Technical Trend
Via the TREND Technical Trader, we use common and proprietary means of technical trend and sentiment analysis to realize an exceptional trading record, and best of all to properly diversify holdings and add a hedging component to portfolios that the investing masses lack completely.
TREND Technical Trader is designed for an audience desiring frequent & varied trading and hedging ideas - actionable ideas to protect and grow your portfolio. Long, short, ETF's, AAA-rated big board blue-chips, and penny stocks are all fair game as long as the charts and trend support the trade thesis.
We do the analysis for you, and provide readers with simple and actionable trade ideas based on that analysis.
Subscribers of TTT do NOT require a working understanding of technical analysis and related terms to gain maximum benefit from the service. Even novices will find that the techniques and terms become familiar over time, and that anyone can make use of our powerful tips & techniques from day 1 of their subscription.
TREND Technical Trader :
- Timely, easy to understand commentary on individual stock, sector, market or commodity trends
- Custom charts not available anywhere else
- Clear, defined entry levels and updated exit points as the positions and the markets move
- Clear, concise examples to help you turn research into profitable trades
- Regular updates on all open positions
- Advance notice of potential upcoming trades, so you can be ready to act
- Simple exit strategies tailored to both conservative and aggressive traders
- No "day trading" required ! A few minutes outside market hours once or twice a week is all it takes to keep up-to-date.
BEWARE !
A long-only portfolio is hardly diversified, if at all.
This is true even if one owns foreign shares and mutual funds. To understand why, we need look to further than the past few years. Since late 2007, everything is down significantly except gold - globally - including many of the world's best and supposedly diversified mutual funds.
Even Berkshire Hathaway, the famed stock of "the world's greatest investors" Warren Buffett and Charlie Munger, is down 33% - a full 1/3 - since late 2007, despite the literally historic rally of the past 9 months.
We are not the world's greatest investors, but we made money before 2007 consistently and we made money consistently since then, as did readers who followed our lead.
Don't be complacent and believe that we are in a new bull market, or that market crashes and long-term bear markets are rare. Japan was in the late 80's the world's most powerful and vibrant economy and enjoyed - or suffered, depending on your perspective - the world's highest real estate prices ever by far (and ever since, if measured by price per square foot). The "lost decade" has now gone on for 20 years in Japan, and may last at least 20 more years for all we know.
Do not think it can't happen in North America or Europe. At some point, it will, at the minimum. We have already had a lost decade in North America & Europe, and it can easily become a lost two decades or more. Consider also that shorter-term crashes happen frequently, even within long-term bull markets.
We seek to profit on bullish trends and to hedge against market drops both easily forseen, such as 2007/2008, and completely unforseen, such as 1987 and 2001.
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One of the ways in which we properly diversify and hedge our portfolios, and potentially profit when markets or certain stocks or commodities decline, is via short selling or effective short selling.
TECHNICAL ANALYSIS
A method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security's intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity.
Technical analysts believe that the historical performance of stocks and markets are indications of future performance.
LOST DECADE
A period in Japanese history in which economic growth was virtually flat due to the bursting of an asset bubble. "The Lost Decade" is the term coined to describe the period from 1991-2001, in which the Japanese economy grew extremely slowly despite extremely low interest rates.
The Lost Decade was the result of the Japanese asset-price bubble of the 1980s coming to a halt. Following years of cheap and easily available credit for Japanese investors, the Bank of Japan increased interest rates sharply to curb inflation, leading to both a credit crisis and a crash in the equity markets.
SHORT SELLING
The selling of a security that the seller does not own, or any sale that is completed by the delivery of a security borrowed by the seller. Short sellers assume that they will be able to buy the stock at a lower amount than the price at which they sold short.
Selling short is the opposite of going long. That is, short sellers make money if the stock goes down in price.
This is an advanced trading strategy with many unique risks and pitfalls. Novice investors are advised to avoid short sales.
Making an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting position in a related security, such as a futures contract.
An example of a hedge would be if you owned a stock, then sold a futures contract stating that you will sell your stock at a set price, therefore avoiding market fluctuations.
Investors are always unsure of what the market will do. So-called "black swan" events happen with regularity, quite possibly with increasing frequency in years to come.
Not everyone has an account in which they can short, or are comfortable shorting. A method available to everyone for hedging and "effective shorting" is via regular and inverse ETF's (Exchange Traded Fund) or leveraged ETF's.
These ETF's can be bought like normal stocks, with less maximum risk than outright shorting, yet still provide hedging and profits against falling markets or sectors.
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ETF, EXCHANGE-TRADED FUND
A security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange. ETFs experience price changes throughout the day as they are bought and sold.
Because it trades like a stock, an ETF does not have its net asset value (NAV) calculated every day like a mutual fund does.
By owning an ETF, you get the diversification of an index fund as well as the ability to sell short, buy on margin and purchase as little as one share. Another advantage is that the expense ratios for most ETFs are lower than those of the average mutual fund. When buying and selling ETFs, you have to pay the same commission to your broker that you'd pay on any regular order.
LEVERAGED ETF
An exchange-traded fund (ETF) that utilizes financial derivatives and debt to amplify the returns of an underlying index. Leveraged ETFs are available for most indexes, such as the NASDAQ-100 and the Dow Jones Industrial Average. These funds aim to keep a constant amount of leverage during the investment time frame, such as a 2:1 or 3:1 ratio.
A leveraged ETF does not amplify the annual returns of an index; instead it follows the daily changes. For example, let's examine a leveraged fund with a 2:1 ratio. This means that each dollar of investor capital used is matched with an additional dollar of invested debt. If one day the underlying index returns 1%, the fund will theoretically return 2%. The 2% return is theoretical, as management fees and transaction costs diminish the full effects of leverage.
The 2:1 ratio works in the opposite direction as well. If the index drops 1%, your loss would then be 2%.
INVERSE ETF
An exchange-traded fund (ETF) that is constructed by using various derivatives for the purpose of profiting from a decline in the value of an underlying benchmark. Investing in these ETFs is similar to holding various short positions, or using a combination of advanced investment strategies to profit from falling prices.
Also known as a "Short ETF," or "Bear ETF".
One advantage is that these ETFs do not require the investor to hold a margin account as would be the case for investors looking to enter into short positions.
There are several inverse ETFs that can be used to profit from declines in broad market indexes, such as the Russell 2000 or the Nasdaq 100. In addition, it is possible to buy inverse ETFs that focus on a specific sector, such as financials, energy or consumer staples. Most investors look to purchase inverse ETFs so that they can hedge their portfolios against falling prices.
An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit an investor's loss on a security position.
Also known as a "stop order" or "stop-market order".
Setting a stop-loss order for 10% below the price you paid for the stock will limit your loss to 10%. This strategy allows investors to determine their loss limit in advance, preventing emotional decision-making.
It's also a great idea to use a stop order before you leave for holidays or enter a situation in which you will be unable to watch your stocks for an extended period of time.
A situation where a stock price decreases and, consequently, an investor's stop order is executed.
If you place a stop loss order instructing to sell the stock if the price moves below $20 per share, and it does, you've been stopped out.
A market transaction in which an investor sells borrowed securities in anticipation of a price decline and is required to return an equal number of shares at some point in the future.
The payoff to selling short is the opposite of a long position. A short seller will make money if the stock goes down in price, while a long position makes money when the stock goes up. The profit that the investor receives is equal to the value of the sold borrowed shares less the cost of repurchasing the borrowed shares.
Suppose 1,000 shares are short sold by an investor at $25 apiece and $25,000 is then put into that investor's account. Let's say the shares fall to $20 and the investor closes out the position. To close out the position, the investor will need to purchase 1,000 shares at $20 each ($20,000). The investor captures the difference between the amount that he or she receives from the short sale and the amount that was paid to close the position, or $5,000.
There are also margin rule requirements for a short sale in which 150% of the value of the shares shorted needs to be initially held in the account. Therefore, if the value is $25,000, the initial margin requirement is $37,500 (which includes the $25,000 of proceeds from the short sale). This prevents the proceeds from the sale from being used to purchase other shares before the borrowed shares are returned.
Short selling is an advanced trading strategy with many unique risks and pitfalls. Novice investors are advised to avoid short sales because this strategy includes unlimited losses. A share price can only fall to zero, but there is no limit to the amount it can rise.
Purchasing securities in order to close an open short position. This is done by buying the same type and number of securities that were sold short. Most often, traders cover their shorts whenever they speculate that the securities will rise. In order to make a profit, a short seller must cover the shorts by purchasing the security below the original selling price.
Also referred to as "buy to cover" or "buyback".
For example, suppose a trader has sold short 50 shares of ABC stock at a price of $10 per share because he speculated that ABC will not be successful in the near future. Unfortunately for the trader, the company has been very lucky recently and its price rises to $15 per share. In order to limit his losses, this trader decides to cover his short position by buying back the 50 short sold shares at a price of $15 per share.
Definitions of key technical terms we use :
We do the analysis for you, and provide readers with simple and actionable trade ideas based on that analysis.
Subscribers of TTT do NOT require a working understanding of technical analysis and related terms to gain maximum benefit from the service. Even novices will find that the techniques and terms become familiar over time, and that anyone can make use of our powerful techniques.
TRENDLINE
A line that is drawn over pivot highs or under pivot lows to show the prevailing direction of price. Trendlines are a visual representation of support and resistance in any time frame.
Trendlines are used to show direction and speed of price. Trendlines also describe patterns during periods of price contraction.
MOVING AVERAGE
An indicator frequently used in technical analysis showing the average value of a security's price over a set period. Moving averages are generally used to measure momentum and define areas of possible support and resistance.
Moving averages are used to emphasize the direction of a trend and to smooth out price and volume fluctuations, or "noise", that can confuse interpretation. Typically, upward momentum is confirmed when a short-term average (e.g.15-day) crosses above a longer-term average (e.g. 50-day). Downward momentum is confirmed when a short-term average crosses below a long-term average.
A trend-following momentum indicator that shows the relationship between two moving averages of prices. The MACD is calculated by subtracting the 26-day exponential moving average (EMA) from the 12-day EMA. A nine-day EMA of the MACD, called the "signal line", is then plotted on top of the MACD, functioning as a trigger for buy and sell signals.
1. Crossovers - As shown in the chart above, when the MACD falls below the signal line, it is a bearish signal, which indicates that it may be time to sell. Conversely, when the MACD rises above the signal line, the indicator gives a bullish signal, which suggests that the price of the asset is likely to experience upward momentum. Many traders wait for a confirmed cross above the signal line before entering into a position to avoid getting getting "faked out" or entering into a position too early, as shown by the first arrow.
2. Divergence - When the security price diverges from the MACD. It signals the end of the current trend.
3. Dramatic rise - When the MACD rises dramatically - that is, the shorter moving average pulls away from the longer-term moving average - it is a signal that the security is overbought and will soon return to normal levels.
Traders also watch for a move above or below the zero line because this signals the position of the short-term average relative to the long-term average. When the MACD is above zero, the short-term average is above the long-term average, which signals upward momentum. The opposite is true when the MACD is below zero. As you can see from the chart above, the zero line often acts as an area of support and resistance for the indicator.
%K = 100[(C - L14)/(H14 - L14)]
C = the most recent closing price
L14 = the low of the 14 previous trading sessions
H14 = the highest price traded during the same 14-day period.
%D = 3-period moving average of %K
RELATIVE STRENGTH
A measure of price trend that indicates how a stock is performing relative to other stocks in its industry.
It is calculated dividing the price performance of a stock by the price performance of an appropriate index for the same time period.
RSI
A technical momentum indicator that compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions of an asset. It is calculated using the following formula:
| RSI = 100 - | 100 |
| ______ | |
| 1 + RS |
| RS = Average of x days' up closes / Average of x days' down closes |
A trader using RSI should be aware that large surges and drops in the price of an asset will affect the RSI by creating false buy or sell signals. The RSI is best used as a valuable complement to other stock-picking tools.
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Below we ullustrate some of the open positons TREND Technical Trader readers are holding. Paid subscribers are provided larger charts, specific entry, exit, and target levels, along with detailed commentary & regular updates.
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EMX, Eurasian Minerals Inc. (updated December 12)
We are long Eurasian Minerals since October 14 at $1.45
The trendline we observed (ascending thick black line) held, as did the 200-day moving average (thick blue line). Best of all the stock price broke out where we predicted it should, "above $2.00"
Conservative readers booked a 65% profit at our initial target of $2.40 thanks to the December 03 spike to $2.80
The thick horizontal red line represents an area of resistance which was marked by the peaks in the stock price in July 2007 and February 2008. We hope on this 3rd attempt the stock price will finally clear this area and rally to our secondary target of "$3.00 and beyond".
Given its bullish prospects, support from the IFC / World Bank, and the continuing rally in precious metals and junior venture companies, there is the chance here for much higher prices as the technical trend suggests.
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ACC, American Campus Communities (updated November 24)
We are short American Campus Communities, since September 23 at $28.56
Our primary target of the 200-day moving average - the thick blue line - has not yet been reached, and our position remains open with a tight stop which would limit possible losses to less than 10%.
REIT (Real Estate Investment Trust) stocks have been lagging the general markets since mid-September, and we are not bullish for ACC's prospects going forward.
The stock is just barely above its 200-week moving average (not shown in this daily chart), and that's despite the massive market rally since March. We feel it will break down shortly, due to resistance pressure from the declining trend represented by the downward-sloping thick black line on the far right of the chart.
Also directly overhead is historical resistance in the general area of $29 represented by the horizontal red line. The relative strength (RSI, at bottom) is bearish and dropping.
Note the 5-wave Elliot count on the way down, and the subsequent A-B-C rally to a 63% retracement - classic technical points which suggest limited upside potential.
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ASX, Alberta Start Development Corp. (updated November 23)
We are long Alberta Star as of October 29 at 14c CAD.
Our primary target of 20c has not yet been reached.
Our secondary target is 25c, at which point more conservative players should exit for a profit of 64% Our current longer-term target is 45c and if it gets that high even aggressive traders must consider selling at least half their positions.
Precious metals and junior resource stocks remain popular speculations, and given the history of extreme price swings in ASX we wouldn't not be surprised to see our targets reached, the obvious caveat being the price of precious metals and the general appetite for junior venture equities.
Depicted on the chart is a breakout of a long-term downtrend represented by the downward-sloping black line labelled "A", as well as a break above the 50-week moving average in light blue.
Initial overhead historic resistance, and a 50% retracement of the rallies to 26c in April and June, is represented by the lowest horizontal red line at 20c thus our initial target level. Our secondary target of 25c is represented by the higher horizontal red line at the resistance marked by previous highs in April of this year.
The uptrend is intact per the rising black trendline labelled "B", thus our position remains open with no stop until further notice to subscribers of the TREND Technical Trader.
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FSLR, First Solar Inc. (updated November 23)
We are short First Solar as of October 22 at $154
Our primary target of $122 was reached just 6 trading days later for a profit potential of 21% for conservative traders.
Our secondary target of $105 has not yet been hit, nor has our stop level of "above the 200-day moving average". TTT readers will be updated of the exact stop figure as it changes.
As general markets are rising, FSLR continues to display significant relative weakness thus remains an ideal short on a technical level as well as on its decaying fundamentals versus its primary competitors. Further, it is in danger of completing a very bearish "head and shoulders" formation, as shown here on the daily chart. This formation, along with a possible Elliot Wave count displayed on the chart, suggests our eventual target of $60
A break below the upward-sloping brown line, which is an uptrend stretching back to early 2007, would be extremely bearish as would be an eventual break below $100 which we expect in due time. However, conservative traders may wish to book at least initial profits at this level in case of a significant bounce in the stock price.
| Name | Last | Change |
|---|---|---|
| Dow Industrial | 10,561.40 | -5.97 |
| S&P 500 | 1,144.41 | -1.20 |
| NASDAQ | 2,358.54 | -0.41 |
| TSX | 11,960.90 | -0.15 |
| Gold | 1,106.15 | 0.00 |
| Crude Oil | 82.39 | -0.04 |
| Natural Gas | 4.49 | 0.00 |
| US Dollar | 80.31 | -0.13 |
| Euro | 1.37 | 0.00 |
