Waiting For Pull Backs Using Moving Averages & Relative Strength | Active Trading Strategies
well the market's relaxing after perhaps a bit of a too far too fast run we'll talk about that and waiting for the setup today in active trading so stick around good afternoon everyone and welcome to active trading strategies my name is pat milali i'm joined in the chats by all of you as well as uh barb armstrong in there to answer any questions you might have in the chat barb is another uh another investor or td ameritrade education coach and you a lot of you may know her if you are new please get with barb on on anything you need to learn about options starting with options uh every tuesday at 11 o'clock eastern time as well as many many other things and is uh barb is adept at uh several things and you might have seen her on some of our education days as well all right before we jump into anything further before i say hello to everybody let's get out there and get past that important information that we need to need to express to everybody and that is that educational and informational purposes only that's why we're doing this today not recommendations options are not suitable for all investors special risk or inherent options trading and may expose investors to potentially rapid and substantial losses uh short options cannot be signed at any time cannot be can be assigned at any time up to expiration regardless of the in the money amount and then the money option has a higher risk of being assigned a pay-per-money virtual trading application will not assign those short option positions early which is going to be different from uh actual uh real trading with real uh money uh please remember that uh while this webcast is talking technical analysis there are other methods including fundamental analysis that may assert different views all investing involves risk including the risk of loss past performance of any security does not guarantee future results or success a trailing stop loss or stop loss order will not guarantee an execution at or near the activation price and remember every decision that you make in your self-directed account is solely your responsibility all right so today's agenda of quick very quickly we're going to do a market review markets are giving us a little bit of uh consolidation perhaps is it consolidation and why is that why is that occurring in the way that it is we'll talk about that and then we're going to define some technical indications that go along with uh uh the the speed in the velocity the magnitude of moves and how perhaps we should sometimes sit back and look for technical indicators to uh technical indications certain areas support resistance and certain methods but how do we define that we're going to take a look at that as as well as looking for things that might be stronger than everything else out there via relative strength and rsi so let's get out there and get rolling get my arrow in the right place there all right so uh that's not where i want to be this is where i want to be not there either there it is uh the s p 500 uh you can see we had this we talked about symmetry uh a few weeks ago or last week a downward push a opposite an equal reaction basically uh to the uh to the upside and then a bit of a pullback one of the things you that a lot of traders want uh say that they're careful of is a the swiftness of a move off of the bottom oftentimes met with certain uh certain reactions in the opposite direction of the of the recent short-term trend and that's what we have here a possible a possible flag formation if we get a line here and we can see that we have this really more of a pennant starting to set up provided that today's price action doesn't break any further to the downside which you might be setting up for as we speak we shall see but what a lot of traders will do is they'll look for price to catch up to a moving average or to a certain support error we certainly saw price dip down into the november lows when we talk about the november lows that's these lows over here price dipped into that area in the zone of the 20 period exponential moving average one of the things that we want to recognize that we have seen happen in the past on this chart is exhaustion type of price action so we get long range moves coming off of the low very important they understand where these are coming from coming off the low and uh continuing on until we get a gap to the upside kind of an exhaustive gap if you will so where else on this chart have we seen this happen over here back in the end of january beginning of february really and here and then we saw it pull back now it doesn't mean because we're getting some kind of an exhaustive move that we'll see some kind of a major pullback but it could happen nobody knows what's out here on the right side of the chart that's all out there in the future of which you can only make assumptions trade with risk true risk management real risk management don't risk too much so on and so forth i want to say hello uh to everybody out there uh juanita vijay sandeep saul um let's see ira chris uh what uh did i say juanita so quickly i forget um george in in texas mike mike moreau uh dan grace monique excuse me walter tony rong yao krishna lawrence seattle michelle in nok knock r and uh everyone else out there please uh and and and um barb just put in our twitter uh handles you can follow both barb and i on twitter at b armstrong at b armstrong underscore tda and myself at pima lolly underscore tda all right so uh just a quick look that's all we're doing we're coiling we're we're consolidating right now presently that's really all that i think that anybody can really say is this price action we're looking at right now here is just a consolidation of this lar larger very rapid move off of the lows that cost it caught a lot of people by surprise as did the sell-off in january caught a lot of people by surprise now you're going to hear a lot of opinions out there this chart does not have any opinions in it it is the aggregate opinion of the overall marketplace uh and with technical analysis active trading oftentimes that's what we're going to be paying uh maybe more attention to okay with that uh let's take a uh i'm gonna after we take a quick look at what else is going on out there let's do it via the chart uh let's put up the ndx here ndx is down one point almost two percent now similar in structure as we see get rid of that little line there as we see price uh pulling up into the old resistance areas very very sharp move off of the closing highs back here to the closing low about 21 so bear market territory and somebody's idea of whatever a bear market is they put percentages on there some people might use 200-day moving average and and different things like that to say they're in a bear market but but that if we look at the structure we look at the past what's happened how did we get here a reversal day that we saw on the s p and and russell and everything else very rapid move possibly an exhaustion move just like what we saw here and here and a bit of a a bit of a pullback now again uh the their price is way ahead of this 20 period moving average that's one of the things that we're going to discuss today is when we when we see price leave move leave moving averages behind you can certainly search for moving averages that that will meet the price action which you know could be a say a 10 period i'm going to put that on here for now it doesn't mean it's going to stay that way uh the we can see in the past and strong really strong uh uh it's not a six month sorry about that uh really strong uh climactic buying type moves we're going to see price follow that uh uh 10 period moving average and and for a lot of the time we may see the nasdaq follow that 10 period moving average so it's at an area that historically it's found some support or some resistance over in here but again just like with the 20 period this is kind of an issue in here where price is well above the moving average and then we get the gap whoops we get the gap over in here and so the expectation is a bit of exhaustion and perhaps a a retracement into the moving average and we'll look at some of that uh some more of that as well so that is the nasdaq the russell 2000 is below its 10 period moving average which was resistance on the way down and not giving us much support i think this is maybe causing a little bit of uh heartburn for a lot of people a lot of people want to see the russell 2000 lead the way higher historically that's the theory that off of lowe's small cap the the troops after a fashion will lead the way higher we shall we shall see how that how that comes out now what i have what we're going to discuss today is uh with the summary over here or the the uh agenda we want to look at these technical indications so what are those technical indications going to be well they're going to be we're going to look at um stocks that are having have a that are outperforming on a relative basis based off of the s p 500 and that's what this script is uh over here on the side uh stock uh you know at a 100 percent 90 all the way down into the 80s 70s and 50 percent areas but we're going to take it a little bit uh further we're going to we're going to look at some uh and uh the some um industries and some sectors that may be just about you know getting a little bit ahead of itself so a big discussion recently in in uh tomorrow we'll discuss more of this in the in the webex or the webcast that we do that i do on wednesdays at the same time two o'clock eastern time looking at the inter market analysis looking at the strength of the overall market are we seeing some changes that might be occurring out there how many of you have what what is one of the main things we keep hearing out there as far as the economy goes right now and as far as recession goes and what a lot of people are watching does anybody have any idea because we're going to go look at that here in a minute so i want you to type in stuff that you keep hearing about how there's a recession looming because of this or that go ahead and type that in but what i want to talk about here and we'll talk more again more about this tomorrow is oftentimes when we have utilities outperforming the s p on a relative basis as we're seeing here really outperforming the s p that is a measurement of uh defensive defensive nature a little bit of fear coming in the market but what we're seeing here is maybe just about a consideration of a little bit of a buying climax coming in so charles says and chris and uh dylan inflation high yield curve is inverting blah blah blah and i like the blah blah blah uh because there is going to be a lot of noise out there just like looking at an intraday chart or even a daily chart oftentimes is going to give us a lot of noise i keep hearing that inflation is going crazy but there will be a recession partly because of it that's right because when inflation goes crazy the the the federal reserve has the mandate to um to keep that inflation under control and keep people working well we know we're at uh his uh you know we're at basically full unemployment or full in employment not unemployment and we have uh inflation up in the uh seven and a half eight percent area um so seattle michelle says two uh two ten year yield inversion but the three month and ten year is is the one to watch and so so they say i'm going to uh it's it's other it's those are those are people's opinions it's just one of the things to watch so i'm going to pop out to twitter and so over here in in my i'm going to go to my profile where you can find on the profile you can find a lot of the scripts that i use in here and the pin to tweet it will be at the top and you can look at these are the scripts you can type those in to uh the setup tab and open shared item but what we're going to look at right now is this chart i just put up on twitter uh before or right before so when we when we hear when michelle says and this is this is going to have uh you know it may have i don't know if it's going to have it may have uh some effect on the decisions that you make so when we look at this what we have here is a uh a inverted yield curve so when we hear about inverted yield curve i want you to notice that this blue line right here is now this is presently and this was the inverted yield curve december of 2000 before the 2001 recession so december of uh 2000 the 2001 recession we can look i've got some charts of that uh but you can see that there's a marked difference between what an inverted yield curve looks like and a flat yield curve so there's still is there is there a lot of work to be done yet do we need to see a little more uh a little more inversion we look at the inverted yield curve of december 2006 before the 2007 recession and we can see that it's curved to the downside well we really don't have that yet we're starting to develop that as we're seeing this drift lower but when we look at so here's the here's the three month right now for the three month to be inverted like michelle says the three month needs to be up here higher than the the uh the twos and the ten and the twos and the threes and the fives these are all these these boxes and and uh diamonds are the duration whoops the duration 5 year 10 year 30 year and when the short end of the curve where the federal reserve hangs out basically when they start to become stronger than the longer term yield curves when they're when they're higher in yield that's when we get the inversion well we really don't have like michelle was saying the three month yet or the one month the two year basically just uh just barely started to invert so uh let's go back over here to the charts and i will um i gotta save this one so i don't lose my and look at the chart from last week and the purpose of what i'm talking about so this is the chart of last week that we looked at the reason i'm talking about this is to not get to not get too hung up on uh looking to be bearish or or you know looking to go to cash because here is the inverted yield curve of uh 2000 it inverted on in uh the january of 2000. well the market we didn't see a recession until february of 2001. okay so a year later we saw the market uh sell off and then the same thing very similar things in 2008 we inverted in january of 2006 uh started to invert started to invert and then finally got everybody in in in a in a row and that's where the the yield curve had finished out their inversion and then what happens is the yield curve starts to steepen again and it steepens into the recession and why is that important well it's important because when we look at the s p oops we look at the s p going way back getting the way back machine here here is the top on the s p which was march of 2000 same thing for the uh same thing for the uh uh nasdaq but when did that yield curve invert when did it really start to invert it started invert over and here right over in this time frame over in here and the market continued to march higher and so that's my that's basically my point is uh that even though we may get an inversion uh the uh the the market often on the beginning inversion the market oftentimes continues to head higher so the inversion of december uh 2006 happened over in here the market continued higher the uh the whoops over in here the market here's where the recession uh started back way back when so that's basically my point there that's why we put these things out on twitter for uh to get some good education and to kind of take some of that noise out of the market or out of you know help you figure out what the heck that noise means all right so with that we're going to pop back down here pull up back to the charts where we're looking at and we're looking at utilities so let's think about this so our discussion earlier was are it has price gotten ahead of itself well we we can look at the the the price action itself we know this is pretty climactic when it moves that far that fast we become over bought on the on the rsi and then we also see uh the price action you know well above the moving averages so it's not sustainable at that point typically it can continue to go higher more than likely there's probably oftentimes historically not a lot of upside push to that so the question is if this is the way the sector is should somebody jump into uh look you know do you have that fear of missing out is this give you a reason to look for a setup okay so what do we mean by a setup just because price has moved really far doesn't mean it won't pull back and so that's oftentimes what people may look for so we have different methods the hold method where price pulls back into a flag and breaks out to the upside so we're going to look at some of that the next chart we're going to look at here it happens to be healthcare well if we look at today's action real estate utilities in healthcare they've been very strong healthcare has been outperforming the s p 500 on a relative basis but a bit of a difference runs up pulls back and now it's starting to relax and so what what some people will do just without looking at anything else they may wait for it to catch up to some particular moving average one of the things you have to one of the things that you may find is the short term moving average the 10 day moving averages when when price gets going may follow that area but then once it starts to get into a concerted uptrend it may not necessarily follow the shorter term moving average it may follow a 20 so you need to watch for that but what we're really looking for here is exact you know pretty much what we're looking at a rally and then a pullback to some kind of a support area support support we've had a slowing in the relative strength now relative strength is picking back up the rsi is holding very well at the 60 area and so what we might do then is then come over here and let me collapse both of these and we have i grabbed the right one there we go we have healthcare so what i have here in this row here uh is relative strength over the last three months 63 days relative strength three months and the reason for that is if you're looking for stocks that are outperforming but in it and also in an industry group that's that's outperforming or beginning to outperform then we you know our our levels search levels may take us into um into these into looking for relative strength as well as looking for possible let me see if i can't squeeze this back over here possible uh setups meaning price is breaking out above previous highs like if we look at brown and brown here strong run to the upside relative strength very strong it's flagging it's pulling back somebody might wait to see that it runs and starts to break out to the upside outside of this outside of this flag that it's developing in here so we have the flag pole trend breakout pulling back they may wait for a price to break above these highs in here so how do we how do we look for that kind of strength especially if you're a trend follower you won't probably want something that's outperforming so if we come over here uh to the chart here i've got uh the link i've linked these up here with the with the box red and i've linked it i've also connected these two together with this red box so i can just click on these and what we're going to notice is that the strongest ones relative are going to have the uh the dark green and then we're going to get into the uh the next percentile which is going to be the up down to 60 and then things are going to start to get flat so down here in this 50 60 area the relative strength is going to be fairly flat it's going to be tilting up in this light green it's going to be really strong pushing higher in the dark green so if we look at this well here's another one so this is healthcare vertex pharmaceutical let me ask you a question is this a little bit ahead of itself would you or do you have the fear of missing out do you want to get into that one or do we want to wait for a setup so if you think that this one's may continue to be strong then what somebody might do is wait for some kind of a pullback look for price to come back in find some support and then break out to the upside that's called a kahold in other words we have a left hand side trough and a right hand side of the trough when price moves above the the high of the of the day that produces the lowest low right here when price moves above that that is a trigger for somebody and that's what this hold is here so we don't have so we've got relative strength here on vertex maybe a little bit ahead of itself above the 20-day exponential moving average fairly far above that and so when we look back in time the point i'm trying to to make here is patience patience patience patience let it pull back so here it is breaking out nice strong breakout back in the day and we see price hanging out above that moving average once it gets to the moving average and we we see this bounce then we have a look oftentimes considered a lower risk idea so that's maybe all that people are looking for we look at ncy very strong push to the upside probably not sustainable so let's look at whole x quite a bit of difference in whole logic uh and yes we do have earnings coming out it's uh outperforming uh it's an it's in the 96 percentile as far as relative strength goes and we can also see that uh on relative strength that it is if we look at this chart if you don't know what relative strength is let me explain this uh if this line is rising whatever's in the box up here whatever's up here is stronger than the s p 500 when it's when it's falling it's weaker than the s p 500. sometimes you just look at the chart and say what's going up so it must be stronger that's not always going to be the case that is not always going to be the case so we look at that and we we look at this this kaholt method over here where it says that price is moving above yesterday's high and then we look at the structure the whole structure in here to make some decisions and the decision might be to hold off it might be to to put an order in to buy at a certain area let's draw this channel in here so it pulls back we have selling a climactic selling over in here retests retest undercut and rally undercut and rally gen february 24th and now it's up against resistance so resistance i want you to notice it's pulled back to the 20-period moving average and then bounced so the setup is there for a lot of people the issue is it's up against this resistance so somebody might put an order in if they're willing to buy breakouts to get in as price pushes uh back above this resistance area in here um let's look at um uh mck now see here's mck now here's here's something to be careful of again the the whole uh moving average price breaking in and leaving the moving average behind and then coming back into it gives us oftentimes a lower risk idea as it moves up pulls back to the moving average and then moves up well right now mckesson drifting back into that moving average we'll see if it makes it this looks almost like a bit of a buying climax one of the things you probably need to consider is the fact that it broke out way back here in october and has had several several pushes to the upside so it might be getting a little bit weak on the upside avi same thing uh same with bm bmy so what we're looking for is something that is has rallied pulled back and gives us a better uh a better uh probability so what i'm going to do is i'm going to forget and not necessarily forget about the uh the these kaholts here's well here actually here's zimmer biotech this is one that might be hard for a lot of a lot of people but i want you to look at what's what's occurring here we're going to look to uh put a trade on this and with recognize that you have earnings that are coming out in another month about a month away a little bit less than a month away but if we if we look at how this bottoming process may be taking hold in here selling climax why because we had lots of volume on the way down bounced re-tested 24th now we have this flag but what do we see about this flag well it's at the midpoint it's rallying back up and we have relative strength beginning to outperform uh the s p 500 it's uh got a little bit of work to do but getting in a little bit early you get in a little bit smaller but you can see it's really up trending looking to break out to the upside strong strong push to the upside this is a non-idealized three methods rising candlestick pattern uh and uh volume with another hour and a half to go probably a little bit weak but we're going to look to try to get in on a reaction back to the upside back up to 133 from 128 and so what we'll do is we'll right click and come down here we're going to go buy custom with uh with a bracket then we're just going to look for about uh you know three dollars worth of gain from where we are now so what did i do here and let me collapse this side over here is we've looked at we've we've we've bracketed this in saying that we're going to use a stop loss not guaranteed to uh execute at the activation price but we're going to have an area to exit up here take profits and area to exit when it if it breaks down we're going to use that 20 period moving average that it's bounced off of which right now is sitting at 124 50. so we'll look at 124
versus 128.74 look to capture gains up to about 133 and so to do that we're just going to calculate how much risk we have so a thousand dollars worth of portfolio risk we're going to divide that by our risk here of 124 subtracted from 128.77 so divided by 4.77 cents worth of trade risk says in theory somebody could buy 209 shares of of this so we'll come over here put in 209 click the firecracker chain link right there and unhook this we're getting in here we're going to get out at a at 30 we're going to look to exit out at 30 30 134 on the upside we're going to uh look to exit on a stop loss at 124 on the downside and uh remember they don't both of these are or or areas that um are going to one take profits on a limit so we want that to be looking like a limit and the other to get out on a stop so we're going to make this good till cancel on both of those because we want those to stay in place we're going to go ahead and buy this right now at a limit here 209 shares and we are filled and so we'll look for price to rally up into this area one of the ways that we might measure this is to look at the distance between that low and this high is about eleven dollars so whoops eleven dollars i'm going to lock that in right click hit duplicate drag this over from the lows here so the ability for it to move up into this area uh based off of past price measurement move so this is a technical measurement looks for that to rally into that area another one that was showing up in there very similar is medtronic now medtronic performing some kind of a bottoming process as well and however it's not reached down into its 20 period moving average so we might want to wait until it gets into that 20 period moving average and then put an order in to buy when price gets above the uh price gets above uh today's high or however you know wherever it happens because this could continue to break to the downside right until it caps catches up to this moving average no guarantee that it's going to bounce up off of that moving average but once it hits that moving average we're looking for price to make a run back to the upside and uh continue on this whole structure that we're looking at here this whole base structure is very important and it goes all the way back into uh the uh middle of december so it's spent a lot of time uh finding some support as we look at the demand that's built up in here well that's what we're basically seeing with higher highs and higher lows price runs into some resistance up here pulls back we'll see how how long that takes and then we'll look just to capture that move but the the the in the interim the market is weak presently weak the uh industry groups that we're just looking at healthcare and and uh utilities presently maybe a bit too strong let's put on utilities in here and take a look at quickly look at those before we leave for the day again relative strength you you'll be able to find these on on the twitter and should be on my twitter profile page but if we start clicking on these you can see that's the point let it run back into support low risk idea don't get fear of missing out but make sure you're trading something that has is stronger than everything else if you want to outperform you got to buy things that are outperforming but you can see here as we flip through utilities for the most part looking like the the whole sector way ahead of themselves so this isn't necessarily a bad thing i want everybody to understand that because just because this is happening this could be a good thing letting those letting price pull back letting price get ahead of itself if we look at the whole structure here on this is amber incorporation a aee if we look at this whole sideways top and higher bottoms ascending triangle well yeah it's blasted through the roof that could be a good thing this could be opportunity if price decides it wants to relax in some form or fashion and catch up let the excuse me let the moving average catch up to price and then you'll have a lower risk idea so the idea for some technicians a lot of traders is let it pull back to that 20 period or 10 period or whatever moving average is appropriate and if once it does that you may have a lower risk idea instead of chasing it knowing that the the the risk reward is the the there's less reward possibility as far as probabilities go then there is of it moving higher than there is risk of it coming down so just sit back and uh and just wait right because you can't you you you you can't trade in the future and you can't trade in the past and if you're trying to chase these the fear of missing out that is trading in the past okay with that uh we're going to be done for the day uh i want to thank barb and everybody else uh in whoops didn't want to do that uh think about that yield curve uh but um yeah so the market is in uh in pullback mode some of the industry groups have gotten ahead of themselves uh we want to people traders oftentimes want to be careful of that the uh and the technical indicators are telling us that those technical indicators are telling us that a lot of things are ahead of themselves let them relax let it come to you and then at that point you may have you may have a lower risk idea there's no guarantees they can keep they can keep dropping certainly uh but uh chasing him above those uh above that moving average uh may not uh be the the greatest thing even though you have strong relative strength so sit back be patient let it come to you okay uh with that uh if everybody would please click uh follow our uh subscribe right here subscribe so you can capture all of trader talks and all the good great webcasts that that uh barb does and every all the other td ameritrade education coaches out there and please remember that um coming up next is uh swing trading that's going to be with uh i think ben watson is filling in for john mcnichol today so please join him with that all everything we're doing here is for educational purposes only not investment advice you're responsible for the decisions you make in your self-directed account please be careful out there we'll talk to you soon you
2022-04-09 02:52
