A Full Cuppa JOE

FIGURE 1: JOE’S SMOKIN’. On this daily chart of JOE, note the upward pressure that indicated bullishness.

This slow rise caused the impulse system to change from red to blue and then to green. Soon the squeeze was on and the shorts panicked. The 4.9% surge on Wednesday, March 17, penetrated resistance as the shorts scrambled to cover (Figure 2).

FIGURE 2: MANAGING THE TRADE. Here you see the entry and exit points of the trade. Not too shabby.

• Entry: I expected to enter on a pullback to 27.57, but JOE gapped up to 28.00 at the opening on Monday, March 15, 2010. I raised my entry order to the previous day’s high, expecting the gap to fill. It did — and then proceeded to slide down to 27.38. JOE rebounded and started building momentum from there.
• Stop: Once filled, I placed my stop under the March low at 26.92.
• Target: Just under the February high at 29.75. On March 17, JOE surged up to 29.32, and then pulled back from this resistance point. It already rose $1.00 that day, which was more than double the average daily trading range. I decided to lower my target to 29.32 and take a profit (Figure 3).

FIGURE 3: THE EXIT. On March 17, 2010, JOE surged up to 29.32, and then pulled back from this resistance point. It had already gone up $1.00 on that day, which was more than double the average daily trading range. At this point, the trader decided to lower his target to 29.32 and take a profit.

In conclusion, I felt that the Fed was not going to rock the market at this critical moment in the administration’s political future. This trade looked very appealing, with so many ready to panic if the price didn’t move their way.

TRADE REVIEW
Alexander Elder’s comments: Steve wrote his report in the heat of the battle — at the end of the week during which he made his short-term trade. By the time I sat down to write this review two weeks later, Steve’s trade had moved closer to the middle of the chart. That’s where all signals look absolutely clear, but unfortunately, I have not yet found a broker who will accept my trading orders in the middle of the chart. As traders, we must make our decisions at the right edge, and that’s where the picture is much foggier.

FIGURE 4: THE RIGHT EDGE. Any trade that captures more than 30% of the trade is an excellent trade. This trade certainly met that criterion.

Point 1 on the daily chart (Figure 4) indicates Steve’s entry, point 2 his exit, and point 3 shows where he wrote his comments. Here are my observations about his trade:

• Long JOE was an excellent swing trade. Steve entered very near the value zone between the exponential moving averages. He took profits near the upper channel line, which marks the overvalued area. I consider any trade that captures 30% or more of the daily channel an A trade. JOE’s daily channel when Steve entered was just about $4 tall. Steve’s trade captured $1.60 — 40% of the channel, an A+.
• Successful short-term trades can often be converted to long-term trades. Many traders hang on to their losers but quickly get rid of gainers. My partner in SpikeTrade, Kerry Lovvorn, is fond of pointing out how many Spike picks work out better over a three-week time horizon than they do in a single week. In the SpikeTrade competition, the duration is limited to one week. Figure 4 clearly shows an even greater potential of a longer-term view.
• Will this trader be able to switch from buying to shorting when the market trend changes? The first quarter of 2010 was the time to be long, and Steve won the race during many weeks, earning his gold for the quarter. The market is a two-way street, and when the market changes its trend, we’ll find out how well Steve can handle a downtrend.

The SpikeTrade competition runs 52 weeks a year, and in our next article we will review another winning trade. Let’s see what lesson we can learn next month.