See Stock Chart Trading Momentum Speculative Runs
There is no question
that anything Trump tweets about any company that is publicly traded can impact
the stock price, often with high volatility or sudden huge speculative
emotional reactions.
This is a new twist
on market manipulation and volatility that the professional side is discussing
and debating as the new White House will soon take over. The Professionals are
also taking advantage of the situation regularly.
Charts often reveal
aspects of the Market Participant Groups that are overlooked by Retail Traders,
who are unaware of what they need to focus on. All too often the Retail Trader
is strictly looking for a stock to trade rather than seeing the bigger picture.
One area of extreme
speculation right now is of course the Financial Sector. When checking these
stock charts, many are so similar they could almost be laid over one another.
These is abnormal chart patterns.
Although sometimes
stocks in a similar industry or competitors, may have somewhat similar trends
up, down, or sideways but when a momentum speculative run is nearly
identical another factor is at play.
When studying the Big
Bank and Financial Services company charts since the election there are
patterns that are nearly identical, even though the firms have completely
different fundamentals and prior technical patterns had not been nearly so
similar.
The stock charts
below are the two most speculatively traded financial stocks right now, and
they are abnormally similar.
As a Retail Trader
you should be asking WHY, because this is not typical. Chart #1 is in the
Global Banks Industry while Chart #2 is in the Capital Markets Industry, so
they are not even under the same industry based on the Financial Services lists
of industries. They are not competitors nor are their fundamentals and
financials similar.
Their stock chart
patterns should not be this similar.
The reason why these
two charts are so similar are the “drivers” for the two speculative momentum
runs are the same Market Participant Groups. Drivers can be Professional
Traders, Dark Pools, High Frequency Traders, and sometimes “Deep Pockets” which
is an inside term for Billionaires and Raiders who sweep in opportunistically
at a crisis.
The question then is
who is controlling price during these two momentum speculative runs,
which are both separated by a resting profit taking phase that lasted exactly
10 days for both stocks.
These are both great
runs for Swing Traders but in order to trade them for the profitability
that was presented, it is necessary to go beyond the basics of Swing Trading
rules and understand the drivers behind the action. Then and only then, can you
be ready for this type of speculation.
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As a side note this
type of momentum speculative run has not been around since the 1998-1999
dot.com era, but for Swing Traders this is an ideal environment for as long as
it lasts.
There are several
types of price drivers:
1. Opportunists taking
advantage of a sudden unexpected event.
2. Predators taking advantage of a legal manipulation of the emotions of the retail crowd.
3. Liquidity providers who take advantage of liquidity flux situations.
4. Instigators who create the environment via commentaries, recommendations, and other legal manipulation.
2. Predators taking advantage of a legal manipulation of the emotions of the retail crowd.
3. Liquidity providers who take advantage of liquidity flux situations.
4. Instigators who create the environment via commentaries, recommendations, and other legal manipulation.
These charts show
instigator and opportunists both driving these two momentum speculative runs.
They are highly skilled and are using non-event highly emotional news to move
price and motivate the new investors, uninformed investors, and less informed
traders to buy these two stocks.
Their goal is to
create such an emotional reaction from the retail crowd that they can literally
buy and then sell ahead of the retail group. The overlapping of the candles is
where they are taking short-term profits. The resting 10 days of very tight
consolidation is where the retail crowd interest abated.
A High Frequency
Trader gap inspired renewed retail interest from new investors. Then both
stocks ran with heavy profit taking even while the stocks moved up at a
vertical Angle of Ascent™ far beyond the fundamental support bracketed on the
charts, AND well beyond the swing style technical weak support of the 10 day
tight consolidation.
Summary
Trading these stocks
required high skills at placing technical stop losses instead of percentage
stop losses, due to the heavy profit taking that caused the candles to overlap.
I want to remind you
that speculative runs are challenging to trade, because the run can often
abandon all fundamental values AND then go beyond technical patterns as well.
Knowing when the inevitable retracement or correction will occur is often
harder to anticipate.
Therefore, exiting
early is often the better decision. High Frequency Traders can and do gap down
this kind of run, often hugely.
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Trade
Wisely,
Martha
Stokes CMT
TechniTrader technical analysis using StockCharts charts, courtesy of StockCharts.com
Chartered Market Technician
Instructor & Developer of TechniTrader Stock and Option Courses
TechniTrader DVDs with every course.
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