A tool worth monitoring for all trades is Keystone's 80-20 Rule. Not so much a rule, more of a guideline to help navigate trades. The rule says that when a stock, or any ticker, index, or sector, reaches the 80 level, the risk-reward is in favor of that ticker moving to the next higher 20 level. If the 800 level is achieved, then the next higher 200 level is targeted; if the 8 level is achieved, then the next higher 2 level is targeted. The rule is used for dollars and cents and is used with daily closing numbers. Are you lost yet?
The guideline is quite simple, if price is moving up for a stock and it closes at 9.83, this will tend to lead to 10.20. If a stock closes at 43.82, this will tend to lead to 44.20. For cents, a stock at 7.89 would lead to 7.92, or for larger chunks, a stock closing at 28.30 would lead to 32.00. The 31.80 would lead to 32.20. You should be getting the hang of it now. The reverse is true as well, 2's will lead to 8's, so simply view the examples from the opposiite direction with price moving lower.
Let's look at the major indexes. For the SPX, the 1480 level led to the 1520's which was achieved to satisfy the guideline. The close over 1528 leads to 1532 basically where price sits this evening. For the Dow Industrials, the close above 13800 leads to 14200. 13980 led to 14020 which printed today. The Dow closed at 14036 which is 164 points away from attaining the 14.2K. NYA closed above 8800 which leads to 9200; it printed 9004 today. The RUT printed above 880 which leads to 920 and this was achieved over the last couple days. 928 leads to 932, exactly where RUT closed today, satisfying the 80/20 rule for now.
Gold is now at 1605 so price closed under 1620 which should lead to 1580. Oil is now printing 97.07, bumping up against 98 for the last three weeks. If oil closes above 98 that will open the door to 102, but price has not committed yet. Interestingly, note how copper came up to knock on the 3.80 door, which would lead to 4.20 and obviously signal a robust global economy, but price stalled and today dropped to 3.658. The drop through 3.72 led the way to 3.68. A drop through 3.62 would lead to 3.58.
Are you getting the hang of it? Looking at some additional tickers, GOOG moved over 800 today. The close above 780 leads to 820. GOOG closed at 806.85. If 808 is achieved, that would lead to 812. If GOOG drops to 802 that would lead to 798. The 80/20 rule is only a guideline and sometimes it does not work out. An example is AAPL which closed above 680 which placed 720 as the target. Price only made it to 705 and died. GOOG weekly chart exhibits nasty negative divergence just like Apple's top last September and is likely an attractive short from here higher, and considering the momo on the daily chart, and the 80/20 rule, if considering a short simply wait for the numbers above 820 to give it a go.
NXPI is interesting, it had closed above 28 which lead to 32 which was achieved. Price is at 32.71 only pennies from 32.80 which would lead to 33.20. FB closed above 28 which led to the 32+ that printed, then price went back down to 28. FB is at 28.93 so this should lead to 29.20. LL, lumber, printed above 58 which led to 62 and that unexpectedly spiked higher again, the 63.80 led to 64.20 where price died. LL is at 62.43, a close under 62 would hint at a move back down to 58.
Note how the euro jumped up to 1.38 the other day but stalled. The 1.38 would lead to 1.42. The euro is now at 1.3387 which may lead to 1.3420. So, there are many examples you can explore. Review all your ongoing trades to see how they relate to the 80/20 rule. When scaling into positions,the 80/20 is useful. Using this rule is obviously a bit more of an art than a science but it is very useful and you will be surprised at how often the price action plays out according to Keystone's 80/20 rule. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here or any links connected to this information. Consult your financial advisor before making any investment decision.
KS, I like to hear your comments on $SOX which is sitting at 433.64 this evening. Thx!
ReplyDeleteA, bring up the $SOX daily chart, you see overbot stochastics and negative divergence. The price move is amazing and it is obvious that semi's are a leader off the mid-November bottom. So the daily chart says down. Price at 433.64 so the close above 428 led to 432 which occurred. The 432.80 led to 433.20. The next thing to watch would be if 433.80 occurs since that would hint of a move to 434.20. The weekly chart is overbot but has strong momo, even after a pull back that the daily chart wants, the weekly will want another matching or higher high in price afterwards. The chips were goosed strongly. So a pull back in the days ahead but price will likely come back up to these levels again before setting up a more substantive roll over.
ReplyDeleteSemi's, copper, financials, they are all interesting, tech, these are sectors you expect to start leading and pushing markets higher. But the Fed and ECB and all central bankers have these markets twisted in knots. Usually in a regular recovery, you lay in wait watching these sectors and as they move off the bottom you realize a markets is making a move higher and recovering, however, this is a different world now, and markets are simply pumped higher by the Fed and we have lost price discovery to some extent. Traders are likely front-running all those expected sectors with all the Fed's easy money. The money is sloshing around in the vaults, there is no velocity of money, so some is put to use pumping these sectors higher, each trader thinking he is smarter than the other beating everyone to the expected move in these sectors. Only problem is that everyone is doing the same thing. It is the tail wagging the dog. Now these sectors are all pumped higher and everyone is asking around about when the recovery is supposed to begin. A real circus. It all makes for fascinating markets.
Ks, I have seen this trading a lot. Sell offs usually rebounding at say .80. So say you are trading an ETF and it can't hold 50.20. In fact it's getting very silent and quiet before the bombs fly rigth at that price. Usually you see 50.16 then down to 50.08 and then a collapse through 49.94, and then 90 percent of the time the collapse from the 50.20 bounces somewhere at the 49.80's range and makes a move higher, when 50 is broken again on the twenty cent swing back up (the usual wall that always has to be broken on a bounce back up from .80 tends to be the the next number even, as traders place their sells there) a ride to 50.10 is in order. If the ETF/stock then reverses, the first sign will be the 50.20 being broken and a move higher. If 50.30 is taken, I have seen about 70 percent of the time roughly a move to 50.50 or 50.60's is going to happen. In conclusion, it is all voodoo, but when most traders know this voodoo they make it a science of reality.
ReplyDeleteI'm printing this now for ;) thx.
ReplyDeleteInteresting stuff, there seems to be something to some other combinations, you are right about the move from 30 to 50. That will be interesting to watch with the SPX, now at 1531, barely over 1530 so it can be given slack, so the bears will need to reverse this now, a move above and the 1550 is likely.
ReplyDeleteKS,
ReplyDeleteNow that GOOG recently broke through $800, would you think that $1200 would the next main target price ahead for GOOG?