Tuesday, March 10, 2015

LVS, XOP, RRC, DDD: Bear plays, channel rules

Four symbols survived earlier rounds of analysis after producing bear signals in Monday's trading:

[LVS, XOP, RRC, DDD in Wikipedia]


I mean no offense to all of the master stock-pickers out there. I'm sure you are all very good, masterful, even, at your jobs.

But the truth be told, the market is a lot like the ocean. It's all waves, and they all look pretty much the same. 

That's my finding from the charts of the four bear-signal symbols that made it to the final rounds of analysis today.

They present a nearly identical pattern of decline, bounce, and a second decline that fall short of a breakout to the downside.

The charts tell the tale:

Click on charts to enlarge.
LVS (left), XOP (right) -- 180 days 4-hour bars
RRC (left), DDD (right) -- 180 days 4-hour bars
In my analysis for 2,000+ symbols each night, the break beyond the 20-day price channel is a proxy for a break beyond resistance or support. Sometimes it really is, sometimes not.

In these four cases, the break beyond the channel fell short of breaking beyond the downside support levels. 

The reason is obvious. If I'm using a 20-day price channel for my analysis, the signal level is the extreme price of the past 20 days. If the time since the chart support level was set is greater than 20 trading days, then the 20-day price channel break will be a false positive.

There are several ways to deal with.

One method would be to reduce the proportion of false positives by increasing the price channel parameter. A 55-day price channel, for example, would produce a signal only if the extreme price for the past 55 days had been exceeded, thereby increasing the chance that a channel breakout would also be a break beyond support or resistance.

Another method would be keep 20-day channel but to monitor false positives for when they become true positives. TakeLVS in the left-hand upper charts as an example.

The price channel breakout level was $54.50. The true breakout level on the chart is $49.82. Barring a new reversal to the upside, LVS will break below $49.82 without generating a new bear signal. However, If I were to place a manual alert at that level, then I could treat the true breakout as a signal and consider it for a trade.

And of course, it's possible to combine both changes.

The first method has reduced record keeping. The second method is more onerous but produces a better quality of signal, since it directly tracks what's happening on the chart.

The problem is becoming urgent, given the present state of the market. My intention is to adopt the second method immediately and to consider the first method, which does require some software changes.

So the four symbols above will have alerts placed on their charts and go on to a list of bear-signals-in-waiting.

Decision for My Account

None of the four stocks under consideration has broken below support and so lacks the momentum needed to support a trade. I won't be opening a new position in any of them today.

-- Tim Bovee, Portland, Oregon, March 10, 2015


My price channel trading rules can be read here. My long-term share trading rules can be read here.  My volatility trading rules can be read here. The channel rules are based on
 the classic Turtle Trading rules, which can be read here.


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Tim Bovee, Private Trader tracks the analysis and 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 decisions for his or her own account, and take responsibility for the consequences.

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Based on a work at www.timbovee.com.

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