I started a new category here called ‘Trading Psychology’ so that I can occasionally talk about aspects of trading that are more intangible. I can tell you with zero doubt that one of the most difficult aspects of trading that has challenged me time and time again is the tendency towards over trading when there really are not any good trades to be had.

That’s where patience comes in, and that is why I posted a picture of a cheetah in this post waiting in the tall grasses of (Africa?) to scope out its target and see if if can find something interesting to chase.  I don’t know how long cheetahs wait in the fields before they scope out a target and attack.  But I doubt they just run into the field paws flapping everywhere and then just chase and jump on the next moving zebra over the hill. 

They take their time, they scope out a target, they are extremely patient.  Heck most animals and pets I know of are very patient.  Certainly not all of them are, but I would say most of them are.  So it is not just cheetahs.

So most traders can probably learn a lot from the cheetah and most other animals and pets.  Try to avoid rushing to find a trade during the trading day, and then in panicky fashion buying something because it ‘looks good’.

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I have written about a number of different stocks here at BestOnlineTrades and this posts serves as a quick informal review of what we have talked about and what we have learned based on our observations.

I don’t claim to be a ‘guru’ or a ‘super legendary’ stock picker.  But I can tell you that since the year 1994 I have looked at tens of thousands of stock price charts, if not more. I have spent so much time looking at all these charts that I really feel as though many patterns and setups are permanently in my DNA.  If you watch something closely enough or spend enough time with it, it seems only natural that you will begin to become very familiar with it over time and know what to watch for depending on what you are trying to achieve. I have seen patterns, I have watched price and volume, I have seen really large patterns and very short term ones.

So the habit of looking at so many price charts has definitely helped to develop a good sense of what is a buy, and why it is a buy.  On the other hand, looking at too many price charts too much of the time can lead to trader burnout and that is not so good either.  So definitely a balance is necessary.

Ok before I ramble on too long, lets take a quick look at what I talked about over the last few weeks and what the result was if anything:

• PIR – first mentioned slightly under 2.30, hit a high of 2.84 or 23%
• JVA – first mentioned at 3.20, hit a high of 3.85 or 20%, I believe this one is going to move pretty soon to the upside.
• FITB – mentioned at 7.70, hit a high of 9.51 or 23%
• CEMJQ – mentioned at .275, hit a high of .415 or 51%
• IDOI – first mentioned at .0023, hit a high of .0063 today or 174%
• BEHL – first mentioned at .0255, hit a high of .10 today or 292%
• ETFC – first mentioned at 1.54, today is at 1.50 for a loss of (2.6)%, but I am still very bullish on ETFC and believe the upside move is coming shortly
• CNXT – mentioned today at 1.50, no change yet, still building something
• PACR – mentioned today at 2.22, closed at 2.48, or up 11.7 %
• EPEX –mentioned at .43 but said no signal given yet which it still hasn’t given.
• UNG – mentioned at 13.80, today at 12.85, loss of (6.8%), here I still believe that UNG is trying to form a longer term bottom. If the most recent lows hold then look out above. We could see a huge rally. 
• PLM – mentioned a few days ago at 1.44, today at 1.67, up 16%
• SRSR – mentioned at .081 – currently in play and expecting an upside reactionary bounce.

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Today the powershares QQQ Trust, symbol (QQQQ) tested the gap from yesterday on about 25% less volume.  It has become clear to me at this point that any decline we get from here is going to be labored and lacking in conviction.

I still think 37.20 is fair game for a target on the QQQ Trust in August, but there are a few reasons why this may be delayed short term.  One of the reasons is the US Dollar index, which broke down badly today.  I am going to write a post on the US Dollar in a moment.  A declining US dollar is supporting higher prices in the broad market.

I should also mention that major topside resistance on the QQQ Trust comes in near the 42 and change level.  That level represents the primary bear market trend that began way back in October of 2007.  It is in my opinion a very significant level and one that we will be watching closely going forward. At the current rate the QQQ is travelling, we might just get there within a month or two.

It seems almost a foregone conclusion that this level will be tested.  The nature of the test on the weekly charts is going to be very important to watch.  If we see price bump its head on that down trend and have a fast reaction down, it could be a warning sign that the down trending resistance line will hold and not be broken.

On the other hand if we see price hug the bottom of that resistance line for say a month or two, then it could be a bullish sign and we might see a massive upside breakout through that bear market force.

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I spotted an interesting chart pattern in CNXT Conexant Systems.  It has somewhat of a scalloping pattern or saucer formation for a period of about 3 and a half months.  Two days ago CNXT did a retest of the mid April swing high but came FAR short of adequate volume on that swing test.  Today and yesterday it has consolidated.

I would say that as long as it can hold 1.47 and keep its composure, I believe it could be setting up for another attack of that blue resistance line and a breakout type move.

It may drift sideways for a week since the most recent test was dramatically weaker in terms of volume. But I still think it wants to take another chance at an upside breakout.  CNXT can move very fast so I would not be surprised to see the move come out of nowhere.

If CNXT does not hold 1.47, then it invalidates this forecast and puts the analysis into doubt.

By the way, I am noticing setups ALL OVER THE PLACE.  Certainly a lot of it has to do with the broad market powering higher and not willing to give up much ground.  That is just the perfect type of environment for ripe breakouts and positive consolidation patterns.

BestOnlineTrades recently developed a powerful new computer scan that scans over four thousand five hundred different stocks (Nasdaq and New York Stock Exchange).  It is a superb scan because out of that entire list of 4500 plus stocks it only returned 1/3 of 1% as viable candidates! (.27%)  And it typically seems to only return a maximum of 20 stocks each day.  That is extremely valuable not only because of time savings, but also because of the quality of the candidates it seems to find.  It is a custom scan I developed that uses a combination of two very powerful indicators.  One of them happens to be an indicator that the famous Jake Bernstein likes to use a lot.  But when used in combination with our own custom indicator, the quality factor goes up 5 fold.

PACR Pacer International is one of the stocks that came up in the scan and we are glad that it did, because it looks quite good to these eyes.  The few months to the left of this chart are also significant (not shown on the chart above) because in March PACR did a nose dive into the 1.7 range area, then it rebounded to the 5 level only to fall back where we currently are in this congestion area.

So one could say that the current retracement is a complex double bottom and now we have built sideways cause here for about a month and are perched just under the resistance line close to the mid 2’s.

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BEHL has been on a tear since we first mentioned it at .0255.  Today it closed slightly above .07 for a move of 186%.  That is a clear example of the power of penny stocks when several elements all come into play at once.

IDOI, another penny stock we first mentioned here on 7/16/09 is up 117% since our first mention.  Overall I am noticed a very active penny market right now.  A lot of them are moving, but of course not all of them have the most ideal setups.  I think both BEHL and IDOI are coming close to some sort of short term peak soon.  IDOI may be able to get to a penny intra day.. and BEHL might be able to hit .10 cents intra day before a real reversal.

These two had outstanding setups.  You had substantial volume showing on both charts during the uptrend which was strong evidence of accumulation and a solid uptrend.  They also both showed a sideways consolidation that did not give back too much in terms of price.  And that is key!  The true ultimate test of any penny stock is how it reacts and behaves after its first big move.  In the case of both of these BEHL and IDOI, we saw price hold ground exceptionally well, in terms of both volume and price.

The Sad Part is that Most Penny Stocks Don’t Pass the Test!

It’s true.  The vast majority of penny stocks do not pass the “what happens after the first initial rally” test.  This marketplace is dangerous enough as it is, so we recommend spending a lot more time WATCHING them than jumping in them head first and hoping.  That way you can filter them out and weed out the weak and stay with the strongest.

In the post before this one we brought to light SRSR which we think could get an automatic rally going soon… could it be that the first 3 penny stocks BestOnlineTrades mentions turn out to be homerun winners ?  We will have to wait a few days and find out. Stay tuned.

I just wanted to do a quick update on Sarissa Resources (SRSR).  Yesterday I said that I believed that the .081 low yesterday would probably be the final low.  Well today we took out that low slightly and closed at .083 .

I still think that we are going to get a violent upside reaction rally in SRSR pretty soon.  It may be good for 30 to 50% profits.  The real rule though is that we just do not want to see SRSR trade below today’s low.  As long as it does not do that, and maybe gets an inside bar, then I think the upside reaction could start.

You might say it is like trying to catch a falling knife.  Well not exactly.  Sometimes you can catch a falling knife if you are very very careful in how you go about it. 

I have seen this trading pattern many times already, and they have looked quite similar to the pattern in SRSR right now.  The fact that SRSR is a pinksheet stock does not really change the scenario or the final outcome.

One of the most famous upside automatic rally reactions I can remember was in a company called Taser Corp.  They are still public (symbol TASR) now but the stock has been languishing for years now.  But previously when they had enormous momentum the price hit a superbly exciting peak, but then literally crashed down similar to the way SRSR has now crashed.  But then sure enough an automatic rally ensued that took the stock into a violent trading range for months.

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Yesterday I downloaded from an online database the entire full list of all ETFS and then converted their symbols so that they could be displayed in my charting program.  I am not too sure why I did not do this before because I can tell you with zero doubt that ETS are really a superb trading and investing vehicle.

You’ve got leverage, liquidity, choice, flexibility, low fees.  I mean what more could you ask for ? Why even bother with stocks or futures or anything else for that matter when you have ETFS?  It is something to think about for sure.  Me personally I like to have as many options as possible, because you never really know where a good trading setup might come from.  Yes there could be a great ETF trading setup, but there could also be a great setup in a penny stock, a blue chip, a Canadian stock, many places!

But I can tell you after scanning through 415 ETF charts one by one in my charting program something occurred to me.  A lot of their patterns look the same and…

95% of them follow what the SP500 does!

It’s true.  Most of them bottomed in March 2009 and most of them have been moving up since then.  Some stronger than others, but their primary direction has been in line with the SP500.  Perhaps this is an obvious point since many ETFS contain sector component stocks which also trade on the SP500.  And some of them just follow specific sectors.  Even commodity ETFS followed the SP500 as well.

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Remember I did this post on the SP500?  I was talking about how we are somewhat constrained by this top line resistance that has some tendency to a broadening wedge formation.  Then I did a post a couple days ago on the QQQQ and said that the QQQQ’s seem to be signaling a top based on a test of previous swing with 26% lighter volume.

But Today the Market was up like the 4th of July!

Yes it was.  I thought for sure I would have egg all over my face after saying that the QQQQ’s had signaled a short term top based on the price retest on 26% less volume and a price close under that relevant price swing.

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The chart you are looking at here is the quarterly price bar chart for the continuous gold contract.  I love long term charts like quarterlies because they forecast bull market moves and are definitely geared towards longer term forecasts.  This gold futures chart is no exception.

Something very significant has developed in the gold price on the quarterly chart.  For the first time since 2004 (that was a long time ago!) we see a double inside quarter developing.  A double inside quarter exists when the two most recent price bars each have lower highs and higher lows than the preceding price bar.  It is similar to a ‘coiled spring’ in that you have price compression.  These ‘double inside’ patterns do not really forecast price direction either up or down, so we could see a big move up and out of this pattern, or down and out of the pattern.

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