Friday, July 06, 2007

Bullish Bias For Dow Stocks Next Week

Well folks, it's that time of the month again. Next week will be the 2nd week of the month and if you've been a reader of this blog you would know that means... BUY.

This trade has worked month after month and its worked for me the last 5 times I traded it. I've been making money doing this trade since I first noticed it which was last December. I first posted about this trade on this blog back in February. As long as the dow is above its 10 week moving average, the close on Friday tends to be above the open on Monday for the 2nd week of the month.

I'll be buying DIA on Monday's open and exiting on Friday's protective stop is a percentage of the 10 day ATR subtracted from Monday's open.

Just a reminder that nothing works 100% of the time...patterns come and go as market conditions change so I caution you to always use stops no matter how good a trade may appear.

The above trade is not a recommendation for you to buy or sell, I'm just sharing with all of you what I am doing in the marketplace.


Lawrence Chiu said...

What is the formula for calculating ATR? Thank you.

chiu said...


How do you define 2nd week of the month ? Last month is a very good example. 1st Jun 07 actually falls on a Friday, is that considerred 1st week of the month ? In your case, it is obviously not considerred.

I did a similar study on SPX on the expiration week. It is very bullish for the past 20 months. Let look at the detail.

Last Friday was the expiration day for Jun 2007 option month, the SPX
again closed several point near the high of the month.

From Nov 2005 to Jun 2007 (20 months), there is more than 75% chance (15 months) that the SPX closes on high on the option expiration date. 12 months closed
less than 5 points from the high of the month, 3 months closed between 6-9 points from the high.

Just to list the month in details (closing SPX price from the high of the option month):
1) Nov 2005 : 1.3 point
2) Dec 2005 : 8.5 points
3) Feb 2006 : 2.2 points
4) Mar 2006 : 3.2 points
5) Apr 2006 : 6.9 points
6) Aug 2006 : 0 point
7) Sep 2006 : 5.0 points
8) Oct 2006 : 4.2 points
9) Nov 2006 : 2.6 points
10)Dec 2006 : 4.6 points
11)Jan 2007 : 4.8 points
12)Feb 2007 : 2.4 points
13)Apr 2007 : 0 point
14)May 2007 : 0 point
15)Jun 2007 : 7.6 point

Kevin said...

Nice work Chiu...I define the 2nd week of the month as follows: I'm looking at the 2nd Monday of the month...I'm buying on the 2nd Monday of the month and I am exiting on Friday.

Zach said...

what do you think is the basis or the cause of this phenomenon? One of the things the concerns me is that if there is no fundamental background as to why this occurs, it is very unlikely to continue – especially once a few people start playing it. I’m a firm believer in technical analysis, but believe that there is almost always a fundamental reason behind sustainable tradable patterns.

Kevin said...

Hi Zach,

I gave up wondering why things happen a long time ago..I'm more interested in what is happening.

As traders we don't get paid to know why something happens, we get paid to know what is happening and then taking advantage of it.

There may very well be a fundametnal reason why this pattern exists and by the time this pattern is known and explained on CNBC, I will have already profited from it many tmes over.

If I was to wait for a fundamental reason to be known before I take a trade, I could guarantee you I would be too late and I'd probably lose money.

As a technician, I try to use the charts and other indicators to follow the footprints of what the big money or dumb money is doing. They do leave tracks and that is all I am interested in.. I really don't need to know why the footprints are there, I'm just following along...


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