Day Trader column for August 3 - 2018

Our market continues to move sideways instead of getting on with the move to the upside.   However, divergences continue to pre-empt the market direction.   Last Friday the All Ords traded intraday above the spike high formed on July 10 and the S&P/ASX 200 failed to trade above its respective spike high formed on July 10.    This was a high probability indication that both would fall and on Monday, Tuesday and Wednesday this week they both traded down.

Although a divergence tells us the market direction it does not give any indication as to the extent of the move to follow.    I should add that divergences can and do often occur after a move down and they then indicate a move to the upside.    Divergences can occur on a daily or a weekly chart and if they occur on a weekly chart the move that follows is likely to be much larger.   

Often pairs of stocks can be observed to move in tandem (charts are a similar pattern, but not necessarily anywhere near the same price) and when they do divergences can occur and predict reversals with remarkable consistency.

BHP and RIO are two stocks where this can be seen on a regular basis and two of the major banks can be seen to move in tandem.   It is just a matter of looking for the two that closely follow each other.    After moving in tandem, for sometimes months they will get out of sync and then divergence are harder to find, but still can occur on longer term charts.   They are interesting to watch for and along with other chart indicators can forewarn of a reversal.

BHP and RIO which I watch closely for divergences are often a bell weather for the market, but recently they have fallen out of sync.   Watch carefully for them to get back to their usual pattern of following each other.  

I raised the stop on Compumedics (CMP) to 63.5c, the bottom of the spike low which formed on July 26 and it closed below this on Tuesday this week and as it was trading on fairly low volume I put in an order to sell on Wednesday at 62c and was fortunate enough to sell them during the day for a total of $6,190 as my trade was the only trade for the day at 62c.

I have raised the stop n Australian Vanadium (AVL) to 5c, if it moves up from Wednesday I may be able to move it higher.    Much of the action on Wednesday was due to the announcement of the exercise of a number of options, so maybe it won’t cause too much of a glitch in the move to the upside.

I also bought 10,000 Liquefied Natural Gas (LNG) on Friday last week at 66.5c for a total of $6,670 on the expectation it was going to break above the January spike high.    Instead it touched this level on Monday and has pulled back, so if it now reverses from the pullback from this high and breaks above 70c then the next target is $1.00.

The initial stop is 59.5c the low of the spike low formed on July 25.

 

 

Past columns, information and DVD’s on my methods are available at:-www.thedaytrader.com.au   

Portfolio Position as at close of trade on August 01 - 2018

 

Stock

No. of Shares

Purchase price

Stop

Wednesdays Close

BIG

5,000

$1.735

$1.56

$2.20

LVT

10,000

56.5c

51c

64.5c

AVL

150,000

4.7c

4.3c

6.2c

STM

150,000

4.1c

3.6c

4c

LNG

10,000

66.5c

59.5c

65.5

 

Cash       $364,832

Shares    $39,300

Total       $404,132