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I wrote the post last night more hastily than I should have. I wanted to post it quickly before bed. The ideas were fine. The scenario I was speaking about with RSI turned out exactly as I said it might today... but the words I used to describe what I meant last night were not properly said. As I mentioned I want to get ideas out rather than focus on all the details like typos and wait forever to post but in this case the CONTENT was confusing, even though what I meant to say happened exactly.
I may have some typos in the future but I will really try not to post until I triple check to see that the content says what I mean it say. In the future I just will not post if I don't have time to make it as correct as I can. Here is the phrase of which I speak:
"Additionally the RSI for DIG is approaching 70 (oversold)... It should be noted that the best time to buy is when the RSI is high and it starts to turn down since RSI is really a momentum indicator. However I did take a bit of a chance here. I have a tight stop in the 25.8s such that the MOST I risk here is a 2% loss. If I do stop out so be it... the risk reward is good here... if DUG runs even more and the RSI starts to turn it would be a better buy imo. AGAIN though this is just a trade. If it runs I will take profits and will move up my stop..."
In red: I meant the best time to buy DUG for a trade is when the RSI for DIG is over 70 and starts to turn down. This was confusing I'm sure...
The RSI is a momentum indicator like I said. The point I was making was that when the RSI hits 70 (oversold) or 30 (overbought) this may be a good time to buy but a better time to buy is actually when the RSI then turns the other way... i.e sell when the RSI goes above 70 and then starts to fall or buy when the RSI falls below 30 and then starts to rise. This circumstance provides an indication that the heavy momentum is starting to reverse... so for RSI over 70 that is reversing the large buying pressure is subsiding and there are a lot more recent buyers (who already have stock and are more likely to sell than buy_) then recent sellers and hence a move downward is likely. The opposite of course is true for RSI that dips below 30 and then goes above. But the RSI reading of 30 or 70 alone is not as good as it could be.
This was exactly shown in the charts to day of the DIG and the DUG. Note how the RSI for DIG went over 70 a bit then started to flatten then start heading down. The point at which the RSI started heading down with volume was the best sell point. A stronger example is seen in April when the RSI for DIG actually went quite a bit above 70... when it started to flatten. The point to sell or go short was when the RSI started to decline with stock selling volume.
The same thing happened with DUG (not surprisingly) but in reverse. the RSI hit/crossed 30... the best buy point was not at RSI of 30 but the combination of RSI at/below 30 and starting to rise.
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Ok. Enough of that for a moment. Regarding the DUG trade I bought DUG yesterday at RSI near 70 on DIG rather than waiting for the reversal in RSI because I knew I would not have time to watch the charts today and wait for the momentum to turn. I knew this was a risk which is why I set a tight stop... and it was taken out for a 2% loss. The news of the government looking into oil price speculation (Frikkin Sue OPEC of all things) combined with the futures expiration did not seem to phase oil prices at all.. I was surprised by this. I agree... suing OPEC is ridiculous... but the real meat behind it... which is to hopefully put pressure on traders that are driving prices irrespective of supply/demand (hey... don't tell me that the supply/demand equation has gone up anywhere near enough in the LAST FEW WEEKS to justify the skyrocket in the price of oil.) WILL have an effect on the price of oil if the regulation passes and has real teeth. I guess the market wasn't afraid or doesn't care right now.
That being said I've had some nice gains on DUG trades and also taken a number of stop losses... the stops have been the only thing to help protect my profits overall. Too many stop losses still means I am not being careful enough. The only way to trade the DUG right now, as long as it remains on the solid downtrend, is to let the charts do the talking. It's that simple. The chart above showed exactly when to buy: when DUG turned, when RSI was oversold and turning, when volume to the buy side picked up. I'm not messing around with DUG anymore until the charts/market tell me so with multiple confirmation signals. If I don't have the time to watch the charts like today I will just stay away. And as I've mentioned before until the DUG overall trend changes it is a trade only in my opinin! Preferably a day trade in many cases. The saving grace for DUG in terms of trend reversal may be the sell off I suspected going into/after labor day which may have started today. Especially with the Fed news. But personally until the charts say otherwise I think there are more compelling trades out there...
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In other areas I wrote in my post a few days ago that I thought a market correction was coming. (See recent posts.) The fundamentals are just too weak and the rally until just before Memorial Day I believe has come to an end, especially with the Fed announcements today. I don't know this for sure but it's really starting to look it The Kool Aid party is all fine and good until it ends in a flash... that moment may have come today and I know I have stops on all my longs to insure that I maintain profits.
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SDTH: apparently it went slightly above 9.75 (200 day)and then fell below. I'm reading a book by Victor Sperandeo (advisor for Soros and many others) in which he writes that when a stock penetrates a major support or resistance area and then fails to hold it is almost always time to buy or sell respectively immediately. I didn't have time to see the charts today... so I still hold SDTH with a cost of 8.01 and a stop to protect remaining profits. I hate to sell SDTH at this price but in a BEAR market such as this you can never let a winner turn into a loser in my opinion.
Enough for now. Those are my thoughts. I hope I was able to clear up any confusion...
Best,
J
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