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Updated: Sunday, 7PM, Mountain time November 11th, 2001
The Wooding Report
Each week’s report focuses on providing you with real time stock market education to profit from.
The Wooding Company’s weekly report contains commentary on current stock market conditions as measured by the Standard & Poor’s 500 index. Technical analysis is used to determine market direction, support and resistance areas, momentum, turning points, continuation signals, divergences, and price and time targets. Other indices, such as the 30 year Treasury yield, semiconductor index and the Nasdaq Composite are also analyzed. Reports are published 40 times a year.
Trading tutorials educate you on the technical tools available for profitable trading results. Each tutorial explains a concept; such as moving averages, candlesticks, or stochastics and shows both historical and current examples. In addition, insights into when and when not to use the technical tools are provided. Tutorials are typically published every other week.
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This week’s report includes:
Market analysis for:
Standard & Poor’s 500
Market Analysis – Standard & Poor’s 500 page 2 of 8 for the week of November 11, 2001
The market finally broke above the recent consolidation level (3). By no means is this a decisive rally to the upside. Thursday’s price highs stopped near the 50% retracement level of the May (1) to September (2) decline.
Some possible scenarios include: Market continues higher with the next level of resistance near the 62% retracement level (
1175). Or the market breaks down from these levels, leaving all the traders who took long positions on the recent breakout to the upside with losing positions.
Trade Setup – Matching Move page 3 of 8 for the week of November 11, 2001
Last week, we mentioned that TRDO was in a low risk position to buy.
Monday’s price bar was an inside bar. On Tuesday, the low risk trade was to buy as the price traded above Monday’s high. The stock rallied as high as $2 from the entry price. Since then, price has pulled back.
As long as the stock has not traded below Tuesday’s low of $26.900, this stock is still a candidate for buying. Again, buy only as the stock trades above the previous high.
Trade Tutorial – Patience page 4 of 8 for the week of November 11, 2001
This week’s tutorial is all about being patient – and being ready!
Traders should know in advance what they will do if certain things happen. Working out possible scenarios prior to “something” happening allows stress free decision making to prevail (at least that’s the hope).
Let’s go through a possible scenario using America Online as an example.
The monthly chart shows AOL trading above last month’s high. AOL had previously made five consecutive monthly lower highs. Trading above a previous high is the first sign of a trend change. Maybe it’s time to be bullish on AOL.
Trade Tutorial – Patience page 5 of 8 for the week of November 11, 2001
The weekly chart shows some interesting facts.
Last week’s price bar traded above and closed above not only last week’s high, but the last five week’s highs! Just like on the monthly charts, AOL made lower highs, four to be exact. The last two weeks (3 and 4), were both inside bars. The price range “fit” inside the price range of the previous week’s price range. Inside bars are typically a sign of indecision with the current trend, in this case a downtrend. OR, inside bars signal a decrease in volatility prior to a price breakout.
On a weekly basis, AOL change from a downtrend (week’s 1 2 3 4) to an uptrend and price broke out to the upside.
What’s encouraging to see is the volume also increased, adding confirmation that this run to the upside might continue.
Trade Tutorial – Patience page 6 of 8 for the week of November 11, 2001
Looking at the daily chart shows AOL breaking above a previous resistance level (2) on Tuesday of this week (3), decisively with good volume.
What’s not so encouraging is the pathetic volume on the break above the higher level of resistance (1).
Given the strong breakout at (2) and weak breakout at (1), one might expect a pullback or at least a consolidation soon.
IF a pullback occurs, THEN expect support at previous resistance (2).
Trade Tutorial – Patience page 7 of 8 for the week of November 11, 2001
Let’s go a little farther with this scenario.
If we measure the first rally (from A to B) and add that to the recent low (C), the price target for this rally is
$38.500. Also, note that the 38% retracement level of the spring-to-fall decline occurs near
IF price rallies to those level, THEN expect resistance to an further price increase.
Also, aggressive traders will consider selling short AOL if it trades to those price levels AND forms a reversal bar to the downside.
There you have it, a plan worked out in advance of what to do for AOL based on price action around support and resistance levels and anticipated levels.
Summary: If AOL trades to the $38.500/$39.300 price level and forms a reversal day, then a sell short position would be appropriate. If AOL trades back toward previous resistance near $34, then a long position in the stock would be appropriate. Otherwise, the best course of action is to wait until some other low risk scenario unfolds.
Current Position(s) page 8 of 8 for the week of November 11, 2001
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