Interestingly enough, on Monday, the volatility (activity) as tracked through the ADX on all three sectors dropped which made the sectors not worth investing in. If I were in a position based on my Sunday research, I would probably look to close the position, hopefully for a profit.
Before the trading session on Monday, I looked at the stocks within the various sectors. The Dow ($INDU) was just too big to focus into a few stocks so I passed on looking for shorts, especially because they are so difficult to time. As for the AMEX Disk Drive Index ($DDX), I looked at the few stocks in that group, but I noticed that none of them were moving more than a few cents each day -- that is not the kind of movement I need to make a profitable trade. In short, in order for a trade to be worth one's time, I learned that one should choose stocks that historically move at least $1.50 or more in one trading day. Because these stocks were moving less than $0.70 each, it wasn't worth my time and so I passed.
This brings me to the PHLX Gold and Silver Sector Index ($XAU). While the ADX dropped a bit, I saw the index move up closer to a breakout point above the range it has been trading in. I purchased a leading gold stock (GG), and on Monday, it broke out even though the ADX was no longer supporting high volatility moves [note that the breakout in the $XAU ended up being a FAKEOUT. In Japanese stock language, the name for what the $XAU did was called "man go to roof and fall off cliff." I'm actually not kidding! So, needless to say, I was cautious to make sure my stock (which follows the index) didn't also fakeout, but the stock stayed above the trading range which was a good sign.]
It's interesting to note the similarities between the movement in the $XAU and in the GG stock. I've pasted both pictures below.
If you'll notice, I had my initial stop at $46.30, right before the stock broke out. I'm not exactly sure why I chose that point, but I believe that I wanted to give the stock a chance to correct a bit before taking off again, and in the past I had a tendency to set the stops too close to the stock which means that I would get stopped out, and then as soon as my stop was taken out by the stock, it would turn around and go in the direction I initially thought it would. This was and still is a tough lesson to figure out how to prevent this from happening, however the risk is that the stock will tomorrow fall back below my stop and I will have lost the tiny profit I made today.
In my honest opinion, a 2-day base is no base at all, so any stop at this point is arbitrary. With the volatility of the stock dropping like a rock as it did, tonight, I'll probably set the stop right below the gap up this past morning and see what the stock does from there. My guess is that the stop will be taken out around 10am tomorrow morning giving me a small loss. Let's see what happens.
I also mentioned EMC and SNDK. Because of the drop in volatility, I decided not to trade either stock. As you can see from the stock below, EMC dipped below the 2-day trading range (which is not a reliable base which should be in existence for weeks, not for days) and then slivered back up to the bottom of the trading range. Had I invested (and if I followed my own advice and shorted this stock, my trigger of $14.45 would have been set off, I would have entered this trade this morning, and I would have ended the day in a small loss.) That being said, I stayed away from this stock because of the volatility, even though it might end up going down as I suggested it might. The chart is below.
Lastly, I mentioned SNDK. Had I shorted this stock as I suggested, my buy signal would have triggered at $18.85 and the stock would have been in a profit. However, this trade never happened because the ADX (volatility) fell Monday morning to a point which I didn't feel that the stock would have been worth the trade.
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