I think the worst time to buy an IPO is on & soon after IPO date. For example, say you want to buy a car/home. Who would get a better deal (seller/buyer?) if you buy on the day the seller came up after employing several experts to identify most promising day for him. Also after seller spent millions of dollars to shore up demand for improving seller odds. How is that different for an IPO?
IMO best time to play IPOs is after the stock forms 1st base which happens typically after 6+ months since IPO date. This allows sufficient time for the stock to fade away from public and also clear up extra supply. Then if market and stock fundamentals are good, the real move starts. The chart has additional details. Your thoughts?
Most of the sound bytes recently are focused on Euro or Volatility or Social networking stocks.We don't hear much about global food shortage and grain markets much in the media. Agriculture and grains forming nice chart setups. Couple of annotated charts below - JJA and GRU.
Came across this interesting test report on $TICK. When you search on the net for "NYSE Tick Index", you will find many articles that claim that there are various levels and rules that can be used to time the market and generate profitable trades. For example, one theory is that the -1,000 and +1,000 levels are important action points on the Index.
In this report, the authors discuss the NYSE Tick Index, rules that are commonly associated with trading signals, and whether or not these rules can produce successful trading results along with results derived from their quantitative testing. I like reports that include quantitative results of the tests to back the authors assertions. That way the readers can make up their own mind. This report provides those stats.
Please let me know if you come across any similar reports & your thoughts on this report.
Link to the report -
TICK_Report.pdf
Prior analysis posts for current market correction is available here -
Apr 13 2012,
May 09 2012, and
May 16 2012. Market behavior i.e., correction unfolded so far close to initial analysis posted on Apr 13 2012 with minor concerns in between. Current analysis and annotations are on the chart itself.
On side note, it would be nice if there is some easy way to automatically include related analysis posts in post body instead of manually adding links.
Prior analysis for SP500 on May-09 is available
here. Market is unfolding so far as per analysis i.e., formed 2 legged ABC correction into long zone as mentioned in prior post. Currently environment is bit tricky i.e., environment is news driven (Greece...), forming Head_n_Shoulders pattern and bearish in general. On other hand, the market is in uptrend and in a spot that meets my method criteria for going long. Trends often persist with non believers as fuel till it reverses. May be a smaller position?
More details on the chart itself.
Prior analysis for SP500 on Apr-13 is available
here. Since then market seems to be unfolding as per analysis forming a 2 legged ABC correction. Actually the B leg unfolded slightly different from the way I thought it would. So I wasn't clear in between on what was happening. When it is not clear, best course in my opinion is to just wait till it makes sense.
Looks like now SP500 is back again unfolding as per analysis in prior post. Not much new to write. The shaded area (1335 area) on chart is a low risk zone for long positions. If up move materializes, there is enough distance to get paid without requiring market to make new high. The VIX (bottom panel) is extended to upside. If last VIX peak is an indication then may be 1-2 more higher bars. That will push down SP-500 to long zone (shaded area). The green line on chart is the first target area for partial profits with tight stop on rest to participate if the longer term uptrend resumes.
Conceptus (CPTS) had deeper correction from resistance band (shaded rectangle) as analyzed in prior post. Prior post is available here -
(Mar 19) CPTS. The stock came few cents short of resistance band before selling off strongly. Besides the structure of chart, another reason is general market weakness.
The chart is quite symmetrical i.e., 3 big up swings (A, B, C) and 3rd leg had again 3 minor up legs (a1, b1, c1). Markings on the chart. Also last couple of times, when the stock sold off, both times it slid along lower channel for few bars (arrows on the chart). Generally these kind of things would be missed by indicators. Assuming it does again, that means stock would likely go further down to around $13. Beyond that, for now it is wait and see mode. Depending on how general market is, either the stock might go into sideways mode or have further correction.
Both market corrections are fairly close to the analysis so far and bounced from long zones. Prior analysis on these two markets can be found here:
(Apr-03)$USDJPY,
(Apr-07)$GBPJPY.
USDJPY:
Not much has changed. 3 legged correction to long zone as analyzed in prior post on Apr-3. Bounced from the zone strongly. 1st correction on higher time frame. So better to keep part of position for a larger move. Once it closes decisively above ~ 82.25, stop can be moved to break even.
GBPJPY:
Deeper correction to the long zone as analyzed in prior post. Unless entered on anticipation, the entry now would require taking too large risk. So better to pass. Entering on anticipation for this market would have been ok given that the zone coincides with a strong resistance turned support.
Strong sell off last few days. Micro 3 leg top - (A, B, C on the chart). Broke trend line (dashed line) that held the trend for several months. Given above factors, I think we will likely have a 2 legged correction to 1330 area. One factor to keep in mind though is high VIX reading. So I wouldn't rule out if the second leg forms as sideways move. At this point, I don't know if market will go on to make new highs. It really doesn't matter. What I am interested is whether I can get a low risk zone to get on board long side and profit without needing market to make a new high.
Strong breakout of a long consolidation zone with a run up. Chart is similar to USDJPY. Forming 1st correction. Prior up leg has three legs (On chart - A, B, C). So greater chance the correction will be an higher time frame correction. 127 - 126 (shaded long zone on chart) is a good confluence zone i.e., prior resistance turned support (horizontal line) and is between 38% and 50% on Fibonacci grid.
Larger Scale: Strong breakout of a long consolidation zone with a run up.
Daily Chart: Forming 1st correction. Currently had two legs within correction.
Current thinking: Two possible outcomes. The up leg resumes from here. But that requires too large stop and is not my preference. If we miss, not a big deal. Another outcome is the market forms 3rd leg down and comes into the 80.75-81.5 zone. Given strong down bars in the correction so far, I think a 3rd down leg is likely providing a low risk entry zone (circle on the chart).
Most traders at some point runs into this question i.e., for entry should I wait for market to confirm that chart pattern is complete or SR has held the price etc (OR) should I enter on anticipation that pattern will be complete or SR will hold the price etc?
Before one can develop a systematic approach, I think one needs to make sure the foundation on which the approach is/will be built is correct and enduring for decades. Instead often the focus is on patterns or setups with foundation either ignored or considered as an after thought.
Following are four classic principles of price action which have held over time and true for all markets.
- A Trend has a higher probability of continuation than reversal.
- Markets alternates between expansion (trends) and contraction (ranges).
- Momentum precedes price.
- Trends end in one of two ways - Climax with testing process or V spike reversal
Methods that play trend pullbacks are generally based on first principle. What makes the pull back methods high probability is the underlying principle. It doesn't matter whether the method uses simple MA or some secret proprietary indicator or some chart pattern.
The above is just my opinion. Feel free to comment if your views are different.
I track few select stocks. Conceptus (CPTS) is one of those. Analysis is on the chart itself.
My current thinking is it will be some more time before we have a top i.e., Market (SP-500) might have either some more upside or go into side ways congestion. My reasoning as follows:
From
bearish view, (see the chart for annotations) market has multiple confluences currently i.e.,
- Extended bull market and currently in 3rd leg.
- Decreasing momentum & volume in 3rd leg.
- Strong resistance and stall near resistance in 3rd leg.
- The 3rd leg is a 2 legged up move unlike prior legs i.e., leg-1 and leg-2.
So why then
bullish/sideways view?
- Topping signs are too obvious. I find bit difficult to trust market when it is too obvious.
- Low volatility trend. Generally they are persistent and good at trapping most people.
- Low volatility trends end more often with side ways than V Shape corrections.
- Time symmetry - Current leg is only 23 weeks. Much smaller than prior 2 legs.
So what?
Given above, my current preference is to take both Long and Short positions
provided they are at low risk position and play for smaller targets. Should sideways correction materialize, then both long and shorts has equal chance. Instead if bullish view materialize (i.e., market goes up next few weeks) then shorts might be stopped out for break even (hopefully) or with small losses and long positions would make up.
I don't believe there is one right way to analyze. I am always interested in other perspectives. Please feel free to let me know your analysis or comments.
Prior two posts on IWV short trade can be found here -
before entry and
before 1st target. Today IWV triggered the break even stop. Some might have locked profits on part of the position if they had sold on next day at open (details in 2nd post) without waiting to reach the dashed line on charts. What is more important is not loosing money. So getting out as break even is still a plus. Chart has more details along with my current thinking about market direction.
Both IVW and IWV bounced from the resistance zone couple of days back providing low risk entry point for shorts. If interested,
first post has my analysis, resistance zones and reasons to consider shorts. It took nearly a month for these ETFs to reach the resistance zones. I guess I under-estimated the time factor.
As I mentioned in that post, given these two markets are tightly correlated, there is no point taking short on both trades. Often as traders we run into this situation i.e., we get entries for multiple shorts and we need to pick one. My reasons for picking IWV short are - (a) Tighter resistance band and (b) Weaker relative strength. Who knows, IVW might turn out to be better short but we never know future. We have to work with present.
So what's next?
Given the sharp drop plus the fact it is now at short term swing point (blue dash line on chart), I think IWV might stall or bounce in next couple of days. Given quick 1R+ gain, my preference is to take profit on part of the position tomorrow and move stop on the remaining position to entry point (i.e., break even stop as marked on the chart).
So if this minor resistance (blue dash line on chart) holds and IWV bounces back, we will still be in a good place i.e., we already pocketed some profits and remaining position is not at risk. (Past Example: See TLT
long trade post. There stock came back few days later and stopped out rest of the position). Another reason, taking partial profit here will also help ride any noise without much stress. (Example: See
SLX trade posts. SLX had lot of noise after first target which was also faced minor resistance like here.).
Now instead of bouncing, if the minor resistance fails, then the next strong resistance is near blue solid line on chart. Should that happen we have 2nd part of the position to participate in the gains. (Past Examples: See EURUSD long trade posts. Another example is on-going SLX
short trade. That one now chugging towards target-2).
SLX price action so far is fairly close to analysis done in prior posts. In retrospect, it was good call to exit 1st part of the short position at what turned out to be low of the range (
Second post). If interested, chart analysis and entry locations before the short was triggered is available in
First post.
I think SLX trade is a good example of why having patience and getting a good entry location matters. These helped position to be at risk only for a very short time. Also it helped to ride out most of the noise comfortably sitting with above 1R gain pay off in pocket (on part of the position) and risk free position on the rest.
What's next?
SLX came close to stopping out and then made strong down move today. I think general market sell off helped. SLX now is in an interesting location.
If in next couple of days SLX follows through and closes strongly below $52, then there is good chance it will go down further and we can start thinking about target-2 (see chart). On other hand, if it stalls here and starts coming up, then there is good chance it will run all way to top of range. So it makes more sense to tighten the trailing stop (2nd red bar on chart). That way should SLX come back up, we locked-in some profit on remaining position.
I came across this stock few days back. A recent IPO and then formed long base last few months. I think that would have been sufficient time to lose interest of crowds and enough time for value players to build positions. Since beginning of this year the stock started moving up. May be its fundamentals were improving or about to improve. I am not as such that much concerned with fundamentals.
In general the biggest gainers often come from stocks that have gone IPO in last 1-3 years. That makes sense as often recent IPOs are doing some thing new or trying to capitalize on latest trends. (Note: In markets there are no absolutes and there are always exceptions like AAPL).
What happens typically is startup goes IPO, attracts lot of attention initially from the crowd, makes couple of volatile moves and then goes dormant. The public looses interest while the company forms a base to set stage later for real longer moves. Most often the big moves in these IPOs after the base formation correspond with the start of new bull leg in markets.
