ADP going to $43 by mid-March

One trade that I am currently and would to discuss is ADP. I got in to the trade on December 3rd of 07. I bought 20 contracts of the Jan10 $40 leap for $9.50 each and the stock went up and on Dec 10th I sold it for the 5% profit I was looking for. Well, unfortunately I only sold 1/2 the position and then the market turned down. Looking at figure 1, You can see the stock traded sideways for a while then dropped like a rock. It dropped so, did I sell options against my position? No, I missed it. Missing moves like that is part I the reason I started trading using action/Reaction Lines and Andrews Pitchfork.



There are 2 other things I want to point out from the chart. First, I wanted to point out areas in red. Look at the action area. Next, look at the reaction area. They almost mirror each other. Also, the reaction area hit the lower prong of the pitchfork and bounced off of it. You can see that the MACD went up and did not go negative. Since the lower prong is a support level, it confirms that the stock is headed for the target. The second thing I wanted to point out is my prediction and it s $43 on or before March 10th.

Also, I had a position sell today for a profit, STJ. So, I have some cash that free up. I will be looking for a new position to trade. I will be waiting for a down day(DOW and Qs) to trade per the rules of Compound Stock Earnings. As soon as I find a trade, I will post it and we will go through it from start to finish.

Longer term predictions for the DOW's and the Qs'

Fig 1.

Not too long along ago I gave a my short term prediction for the DOW. Now, I thought I would take a look at the DOW to see if I could tell if where the DOW was going in the next 6 months. So, looking at a weekly chart and applying the tools I use, I have come to the conclusion the DOW has hit a bottom, the bias is up and is now trading in a sideways channel You can see this in Fig. 1
Looking at the action/reaction lines the DOW ends Feb. begins March at the 13,400 level. Then it should retrace that upward move. How far down the retracement goes, I can't tell yet. But, then it will reverse and climb to the previous levels of Oct. ,14,200 by the end July of this year.

The scary thing about this prediction I was watching TV and some of the talking heads were making the same prediction. They must have been reading my blog.

Fig 2.

Now for the QQQQ. It looks like the same story as the DOW. We have hit bottom and the Qs will climb to the $50 level by April and then will test the highs of Oct 07 of $55 by Sept.

Well, I hope I am right and my bank account hopes I'm right and the mortgage company hopes I'm right and the credit card companies hope I'm right but, we will see.

Where is the DOW going now? The Qs?

Fig.1. Charts generated by Track 'n Trade

In a post last week, I said I would make a prediction of where the Dow is going next. Well, my crystal ball is still a bit fuzzy, but here I go. According to Dr. Andrews the price will touch the median line of the pitchfork 80% of the time. The other 20% of the time there is price failure and the price will reverse and go in the opposite direction. I hope this is one of these times. (Fig. 1) shows the newest Pitchfork(in red) based on the pivot point high that formed 2 days ago. Using the action/reaction lines I get a target price testing the lows of late Jan. of 08 near 11,600. That's why I hope I am wrong. So, since it is such a steeply drawn pitchfork I am going to call the reversal point using the upper line of the pitchfork and not the median line which would be approx the 12,050 level on or before the 18th of Feb. That area noted by the square on the chart also, is the 60% fibonacci retracement area from the pivot point. So, let see where the DOW goes now and this is one time I hope the Pitchfork is wrong.

Fig.2. Charts generated by Track 'n Trade

Now, I want to look at the QQQQ. Looking at the chart(Fig. 2), using the the red pitchfork, I think the Qs are going to stay around where it is and end up at the $45 level. This should happen around the 20th of Feb. You can see it hit the target price at the beginning of Feb and has gone done since I believe it will reverse back up and end up at the $45 level. Again we will see.

Is United Technologies headed to $70 by 2/13/08?

In my last post, I said we would look at some trades that I am active in. So, lets look at United Technologies(UTX). As I mentioned before I use some trading strategies by Compound Stock Earnings. ( I won't give you a review of their material here. I' ll save that for a later blog entry.) Using their information I entered in to a Leaps trade buying the Jan 09 75 call on Nov. 5th of 07 for $11.20 looking for a 5% return. I entered the trade violating a Compound Stock Earnings rule that states only trade in the money/at the money LEAPS under $10. In the book and at their seminars they don't explain why under $10 but, I figured it out on my own after I got in to this trade. The reason for the under $10 rule is we are looking for a 5% move up in the stock and if the LEAP is priced over $10 the underlining stock has to move to far to get a 5% return easily.

I entered the trade using Compound Stock Earning technique of looking for a stock that meets certain fundamental criteria, that is in an uptrend and is in the lower 25% of the trends price channel. Figure 1. shows the channel. It is the shaded area between the white lines. I also highlighted the day I entered the trade.

Fig.1. Charts generated by Track 'n Trade

The idea is that UTX will hit support and reverse toward the upper part the channel giving me a 5% profit in the trade. When the LEAP sells I'm on to looking for the next trade. If the stock goes the wrong way I can still make money. Why? Because I sell call options against the LEAP position. If the stock continues to go down I can manage the trade by selling Call options until the stock goes back up. I don't use a stop loss, I just manage the trade, making money by selling calls against the LEAP until the stock goes up to where I can get out for my 5% profit.

I told you the ideal, text book scenario. As you can see the stock went down. So, let's see if I had used an Andrews pitchfork instead would I have avoided this trade or made this trade anyway. Figure 2, shows the the Pitchfork and the Action/Reaction lines. Now, we can see on the 5th of Nov. the target price was not reached. It reached the target price late, on Nov. 19th. and didn't reverse trend until Nov. 29th.

Still it reversed from the $73 level up to resistance given by the upper fork of the pitchfork, the $79 level. By my calculations that up side move should have been large enough to give me my profit target of 5% and it would have been a successful trade. But, even if I waited, trading on the Pitchfork feel I would have been taking more risk because the white uptrend support line was broken.

Fig.2. Charts generated by Track 'n Trade

That brings us to where am I now. I didn't buy on the pitchfork but, on the trend channel. The stock is trending down. I still own the LEAPS. So, now what do I do. I sell call options against my UTX position until the stock goes back up to a price point where I can sell it for a profit. The stock went down to the $65 level. Now I need to wait for the stock make it's next high pivot point and that is happening now at $74. Figure 3. shows that it hit the upper resistance fork and should now reverse to target at $70 and the MACD looks like it has reached it peak. I am hoping to sell calls on the move to $70 is not too quick and the Pitchfork shows me it will head lower than $70. Will it head to $70 or lower or will the trend reverse itself? We will see.

Fig.3. Charts generated by Track 'n Trade

Where Will the DOW Go From Here?

As an Investor I go to investing sites and they say "look if you bought XYZ stock following my system you would have made all this money because it went up 10,000% over the last 1 month. Just look at the chart." But, what about the trades that went wrong? Oh, I won't find out about those trades until I pay you a lot of money. Great. Sometimes, I wander if the market gurus make money not from their trades but, from selling you their secret systems on how to trade. I like to watch them recommend stocks on Saturday morning. One guy says this is a great stock and the next guy says I hate it that stock, it stinks. But, I digress.

I hope this site is not going to be like that. This blog is my personal trading journal where you can follow along on my trades as they unfold. You will see my mistakes, my wins and loses. So, with that in mind here I go.

Let's start with the DOW(Fig 1). First I look at the trend. It is still down. Then I draw an Andrews Pitchfork and somewhere along the center line is my target price. Dr. Andrews stated that the price will touch the center median line 80% of the time. But , what I want to know is when and what price are going to touch the median line.

Fig.1. Charts generated by Track 'n Trade

Next, I add the the Action/Reaction lines(Fig. 2). By adding the Action/Reaction lines(yellow lines) I now have a target price and time frame. My target is shown by the yellow circle on the chart. The price target of approx 12,610 was hit on Weds. Jan 30th. The target time I came up with is next Weds. Feb 6th. So, starting Monday, I will look for the DOW to start to reverse it's upward movement. It should start to go back down following the yellow reaction line on the chart. I will use the MACD histogram to confirm this change in direction. Now, as to how far the Dow will go down. I will be able to make that prediction when a new pivot point forms. The pivot point forms when there are 2 straight trading days of lower highs. At that time I can draw my next pitchfork and get a new target price and time frame.

Fig. 2. Charts generated by Track 'n Trade

We will wait and see if the reversal happens and if so, I will post the DOW with a new pitchfork and prediction with it. If I am wrong I won't need to tell you. You will know. But, next I will Post a trade I am in the middle of. One that I was in before I started this new way of trading. A trade that went wrong and now I am Managing until it is profitable.