Chart Talk

Halloween commercials before Labor Day? Is it Pumpkin Spice season already ? Sure, it’s been unbearably hot, but are we really so eager to send summer on its way? What a terrifying idea.  With all of the scares being stirred up of late, it stands to reason that Federal Reserve Chairman Jerome Powell would further spook a market that had already been on a two-week slide after a two-month rally, with his hawkish comments from Jackson Hole last Monday, that further interest rate hikes are likely for the foreseeable future. As soon as Powell spoke, a market that had been enjoying a fine premarket rally went into a tailspin. By Tuesday morning, the sell-off turned even more severe but if it proved anything it was that the plunge before the unofficial end of summer was just gaining steam. By the time the calendar flipped to September on Thursday, the SPY ETF, which tracks the S&P 500 index, fell to 390.04, before staging a rally up to 396.78 right before the close, a far cry from th...

Remember the angst-ridden bad old days of teenage crushes? I certainly do, and I'm sure glad they're long over for me. But with three kids ages 13, 9, and 6, I have a feeling I'll be getting reacquainted with those days real soon.  When it came down to a crush, provided the object of your obsession was at least cordial to you, the question then became "Sure, she (or he) likes you...but does she like you like you?"  Attempts at analyzing your crush's behavior towards you- and others -for an answer to this question would often result in unconquerable insecurity and false senses of either elation or despair that could be set off by the slightest perception of a half-smile or half-frown. Since the stock market bottomed out for the year in mid-June, a lot of traders have been crushing pretty hard on a steady rally that is presently two months old. Now we must decide whether we're really in a bull market, or if it's all just a bunch of bull. The fundamental...

It's natural to boil trading down to perceptions of personal intelligence, or lack thereof. Nail all of your trades and you're a genius. Watch them go horribly against you, and you're a dope, a fool, and an idiot all rolled into one. Such is the case, it's not uncommon to equate self-worth to trading performance and in fact, if you're not encouraged by your successful trades and bothered by your unsuccessful trades, then you probably don't care enough to invest yourself fully into trading to begin with.  While you shouldn't revel too deeply in your individual winners, you should allow yourself optimism and a sense of satisfaction when you've begun to prove to yourself that you understand the ways of consistently making money in the market. By the same token, you mustn't dwell on your losers and beat yourself up over them, at least to the point that you can't move on to the next trade without a clear head. But it's perfectly appropriate to be ...

Risk is fundamental to trading, unavoidable because it's necessary. However, not all risk is created equal. Generally speaking, trading involves two types of risk: appropriate risk ("good" risk) and needless risk ("bad" risk). Going first with the worst, needless risk occurs when you enter into a position at a suboptimal area so that your stop is either unclear, exposes you to more loss than is necessary, or, even worse, you don't have a stop in at all. Moving over to the best, appropriate risk is: a. Clearly defined b. Minimal Position size is also a key component of risk. Your trading volume (the number of shares per trade) should differ depending on each particular trade. Having too big a position on at any given time is reckless and can lead to needless losses, while having too small of a position can prevent suitable profitability. But figuring out the correct position size will allow you to strike an appropriate risk balance. In a business where risk c...

 Will a Fed-fueled rally following the most recent interest rate decision be the catalyst that sends our bedraggled stock market on a prolonged upward march?  With the market heading essentially straight down week over week for the last three months, that's like me asking if that one chip shot I somehow put in from 80 yards out actually means I'm a good golfer. A sustained market move in either direction takes time to prove before we can confidently claim that a move is underway. So while Tuesday's rally off historic lows to end the session, followed by Wednesday's strong advance after some initial post-Fed volatility might have been a sight for sore eyes, it by no means signifies a bull market in the making.  And, what about the overall economy? The Federal Reserve's .75 basis point raise on interest rates, the largest single rate hike in almost 30 years, means that it just got more expensive for lenders to borrow from each other, therefore making it more expensive...

The Dow jones Industrial Average ended the session on Friday, June 10th down a mind-numbing 880 points from the previous close and all other major indexes were similarly maligned. As such no one would blame you for lamenting if you were not among those lucky enough to have either covered positions or gotten short at the top. The great Yankees pitcher Lefty Gomez famously admitted "I'd rather be lucky than good"  back in the 1930s. But a trader would rather be good than lucky any day of the week because it's the talent and ability that we cultivate that allows us to identify the right trades to make in any situation. In the long run, ability always triumphs over chance or simply being in the right place at the right time. A vital component to developing the ability that leads to good trading is being able to both anticipate when the market is about to make a significant move and then find ways to trade with the market's direction. Friday's session long sell-off...

Practically anything we do requires us to look before acting, Awareness of your surroundings in all instances can mean the difference between making a sound decision and a needlessly risky one. An NFL quarterback must not only read the defense before calling a play but must also know where his receivers and blockers are in order to properly execute. A mountain climber making a careful descent down a steep rock face needs to know precisely where each next step will be before taking it, or else risk catastrophe. We're taught at an early age to look both ways before crossing the street. And we most certainly cannot make a trade without first studying the chart in order to understand where the best point of entry exists, provided one exists at all. There are a variety of trading styles and therefore no single way of approaching a trade. However, one of the most reliable approaches involves buying support and selling resistance. As we've discussed previously and repeatedly, support ...

Stock market "experts" are a-dime-a-dozen, and a good many of them don't even trade and barely invest. Chances are, you know exactly the type. Hindsight Millionaires is what I like to call them, and the world is full of them. They're way too eager to share what they would have done, or what you SHOULD have done in order to make a killing in the market. "You could have made a fortune today if you had just gone short on the open and walked away until the close," some nudnik once told me. Ya think? Thanks pal, so how did you  do going short on the open and walking away? Crickets. But there is something to be said for being able to examine stock charts and recognize the formations that could have tipped you off to why the market made the moves that it did. While hindsight won't make you a millionaire, it can add clarity to the markets, which will help you in planning trading strategies that lead to future profits. No trader is infallible and we're eac...

Like any good metaphor, the classic trope one man's ceiling is another man's floor is loaded with meaning.  Depending on how you unpack it, it might be teaching us to always be aware of our surroundings, to be respectful of others, to avoid rushing to judgement, or to understand that we don't all excel at the same things and in the same ways, among many other pearls of wisdom. We can easily apply any interpretation of this saying to the stock market, especially if we consider the idea that one day's support is another day's resistance . Indeed, an area we would have bought on one particular day, might become an area we'd sell in the near future. Take the United States Oil Fund ETF USO , for example, which tracks the movements of the crude oil markets. USO went from a low of around $65, right before Russia invaded Ukraine on February 24th, 2022 and ran all the way up to $87.84 on March 8th, stoked by rising gas and oil prices as a result of Russia's attack. ...

When it comes to the stock market, birds of a feather certainly flock together. Under most circumstances, stocks in the same sector will move in very similar ways. For example, energy stocks will trade according to the more volatile oil markets (which often will be in the opposite direction of the greater stock market), while mining stocks will move with silver and gold, and consumer stocks will be more in-step with the larger economic climate.  Take a look at charts for any two stocks from the same sector, whether it's two financial stocks, two retail stocks, or even two index tracking ETFs such as the SPY and the DIA, and you'll notice very similar, if not identical, patterns. Even when significant information, such as an earnings report, irrationally skews the trajectory of a particular stock in one direction or the other, other stocks from the same sector will tend to move in sympathy with that stock, at least until the market normalizes somewhat. However, what's good f...

You know you've immersed yourself in trading when you see chart patterns everywhere you look, and in the unlikeliest of places. To me, the ways in which items are arranged on a grocery store shelf sometimes resembles a stock chart. When I drop my kids off at school, and I see them lined up with their peers to go into class, I can't help but notice "support" at their feet and "resistance" at the head of the tallest kid in the line. The panorama of a city skyline from left to right might as well be the chart for a publicly traded company that has rallied, consolidated at the top, and is beginning a sell-off. Even the step counter on my iPhone, with its colored bars of varying heights lets me know if I'm long or short a good health habit. I wouldn't say I'm obsessed with the markets   (then again one who claims to not be obsessed often is). I'd just say I'm usually tuned-in to trading so much so that I tend to relate it to the world aroun...