What is a common gap?
A common gap is a price gap on a chart that is filled (retraced) within a few trading days.

In this case, JBLU (Jet Blue Airways) opened with a small gap on March 11, 2009. The price met resistance @ the 20 period EMA and began to pullback. The retracement could have been anticipated as the gap would be filled more times than not. A pullback to the $3.45-$3.50 level would have filled the common gap. For those who were looking for a good entry point after a pullback, this was it. An easy $.50 per share (14% in this case) could have been scalped from the market. As for the future of JBLU, watch the 20 EMA area for resistance, or a breakout…

If you enjoyed this post, make sure you subscribe to our RSS feed to get your Daily Dose!

The $SPX (S&P 500 Large Cap Index) has met a resistance level at the 50 period EMA around the 800 level. On top of that, the slow schotastics are overbought and the direction of the schotastics has changed and is now sloping downward. This could be the end of the recent rally that we have seen in the past few days. We should look for a possible level of support at the 20 day EMA.

One of the Wall Street Journal’s most recent articles of today was titled “Stocks Mixed In Bumpy Trading”. In summary, they imply a generally bullish outlook on the market, but clearly show that nobody really knows the what the market is going to do.

Sources:
Stocks Mixed In Bumpy Trading
Peter McKay
WSJ.com March 20, 2009

If you enjoyed this post, make sure you subscribe to our RSS feed to get your Daily Dose!

There is no better way of teaching technical analysis than through hard core examples.

50 day EMA Breakout
Today was a particularly significant day in the stock market, especially if you have been following the recently suffocating insurance monster (AIG). Technical analysis proved itself worthy once again as AIG finally “broke out” of its 50 day EMA (Exponential Moving Average), after over a year of resistance. I absolutely love these setups! [Finish your Daily Dose…]

If you enjoyed this post, make sure you subscribe to our RSS feed to get your Daily Dose!

The concepts of support and resistance are based on the price of a stock normally trading within certain limits (trading range). If the price of the stock begins to “test” the limits of the trading range, it could signal important changes that may occur in the near future.

So how do we establish the trading range to see the levels of support and resistance?
EMA’s (Exponential Moving Averages) are regularly used by investors and traders to indicate the areas of support and resistance. Also, trend lines can be drawn to indicate levels of support and resistance. As you become more familiar with technical analysis, you will become better at drawing trend lines. When the term support is used, it refers to the lowest price within the trading range. Resistance is the highest price within a trading range.

The 50 day EMA is a relatively reliable indicator, but the 200 day EMA is much more reliable indicator because it is a more significant average (200 days). Below is a candlestick chart of FRPT (Force Protection) that follows the basic concepts of support and resistance. Notice how the 50 day EMA acts as a resistance level in the beginning of November. The price “tests” the 50 day EMA, but “retreats” because of the “resistance”. It does not break through. On the 10th of November, the price “tests” the 50 day EMA again, but this time, it breaks through. There is a sell off and the price dips back to the low of November 9, which becomes a level of “support”. The next day the price “breaks” the 50 day EMA and this is the beginning of a new price trend (an upward rally). The upward rally reaches the next level of resistance (200 EMA), but breaks through it, confirming (and continuing) the current trend (upward rally).

From November to February, the 50 day EMA now becomes a level of support for the price. Notice how the price “rides up” the blue line (50 EMA). Also, the 50 day EMA looks like it is “holding up” or “supporting” the price. On January 20, the price “tests” the 50 day EMA, but is supported and does not fall below the 50 day EMA. Finally on February 22, the level of support on the 50 day EMA is retested, and breaks through. The 200 day EMA (a more significant moving average) can be used to “confirm” the change in price trend.

What did we learn?
After studying the ways that price is affected by support and resistance, you will have another tool in your technical trading arsenal to confirm reversals in price trends, and ultimately, help you make your trading decision.

Candlestick chart courtesy of: StockCharts.com

If you enjoyed this post, make sure you subscribe to our RSS feed to get your Daily Dose!

I joined Wall Street Survivorlast year and ended up being in the top 1% of the contest. I actually placed 93 of over 20,000 members in the contest, which is superb. I didn’t win a grand prize or money, but I did develop a working trading strategy that I continue to use to this day. Thinking about winning the grand prize, or even the $100 (or whatever it was) daily prize, kept me playing the game. Although I was not disappointed when I didn’t win because I am now a smarter, more disciplined trader/investor.

Have you ever wanted to learn how to trade stocks online before putting your hard earned money on the line? You can open a practice account with Wall Street Survivor to practice online trading. It is a great tool to test your trading strategies, all while learning how to invest in the stock market.

Wall Street Survivor is the web’s most popular free stock market simulation with steaming portfolio updates, real time prices, and over $100,000 in real cash and prizes. This is a fantastic opportunity to win some extra cash while improving your trading (or investing) skills. You start with a virtual $100,000 portfolio and go head to head against other stock market enthusiasts of the country. There are currently over 100,000 active members so it can be helpful to learn from the community. Want a rival? Tell a friend about it and see who has the upper hand. Who knows, maybe you are the next Warren Buffet, but you will never know without trying. What is even better is that there are prizes for both investors and traders. If you don’t make a lot of trades, you will be considered an investor and a trader is vice-versa.

If you enjoyed this post, make sure you subscribe to our RSS feed to get your Daily Dose!

The gross domestic product (GDP) continues to decrease and many investors are left out on the battlefield with a dagger, only to be slaughtered by the ruthless, blood-thirsty market. It is time to let that dagger go and grab a shield. Recession proof, defensive stocks are the key to steady gains during a recession. They will keep you in the fight when all other options are exhausted.

So what is a defensive stock?
A defensive stock is a stock that preferably pays dividends, is stable through recessions, and immune to the business cycle. These can include, but are not limited to, food, drugs, utilities, etc. They withstand the up and downturns of the market because their earnings remain stable.

Another defensive sector that many overlook are video games. During a recession, people don’t have a lot of money to spend. Their minds, and wallets are both affected by the recession, but they still seek a form of entertainment to think about “something else”. Video games provide this outlet for many consumers as they are relatively inexpensive and they provide hours of enjoyment. Also, many games are played online now so it can be considered a social activity.

Hardcore gamers will not think twice whether or not they should buy that brand new video game. The recession plays no part in their decision making process. In fact, if they did lose their jobs and were tight on money, they would look for something to do. With a lot more time on their hands and boredom sinking in, they will actually go out and buy more video games than before. People need a form of entertainment when there is a recession and video games is the path they are taking.

ATVI (Activision Blizzard) has almost increased by 22% just this year. With titles like “Call Of Duty” and “Guitar Hero”, they continue to beat their predicted earnings reports. They will continue to make sequels for both of these games as long as gamers keep buying them.

Sources:
5 Stock Having A Great 2009
Jack Hough
SmartMoney March 11, 2009

If you enjoyed this post, make sure you subscribe to our RSS feed to get your Daily Dose!

I was surfing the web and found these interesting polls. What was more interesting was the results. I thought I should share them…

With our new president in office and our economy still in the gutter, American’s are starting to question if “change” is really coming. In a recent survey at the Wall Street Journal, 49 key economists were asked if they are satisfied with Barack Obama’s current economic policies. The majority of the economists thought president Obama is doing a horrible job with our weakening economy. From an elementary grade scale of 1-100, 42% of those surveyed gave our new president a rating below 60. For those of you that aren’t aware yet (or received all A’s in school…), below 60 is an F.

In addition to the Wall Street Journal, AOL held a poll on their main page yesterday (”Is our president doing a good job?”). I got my vote in, but for those of you that missed out on that poll, I have the results. 49% of American’s believe that Barack Obama is doing “poorly”, while only 25% voted that he is doing an “excellent” job. With more than half of our nation not approving of his work, the economy could be seeing darker days.

Our economy is failing because we spent money we didn’t have. Barack Obama wants to spend more money, that we don’t have, to “stimulate the economy”. This simply does not make any sense. If we are going to use bailout money that we are “borrowing”, we should just pay off the national debt and start everything from scratch.

Sources:
Obama, Geithner Get Low Grades From Economists
Phil Izzo
WSJ.com March 11, 2009

If you enjoyed this post, make sure you subscribe to our RSS feed to get your Daily Dose!

Now that you know the basics of candlestick charting, you are ready to interpret the different types of candlesticks.

The shaven head is the candlestick that has absolutely no upper shadow and has a green (or white) real body. It looks like a new army recruit that just “shaved” his head. During the day, the price did not trade above the high of the day because it closed at the high of the day. This is a bullish sign.

The shaven bottom is the exact opposite of the shaven head. It has absolutely no lower shadow and has a red (or black) real body. During the day, the price did not trade below the low of the day because the price closed at the low of the day. This is a bearish sign.

The spinning top is called a spinning top because it looks like a spinning top. Got it? Good. The real bodies of spinning tops are little to none, indicating only a small difference from the opening price to the closing price. The lower and upper shadow will be large. This shows that there was a broad trading range throughout the day, but the price receded somewhere back to the opening price. A spinning top appears in both bullish and bearish markets.

A doji is a candlestick with no real body, and is known to be shaped kind of like a cross. There is usually no color because of the lack of a real body (boring!). A doji indicates that the difference from the opening to the close was very minimal. These days are called narrow range trading days, and usually mean that there is a reversal coming, making it a very important candlestick.

The long-legged doji usually means that there may be a reversal in price.

The dragonfly doji is considered bullish because the price opened, dropped during the day, and came right back to the opening price. The next day is usually a good one.

The gravestone doji is considered bearish because the price opened, increased during the day, and came right back to the opening price. The next day is usually a bad one.

So what have we learned about different types of candlesticks?

No single candlestick can be an indicator to forecast future prices, but together they have a history of letting traders know of an upcoming price reversal. Some candlesticks are bullish while others are bearish, all you have to look at is the size of the real body, whether the price closed above (or below) the open, and the actual trading range for the day.

If you enjoyed this post, make sure you subscribe to our RSS feed to get your Daily Dose!

Japanese Candlesticks were invented some 200 years ago to track the prices of rice. Today they are invaluable to tracking the prices in the stock market. What many people don’t know is that these Japanese candlesticks can reveal valuable information that may forecast future prices. They are used for day trading and investing by many investors all over the world.

So what does a candlestick look like?
Candlesticks look exactly like their names imply. They are similar to candlesticks, except that have a top and bottom wick.

A green (or white) candlestick implies that the close of the day was higher than the open of the day. This means that it was a bullish (prices increased) day. If the candlestick is red (or black), this implies that the closing price was less than the opening price. This is considered a bearish (prices decreased) day.

The “wicks” that are above and below the candlesticks are actually called shadows. The upper shadow is the area between the real body and the high of the day. The lower shadow is the area between the real body and the low of the day.

So what have we learned about Japanese Candlesticks?

1. The color of the candlestick- Indicates if the closing price was higher or lower than the opening price. This will show if the day was generally bullish or bearish.
2. The length of the real body- Indicates the difference in opening and closing price. This size of the real body can be used to forecast a reversal in price.
3. The length from the high of the day to the low of the day- Indicates the trading range of the day. By general rule, the more trading range, the more volatility throughout the day.

If you enjoyed this post, make sure you subscribe to our RSS feed to get your Daily Dose!

Be Cautious With Market Analysts…
A very common mistake many investors make is to rely on others for their investment decisions. Very much like the weather, market analysts are merely forecasters of the stock market. While it is true that market forecasters base their opinions and views on their research, these opinions are always subject to bias. Sometimes the analysts that you see on television giving extensive praise to a certain company are actually being paid by that very company. That can definitely sway an “opinion” when a paycheck is on the line. Always look for another analysts opinions and be ready to do your own research.

Do Your Own Research…
By doing your own research, your investment decisions can and will only be affected by your opinion of a certain company, not another persons. This can essentially increase your odds of outperforming the market and becoming a successful investor. With computers and wireless internet at our fingertips, it is really easy for any investor to stay up to date with any publicly traded company.

A Few Things To Research…

• Balance sheets and income statements are a great way to make sure a company is fundamentally healthy. Quarterly earnings reports can be a very volatile time to be holding a stock.
• See the Major Holders of the company
• Stay up to date with the latest news such as insider buying and selling.

There are many websites that provide this free information to anyone with an internet connection. Below are some of the better websites:

Marketwatch

Yahoo Finance

Securities and Exchange Commission (SEC)

If you enjoyed this post, make sure you subscribe to our RSS feed to get your Daily Dose!