As I was watching Rafael Nadal put away Novak Djokovich this Monday night to win his first US Open, I couldn't help but compare the qualities he has leveraged in improving his game to that of an aspiring trader. Nadal has literally willed himself into becoming the best tennis player in the world, amazingly enough, at a time when the best player possibly in history (Federer) is still in his prime. I was at the US Open earlier this week and marveled at how easy Federer positioned himself for each shot, and the best word I could use to describe him is efficient. Nadal however, can be best described as a machine that doesn't quit. As I broke his game down, I realized that so many of the qualities he possesses have a corollary in the trading world.

• Expand your playbook: When Nadal burst onto the scene, he was a dominant clay court specialist. Despite the incredible success early in his career on clay, his game needed improvement if he wanted to duplicate his success in other venues. He worked very hard to not only improve his serve, but also his net game to the point each of these areas are now pluses, on top of being the top baseliner in the game. He eventually won Wimbledon which is an incredible accomplishment for a player groomed as a baseliner. With the US Open under his belt, he is also one of the few to accomplish a career grand slam. A trader should not get too comfortable with only one setup, as the market will eventually change and render that setup less effective. Traders should constantly look to expand their playbook in order to have options in adapting to the markets. Being great at one play is very important, and should not be minimized, but traders should be willing to stretch themselves in order to improve as a trader.
  
• Eliminate Mistakes: As I was watching the final set on Monday night, they mentioned that Nadal hadn't made a single unforced error in the final set yet. I think he ended up with a single error in the last set when it was all said and done. This is flat out ridiculous. Nadal was playing someone who was at the top of their game and slugging it out toe to toe for many 20 plus shot rallies. This is probably one of the biggest reasons he is at the top right now. He doesn't give away points; he makes the other player earn it. As a trader, you must eliminate needless mistakes. It is hard enough to take money consistently from the markets, let alone if you are struggling with mistakes. Common mistakes could include, trading sub par setups, letting stops slide, or not sizing a position properly. Make sure your trading methodology is clearly defined, and then trade it well.
• Plays every single point: Another amazing quality Nadal has is the unwillingness to give up on a point. I've seen Nadal up 40-Love, standing 3 feet behind the baseline when his opponent hits a drop shot. This is a scenario where many players would concede the shot, content to be up 40-15 on the next point. I don't think I have ever seen Nadal concede the shot. He hustle's for every ball, which forces his opponents into more errors as they try to hit perfect shots. As a trader, you certainly don't want to overtrade, but your job as a trader is to take advantage of opportunity when it is presented. You can't do this if you are not at your desk waiting for each opportunity. Beyond just being there, you must be prepared, whether that entails pouring over charts before the markets open or running through potential market moving news events. It takes a high level of concentration to be able to sit and watch the markets for hours on end, especially when it is dull and lifeless, but all it takes is one single opportunity to make a traders day.
  
• He is in excellent shape: Nadal may be in the best shape on tour. He slugs away for hours on end, and may hit the most balls overall on tour. If you think about it, his game is predicated on prolonged rallies which he usually wins. You must be in excellent shape in order to withstand 4 or 5 hours matches several times in a 2 week period. While a trader doesn't have to be in the same physical shape as a world class athlete, being in good shape helps a trader remain balanced through the day and traders should definitely be well rested. One of a traders most important qualities is the ability to stay focused. Remaining focused is much easier when a trader isn't dealing with ups and downs of a high sugar diet or dealing with only a few hours of sleep. While a trader can certainly deal with being tired once in a while, they will surely have frequent concentration lapses if they are in a constant battle with their diet and rest schedule.

Traders who are not happy with their performance should take a hard look at themselves and ask are they working hard enough. Nadal could have been content to win a few French Opens and hang around long enough in other tournament to get some decent payouts, but he kept working at improving his game. He has managed to become the best player in the world, and is already on his way to becoming one of the all time greats. When someone is this successful, it is never simply from talent alone. The Michael Jordan and Tiger Woods of this world do happen to be talented, but they also outwork their peers and are never satisfied.

Traders should constantly be looking for ways improve their game as the markets are one opponent that is also constantly evolving. It's also worth noting, that a traders biggest adversary is themselves, much like any athlete who performs in a non team sport. It is not that easy to have lasting success in this field, but the ones who do have certainly adapted by constantly improving themselves.

Good Trading,

Joey

I've written a few times over the past few months about how the REIT sector has continued to defy the bears by outperforming the general markets. As I was reviewing one of my bullish scans tonight I noticed these stocks continue to litter the top of this list. Despite the markets approaching some stiff resistance pretty soon, I continue to keep an open mind on stocks following through to the upside. This group would be as likely as any to lead the way if the markets manage to head higher. If the markets fail then at least this group has pretty well defined support levels to watch making it easier manage your risk.

Essex Property Trust, Inc. (Public, NYSE:ESS)
ESS recently set a higher high and appears to be pulling back for a retest of prior resistance near the low $108's. Watch ESS for a pause in this area and a possible turn higher back above $111. A break above this area would likely lead to new highs.

Vornado Realty Trust (Public, NYSE:VNO)
VNO has developed a steady pattern of flagging and then having an impulse move. The flags have been getting tighter as it progresses through its consolidation and VNO already set a new high. VNO is currently basing at an important level and would be very attractive as a long candidate if it holds its ground here and then turns higher.

Simon Property Group, Inc (Public, NYSE:SPG)
SPG continues to be one of the strongest in this sector and has actually started to trend into a pattern of higher highs and higher lows. SPG is currently in a small bull flag and could be close to a breakout.


AvalonBay Communities, Inc. (Public, NYSE:AVB)
AVB is another one to watch in this space. AVB recently emerged from a base it has been building but has quickly come back for a retest. AVB is pulling into a support level near $105 and should be watched to see if buyers support the stock in this area. A move back above $110.50 should definitely catch your attention.


Good Trading,

Joey

The following is a guest post from Vincenzo Desroches. Vincenzo started a financial and forex trading site after years of self taught investment and has had an interest in economics virtually his entire life.

Stock Market speculation has produced thousands of millionaires in the 20^th century. The historically unprecedented rise in the United States economy and equity markets during the last half of the 20^th century increased the standard of living in America to levels generations past could not have conceived. This dramatic and steady rise in stocks and profit taking over the last 60 years has caused an investment truism to form—invest in the stock market over the long-term and you will see strong growth in your capital.

Although this truism of the last 50 years is now being questioned by the current global economic crisis, most long-term investors believe the market will continue to rise once America gets past its current troubles. The logic is simple. America has endured through every economic obstacle it faced over the last 50 years—why would this time be any different? Thus, in this article we will break down the very basic principles that cause stock prices to rise and fall.

In order to understand stock prices, we must first understand who sets a stock’s price. Human market participants are the ones setting a stock’s price by their buying and selling behaviors. Now, what do humans want in regards to stock market investing? Of course, they want money. And the easiest way to make money in stocks is to invest in companies that are making money.

As a basic rule of thumb, if a company is making money, its stock will increase. If a company is losing money, its stock will decrease. When a company has strong earnings, then its stock rises as well. Companies generally release a public announcement of company earnings every quarter. Prior to the announcement, Wall Street analysts predict how much the earnings report will be. If a company’s earnings beat market expectations, then its stock will tend to rise significantly. Conversely, if a company’s earnings fall below market expectations, then its stock price will tend to fall sharply.

Earnings are the primary driver of a stock over time. However, as we stated in the beginning of the article, a stock’s price is set by human market participants. Therefore, a company’s present earnings is not always the primary influencer of its current price. At times, and sometimes very often, a stock’s price will be set by market participants’ expectation of future earnings. For example, if a new company has lots of debt and poor management, but it has an incredibly powerful and innovative technology that is set to hit the market, then its stock price may explode based on the expectation of future earnings.

However, eventually things will balance out. If a stock is not able to support market expectations with true earnings, then the market will drive price down. There is a small sector of traders called “short-sellers” that actually specialize in finding companies that are overpriced due to fanatical market expectations. Once a short-seller finds such a company, he shorts the company’s stock in expectation that the true financial condition of the company will soon be highlighted and there will be a sharp drop in the stock’s price.

Thus, while stocks are primarily driven by earnings, it is very important to understand that stock prices are not always priced according to current earnings; instead, they are more often set according to market expectations for future earnings. Although a company may finally catch up with earnings and market participant projections, often these companies never fulfill the aggressive expectations set by investors. In fact, during the tech boom of the early 2000’s many companies and investors lost countless millions of dollars as companies’ stock prices got out of control and were based much more on hype and potential than actual real earnings. In the end, traders need to realize that while fundamentals certainly influence a stocks price, it is humans and their expectations that ultimately set the current price.

I am going to preface this article by stating I don't think the markets are healthy right now. While I remain unconvinced that the markets are headed appreciably lower, I do think at best it will still take some time to absorb the recent distribution. Worst case, is that this is only the beginning of a larger decline but it is still much too early to make any assumptions. With that in mind I wanted to show some examples of charts I think are worth following even in this environment.

I think traders too often get caught up in chasing stocks that are on "sale" or so called "values". While this may work for fundamental investors with long time frames, the odds are that if you are reading this you are trading on much shorter time frames and on technicals. More often, it pays to stick with stocks that are showing relative strength and remain with healthy charts. This is even more important during times of market uncertainty. When the markets are rolling, even bad stocks will tend to get supported by rising with the tide. However, in tough times traders should be much more picky about what they trade and stocks that are beaten up are like that for a reason. Simply put, someone is selling.

While focusing on stronger stocks doesn't give traders a fool proof trade, at least you are not trading against the trend. Acme Packet, Inc. (Public, NASDAQ:APKT) is an example of a stock that has weathered the recent storm very well. While APKT suffered through a sharp gap down in late July, it has recovered fairly quickly. APKT is now consolidating in a tight range just underneath resistance. Traders should be aware that this resistance level is fairly strong and APKT has already failed at this level a few times. However, if APKT can clear this area it would take it to new all time highs and a probably cause a short squeeze.

Yum! Brands, Inc. (Public, NYSE:YUM) is another stock that has held up well along with other fast food stocks like McDonald's Corporation (Public, NYSE:MCD) and Chipotle Mexican Grill, Inc. (Public, NYSE:CMG). I'm not sure why fast food stocks have held up so well, but its always better for a stock when the entire sector is trading in unison. This action reveals institutional support as large funds often trade in baskets to diversify their exposure to any given sector. It is important to note that YUM hasn't cleared anything yet, so traders are better served watching this patiently. It's highly likely that even if YUM broke the descending trend line shown on the chart, it would probably trade back to that level a few days to weeks later to retest the area as support. However it is definitely worth watching as a strong relative performer in a good sector.

Good Trading,

Joey

As I was running through charts this evening, I noticed that McDonald's Corporation (Public, NYSE:MCD) was trading very close to all time highs, which was impressive considering how weak the markets have been over the past few months. There is no sign of strength more certain than a stock trading at its highest point. Stocks trading at an all time high have no clear resistance overhead, as any traders that are long are sitting on profits. In fact the only traders in pain are shorts, or possibly traders who may have missed the opportunity to get long. One of the most simple ways to find the strongest stocks is simply to look for those trading near all time highs.

Typically, stocks trading at all time highs dwindle during bear markets lending even more credence to the few stocks that maintain their strength through extended market weakness. If a stock can find enough institutional support through a bear market to remain near all time highs, it may very well lead the way in a Bull market.

Mead Johnson Nutrition CO (Public, NYSE:MJN) is a stock that has held up very well through the correction that began in April and has actually started to outperform the markets on a relative basis over the past few weeks. While the markets have been attempting to bottom, MJN has started to set higher lows as it trades up to the top of its base near $55. While this base is nice on its own, the fact that the top of this base also coincides with MJN's all time highs makes it more attractive. A breakout from here would push MJN to fresh highs and possibly squeeze some shorts.

Another stock trading near all time highs is Cracker Barrel Old Country Store, Inc. (Public, NASDAQ:CBRL) . In fact, the top of the current base marks its all time high, much like MJN. The key difference here is that CBRL is still in the middle of its base and has a level of resistance near to clear before making a run at its all time high. However, the recent action is promising and a move above $50 would likely lead to a test of that high.

Tractor Supply Company (Public, NASDAQ:TSCO) is another stock pushing up to the top of its base which also coincides with its all time high. TSCO has shown clear support on each pullback to the bottom of its base near $60 and buyers may be close to overwhelming sellers. If the markets can continues gaining some traction, then TSCO will likely breakout of its base.

Many trend following strategies are centered upon stocks breaking to new highs, and with good reason. Strength often begets strength, and the popular catch phrase for trend followers is “the trend is your friend until the end”. These stocks are pretty close to testing their all time highs, and could easily breakout if the markets continue higher.

Good Trading,

Joey

I mentioned last week how I had been stalking a couple of stocks on the long side despite the market outlook looking bleak. I've always maintained that its good to be prepared for any move, and thus I wanted to have a few stocks that were showing relative strength just in case the markets surprised with a rally. While the markets are certainly not out of the woods, the S&P500 was able to close above its 50-day moving average and the bulls have strung together a solid 2 out of 3 days.

Finisar Corporation (Public, NASDAQ:FNSR) was one of the stocks I highlighted and I started a position in it today. While the stock is still under resistance, I felt comfortable with the recent price action and the risk versus reward from this level. FNSR looks like it has begun to emerge from the triangle base it has been forming and could easily gain some traction if the markets continue to rally. I'm keeping the risk pretty tight because the play is either for FNSR to break out immediately from here, or for further consolidation. FNSR needs to clear $16.50-16.60 first, and if it does, it will likely head to new highs.
While the other stock (RDY) I was stalking didn't work out, I did find another stock that had a very similar chart to FNSR. Network Engines, Inc. (Public, NASDAQ:NENG) is also trading in a triangle and could be ready to emerge from its base. This is another case where a tight stop can be employed because NENG will either breakout and likely at least retest its prior highs, or head back down for further consolidation. While I'm not convinced it will follow through, the thought process is that if NENG can clear the $3.05 area it could end up making new highs for the year.
Like I mentioned before, there are no guarantees the markets are headed higher from here. In fact, there is the very real possibility that the markets could head much lower. Despite that, these stocks are showing enough strength for me to take a shot on and if the markets can follow through on this rally attempt, these stocks should end up setting new highs. As always, please complete your own due diligence and manage your risk, especially in this environment.


Good Trading,

Joey

I've been patiently waiting for the general markets to stabilize and have been very carefully picking my spots over the past several weeks. Despite the fact that I have been trading less frequently, I do continue to add potential longs to my watchlist. The general indexes are at an interesting spot here as the S&P500 pauses near its declining 50-day moving average. I can see multiple scenarios happening from here and remain open minded to all of them.

As many of my regular readers know, I prefer to look for stocks that are showing relative strength and the following two stocks have held up very well through the recent correction. While I think the markets could use a little rest here, these stocks are far enough along in their bases that they could be ready to breakout soon.


Dr. Reddy's Laboratories Limited (ADR) (Public, NYSE:RDY) is one stock that I have been stalking since June. I have been waiting for it to base a little and the recent price action near the 20-day moving average looks positive to me. It is trading in a triangle and is close to testing the upper trendline. RDY is a little thin, so traders should be careful with it.

Finisar Corporation (Public, NASDAQ:FNSR) is another stock I've been stalking for weeks. FNSR had fantastic rally earlier this year as the Network group caught fire. It has been consolidating since April and could be ready to emerge from its base. It looks like $16.50 would be the first level to watch just above, and a strong move above this price should help propel it to new highs.
I'm still leaning towards the general markets heading lower before a meaningful rally can emerge, but I am also seeing a lot of traders sharing those negative thoughts. This could set the stage for continued strength when no one is expecting it, which is why I continue to prepare for both long and short plays. If the market rallies further, then these two should breakout.


Good Trading,

Joey

In reviewing some screens tonight, I ran across three stocks that had pretty decent looking charts, yet were unfamiliar to me. While I recognize the tickers for a couple of these, I can't remember ever trading these or even adding them to my watchlist. Sometimes these unknown stocks can move well if you catch an institution sneaking in, but they also come with their caveats. Each of these are fairly light on the volume side, so getting in or our is not as easy as in the more liquid stocks.

The Cooper Companies, Inc. (Public, NYSE:COO) is in a base right now but appears to be finding support at its 20-day moving average. This stock held up very well throughout the recent weakness and could be setting a higher low here. This might provide a good entry for a retest of the top of the base and with any luck a breakout above $42.


RAM Energy Resources, Inc. (Public, NASDAQ:RAME) is another stock still trading in its base, but also appears to be ready for a retest of its recent highs and the top of its current base. If RAME could pull the breakout off, the measured target would take it to over $3 per share.


Loral Space & Communications Ltd. (Public, NASDAQ:LORL) is another one that looks pretty nice here. It cleared a base March and rallied about 10 points. Although it came back for a full retest of support, it did hold near the breakout level and has been steadily rising through the past few weeks of market weakness. It might come back in for more consolidation, but its definitely worth watching.
One common factor across these three stocks is that they are all technically still in a healthy consolidation. They are not beaten down with the markets and they are also not too extended where your risk reward ratio would be unattractive. While the markets are no where near being out of the woods, today's bounce could lead to more upside over the next few weeks. If the markets can stabilize, I would rather focus on stocks like these than stocks that have an over abundance of trapped longs.

Good Trading,

Joey

The past few weeks have been one of my least active string of weeks as far as swing trading goes in the past year to year and a half. While the markets have presented ample day trading opportunities, I've found that I've only found a few 1-3 day windows in the past 2 months worth attacking. I'm sure long time followers on my twitter account have noticed my decreased updates, and this is directly related to simply not seeing that many attractive opportunities. However, despite knowing I would be unlikely to initiate new swing positions the next day, I have still been faithfully reviewing my typical 300-500 charts per night and running through hypothetical trading scenarios to try and build a trading thesis for the following few sessions. Sometimes I will play devils advocate with myself and build the case against a thesis to see where I will call the thesis invalid.

The reason I am mentioning this is I think its very important for traders to remain open minded objective when preparing for the markets. I often see traders fixated on a side of the market and this leaves them very vulnerable to being blind sided. The markets are not always rational and even if you're right, it could take weeks or months for the markets to agree. The best traders prepare for multiple scenarios and then react to the markets. Instead of attacking the markets at the open with preconceived trades, why not build a couple lists and wait to see if the markets confirm any of them. With that in mind, here are a few thesis' I have been running through and will be watching in the markets:

• With the markets seemingly fixated on a weakening economy again and possibly pricing in deflation, I am looking to the consumer discretionary sector as a possible target on the short side. In fact, I wrote an article on the recreational vehicles group on Monday night that has a few weak looking stocks.
• Another thesis I have revolves around some oil stocks that have held up well through the recent weakness in the group. With the markets oversold and this group coming off several weeks of selling, its possible that they could get a short squeeze in their favor soon. I wrote an article tonight on this thought and it should be published by tomorrow afternoon on Chart Advisor. Some stocks to look at include CLB and CRR.
  
• One thesis I had been working with was rising gold and silver prices and while that looked promising, I have to admit it looks like it may need more time or simply not happen. However, I continue to monitor this group and remain open minded to either scenario.

While these are only three thoughts, notice how it covers both a rising or falling market. This allows me to be prepared for either scenario and while I may not trade anything, at least I will be prepared for either side of the market. While I can't guarantee I will hit every trade, I can guarantee that I'm not under prepared. More often enough, this is enough to provide me with a good risk to reward opportunity and an edge.

Good Trading,

Joey

I recorded a video for Stocktwits TV's "Talk your Book" show this week and the stock I chose was Silvercorp Metals Inc. (USA) (Public, NYSE:SVM). I mentioned on the show how I've been bullish on Gold, and Gold did in fact run to new all time highs today. While I've been bullish on gold, and own a gold miner, I also think Silver should begin playing catchup. The gold/silver ratio is still relatively high due to the financial crisis of 2008 and now the mess in Europe. The ratio spikes on the headlines as the flight to safety trade takes hold, but silver then plays catch up the following weeks.

One stock I like in the silver mining space is Silvercorp Metals Inc. (USA) (Public, NYSE:SVM). Below is the video I recorded for the show with my analysis.



Here is the chart as promised.



Good Trading,

Joey

The current market has been punishing the vast majority of stocks as it corrects a rally that stretched over a year in length. Corrections are healthy for the markets and there is no denying that they were getting ahead of themselves a few weeks ago. While the chance for a much longer and deeper correction exists, there is no evidence yet that this is nothing more than a typical run of the mill correction. Unfortunately for swing traders, there really has been little to trade on the long side, and even shorting opportunities have been difficult with the constant ridiculous gaps every morning in both directions. Many former market leaders have been punished, and the majority of stocks are trading below some major averages. Currently only 50% of stocks are over their 200 day moving averages and only 20% are above their 40 day moving averages. With that in mind, I decided to run a scan to find the few stocks that are still trading above these moving averages as one way of finding stocks showing relative strength in this environment.

Rubicon Technology, Inc. (Public, NASDAQ:RBCN) is one of these stocks and is looking pretty decent as it consolidates in a triangle near all time highs. This is one of those charts that you could find all the time a few months ago, but have all but disappeared recently. If the markets can find some support here, this could end up clearing this base.

Funny enough, plastic shoe maker Crocs, Inc. (Public, NASDAQ:CROX) is another stock that has held up very well through the past few months after a brutal correction through the bear market. Maybe it was unfairly beaten down before, or maybe plastic shoes are back on the upswing, but this stock has respected $8.50 as support after clearing a long base back in March.

Sapient Corporation (Public, NASDAQ:SAPE) is another stock that has managed to stay in a consolidation throughout the recent market weakness after clearing a base earlier in the year. SAPE has found support near $9.00 on a few occasions and just reclaimed its 20 and 50-day moving averages. It looks like SAPE is on its way to testing its recent highs and top of the range. SAPE is actually trading at multi year highs and above a very long base on the weekly charts. Any move above these levels could lead to a squeeze higher.
While the market is not out of the woods, focusing on the strongest stocks will often pay off for traders. It's one thing to buy beaten down stocks as investments in long term accounts, but for swing trading, its a very difficult game to catch falling knives. These stocks have held up through recent weakness, and could benefit from a market bounce.

Good Trading,

Joey

I received an email from a reader asking for advice on a position that got away from him and he was commenting on how overall, he was trading very well, but this one stock set him back several weeks. One of the first thoughts that came to my mind is how important it is to be consistent as a trader. All it takes is one blow up to damage a trading account, reverse several good trades, or even ruin a traders year. This is a lesson every trader must learn and even experienced traders can fall prey to holding on to stock or idea against their better judgment.

All of us at one time or another have fallen in love with a stock or idea and held it despite the tape telling you in black and white that you were wrong. Trading requires the discipline to adhere to a set of trading rules 100% of the time, because the bottom line is that markets are not always rational and every trader is and will be wrong a healthy percentage of the time. It reminds me of a quote from Jesse Livermore, and I'm paraphrasing, that "getting mad at the markets for being irrational or for disagreeing with you was like getting mad at your lungs for catching pneumonia". You will be wrong in this game and it doesn't matter how good you get as a trader, there will always be times when the markets don't make sense and don't agree with you. The characteristic that separates the good traders from the failed traders is the ability to minimize the damage when they are wrong and to maximize the reward when they are right.

One way that being consistent with following your rules helps a trader is it allows them to conserve their mental capital in addition to their monetary capital. The trader that minimizes damage from a move against them is in a much better position to weather the storm when they hit a cold streak both mentally and fiscally. Also, many people don't mention this, but it is a simple fact of life that traders (especially holding overnight) will be hit with a surprise move against them every so often. The trader who minimizes their risk consistently is in a much better place to absorb these unavoidable setbacks, and because they have conserved mental capital by not having to agonize through a pullback below their risk threshold, is often invested long enough for a positive surprise that evens out the setbacks.

While not all traders use stops, all traders should have an exit plan and a level where they acknowledge that the market does not agree with their thesis. While some fundamental traders have a very good idea of why their are buying a stock and therefore don't use a stop based on their strategy, the simple fact is that the vast majority of traders should be employing some sort of stop loss. Even more important than having an exit plan is the consistency of following it every time.

The current market environment remains unhealthy and traders need to be cautious. There are several stocks that have been market leaders that have begun to falter. These are the stocks that often lure a trader into thinking they are getting a bargain only to slowly continue to correct with the markets. Often a trader will even double up or worse as it corrects. The best advice I can give, and the advice I gave this trader is to draw a line in the sand and refuse the make the hole any deeper. There are plenty of stocks out there and the only way to trade them is to survive with some trading capital. All it takes is one bad trade to undo several good trades, or worse, exacerbate a losing streak into a full blown blowup. If this issue hits home with you, follow the same advice and don't continue to dig a hole for yourself. No one knows if this market is headed lower from here or not and the most important thing for a trader is to protect their bankroll.

Good Trading,

Joey

While I'm not convinced the markets have bottomed, the conditions are starting to become ripe for some short squeezes. Sometimes a short squeeze only lasts for an intraday spurt and other times it can last a few days. Although I don't often day trade, I will be more than happy to exit intraday if I can catch a quick move.
One group that may be setting up for a short squeeze opportunity is the solars. I think many of these stocks have had their backs broken and I don't think there are any in this sector that I would find attractive as intermediate term long plays right now, but I noticed that some of these stocks started rebounding ahead of the indexes today. These stocks have been beaten down the past few days and are really extended from their 20-day moving averages. Even though a stock can remain oversold for an extended period, the fact that these have been sold into oblivion, combined with how they rebounded early today has me thinking they could experience a retracement move back into prior support levels.

Trina Solar Limited (ADR) (Public, NYSE:TSL) is one solar that caught my eye today as it rebounded 2 points from its intraday low. Volume was very high on the reversal and this stock could easily bounce back to near $20 a share and still be "broken". One word of warning is that these types of trades are more advanced and traders need to understand that they are swimming upstream so to speak. While the opportunity exists for a quick move, risk needs to be controlled and more importantly traders can't get greedy and think they caught a bottom.

Yingli Green Energy Hold. Co. Ltd. (ADR) (Public, NYSE:YGE) is another Solar that has been hammered lately and started to rebound today. This is actually a stock I took today into the close on the possibility of an overnight gap or follow through in the morning. The initial target would be near $10 with an optimistic target near $11. Again, this is an aggressive play and by no means am I suggesting that YGE is bottoming.
Overall, the markets remain in a trading range and there really haven't been too many opportunities for my typical trading style. I've been patiently waiting for better opportunities and hopefully this is a good one.
Good Trading,

Joey

The fertilizer stocks have really been weak over the past two months. Monsanto Company (Public, NYSE:MON) has just been am absolute train wreck and The Mosaic Company (Public, NYSE:MOS) has also been pretty sorry. One stock I have been watching for a breakdown in sympathy is Potash Corp./Saskatchewan (USA) (Public, NYSE:POT). I have been short this stock a few times over the past couple of weeks and am currently short again via a put vertical spread. While POT has held up better than some of its peers, it hasn't exactly been a pillar of strength. POT failed on a breakout attempt in May off of a loose and sloppy base. POT is close to breaking down from a large double top which could have POT trading several points lower if it happened. However, it must be noted that POT is technically sitting on support, and thus still in a larger trading range. The key for POT will likely be the action in the general markets. If the markets head lower for another leg down, its doubtful that POT will be able to hold support.

I'd also like to take the opportunity to introduce a new product from a great trader to my readers. Jeff White from the Stockbandit.com recently introduced a training series for Advanced traders, in addition to his original Trading University Course. This Advanced Trading Course provides specifics on Day Trading, Swing Trading, and Position Trading. It also includes a host of strategies and methods for trading today's markets in each of those time frames. There is a 7 day money back guarantee so there is no risk to try it. I've checked out some of the lessons and highly recommend it.

Good Trading,

Joey

I was having a conversation recently with a friend about how the markets were normalizing after two years of abnormal price movement. If you really think back, the past two years have seen a stock market decline of historic proportions, and a relentless, although quite measured rally back to correct a portion of the decline. Some indicators like t2108 (stocks trading above their 40-day moving average) became less effective as they were pegged to oversold or overbought readings for months at a time. Even more impacted than price movement is the psyche of traders who were involved with the markets during this time. I know people who still refuse to put money back into the markets after being burned in 2008. Others remain steadfast in their belief that the markets will eventually collapse even worse then they did in 2008. While I will readily admit that I can't see into the future, I have been open to the idea that the worst is behind us. One thought I have pondered is whether the markets had over priced a complete failure in the system and that despite the multiple problems in the economy, they aren't worse than what the markets feared in 2008.

Recently, I was starting to think that the markets were slowly getting back to normal and that while the market certainly needed a healthy correction, the market remained relatively healthy. While there are still plenty of problems with the world's economy, the stock market was shaking off the bad news. However, today proved that things are not healthy. Normal markets don't act like this. While there have been plenty of warnings recently that the markets would correct as stocks like Green Mountain Coffee Roasters Inc.(Public, NASDAQ:GMCR),Cree, Inc. (Public, NASDAQ:CREE), NetLogic Microsystems, Inc. (Public, NASDAQ:NETL), and Buffalo Wild Wings (Public, NASDAQ:BWLD) have been hammered, I don't think anyone expected 1000 point drop in the Dow with no breaking news. While we may never know whether this was trading algorithms gone bad, a fund blowing up, or a fat finger fiasco, the bottom line is that the markets did drop sharply, and traders will be on edge for the foreseeable future. One has to wonder how many regular Joe's will decide to go to cash in their 401K in fear of a repeat drop. While I was lucky that today did not impact me at all, I have to think many traders got whipsawed and lost some emotional capital today in addition to real money.
I have to admit it was tempting to buying into the close today, and I did in fact open a couple of trades, but the best course of action is probably to stay on the sidelines with any cash right now. Everything depends on your trading style, but for my time frame it makes the most sense to wait until the markets stabilize a bit. I remain open to all scenarios and can see multiple scenarios ranging from a capitulation low being formed today to the beginning of even more selling in the near future. Because things could really go either way here, I will remain mostly on the sidelines or hedged with options on the few plays I do take. Again, your trading style will dictate when it's a healthy environment for you, but for me, it will take some time for the markets to stabilize and provide a lower risk opportunity.

Good Trading,

Joey

HP buying Palm is a big win..... for consumers. If Hewlett-Packard Company
(Public, NYSE:HPQ) is serious about integrating Palm's Web OS into all sorts of devices then this could really throw a monkey wrench in Apple and Google's dominance in this area. I am leaving Blackberry out of this because I think this deal has nothing to do with the cell phones. HP bought a great OS and as a consumer I can think of several possibilities, and keep in mind that HP has experience in the handheld game with the iPaq that competed head to head with Palm. While this line ultimately could be considered a failure, the company surely has learned a great deal (the least being that its foolish to rely on a Microsoft OS in this space). They also have experience in multi touch devices with their all in one pc's.

The first thought is of course porting WebOS to a tablet. This is logical and is almost a foregone conclusion, but how about a WebOS netbook or smartbook? How about porting WebOS into devices such as a TV, Media Sharing appliance or even a refrigerator. I think Droid, or Linux variations are the commonly assumed players in this space, but if HP really wants to take advantage of this opportunity it will push the envelope and innovate. HP has historically relied on Microsoft for its devices and this gives them a possible competitive advantage over their chief competition in Dell.

It's funny, but the initial reaction I saw from most traders was how HP was flushing their money down the toilet. Of course there is always the chance that an acquisition will be disastrous, especially for a struggling company, but relatively speaking this is not costing them too much, and if they take advantage of this opportunity, the impact to their bottom line could eventually be real. In my opinion, this is a good fit for HP as well. HP is a well run company and while smart people make mistakes, I have to give Mark Hurd the benefit of the doubt here. HP has been making great strides in Corporate Datacenters with their Blade Enclosures and if you take a look at their chart, its stock price performance hasn't been too shabby.

HPQ is has been holding above a prior high after attempting to breakout, It has held up relatively well in light of the recent weakness, but it will likely have a difficult time following through if the markets continue to correct. HPQ is actually not too far from all time highs, which sit in the high $60's. While this is not a stock I would be looking to buy right now, it does reveal a company that appears to be healthy and that has institutional support. It's doubtful this acquisition adds anything of substance to the bottom line now and in the near future, but if HPQ plays their cards right I think this could eventually work out very well for them. Of course the biggest hurdle might be getting application developers to embrace this OS after so much effort and resources are being dedicated to Android and Apple. I'm not sure what HP's answer to this will be, but I understand it's no small task. It will be interesting to see how this all shakes out, that's for sure.



Good Trading,

Joey

While I was writing my column for Investopedia this week on Credit Service companies, I kept looking back at Dollar Financial Corp. (Public, NASDAQ:DLLR). DLLR is an international financial services company serving banked and unbanked consumers. The Company provides a range of consumer financial products and services consisting of check cashing, single-payment consumer loans, longer-term installment loans, pawn lending, debit cards, phone/gift cards, bill payment, money orders, money transfers, foreign exchange, gold buying and legal document processing services.

This chart setup looks great in my opinion, and I am adding it to the top of my watchlist. DLLR is consolidating on lighter volume near the breakout area near $25. I am still a little cautious on the near term outlook for the markets so I can't definitively say I will enter this stock, but if I see any strength confirming the prior breakout area as support, I will likely take an entry. I go into greater detail in the article, but the chart below leaves little analysis needed. If you enjoy my Investopedia Column, you can find an archive of most my articles here.





Good Trading,

Joey

I recorded another video for the Stocktwits Talk Your Book show last night. Although I typically choose stocks that are still at decent entry points, I chose Nu Skin Enterprises, Inc. (Public, NYSE:NUS) because although it had a sharp move already, it looks like it could just be the beginning of a larger trend move higher. I also chose it because it is following a pattern I am seeing quite frequently in the current market that has been providing good opportunities. As I mentioned in the show, I got pretty lucky with the timing as NUS surged a couple of days following my entry and is sitting pretty after reaching new all time highs.

Here is my portion of the show last night.


And here is the chart as promised.


Also, I just watched this video from Adam Hewison highlighting how the Dow and S&P are at important Fibonacci retrace levels, and its definitely an area to watch out for.


Good Trading,

Joey

I mentioned in my market review article how I feel the markets are starting to show some signs of slowing down, so I took advantage of some strength today to lighten up on some of my positions. While I still believe the markets may be headed higher, I would not be surprised with some weakness leading into options expiration later this week. While I sold some stocks into strength, one I decided to keep a full position in is Patriot Coal Corporation (Public, NYSE:PCX). In looking at the chart for PCX, I still see the potential for a strong move higher. This is a case where the possible reward far outweighs the risk.

Notice how despite some volatile moves, PCX has been consistently following a pattern of clearing base after base. Every time it clears a base, it rallies and then holds above the prior base on a retest. PCX recently cleared a resistance level that was established near $22 and has been trading in very tight narrow range candles since then. PCX has not dipped back into the base showing some strength despite the lack of follow through to the upside. A move above its recent high at $23.25 could trigger some buying causing a spike higher. The projected target for the rectangle breakout takes PCX near $29 so the reward is pretty substantial. While it would be preferred that PCX hold above the prior base, a stronger level of support looms below near $19 which coincides with its 50-day moving average.

Good Trading,

Joey

I submitted a video for Talk Your Book last night, but unfortunately it was a little too long for them to accept. In the video I discuss a trade I am in as well as a detailed look into the price action over the past several months. One of the reasons I posted this choice was that it is still offering a possible opportunity for traders rather than posting a trade that was well into its move and thus was not actionable. I am posting the video here along with a static chart of XTEX for your viewing pleasure.



Here is the chart.


Good Trading,

Joey