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The Weekend Shift – Episode 18

The Price Action

This week was better. The reversals on Tuesday, and Thursday were great, ending the week to the downside.

Do I need a scanner?

I saw question in the chat asking Rob if he needed a scanner to really compete with the Market. Remember why you are here. You are here to learn The Strat, and trade what Rob is seeing. Let Rob be your scanner. He’s looking at the entire Market at once. He knows where you need to be. Just do what he says.

The broader averages and the Weekend winners

The S&P 500 (SPY) opening as a 3-2 reversal back down on the week. Monday was a gap down, and stopped out most long positions. At 12:30 est, the same time as the Strat time report, there was a One Bar Rev Strat (1-3) to the upside. This continued up for the rest of the day. This situation created a hammer in multiple stocks and sectors. On Tuesday was the best 2-2 reversal up we have had in a long time. All you had to do was identify the reversal, and go long. This even created opportunities in QQQ, that has been getting hit really bad along with Tech. Wednesday was a different story. Most of the day was inside, scenario 1, and was choppy. The buyers did not step back up. With the FED continuing to talk about rate hikes this spooked the Market as a whole. Thursday was a 2-2 reversal down on the daily. If you went long that was the time to take profits. Then reverse your position, or work puts as stocks are trading to the downside. The close of Friday showed aggressive buying between 1:30 and 2:30pm. Now for next week we are stuck in a wide undecided range on the week. You will have to look to the daily charts to find reversal back up.
Make sure you keep your stops tight, and don’t be in a rush to get in there. It is a short week next week, and there are earning reports coming out for banks.
The top winners from last week’s Weekend Vid from Rob Smith were:
  1. Schlumberger N.V. (SLB) 2-2 continuation
  2. Disney (DIS) 2-2 reversal down
  3. Fedex (FDX) 2-2 reversal down
  4. UPS (UPS) 3-2 reversal down
  5. Costco (COST) 2-2 continuation down

The Spread

The spread is the difference between the Bid and the Ask. When trading common this is usually close together. When trading option this can be a totally different story.

Most options traders do not take options with spreads that are more than 10-20 cents. Anything more than that, and you are asking for trouble. If you take an option that has a 50 cent spread if you have to cut it, you have no choice but to take a 50 cent loss on top of being wrong in the direction of price. Now imagine having a winning trade on an option with a dollar spread. You decide to take your profit. You may still be selling for a loss, because the spread is so large. In the future pay attention to the options spread. It could be the difference between winning, and losing even before you start.
Keep Your Stops Tight

Where do we want to be?

Special guest Rob Smith talks XLE, the pandemic stocks, and banks.

Welcome to a brand-new year of trading, and we are off to a great start. What is the Strat Army looking at for the year? So far its XLE and the Energy stocks. Currently 2-1-2 reversal up on the yearly charts, it is without a doubt where the
buyers are. QQQ and the Tech stocks are dumping. The airlines and cruise line stocks are all inside year, and closer to taking out the downside. With the Macro charts (Quarterly, Yearly) we are able to compare participants, and see what the institutional buyers are doing. They are buying energies, and they are going it across the board. This is what we call, “a simultaneous break.” When this happens we look to create as many winning positions as possible in that sector. Then as the price moves, and things get stopped out, only the strong ones remain. Rob easily rattled off 10-15 stock you could work in OIH and XLE. He looks at these charts daily.

Rob has been pointing us to energies since last year. Yes, the year was going inside, but it was green. That told us when it closed it would be primed for a reversal. The 2-1-2 reversal did go in force, and it now trading to the upside aggressively. The best part about this, is that there will be lots of opportunity to get in on this. You didn’t miss the move.

“When everything in OIH is going up, there’s no reason to believe this isn’t going to work.”

Rob also talked about patience. If you go to OIH, and look at the end of Friday. If you just waited, and did nothing until the end of the day, you could have gotten in on a big move to the upside. People get bored, and they go jumping around. Staying on the 30s and 60s would have kept you out of trouble. At the end of Friday SLB, HAL, HP, and rest of the Energies reversed to upside. All of them broke made a significant reversal to the upside at 1:30 est, atthe Flip.
When working a simultaneous break, you can get as many stocks that are doing the same thing as you can handle. Then set your stops. All of them should be following the main ETF chart. “When everything in OIH is going up, there’s no reason to believe this isn’t going to work, “ says Rob as he laughs. A great way to reenforce confidence in your trades, is to have the main ETF chart along side your stock charts. They should be the same color, and trading condition.
Rob talks about, “used to be somebody.” Last year when oil went negative, and had reverse splits, if you go back you can see these stocks used to be a lot higher. He compared this to the Tech bubble back in 2008. The tech stocks got wrecked so bad they thought it would never come back. The broadening formations on tech stocks back in ’08, have completed last year in most things. Bloomberg news is predicting oil may go to triple digits this year. This is in line with what we see on the broadening formation on XLE, the high being $101. There is a lot of talk about solar, but look at the charts.
We looked at the pandemic stocks. They are all opening dead in the middle of range of last year, Game stop, AMC, Boeing, the airlines, and the cruise lines are all inside year. Nothing says can’t reverse to the upside, but the higher probability is 2-1-2 continuation down on the year. Price discovery is going to start over on the Meme stocks, or reality is going to set in, and it’s going back to “pre Ape” levels. You can trade these things, but you better be aware of the broadening formation. It might not go that far. We are seeing the same type of price action in DWAC.

EYE ON IT

Messy Range

We are watching the weekly broadening formation on the SPY, DIA, and QQ. The range is wide, and doji. It is a short week. It’s ok if you don’t trade. These can be messy weeks.

Software

Weekly Tips

In TradingView you can create custom time frames. In the top menu of the chart you will see a drop down option for time interval. Scroll down, you will see were you can create custom time frames. 

Here you can create Quarterly, and yearly time frames.
The last thing we looked at were Banks in FAS, and XLF ETFs. They are 2-2 continuation up on the year. Earnings reports come out for banks next week. Let’s see what they want to do. One stock we did look at was Wells Fargo (WFC). That stock is 2-1-2 reversal up on the year. You can use that information to create a long term trade that you can hold all year. Rob emphasized there will be times when the price is falling, but if it’s not reversing against your position there’s no reason to get out. Do not get out because you are bored. You can also use options to trade around your long term positions.
In summary, we will be looking at energies in the upcoming months. Do what you can to create those winning positions, and be patient. You do not have to jump around to be successful. Listen to Rob, and wait for the simultaneous breaks. When these occur work as many as you can. Personally, I like to work 4-5 winning positions at once. I create the winning position, and I look to add to those positions. We have earning coming out next week, and also it’s a short week. We don’t tell the market what it’s gonna do, it tells us.

This Week’s Strat Q&A Tips

Q: What is the correct way to draw broadening formations?

A: Rob says all the time that you don’t need to draw them. You just need to remember that they exist. You can you a trend line tool, or an extended line tool to draw it. Start with the recent highs, and draw it back from right to left to a lower high. Then draw it back from a recent low to a higher low. This will give you the triangle Rob is always talking about. If you are having trouble drawing it on a certain time frame, go to a higher time frame. Drawing them on the weekly, or monthly is the easiest. You also don’t want to cut through a bunch of candles. No matter what, the main point is to use them to gauge magnitude, and find things going through previous range. Don’t let people get all over you about the “correct way.” Just remember, why you are using it. You will get better at them, and you will see the Strat much easier with them. Price discovery is done through a series of broadening formations.

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