The following post is the most recent email update provided to paying subscribers. I am posting it on the public blog so that non-subscribers can see how the quick-trade part of the service works. In conjunction with the weekly watch-list, I also offer commentary mid-week as trades develop. Providing actual set-ups gives traders the best opportunity to see trades unfold in real-time and gain insight into the trading process.
As discussed on Tuesday's Quick Trade Update, the potential correction in gold miners and energy stocks has materialized over the last couple of days, meaning that we can now turn our attention to looking for potential buy signals for stocks on our quick trade watch-list.
We can see in the chart above that the TSX's gold mining index got slammed hard on Wednesday and is approaching it's trend line. Patience is required in these situations because corrections often run deeper than we typically expect, although in bull markets they can also be very shallow. In light of this uncertainty, we cannot simply buy watch-list stocks because they are approaching our estimated reversal area. We need to either wait for a reversal to occur (aggressive traders) or wait for a swing low to be completed (conservative traders).
To illustrate the reversal case, we can see that China Gold International (CGG) bounced off of its 50 day moving average, so aggressive traders could buy this company and put a stop loss below today's low. Conservative traders should wait for an actual swing low to occur, especially since it is still overbought based on the stochastic indicator located in the bottom panel of the chart.
Precision Drilling (PD) is an example of a swing low being completed, which is typically a stronger confirmation that an upward trend is about to resume. By definition, a swing low occurs when the price makes a new low and then reverses higher and makes a high that is above the previous day's high. Typically, swing lows are two day events (or longer) but in the case of PD, it occurred in only one day, which created what is referred to as a bullish engulfing candle.
In contrast to PD, the majority of energy company charts look similar to the energy ETF (XEG) shown below.
We can see here that even though XEG reversed higher today, the correction has been shallow thus far and a correction down to the 50 day moving average should not be ruled out. Traders need to decide whether they want to give individual stocks more time and wait for a swing low to occur or just go ahead and buy. The same situation exists with many of our gold mining stocks (for example CGG above), although the correction has been slightly deeper in most cases.
Given the fluidity of the IRAN - US situation, I am being patient with my trades since a simple tweet has the ability to derail things rather quickly.
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