Gross Income = Income not including commissions and taxes
Monthly Net Income = (Gross Income) – (commissions + taxes)
Average Net Income = Running Average of Monthly Net Income

Assumed Commissions = $20 per closed trade ($10 each for purchase and sale)
Assumed Taxes = 25% of Gross Income

Income values shown are for a typical trade size of $5,000.

This week the system retreated a few percentage points. That’s not too surprising, though, after its recent run. INNO was a big drag on the portfolio, as it dropped 23% after being purchased last weekend. This week INNO has dropped off the MSN screen again, so it gets sold. PCCC, TBSI, WGA also dropped of the list, so they get sold as well. This leaves 4 open spots in the portfolio.

The MSN screen came up with a list of 10 stocks this week, a perfect fit for this 10-stock portfolio. Six of the current holding remain on the list. The 4 open spots are being filled by HAUP, KRSL, RFIL, and GOAM. Note that HAUP and GOAM are previous holdings. This screen has had a tendency to sell a stock, then buy it right back a week or two later. After looking into this, I found that this is usually a case of the system selling a stock when the Price/Sales ratio exceeds 2, then buying again after a pullback when the P/S ratio falls back under 2.

These 4 closed trades this week bring the total number of closed trades to 20, so this will be the final rebalance week. Next week I will post a final analysis of this test system.

To see past posts, along with a description of the system and MSN screen, see previous posts with the BW Momentum Value label (click on the label below).

(chart provided by Portfolio123.com)

and came up with this interesting chart of OLGC.

This is a stock that has had a tough time over the past year, but may be on the comeback trail. If you look at the attached chart, I have two blue lines drawn, which represents a channel that the stock has entered. The lower blue line is the upper limit of the most recent gap down, and the upper blue line represents a resistance point, where the stock tried twice to get over in July and August of last year. As you can see, today it tried to get over this line again, but again failed and retreated. However, it is still in a strong uptrend, and remains in the channel between the two blue lines.

I also have three green lines drawn, which might be three separate profit targets. The lower green line is another resistance point that the stock tried to get over last June, and the other two green lines represent the upper and lower limits of the primary gap down that occurred last March.

And finally, the red line I’ve drawn represents a resistance level just below $1.50, where the stock tried to get over in two previous occasions, but was unsuccessful until very recently. This can be used as a stop loss level. If the stock crosses below this level, then one can say that previous resistance did not become support, and the uptrend may be lost.

This is definitely one to watch. The stock may be held between the two blue lines for a period of time, but if it can break out of this channel and advance upward, then it has several targets to shoot for, with some very attractive payouts.

(Disclosure: I do not own this stock.)

Trade 4 Cash

Buy SPAB

Sell CEA

Wave Rider

Buy PRGX

Short Seller

No new signals today.

Receive these signals before the market opens, along with the daily High Energy Watch List. Find out how to become a Trade 4 Cash member.

Trade 4 Cash

Buy ENPT

Wave Rider

Sell CHTR

Short Seller

No new signals today.

Receive these signals before the market opens, along with the daily High Energy Watch List. Find out how to become a Trade 4 Cash member.

One question traders often ask when they are ready to enter or exit a trade is, “If I get a buy or sell signal, what should my entry (or exit) price be? Should I use a limit order, or a market order?” When trading small cap stocks, it is often very risky to simply place a market order at the morning open. By doing this you are telling the market that you are willing to buy the stock at any price, and have little control over what your actual fill price will be. Prices are usually very volatile in the first 15 minutes of the day.

Many traders use pivot points to find intraday support/resistance levels to help them gauge the current day’s anticipated price movements, and set their target prices. Pivot points are found by a simple calculation which involves the high, low and close for the previous day of any particular stock or index. It is said that when a price hovers below the pivot price and breaks up through it, this triggers a buy signal (or vice versa for a sell signal). Or, if the major price action is above, and stays above, the pivot price, it is considered bullish, and if the action is below the pivot price, this is considered bearish. The most common way to use pivot points are as reference points for entering a trade if other indicators are also giving the same directional signal. Market Makers can use the pivot points to create a market by shifting the price around between levels to entice buyers or sellers of a stock into a trade. This can best be seen on low volume trading days as the prices fluctuate between the calculated points.

Listed below are the most commonly used basic pivot point levels:

R2 Resistance Level 2 – This level often provides strong resistance. Stocks that break above and stay above R2 levels are often in strong trends and many times continue higher the rest of the day.

R1 Resistance Level 1 – Stocks often reverse at or around R1, but if they can get through this level they will usually rally to the R2 level.

Pivot Price (PP) – Average of previous day’s high-low-close. This price level provides the strongest support or resistance for the current day. If the stock price is above this line, wait to buy pullbacks. If the stock price is below this line, wait for a rally to sell short. Stocks often oscillate around this price for awhile before they break out in one direction or the other. It is sometimes best to wait for a few shakeouts and then buy a breakout from the high of the trading range, or sell a breakdown from the low of the range. For short-term trades, your initial entry target might be the pivot price.

S1 Support Level 1 – Stocks often reverse at or around S1, but if they can break down through this level they will usually continue down to the S2 level.

S2 Support Level 2 – This level often provides strong support. Stocks that break below this price most likely spend the rest of the day (and longer) below this level.

The equations for these five levels are:

R2 = P + (H – L)
R1 = (P x 2) – L
P = (H + L + C) / 3
S1 = (P x 2) – H
S2 = P – (H – L)

Where H = Previous day’s high
L = Previous day’s low
C = Previous day’s close

How important is the pivot price in the determination of your entry or exit price? That depends on your anticipated time frame for the trade. For a longer term trade, lasting a few weeks or months, the difference of a few ticks either way in the entry price is pretty insignificant in the whole scheme of things. The Wave Rider system is a good example of a longer term trending system, where I usually don’t worry too much about the exact pivot prices. I sometimes simply place a limit order 1 percent above the previous day’s closing price if I can’t keep a close watch on the morning’s action. I will have most entries filled within the first hour of trading by using this procedure.

However, for shorter term systems such as the Trade 4 Cash system, the actual entry price has a much larger effect on the overall outcome of the trade. In this case I will set my initial limit order at the pivot price. If my order does not get filled in the first 90 minutes of the day, I will adjust my order as needed. I will seldom enter a trade above the R2 level.

The use of pivot points does not guarantee a better outcome to your trade, but it does give a trader one more tool in determining the anticipated movement of a stock, and the determination of the day’s fair market price. And using pivot prices is one way of disciplining yourself against chasing a stock, and buying at inflated prices.

Trading Goddess‘s drive for success runs in the family. Congratulations!

Barry Ritholtz wonders if this is the next cover page curse.

Are the currently very low VIX levels any cause for concern?

Zen is hardly believing what he is seeing, and that is very good for the bulls.

Kevin’s observation of the U.S. vs. Japanese gold market.

Lord Tedders has written a very good discussion of mechanical trading strategies (i.e. Trading Systems).

Trade 4 Cash

Buy CPNLQ

Buy DOIG

Wave Rider

No new signals today.

Short Seller

No new signals today.

Receive these signals before the market opens, along with the daily High Energy Watch List. Find out how to become a Trade 4 Cash member.

It is bouncing today, but the one concern would be that its recent downtrend did not drop all the way down to the 452.34 area, so it might retest that level before advancing higher. If it drops below 452.34, it could take out a lot of stops, sending it downward to fill the gap.