DOW bullish (1st higher low set up)
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Posted By:Gary Glover On:06/09/2010 10:14
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The strong volume near the low was a sign of exhaustion at the time and a strong 4 week rally unfolded which took the stock from $3.33 to $5.02.
The ideal set up is to see price pullback the same number of weeks and not go to a new low and hopefully hold above the 50% or 61.8% retracement level. Volume should contract and be considerably less than the previous four week rally. Bingo, this is exactly what has happened.
Following the 4 week rally, it’s very common to see equilibrium in time here so a pullback that lasts the same duration as the rally is the most common set up and the ideal time to go long. All the conditions for a strong rally are in place. If we use a 3 wave advance as our minimum target then we get a target of $5.50-$5.60.
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AMP Covered Call Dividend Play
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Posted By:Gary Glover On:01/09/2010 16:55
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AMP goes X-dividend on the 6th of September an amount of 15 cents (60% franked). We believe the $4.85 is a key support level. It marks the important 61.8% fibonacci retracement zone and it also marks the third attempt at the low, or as we have referred to on many occasions, a three thrust low pattern. Fast moves generally precede these patterns so we think the stock can rally strongly from this point.
Our strategy will be to buy the stock under $5.00 region and once it gets above the $5.25 region we will write a $5.25 September call option for approximately 15c. If we're successful we should be able to generate 30c worth of income for the month of September which is approximately a yield of 6% for the month. At these levels the risk reward ratio is compelling.
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The Chart Buff
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Posted By:Gary Glover On:03/08/2010 10:17
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Dow Jones
Although volumes have just started to pick up it’s still not overly convincing this rally. The 4 week rally has been mild and the consolidation period we should expect after following a rally that lasted 60 weeks should last longer than 13 weeks, so our neutral range bound call is still firmly in place. What is of concern is the lower double top possibility. Double tops have such a high failure rate it is hard to view them too seriously, but once we have a trend in place, or in this case you have a peak followed by a lower high then the results are just the opposite as this becomes a high probability bearish set up. The 13 weeks (or for our Gann enthusiasts – 90 days) is a very important timing window and the lower high set up gives us another bearish signal to be very wary of.
View: If this rally is going to fail, then it will do it right here. The Dow Jones will need to close above 10594 to cancel out this possibility. The last time I saw this similar set up it didn’t end well so we need to be very cautious here.
Commonwealth Bank
This is a very similar set up to the previous Dow Jones chart and again the lower double top is a real possibility. The last thing on the chart is a mild 4 week rally which has followed a sharp 2 week fall and price has failed to go to a new high in twice the time it took to move down. Also the biggest volume spike has come in last week after the rally has taken place and this could be a short term exhaustion sign.
View: The stock is in a weak position after a feeble rally and the lower double top is a major concern.
Map Group
Very similar pattern to the last two charts, it’s a bit of a concern when this pattern keeps on popping up all over the place currently. The volume of last 4 weeks rallying has been very low so this rally again is not that convincing. A bearish reversal here will see a new low in less than 4 weeks so a short trade looks ideal with a stop just above the last peak of $3.05.
View: This weak rally up to the previous lower high is a great shorting opportunity because risk reward presented is ideal. If your wrong you will get stopped out straight away for a small loss and if it turns it will move a lot and the reward will be large.
Tatts Group
The gambling sector is one of the few bright lights at the moment. Tatts Group has recently broke up out of a small downtrend and has had a nice rally. The volume is a little low so this is a bit of a concern longer term. The most interesting thing about TTS and TAH is that they both have been caught in a large sideways trading pattern and this could be a large basing pattern. Large moves often follow these types of large basing patterns so something significant is possible here.
View: The volume for TAH has been very firm so this could indicate some buying interest currently and a break above the downward trend line would probably be accompanied by a breakout rally. If price can break above $7.00 then a quick move towards $7.70 is likely.
Tabcorp Holdings
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Woolworth Bear Put Spread
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Posted By:Gary Glover On:30/07/2010 09:02
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Woolworths has broken a key upward trendline and now is likely to go and retest the previous June 2008 low of $23.00. Because this is a lower high set up this is likely to go to a clear new low and using the A=C rule gives us a potential target of $19.00. A more modest target is $22.00 so this should be our minimum target.
A great strategy to consider is buying an out of the money bear spread. The aim is to spend small and win big if our big move comes off. It's wise to buy plenty of time to give yourself plenty of opportunity to get it right and if it doesn't move your way you close it out after half the time has elapsed. I.e. if you buy an spread with 12 weeks until expiry you should close it out before it reaches 6 weeks to expiry. The text books suggest you will only lose 1/3 of the value if price hasn't moved too much but if you get back half then you've done well in my experience.
In this case we suggested earlier in the week that our Broking clients Buy WOW Sep 24.00 Put and Sell WOW Sep 22.50 Put for a net price of 18c dr. 10 contracts will cost just under $2000 after all costs and if it does close below $22.00 by September expiry then it could net you $15000. You can see that this represents a 7.5 :1 risk reward which is very attractive. As I suggested if it doesn't roll over within the next 4-6 weeks we should recover at least 50% of your outlay. If you would like to look at this strategy and others please call me at Novus Capital on 02 93750123. As an options professional we can teach you the smart ways to trade the market.
Regards
Gary Glover
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The Chart Buff 19/07/10
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Posted By:Gary Glover On:19/07/2010 14:40
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Dow Jones
The Dow Jones Industrials is in an unusual position, in a downward sloping trading range. There was a marginal new low recently (false break) so this is a short term bullish signal but we still have a series of three lower high’s which is quite bearish overall. Looking at the previous rally in the range we can see a rally of 10 days followed by a pullback 10 days to a slight new low. So the most recent rally of 7 days will be measured on how the next seven days goes, whether it can hold the low within the same time.
View: Overall we maintain a neutral position. There a few things to like about what is going on but the series of lower high’s is the greatest concern. We expect the market to be range bound short term.
S&P ASX 200
Not much has changed to our previous forecast. We maintain a neutral view and believe a trading range between 4080 and 4800 is likely for an extended period of time.
View: A 12-18 month trading range is possible. We should get used to an increase in volatility and learn to write covered calls.
BHP Billiton Ltd
The current pattern of trend is a concern. This could be described as a pennant/flag pattern. Some of these patterns succeed while others obviously fail. The key generally speaking is to wait for a bearish break as these patterns can be time consuming in nature. If it manages to hold on for a long period and not break the pattern then this can turn into a basing type of pattern and a slow advance can occur similar to 2008/09. If we get a bearish break on the other hand then a fast move lower is possible. In this case we get a target as low as $31.00. It does appear a little implausible but in the current environment (global uncertainty, resource tax and election) the possibility can't be dismissed.
View: The current pattern of trend tells us to keep on our toes here as a break below $36.00 would be extremely bearish.
David Jones Ltd
There’s a lot, not to like about this stock currently. The recent pattern is a flag/pennant formation which is a bearish consolidation pattern. You can see the rally for the last 8 weeks has been mild in nature and also it has risen on declining volume. The rally has just tagged the previous swing low in January and this is typically where a weak trend would normally rally to and fail from as this is key resistance point.
View: There are three good reasons to short this stock in their own right. A combination of all these combined could be a lethal combination and this would be described as a strong sell. $3.50 - $4.00 is the target range.
Nufarm Ltd
This stock has had a massive fall from grace and people are wondering where the low might be or what price region we might see some support. I would not advocate trying to find a buying point but rather wait for a bullish reversal before entering in. A couple of price points to monitor for include the 3.13 and 2.84 regions.
Using the simple but widely universal A = C correction measure gives us A = 17.71-6.99 = 10.73. Projecting the same price from the B wave gives us a target of $3.11 (13.84-10.73). Also the first leg down can mark the midpoint so using the first drive down to 8.34 for the C wave gives us a projected target of $2.84.
View: Extreme caution required here. I would not be trying to pick a low here and I would be against taking a longer term view. Not meeting financial covenants of its financiers is a massive warning bell.
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