Don't Ignore This Chart!

Not All Trades Are Created Equal

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10 years ago, I traded the stock market much differently. I didn't maintain a "Strong Earnings ChartList" to trade exclusively from like I do now. I considered relative strength, but it wasn't a primary focus. But I look at the overall stock market and individual trades through another pair of glasses now. There are thousands of stocks to consider, so why shouldn't we be picky.

This brings me to Texas Instruments (TXN), which I featured this morning in my free EarningsBeats.com Digest newsletter. If I was simply looking at yesterday's reversal off key support, I'd be interested. Here's the chart:

I'll be honest, I love that reversal at price support so I wouldn't necessarily be opposed to trading it. But given its awful relative strength vs. its peer semiconductor group ($DJUSSC), I'd keep a very tight stop. The recent failure at the declining 20 day EMA is significant because this suggests we have a downtrending stock whose next trip to the 20 day EMA will likely fail as well. Currently, that 20 day EMA is at 119.20, which limits our upside to 3.10.....and that 20 day EMA will continue to fall every day. I'd be concerned if yesterday's low of 114.59 was violated, so if we used an INTRADAY stop of 114.58, we'd have 1.52 of potential downside. Thus, currently the reward (3.10) vs. risk (1.52) ratio is slightly above 2. We also know that 20 day EMA will drop again today. Therefore, our reward to risk is likely to drop below 2 to 1.

10 years ago, I might have bought TXN here. I'm much more selective now and, based upon that fairly low reward to risk ratio, I'll pass. It's not on my Strong Earnings ChartList because TXN was unable to beat Wall Street consensus estimates, so it's all a moot point anyhow.

Over the course of the next several weeks, EarningsBeats.com will be sponsoring "mini-series" events leading up to our HUGE online conference "Market Vision 2020" slated for Saturday, January 4, 2020. While the main event will be focused on speakers providing their stock market outlook for next year, these mini-series educational events will enable MV2020 newsletter subscribers the opportunity to get to know each speaker and their individual trading style and approach to the market. Our first event at 11am EST this morning will feature Mary Ellen McGonagle, President of MEM Research.

If you'd like to find out more about Market Vision 2020, participate in these free mini-series educational events, and be eligible for giveaways that total THOUSANDS of dollars, you only need to be a newsletter subscriber. CLICK HERE to subscribe to our free MV 2020 newsletter!

Happy trading!

Tom

Tom Bowley
About the author: co-founded Invested Central in 2004 and served as the site's Chief Market Strategist for more than 10 years. Invested Central provides stock market education and guidance for those interested in making their own financial decisions. During his tenure at Invested Central, Tom co-hosted Market Open LIVE, a national radio broadcast that covered many of the largest markets across the U.S. In addition, he has spoken at various conferences throughout the United States and Canada and has taught thousands of traders across the globe how to trade equities more wisely with an emphasis on managing risk and intermarket relationships. Learn More
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