Twitter Breakout with Fiblines

Big day in TWTR today with an upside break of a trend line on the weekly which has been in force since December of 2013.  So this is a significant trend change signal and I'm hanging on for higher prices ahead.

Next resistance is at the green line at 54.75 just short of the recent top.

Active-Trader - Fiblines in SPY

Here are Fibline levels in SPY as of 3/23/2015.  For now we are paused at the 261% line at about 210.

Active-Trader - FB Breakout

Welcome back Active Traders.

After many months of sideways action, one of my favorite long-term holds FB (Facebook) finally broke out to a new all-time high this past week.

As you know, I have been a fan of Facebook - the service and the stock - for quite some time. This story is one of those rare confluences when my first hand experience with a product becomes an investment thesis and makes money.  It doesn't happen all that often, but when it does it can be rewarding.

The chart above shows my interpretation of the Fiblines for Facebook as well.  Recall from my prior blog post here that I had an earlier interpretation for FB which showed the entire Fib sequence terminating at the 423% line at about $80.89.  That area served as resistance for some time, but once it was breached, I reconsidered the levels and came up with the new interpretation which is shown above.

Note how the tree line at 80.51 served as resistance for some time but was finally breached decisively to the upside this past week.  From there we can see the a number of levels above with minor snow lines at 83.30 and 85.86 and the next tree line at 89.28.  After that, the next major fire line is overhead at $100.45.  That fire line is only the 161.5% move of the original wave 1 so I think Facebook will eventually go much, much higher.

Some of the price action this past week has to do with news that you will soon be able to send money through Facebook.  As I have said previously, its only a matter of time before we will be making phone calls and video calls through Facebook.  We already use is as a messaging platform and it allows me to stay in touch with people in ways I never could before.  Facebook owns 100% of Instagram which serves a much younger demographic than FB and has yet to monetized.

As for the Fiblines, recall that you can get them for free for Thinkorswim for free, just send an e-mail to fx-mon@yahoogroups.com.

Have a great weekend and week ahead.

Active-Trader - What is your Time Frame?

Welcome back, Active Traders.

Active Trading involves so many decisions - what to trade, when to enter, when to exit and why.  At first glance, it seems like almost an almost insurmountable number of decisions - clearly more than enough to boggle the mind of even the most rational individual.   So let's examine just one angle of that decision - what time frame should you be trading?

Before you consider trading anything in any time frame, examine the multi-time frame view.  The chart in the upper left shows my "Active Trader" tab in TradeStation which shows the Weekly, Daily and 39 minute time frame for anything which I consider trading.  Before entering a trade ask yourself these questions:

- What is the all-time high (ATH) and all-time low (ATL) price?
- If you don't know the ATH or ATL, switch to a larger timeframe. If you don't know the ATL or ATL or when it occurred you should not be trading.
- Is the current price closer to the all-time high or the all-time low price?
- Is the price closer to an area of support or demand?
- Is the price closer to an area of resistance or supply?

Note that every area on the chart where there the stock traded previously can be considered an area of support (where buyers will enter) or resistance (where sellers will enter).   Consider your entry price versus and whether its closer to support or resistance.

The common view of the retail trader is to buy when prices are going up and sell when the prices are going down.  Compare and contrast this with the common view of the institutional trader who will buy when prices come down to an area of value (stock is cheap) and sell when prices rise to the area of supply (stock is expensive or fairly valued).  Point is that regardless of what time frame you trade, you need to understand the bigger picture so that you don't buy at resistance (supply) or sell at support (demand).

The only exception I would make to the above statement is when the stock moves out to an ATH or all-time high.  This is a very special and rare price area where there is no prior supply or resistance and whose chart have the best prospects of continuation to even higher prices.

With that said, let's review the common chart time frames - from smaller to larger - along with my commentary on each.

Time Frame	Commentary
5-Minute	5-minute bars are hard to trade for all but the most nimble day traders. Breakouts of the high or low of the first 5-minute bar of the day is a common day trading technique - the 5-minute Opening Range Breakout. Be careful of time trade since the first 5-minute bar is often thrown back or rejected.
15-minute	15 and 30-minute time frame are used by many novice retail traders but have the advantage of signaling moves in advance of larger time frame bars
30-minute	30-minute bar is most useful for capturing the results of the 30-minute Opening Range Breakout which occurs at 10 AM EST.
39-minute	Carter favors the 39-minute bars since they split the 6.5 hour trading day into 10 39-minute bars
60-minute	60-minute bar - while widely captured in many popular charting packages - is not as useful as the 39 or 78 minute charts
78-minute	Carter also likes the 78-minute charts since they are exactly 2x the 39 minute bars and split the the trading day into to 5 78-minute bars
Daily	Daily is a good time frame for the swing trader since you should only be making decisions once per day - preferably in the last 30-minutes of the day when most of the daily bar has already been formed.
Weekly	Weekly is a good time frame for the most conservative once-a-week type traders.  We recommend you trade this time frame in the last 30-minutes of the week when most of the weekly bar is already been formed.
Monthly and above	I don't think anyone trades in time frames above weekly.  Possible exception is pension fund managers who choose asset allocations quarterly or annually.

So are the key takeaways here?

1. Decide what type of trader you are. Swing traders should trade 39, 78 minute or daily time frames. Day traders should trade 39 minute or below time frames. 
2. Once you pick a time frame stick with it! If you enter on the signal of a daily bar (for example) don't change your exit time frame to an analysis of the 60-minute bar! This is a common mistake and I made it myself this past week. But we all make mistakes and we must learn from them 
3. Retail suckers use the common time frames - 15-minute, 30-minute or 60-minute. Professional uses the 39-minute and 78-minute charts or tick charts. Retail traders wait until after hours to see changes of direction. Professional traders note when the happen between 10 and and 2 PM. 

Bottom line is know your time-frames. Pick one that works for you and stick with it.

And have a great week ahead.

Active-Trader - Seasonal Low in Energy

Welcome back Active Traders and Wealth Builders.

Every once in a while a trend change comes along that's so obvious, those who miss it are just not paying attention.  And the recent turn in energy prices is one such example.  Let's examine the evidence.

To your left is a 24 year seasonality chart of crude oil.  Its seems pretty obvious that low point on the chart is right about mid to late February which is hopefully just about the time you are reading this blog post.

Now your first instinct might be that its time to load up on oil.  I'm not a futures trader and I don't find the leverage to be either necessary or useful.  In fact the opposite is the case, the leverage can shake you out on the slightest wiggle. I had the same experience with Forex and I find its better to just avoid highly leveraged vehicles.  The only exception would be options on equities which I can trade right out of my equities account and risk the same or a smaller amount that I would with a straight stock position in the underlying.

As for the best way to trade energy, let's break out TC2000 and examine a few alternatives include energy ETF's USO, DBO and energy equity ETF's XLE and OIH.  A look at those in the scan on the left show that OIH and XLE are actually positive for the year while energy commodity ETF's are actually down for the year.  More significant, look at the dividend yield of OIH and XLE to find a positive number versus the dividend yield for the actual commodity EFT's which is - zero.

This brings up the core problem with investing in actual commodities and that is called negative carry.  Put another way that means it costs money to hold crude oil and other energy assets.  This is reflected in term structure of future's contracts where farther dated contracts are usually priced higher than nearer dated contracts to reflect the cost of storing the commodity for delivery on that future date.  This term structure can erode the return of holding commodities over a period of time even when the price holds constant.  Take a look at performance of USO and you will see that it does a poor job of matching the overall return characteristics of crude oil due to the cost of carry and other costs such as maintaining a portfolio of future contracts to construct the index.

So what the answer?  Energy stocks of course.  Energy stocks have a positive carry as reflected in the dividend paid by the stocks themselves.  And you can see those results clearly in the returns above for the year as well as in the dividend yields themselves.  There are probably even smarter ways to trade energy like selling puts, or put spreads or selling calls against your positions to bring in extra income.  But I am not an expert on energy companies and until I get to know more will be happy to invest in energy ETF's OIH and XLE.

One more tip for you - bring up a chart of OIH inside Thinkorswim and select Style, Chart Mode, Seasonality.  You will see a chart that looks like the one on the right.  Notice how OIH starts the year at a low and then tops out some time between August and September.  There's your seasonal high and when its time to take profits.  And there you have it a way to play energy ETF's with a better than even chance of coming out ahead - particularly when you factor in the dividends.

So go out there and dump your USO and buy some XLE and OIH.

And have a great week ahead.

Active-Trader - Free Fib Lines for Thinkorswim!

Welcome back Active Traders.

With this post I am pleased to announce that the Fib Lines indicator for TOS is now available at no cost to members of my Yahoo group!  This is quite an accomplishment considering that last year at this time I was just starting to unravel the mysteries behind this indicator.  And now - barely one year later - I am giving away free copies of the indicator for both TradeStation and TOS!

Included with the indicator is support for over 130 symbols including the major Exchange Traded Funds DIA, SPY, QQQ and IWM, the Dow 30 stocks as well as most of the Nasdaq 100.  Also note that there was no way to protect the script so the beginning and end of Wave 1 and full source code for the indicator is provided.

If you would like to get your hands on the indicator, simply send an e-mail to fx-mon-subscribe@yahoogroups.com and follow the directions in the e-mail reply.

There are some limitations in this version which I could not provide which are included in the version on TradeStation:

1) I was unable to display the slanted line which shows the beginning and end of Elliot Wave 1

2) I was unable to label the Fibonacci percentage levels for each of the lines.  For example, the green line in the AMZN chart above is the 361.7% Tree line.  While these labels serve to de-mystify the indicator, they do not detract from its usefulness.

Be sure to let me know any feedback as well as requests to add new symbols.

Good luck and good trading.

Active-Trader - Questions on Fib Lines

Welcome back Active Traders.

Last weekend I got the Fib Lines indicator working under Thinkscript under TOS. I have some more work to do before I can make those available to members of my yahoo group.  But to whet your appetite, this screen shot shows the complete fire and tree line levels for QQQ and you can clearly see the beginning of Wave 1 at 24.98 and the end at 50.60. Recall that the remainder of the lines can all be calculated once those 2 values are determined.

Blog reader Jay posted some questions about the Fib Lines shown here and how they related to screen shots from free videos posted by John Carter as part of Simpler Options web site.  I thought it would be a good opportunity to address those questions and talk a bit about the steps used to determine the lines.

When I first started calculating the Fib Lines, I compared my levels versus those from the Carter videos with the belief that the levels had to be "right". In some cases (such as NFLX) my values matched Carter's within a point or 2.  In other cases (such as QQQ shown above), I could not come up with levels which match Carter's.  But in the end it doesn't matter.  What matters is how well the levels correspond to price behavior.

In the process of working on the indicator, I determined the levels for about 135 stocks, the major ETF's plus the Dow 30 and most of the Nasdaq 100. I got into a type of rhythm where in many cases in under 1 minute I could find levels which worked perfectly.  For an example of levels which work, check out this chart of MMM.

The skeptic in you might say - this is "classic" technical analysis, show me the cases which work and ignore all those which do not!  And you might be right - but keep in mind that the Fib Lines are not a Holy Grail, just one more clue into unlock the mystery of what underlies price action.

Finally to address the last part of Jay's question - why might the levels need to be re-calculated over time?

Recall that Elliot Wave analysis is based on an idealized price move - 5 waves up and 3 waves down.  In that model, at the bottom left of the chart, pessimism is at its maximum, and there are few buyers.  As the move develops, more buyers come in, and the price action follow the idealized model (more or less) with fibonacci levels and relationships being demonstrated by overall crowd behavior.  At the end of the sequence, the pessimists are once again in control and a new low in price is formed.

Once the 5-wave sequence has completed, the original predictive power of wave 1 is over, and a new cycle begins and perhaps a new identifiable Elliot wave 1.  And since the Fib Lines are based on the beginning, end and magnitude of Elliot Wave 1, the Fib lines would need to be re-calculated.  In many symbols I reviewed, those lows occurred at the depths of the financial crisis back in 2008 when many of the symbols I reviewed put in their wave 1 lows.

Other times, prices reach the end of the sequence (423.6% level) and exceed that price.  How do we handle that situation?  Based on the opinion of the analyst, it might be required to move out to a higher time frame a consider the original extend of wave 1 to be too small, and chose a beginning and end of wave 1 based on a larger time frame.  We had to do this recently in Facebook because I think - over the long haul - those prices are going much higher.  Recall that Elliot Wave is an art, and not a science and requires human intervention.  And therein lies the magic.

Have a great week ahead and good trading.