MAY 5 – Perspective And Emotions

Our  perspective on certain things can affect our emotions.   Isn’t it true that how we view things often changes the way we feel about them?  Especially if there are two sides to a story?  🙂   Well it can be that way with trading too.  We can look at a long term bullish chart and see it as ‘horrible’  if it is pulling back below our buy point.  The faces in the Theme picture above could very well be the many faces of trading, so I am going to discuss  perspective and emotions.

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If I show you this stock and simply ask,  ” Is this chart Bullish or Bearish?”   How do you answer?

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BULLISH, right?  It has run up 300%, its in a channel of higher lows and higher highs, and has just pulled back from $14 to basically $11.50.

Perspective : I am being told that this is one dreadfully ugly chart.  If you bought at $4, you may love it,  but if you bought it at $12, $13, or even $14?  It has been nothing but volatile.

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So you see, it is a matter of perspective…

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That chart above  is FCX, and anyone who bought it in the past week may not be as happy as those that bought it lower.  Lets zoom in. Please read the chart.

As a trader for almost 20 years,  my goal has been not to allow trades to affect my emotions.  It is important to the decision making process.  I try to see things as they are in the Big Picture,  and then adjust to be able to trade as things are in the short term.   So I must say very humbly that if I am asked, 

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” What the heck is going on with FCX, I have never seen such an ugly chart,  and it has never seen this kind of selling !”

Well,  I go and take a look at the above chart of FCX, and I almost dont know how to answer.  It isn’t a horrible chart, but short term,  yes I do understand the pain of giving back gains from a 4 day sell off.

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REVIEW-

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FCX-

In the chart below –  It is hard for me not to see a Huge run higher of over  300% in 3 months, and a slight pull back, not even 38.2% yet.  It is not oversold, so yes, it can drop more.  Will it just drop to the 50sma and be fine? That is only a 38% drop to support. The 50sma should hold, but I cannot promise anything.  If this drop is causing someone to lose sleep,  maybe they became  too heavily invested or they bought it at the top?  Anything left of Thursdays Candle is a gain or break even.    Lets get another perspective…

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FCX–   Ok,  Now the perspective is a close up and this viewpoint shows the volatility.  We only see  “What is happening right now”  and the last 4 days has been steep selling.  Even so, most trades for FCX  in the past 2 weeks are just break even or slightly under, unless one bought the break out and not the pullback.  They may have bought the top.

It is not oversold, so I just wanted to show that last time it traded here on the stochastics  ( Red circle and Magenta arrow) , it didnt drop a lot.   It basically traded 3 days  sideways and then ran higher.

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This was my chart to BUY FCX.    It was a cup & handle type formation pulling back to $ 10.50  or near $11  with reversals .  An entry here allows us to ride the dips.  If we rode it to $14  and then get stopped out back down at $11 it stinks,  but its not a huge emotional loss, we could even lock in some gains  right now.  So…

Why lose sleep over it?  There is always another trade.  If you are anxious  or uncomfortable, just take small profits and wait and see what is happening.     At least lighten up if you are heavy in a trade selling down .

There is nothing wrong with these charts longer term.  Could they be weakening or consolidating sideways?   Yes, and unfortunately  that is what trading does at times.

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I look at the CRB.  On April 26  I said that maybe it would struggle or wander along the 200sma and allow the 50sma to catch up.  I thought that  it might crawl under the 200sma as shown.

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In May 2- Cycle counts are getting close to the time that we can get a DCL.  Anywhere after 20 days or so.

Today I still see it trading around that 200sma on Day 22.   It broke below the 200sma, but it hasn’t dropped like a rock. The CRB is affected by Oil too. The commodity stocks that we have traded are acting a bit more volatile.   

WTIC –  I still like Oil,  it is still near recent highs,  but there is divergence in the MACD.   I was looking at this as a dip into a 1/2 cycle dip,  we need to see a push higher soon and then we’ll drop into a DCL.

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VALE –  from Wednesday. Could hold here or drop to $4.50 at the stronger support,  to the Magenta trend line. It wasnt oversold, so could drop further.

VALE –  I posted this in the comments area and  $4.50sih was a possible downside target too.

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VALE –  Vale  dropped to the 50sma and a tend line.  This would be the line in the sand for me.  If it is going to stay healthy,  I wouldn’t want to see it close below the 50sma or break down from here.  This has been a tough ride if you didn’t lighten up after the last run.

I DO NOT like loose sloppy swings like we see at this top. It is not a sign of accumulation,  it is selling type action.

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I repeatedly have said here that no matter how good things look, I buy heavy at the low risk lows,  and I lighten up as it runs higher.  I do this to lock in partial gains.  Then I buy pull backs when they drop & we see a reversal.  This time some of the pull backs and bounces have given up the gains, or in this case, the pull backs have not completed yet.  The question is,  will these set ups remain short term bullish?  Longer term, I think they’ll be higher later, but next week? It’s tough to say.

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CLF –  The selling has been steep from the top here too.  We are exactly where CLF was before they released earnings last week.   Straight up, straight down.  I BROKE MY OWN RULE on CLF.  I didnt buy the pull back into earnings, I added on that Gap up after earnings.  I then rode it up and rode it all the way back down.  A gap fill seemed normal, so I didn’t sell yet.  That means that I got in just under $5 , and I am still in under $4.  Where is my stop? This may be it, even though it looks ready to bounce as soon as I sell  🙂

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I dont like this chart as much with the RSI dropping like that and it’s still not oversold.  It can bounce from support like it did in March, but that may be a place to lighten up if it does.   OVERALL – This can be a good chart,    but that is long term perspective.  Wide swings like this are not a sign of stability.  You want tight price patterns like we saw in March. First it was loose, then tightened up.  I’ll look for that in CLF in the future.

I actually intended to do a quick write up on LGCY & Gold  today,  but I will have to save that for another time.  I got a lot of emails about selling in CLF, FCX, etc.  and needed to address that.  This report has been rather quickly thrown together,  please overlook the unusual order of things discussed.

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I still like Energy stocks and Oil is acting as expected so far.  The CRB is hanging in there, but many Commodity stocks are getting sloppy with large swings.   Some sold off more than I would have expected,  even though the CRB is holding on,  so are they leading the way lower? Are they just following the General Markets volatility as they try to gather some footing?  Is the Dollar move affecting them short term?    I will have to watch how they bounce and see if lightening up is prudent  ( A light volume bounce is usually a lack of  real buying interest).

We’ll see what Friday throws our way after the JOBS report, and then we’ll have a whole weekend to decipher whats going on and also to rest up .  Have a great Friday and weekend!

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~ALEX

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Note:  If a trade is not acting the way you expected when you entered it, and you are losing sleep or frustrated, it may be wise to just  cut it loose and wait for the next Low Risk Set Up.   Especially if you took a trade late, and jumped in after the low risk set up was in place.

Yesterday I posted this chart of a possible E.W. count for the CRB.  Another sharp reader emailed and pointed out that he believes that the ‘4’ should not, or cannot drop below  the peak for ‘1’.   I believe that that is true. Would that mean that we saw 1-2-as labeled and ‘3’ has not ended yet? I guess it is a possibility.  I’m better at E.W after the fact.  lol.  It often just keeps morphing on me. 🙂

And another reader  WHO SHALL REMAIN NAMELESS  :), did a cool overlay of OIL 1999 recovery with our current OIL Rally.

OILWEEKLY  –  The 1999 rally out of lows is in the lighter purple candles, the current rally is in bold color candles.  The fit is impressive.  I added some writing about the timing of the dips, but my real point in posting this is to show that the longer term recovery for 1999 and 2008’s oil recovery was a V-Bottom that just moved higher.  Lows were not revisited or tested. I feel that this time will be the same.