Daily Ruminations

PSEi. The index is moving within a narrow range between 4,276.34 and 4,320.08. We tried to breakout out last Wednesday but this attempt failed and we are now retesting support. We have been consolidating within this range for 8 trading days now. Before this, the index formed a beartrap when it did not break below 4,211.04 last November 29. The market gapped up the next day and we have been moving sideways ever since. Future market direction can be determined on whether we breakout or breakdown from this range. On a longer term perspective, the index is forming a possible bearish head and shoulder pattern. Neckline is still a bit far at 3,705 but breaking down below our current support would not help our situation at all. 😛

Observations. Momentum setups are more likely to fail than succeed. Remember, the market is moving sideways and not trending. Sure, there are some select issues that actually trend up but there are low risk entries for those. Now is not the time to close your eyes and buy whatever is moving. Think first. For example, if you bought momentum last Friday, you might have bought LR, BEL, AGI, or DMC. I’m shaking my head now, because I bought AGI at 11 last Friday only to sell it today at 11.06 (loss due to transaction costs). LR, BEL, and DMC also were able to continue on higher today despite the 186 point gain in the Dow.  The trick is not to buy high and sell higher. It’s to buy low and sell high. Low risk entries are still a priority.

Let’s use EDC as an example. Suppose you bought on breakout last November 25. If you are a momentum trader, you might sold two days after on the formation of a black candle. If not, maybe the next day when it gapped up 7 fluctuation at the open only have it close at 6.03. Then, a week later, it spikes to 6.32. Buy back ka? Huli ka! it drops to as low as 6.08 the next day. Such crazy swings.

A to Zzz. Everyday, I check charts starting from AAA to ZHI. I spotted a head and shoulder on ALI and MEG. Yikes! BDO and FPH look like a sell on strength. Spikes are traders’ best friends because this can be used as a sell signal in a sideways market. What appealed to me are those stocks I call “lightweight” because they are small cap issues. At the top of my list are AAA, DIZ and HLCM.

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