Tuesday, August 24, 2010

XRX Watch

On Aug. 11 I wrote about Xerox (XRX) as a bear play. Today it paid bears off nicely with a downward gap.
XRX $8.43

The stock so far is down 11.1% from the Aug. 11 open.

Full disclosure: I jackrabbited out of the trade on Aug. 17, after the fast stochastic gave a bull signal. But those traders less jackrabbity than myself, it has turned out to be a very nice play indeed.

The price movement and my early exit (as it proves) raises an interesting question about what signals a technical trader should use in closing a position. I entered on an overwhelming body of evidence: Bear signals across the board, and a very long road down before the price it serious resistance. Also, earnings were more than a month away.

I exited based on a very volatile indicator, the one that kicks soonest, the fast stochastic. Had I relied on slower signals, I would be in the position still, with a crazy grin at the thought of all the profits was amassing.

That's 20-20 hindsight, of course. Exiting with a early indicator may cost profits, but it will also protect against losses in the case of a sudden reversal, which has happened to my holdings more times than I care to enumerate.

So, no regrets. It missed out on some money, but I reduced my risk of losing that which (on paper) I had gained.

Since my exit, the fast stochastic has negated that bull signal and moved back into bear phase, where it remains today. But.... it has given a preliminary indication that it might be turning bullish again, although the signal has not yet been given.

The price action has paid close heed to the Fibonacci retracement levels, pausing at the 50% retracement of the rise from July 20 to Aug. 2, and then the 61.6% retracement, and today' fall has paused just below the 78.6% retracement.

On the Person's chart, today's decline cut through the second weekly lower pivot.

Person's Table
ppspps openupper pivotlower pivot
XRX $8.43 $9.43 aug11 $9.26 +9.9% $8.44 +0.1%

And there is room to drop before serious resistance.

Reversal Levels
  • $9.99, +18.5%
  • $9.34, +10.8%
  • $8.43 <== You are here.
  • $8.08, -4.2%
  • $7.67, -9.0%
Bottom line: Technically, I still like it as a bear play, except for the huge decline the stock has already undergone. For that reason alone, I would not open a new bear position on my own account, although I would tend to maintain an existing position, at least until I saw a bull signal of some sort. Disclaimer
Tim Bovee, Private Trader tracks the trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment. No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.
  • psar - Parabolic Stop and Reverse
  • adx - Average Directional Index
  • pps - Person's Proprietary Signal
  • ma20 - 20-day moving average
  • macd - Moving Average Convergence-Divergence
  • sto - Fast Stochastic
About the glance: The colors indicate the state of each signal.
  • trend: Determined by the 5-day moving average, green for up, red for down, yellow for sideways
  • adx: orange for above 30-up, blue for 20-down, purple for in the middle. Red is most prone to whipsaws
  • psar, pps, macd: green for bull mode, red for bear
  • sto: green for overbought, red for oversold, yellow for the neutral zone.
  • sto zone: green for bull phase, red for bear phase.

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