex - and extrapolate that to another market - stocks - and base their trades off intermarket analysis. If this holds true in this situation, TS should actually go down along with the weakening commodity currency AUD. My plan is to buy puts on TS tomorrow and see if this theory holds true.

The USD sell off seems to be subsiding and so a buy signal came up on the USD/JPY pair.

EQIX came up "sell". Don't exactly have the $ to short that one.

Good luck trading.
JD