Posted by barkand on January 13, 2012 under Classic chart patterns, Point and figure charts, Support / Resistance | 
Today we are looking at Ruths Chris Steak Houses (RUTH), and not just because we are hungry. And today you get two charts for the price of one! First will be a candlestick chart and then we will look at a point-and-figure chart.
RUTH broke out of an ascending triangle yesterday on heavy volume. A strong resistance area had formed the upper line of the triangle near $5.50. It began last summer with a congestion area in the mid-$5 region and had been threatened unsuccessfully several times since then. The lower line, providing support, finds its roots in the lows formed in October. These two lines would soon be meeting and the typical result is for prices to push through the resistance area.
Next, we will look at the same data in a point-and-figure chart. Specifically, we are using a 10 cent box size with a 3 box reversal. There are a couple reasons for showing this chart: (1) it cleans up alot of the noise on the candlestick chart seen above and (2) it provides a classic textbook structure rarely seen on 3-box reversal charts.
On the chart below, we can clearly see that RUTH had descended into a trading range from $4.40 to $5.40. If you focus on that congestion area you can see the symmetry in the price pattern. You might notice also that in the middle of this congestion area prices broke down badly and then completely reversed. This was a first clue that prices were bottoming.
In December, RUTH finally poked her head above that congestion zone. Prices did not make much progress immediately, but it nevertheless generated a price target of $6.80 according to P&F rules. Yesterday’s break above $5.60 (actually closing at $5.95) made us more confident that RUTH shares would start to sizzle.
Posted by barkand on January 11, 2012 under Candlestick charts |
Just a quickie today on Rare Earth Resources (REE).
This is one of those “rare earth” names that has been subject to speculators running hot and cold. REE lost more than half its value in the seven weeks from early November to late December. Then reclaimed all of it in just seven days, and on incredibly heavy volume.
Alas, the rally has come to and end, at least temporarily. Consider:
Strike 1 – Prices had reached the previous high from November
Strike 2 – REE was more than 50% above its 20-day moving average
Strike 3 – The last 2 days produced a classic “dark cloud cover” candlestick pattern
We are not willing to guess how low it will go – it might just trade sideways for a while – but we suspect that anyone buying here in the low 6s will regret not being more patient.
Posted by barkand on January 6, 2012 under Market sentiment |
There are many variants on the so-called “January effect”. The stock market has a strong tendency to go up in January; the market’s performance in January portends how the year will go; the first week of January is what matters most; small cap stocks do best in January. And on and on.
Now that we have 3 business days in the books for 2012, we were curious if it would tell us anything about the future. So we looked at data for the S&P500 going back to 1971. We put the first-3-day return into three categories: higher, lower, and neutral. The “neutral” category includes those years where the cumulative 3-day return was between +/- 0.5%. As you see, the results provide very little forecasting ability, even if we overlook the relatively small pool of 41 data points.
A few observations here:
1. Yes, the market went up more than down, but the S&P 500 went up a total of 1264% during the time period tested. It’s hard to give January all the credit for that.
2. Comparing the Higher and Lower groups, there is a bit of a reversion to the mean effect going on here.
3. Interestingly, quiet starts eventually do best. Maybe the apparent lack of interest can be a contrary indicator.
Posted by barkand on January 4, 2012 under Off topic |
The Christmas season has come and gone. Nonetheless, we would like to offer as a gift to all mankind these 5 trading tips to get you started in 2012:
Trade very frequently. Forty or more transactions per day is ideal. But if you can manage only 20 or so, it will be sufficient. More transactions means the more likely it is that you will catch a whale of a trade.
Don’t use price charts. A chart is really just “the tape” in a different format. So why bother with charts when you can use your magnificent human brain to store and recall any necessary data.
In fact, don’t consider any other information except the tape. Attempting to synthesize different types of information from different sources will surely cause confusion and anxiety. Keep your thoughts pure by focusing on one thing only.
Let someone else choose a trading system or style for you. The more someone believes in their product, the better they are able to “sell” it. Therefore, the best sales pitches are usually connected to the best ideas.
Be very aware of your own daily P&L. The market is nothing if not serendipitous. It will almost certainly get you back to breakeven or some other profit point you desire.
Good luck to you, not that you’ll need it.
