Hope you're doing well.
The market has taken a nice turn since our last ezine. It's been nice to trade among the rallies.
I menioned in my March 9th blog entry that we might be seeing a trough developing among stocks. I had no idea that we would get the subsequent rally. There has been good economic news, coupled with Fed activity and CEOs giving words of reassurance. It's almost orchestrated to produce a rally. Now we'll see how long it lasts.
I want to look at one indicator in light of this activity. And I'll discuss it for swing trading and for day trading.
The first chart is of FAS. You've heard me write about this in the blog entries. FAS is a bullish ETF that trades 3 times the financial averages. So, it is a 3X Financial Bull ETF. Let's take a look at it.
The red line in the chart is the 18 SMA (Simple Moving Average). What I'd like you to see is how price jumps the track after the 9th and our rally begins. This chart was taken before today's rally ended, so the price is even higher now. But, since the 9th, the price of FAS has more than doubled.
That's a pretty sweet swing trade. So, the cross-over of price on the 18 SMA was a pretty clear sign that the market (and the financials in particular) had changed direction. One way to stay in this trade, if you are swing trading, is to see your stop loss order slightly below the climbing 18 SMA. If price suddenly changes, then you have your profit. For now, price is soaring high above that line. But, gradually, your stops would get tighter as this rally begins to slow.
Another example of the 18 SMA is in a day trade. You may remember me talking about trading AMED on March 13th. I shorted it as it fell from its gap up position above the Bollinger Band. Here's a two-day chart of AMED.
You can see how the price candles were riding above the 18 SMA going into the 13th. The stock gapped up in the morning and met my short criteria for gap ups. But look what happened as it came to the 18 SMA. It bounced right off it and then went on a large recovery that afternoon. This was confirmed by other indicators such as RSI. But it's interesting to watch how stocks react to this simple moving average.
Just so you know...a special chat room will be formed in late April. I cannot give you details yet. But we should have an announcement to make sometime in early April and we'll give all the details then.
Hope your trading is going well.