Wednesday, June 23, 2010

Confusion Still Abounds in the Charts What to Do?

I have written about it a few time already so I will be brief tonight. When you look at your charts and see your view shifting from long setup to short setup and back again, it is time to step back to a longer time frame to get a better perspective. Tonight let's use Dr. Pepper Snapple Group, ticker DPS, to illustrate.

DPS Daily Chart

From the daily chart on DPS we see a lot of different things going on. First, it rejected off of a test of the recent highs established in May. This gets you thinking about a double top. and a move lower. The next thing I see is that the SMAs are all upward sloping, a positive for the stock. Third, the relatively larger red candle yesterday followed by a down day today is also a potential negative. The price however is also at support from the recent end of May beginning of June levels near 37. Volume has been elevated since March but basically flat. RSI is slightly above 50 but has been heading down, not much of a clue there. And MACD indicator is near zero with the two lines nearly flat lined on top of each other. So which way is the stock going to move? Now go through this same analysis 3 days ago when there was a series of doji. What would you have thought then? Screaming higher?

DPS Weekly Chart

When you look to the weekly chart a whole new picture emerges with a series of doji or near doji at the all time highs. If you looked at this same chart on a daily basis you would be all in. This baby looks primed to take off. SMAs are all rising, RSI is elevated but not in overbought territory and falling, even the MACD is basically neutral maybe if it continues in current direction will start to show potential weakness but.

So don't forget, take a breath, step back and gain the benefit of a different perspective.

A couple of trade ideas:

1. Short TBT

This stock broke a descending triangle below 37.50 now with support at 35.50 then zero

2. Short DCTH

Despite dropping below 8 today it still has a long way to run to support at the 200SMA at 7.19 and then 6 below that. Volume picked up today as it sold off as well.

3. Short BP

Don't tune out! I know many are saying this stock is going to zero, but I am about to say it is heading for a break lower imminently. It has bounced off of the 29 area for a week now which is forming the base of a descending triangle, and notice how the same steep downtrend line can be used to trace the volume fall off. It is setting up to break this triangle lower before the end of next week.

Good luck to all and hope you trade'm well!

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