Weekly Pitchfork update on the Market. Happy days Again?

I thought I would change my focus a bit on this blog. I will look to see where the DOW and Qs are headed on a weekly basis using Andrews Pitchfork and Action/Reaction lines. In addition to looking at the the market I will look at stocks that I am looking to buy.

Are happy days here again? First, let's look at the DOW. As I write this entry the DOW is up 170 on the day at 12,532. But is it going to go up or down from here. Well, I can't tell yet from the daily chart. Looking at the chart in Fig 1. we see that the Dow is at a reaction line.

Fig. 1.

It is marked on the chart as R2. The DOW touched the ML of the pitchfork on the 7th of April and has followed the reaction line down since. The high on April 7th was a test of the 12,700 level that seems to be a main level of resistance for the DOW at this time. It has reached this area 3 times since Feb of this year. If we can break though this area I feel it will signal that we are back in an up trend in the DOW. Until then it looks like we will continue to stay in this sideways channel.

We may be able to predict the Dow by looking at the weekly Dow chart. We see in Fig. 2 that if the Pitchfork holds, we will break out of the resistance level I mentioned earlier on the daily chart by the end of April/begining of May.

Fig. 2.

Now for the Qs. Looking at the chart in Fig 3. we can see that the Qs are headed up and if the Pitchfork is right the we should be at $50.50 by late May when the 2 pitchforks intersect.

Fig 3.

Trade Updates - DOW

Well it has been ugly out there. I thought I would look at some of past posts and see if I was right or wrong with my predictions.

The first one is the DOW. I predicted that the DOW would reach the 13,400 level by end of Feb.
I was wrong. It did go up to 12,750 level but, failed to reach the mark I had set and seems to be headed down to the 11,600 level with in the next week.

Fig. 1

Looking at Fig 1. you can see I have drawn the long, medium and short term trend lines. According to Dr. Andrews, the lower prong of the pitchfork acts as support. So, the next move I am following is to see if the Dow will bounce off of that level of support or will it go through it and head further down. You can see that the 11,600 is also the level of resistance that was hit in Nov., 06. Even if the market goes back up to 12,500 we will still be in a downtrend on the DOW. Conclusion. I missed this one at least for now.

GE.trade. Was I right or wrong?

In my last post, I said I would go through a whole trade. Well, I was traveling and my internet connect was intermitten but, I did have time to buy GE while I was traveling. So, let's look at the trade so far.

Fig.1

I Bought the GE Jan 10 $30 call leap for 7.00 on the 19th of Feb. with a target price of 38.25 on March 5th. If we look at the chart(Fig.1) am suppose to reach my target on March 5th. Will I? No way! Will it reach the target? Yes, I think eventually it will. The stock is in an up trend and when I look at an earlier Action line I see the the Reaction line formed early. Approximately, 11 days early. Because the first Reaction line was early I expect the next Reaction Line to be late by 11 days. Looking at Fig 2. what I have done is I have made an adjustment in my target day by the eleven day gap and now the target date is the 15th of March.

Fig. 2

I will monitor this GE trade and update the blog as the trade progresses.

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.

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.

What Tools I Use to Trade.

In my first entry I said I would tell you what tools I use to trade and to predict where the markets are going. I am not going to go in to details here on the tools but, as I show my trades I will expand on the indicators I am using.

As I said earlier, I look at a stock because of it fundamentals and then trade the stock based on its technicals. So, from a fundamental standpoint I pay for a stock/leaps screener from compoundstock earnings using the default values given.

Now, what do I use from a technical standpoint. I primarily use Andrews Pitchfork, action/reaction lines and MACD.

If you are not familiar with Andrews Pitchfork go here to learn how to draw the Pitchfork. If you really want understand how Dr. Andrews traded and what he taught people I suggest you take the pitchfork primer course.

Dr. Andrews said that prices will hit the median line 80% of the time before reversing. So, I learned from Dr. Andrews where the price was going but, my problem was until recently was knowing when the price is going to hit the Median Line. Well, I found my answer in a Book By John Crane, Advanced Swing Trading. It falls right in with trading the Pitchfork by using Action/Reaction lines he talks about to predict time. Now I have a target price and a time frame of when I am going to reach that target price.

Now for the MACD. I use the MACD to help confirm what the pitchfork and the action/reaction lines are telling me.

So, where do I go from here. Next, I will make a prediction of the DOW this Friday.