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June 10, 2008
"Using Volatility to a Trader's Advantage"
It was smooth sailing Thursday with the Dow Jones Industrials rising 213.97 points. Friday's unsavory unemployment report, however, and spike in crude oil prices sent the Dow on a 395-point plunge.
Stocks have been trading with a sort of volatility that seems strange even by recent standards. Yesterday, for example, the Dow was up 0.5% while the NASDAQ was down by approximately the same percentage.
So how can traders expect to keep their eyes on the ball when the market performs a wobbly balancing act? My Trending123 subscribers could tell you. They've learned through this service how to use volatility to their advantage, and I hope you do too!
During the January lows, I recommended to my Trending123 subscribers to buy, Buy, BUY! They may have thought I was crazy then, but anyone who bought a large basket of stocks that day would be up enormously, even after Friday's pullback. One down day doesn't mean we've hit a downtrend and you can't be afraid to use down days as buying opportunities.
For those of you who are new to the Trending123 world, allow me to explain. Overall, the market is in a bullish uptrend, but that doesn't mean we can't have intraday bearish patterns. The thing about these patterns is that they break in the direction from which they derived—if a stock is heading north, then odds are it's going to break to the north; if a stock is heading south, it'll likely break to the south.
Patterns occur in all time frames. With that in mind, when you see these patterns on an intraday chart you can take advantage of some very high beta stocks that are leveraged to the QQQQs. Research in Motion (RIMM), for example, is a stock infused by massive amounts of volume with the QQQQs bottomed. Remember when RIMM was trading in the $120s? This is a stock that on a 1-minute chart had gone from $128 to $135 in a 30-minute period! That's a massive move, one based on massive volume. In case you didn't know, the tip-off is the point where volume precedes price.
So, for those of you looking to capitalize on shorter-term movements, follow closely a stock's intraday moves on, say, the QQQQs.
The Market Knows Best
Listen to the market's voice, my Trending123 subscribers will tell you. If you're in touch with the market, then you should recognize that the market tells us what to do. It becomes a matter of how in-tune we are with its movements. Below is a chart of the QQQQs that I hope will further explain the issue at hand.
Do you see the big yellow dots? The dots represent the point at which two moving averages converge to create a bullish cross. If we follow precedent, every time that has happened we've experienced parabolic rallies that have lasted anywhere from months to a year!
The latest one occurred recently—the first bullish cross in 18 months—and is just another indication of the bullish trend reversal that we are seeing in the market. In fact, we have now crossed over the 1334 mark and the last time that happened was in 2006.
If we listen to what this market is telling us to do, it's saying that we need to be more aggressive on the bullish side. It's the best way to play the parabolic rally. Don't be frightened of High Beta stocks. The most speculative sector there is, Biotech, outperformed almost every other index, posting a 1.12% gain last week. Comparatively, the Oil Service Holders gained only .32% in the same time frame.
There are a lot of good things happening in the market right now. Many of January's burned traders are staying out of the market. That's good for us because when the skittish traders finally jump back in the market, we will realize profits by selling to them.
Days like Friday can disrupt the focus of traders and throw them off their trading plan. But remember, my Trending123 subscribers have tremendous focus and you could too! Don't accept losses and forgo gains. Join Trending123 today and ride this market all the way to the top!
Sincerely,
John Lansing
Trending123
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