24. June 2012 19:15
Before I start, remember, we have my OVI Traders Club webinar tutorial this week. It will be recorded, so either be sure to attend or watch the recording. Here's the link if you haven't registered yet.
Ok, back to some key learning.
Markets either go up, down or sideways. We all know that. The money is more easily made mainly when the markets are trending one way or the other ... not so much when the markets are choppy. Right now they're a bit choppy, so it's a bit more difficult.
So do not worry ... it's a natural phenomenom that ALWAYS works its way through. You simply have to be patient and understand that good opportunities typically come in bursts of activity.
The answer is to be very choosy about what you trade.
The S&P had a bad day on Thursday and this is typical of a market that's difficult to call. It seemed to be making progress, and then WHAM, a big down day interrupts progress. At the same time the OVI can't get going with the index. As we've seen countless times, this is a sign of a market that doesn't know what it wants to do right now.
The same applies to the Nasdaq which currently displays a more negative OVI than the S&P.
Now look at this chart of AAPL. You can see that from December onwards the OVI was unmistakably positive and the stock was trending upwards, forming bull flags along the way. These were obvious opportunities not requiring any hindsight, and helped by the fact that the main markets were also starting to trend upwards too.
Right now we do have a pattern of sorts forming and the OVI has been positive for a while for AAPL. Is it trending upwards right now? No. So the opportunity, if it breaks resistance, isn't quite so obvious.
Now for an "Anti-Opportunity"! ATML is in a downtrend, it's approaching support and yet its OVI is positive. What does this mean and could it be about to make a double bottom? Well perhaps, but that's not how we trade. We look for obvious breaks of support and resistance where the OVI is corroborating in the direction of our breakout. Here the breakout would be down, but the OVI is positive, so it's not one of OUR opportunities. Could the OVI be signalling a potential bounce upwards? Perhaps, but it's NOT one of our opportunities.
BAC has served us very well over the last 15 months - see how well its trend correlates with the OVI. Right now it is forming a bull flag of sorts and the OVI has turned positive. The thing that concerns me is that the financial sector is very sensitive right now and from a "news" point of view, not out of the woods yet. Having said that, the fact that many of the banks (including BAC) have just been downgraded in terms of their credit ratings, could be a sign of the worst news being out now. Either way, tread with care.
Same correlation for GS. Here though, it's a decent bearish opportunity as the OVI is negative and the stock is approaching a support level.
Mainly negative OVI for CAT right now. This looks like a sick stock. The price action is choppy and contextually mainly in a downtrend.
More soon ... remember, be fussy! The gems will return - they ALWAYS do!