Category Archives: Psychology

Trading Psychology

DG

This called a price action trade.

blog-dg-5m-10-5-2016

There was a small gap down this morning, a nickel, which was followed by a $1.50 drop in the first 5 minutes. Certainly a panic price movement.

My first buy at $67.11 was set up before the market opened. The additional buy at $66.76 was entered after I felt the selloff was over.

I sold half of this position at  $68.24 for 67 cents to reduce my position size because DG broke support at $67.14 which indicates DG could go lower.

Next support levels are $64.90 (minor), $62.50 (minor) and $60.02, which is major support.

DG has been sold to Dollar Tree for $74.50.

Dave C.

 

CXRX Turnaround?

I bought CXRX this A.M. at $6.34. This was meant as a day trade do to the sharp fall in the last 2 days. Here’s what happened though

.blog-cxrx-5m-9-14-2016

blog-cxrx-60m-9-14-2016

The break above the long descending channel from 9/5 would be the confirmation of a reversal under normal circumstances, but here we have had a sharper selloff for the last 2 days. Volume doubled yesterday as well, all of which indicates panic. Panic is a great indicator of a reversal.

My intention here was to sell at the high of the day which was $6.63 at that time. I sold one third there and another third at $6.92. On the rest I put in a stop at $6.49 and will hold unless stopped out.

As you can see on the 5 minute chart CXRX is holding in the upper third of the days price action. If it holds in the upper half and closes green for the day I think CXRX will reverse here. A hold in the upper half and a green day should change the sell bias on this stock.

It still needs to break the long channel at about $7.12. Bear in mind the number will come down as time pass’s.

 

What’s up Here??? Part 2

On 9/2/2016 I make a post about bad economic numbers driving the market higher that day. That big day was caused by the market precipitants relief that this relieved pressure for an interest rate increase by the FED.

On Wednesday,  9/7/2016 the FED concluded a two day policy meeting in which they voted for no interest rate increase, as expected. On Thursday a couple of interest rate hawks who are members of the FED spoke out and opined that the economy had strengthened  and inflation was rising. These are two major factors that determine a raise in interest rates. They said, or inferred, that a rate increase was overdue. Even though they are non-voting members of the FED these prognostications scared the crap out of market precipitants, ie banks, hedge funds and other large money managers. These are the folks that move the markets.

blog-indu-60m-2-9-2016

The chart above shows us a 394.46 point decline in the market (Dow Jones Industrial Average) on Friday, 9/7/2016.

When I looked at the CME FED Watch Tool on Friday the expectation of a rate in September had moved up from 15 percent to 76 percent. These are the expectations and these are the numbers the market trades on.

Personally I don’t think there will be a rate increase before the election in November because of the effect it would have on the election. I would certainly look at such a move as an attempt to manipulate the result of that election.

For those of you who might have been in doubt about the effect of interest rates, or the expectation of a change in interest rates, you can now lay that thought aside.

Dave C

What’s up here???

08:31
July Trade Balance -$39.5 bln vs -$43.0 bln Briefing.com consensus
08:30
August Average Workweek 34.3 vs 34.5 Briefing.com consensus
08:30
August Unemployment Rate 4.9% vs 4.8% Briefing.com consensus
08:30
August Nonfarm Private Payrolls 126K vs 175K Briefing.com consensus
08:30
August Nonfarm Payrolls 151K vs 180K Briefing.com consensus; Prior revised to 275K from 255K
08:30
August Average Hourly Earnings M/M +0.1% vs +0.2% Briefing.com consensus

Courtesy of Briefing.com

With the exception of the July Trade Balance all these numbers are bad.

Below is a chart of the SPY pre-market movement this morning.

blog spy 5m 9-2-2016

The large (huge) candlestick at seven thirty CDT occurred when the reports came out.

Let’s start with the fact that expected consensus numbers are what the market reaction is keyed to.

Average Workweek came in at 34.3 versus consensus of 34.5.

Unemployment rate was 4.9 versus consensus of 4.8.

Nonfarm Private Payrolls were 126K versus175K.

Nonfarm Payrolls were 151 versus consensus of 180.

Average Hourly Earnings Month over Month were 0.01 versus consensus of 0.02.

All were worse than expected. So why the big rise in the market?

Remember all the chatter from the FED (Federal Reserve) and their various governors in the last month or so about finally pushing through an interest rate hike. This had become the consensus of the market. Things were looking up and a rate hike was long overdue. As most of you know higher interest rates are a drag on a higher market because of the higher cost of borrowing money which raises the cost of doing business.

The report this morning sharply reduced the chances of an interest rate hike in the near future. The change in expectations is the reason the market popped 120 points this morning.

Dave C

 

VRX

VRX had a big up day yesterday.

blog vrx daily 7-7-2016

Walgreens Boot Alliance on Conference Call: VRX ticking higher after WBA said it is very pleased six months into the relationship with VRX; Shares of VRX press to early morning session highs in reaction  (83.52)
7/6/2016, 9:08:39 AM ET
Courtesy of Briefing.com
Valeant Pharma: WSJ Heard on the Street profiles positive view on VRX  (22.63 +2.66)
7/6/2016, 3:29:16 PM ET
Courtesy of Briefing.com
VRX has turned into a pure psychological play. After more bad news on 6/7/2016 VRX traded down to $18.55 over a three week period and then traded sideways for a week.
Yesterday WBA said they were happy with their new relationship with VRX.
VRX gapped up to $24.25 this morning before sellers moved to take profits from those $18 to $20 buys. Once the consolidation period is done VRX should move smartly higher. If you don’t already own a few shares now is the time to buy.
The WBA news takes away or a least alleviates the concern that VRX’s business model had been fatally damaged and that they could no longer maintain that model.
Dave C