Day Trader column for April 3 – 2012
The slow pull back the week before last on the All Ords, from just below 4,400 and the subsequent reversal to the upside, on Thursday March 23 followed through last week, with the All Ords closing the week well above 4,400.
Friday’s market action however formed a daily reversal to the downside. This is a warning that we may see the index fall away from this level, or it may be a pre-curser to a retest of the 4,400 level before moving higher.
Observation tells me, all breaks above previous highs, whether intermediate or all time highs and other significant resistance levels will be followed by a retest of that level before moving higher. The same retest principle applies to breaks below support levels as the price moves down.
In the case of low market capitalised stocks or in cases where the price is moving rapidly the retest may only be seen on an intra-day chart on a very small time scale.
Last week I said I would buy 5,000 Amcom Telecommunications (AMM) share on Monday March 26. I expected to pay around $1.085 for them as that was the closing price on the Friday. I always try to buy at the open, in this case I paid $1.09 which turned out to be the low price for the day. The total cost was $5,470 including brokerage. The initial stop is $1.065 which means if I am stopped out I can expect to lose around $125 plus brokerage. This makes it a fairly low risk trade if stopped out before it moves up sufficiently for me to raise the trailing stop.
The series of spike highs in the first half of 2011 at just below $1.20 will prove to be the next resistance level. If $1.20 is broken then I expect targets will be $1.50 and then $1.80. Both these target are what I call mirror projections from previous chart patterns. It never ceases to amaze me how accurate these projections can be and they are so easy to see.
A problem for AMM is that when it moves above $1.20 it will have formed a five point reversal pattern. When this is in place, I will be on the lookout for a daily reversal, which will likely occur at the above target levels. A fall after this pattern is in place usually leads to a big price drop. I will explain five point reversals in more detail in a future column.
The other stock I mentioned last week was Alkane Resources (ALK). Unfortunately it formed a daily pivot point buy signal before the All Ords had moved above 4,400 and I was not prepared to risk any more money at that stage.
I said unfortunately, because if I had bought after the daily pivot point which formed on Monday last week I would have paid $1.39 and it closed the week at $1.465. The stop would have been $1.325 and with my not wanting to risk more than $200 on a trade at the moment, I would have bought 3,000 shares.
When I scanned my data base at the weekend, I noted a number of stocks which have broken to new highs, one I will watch closely is Western Desert Resources (WDR).
For information on my DVD training package “10 Easy Steps to Follow the Money” and to view past columns go to: www.thedaytrader.com.au
Starting capital $50,000 in July 2006