I always try to combine 2 dimensions:

1. Technical strength and chart pattern.
2. Potential to surprise and create high demand.

Baozun – High potential China eCommerce stock

I never analyze fundamentals or try to interpret them. The reason: I believe that the fundamentals are always late and the price will move before. But I want to make sure that a stock has potential to surprise and attract money.

Baozun belongs to the China eCommerce sector. It’s a young company and the stock has only 2,5 years trading history. That’s good because the best price moves happens in the first few years of the stock. The reason is simple: The company is unknown and if it’s an attractive company, a lot of potential buyers are willing to buy. In addition a company will make an IPO if the fundamentals and growth are extraordinary good. So young stocks are always better than old stocks, where every detail is known and the company cannot surprise the market.

China is a huge growth market. It doesn’t matter how fast China growths. It’s only important that investors are interested in China stocks and see a bright future. That leads to increasing prices for stocks of that sector.

In addition Baozun is in the eCommerce sector. That is an additionally plus because this sector is growing fast and will revolutionize the traditional old retail sector. A company like Baozun can profit from that and maybe can grow faster than any other company. There is a huge potential for surprises.

You can see that Baozun has high potential: Growth from China, growth from internet sector. In addition the EPS growth is very high, also sales are increasing. The IBD rating for that stock is good.

Technical strength and potential

Now we come to the more important part in my opinion. A young stock with a high potential should trade on new all-time highs. Of course Baozun is doing that. Every new high is a new all-time high and there is no overhead resistance.

The stock rose 1200% from the low in August 2015 until today. Is this too high? No! Stocks with such a growth rate can reach much higher prices. Of course the P/E ratio with around 90 seems to be high, but the forward P/E ratio only reaches 26! I don’t work with P/E ratio, but you can see that there is a lot of potential to the upside as long as the company growths. Always have in mind that a stock can rise much, much higher if there is a high demand and a strong trend.

The trading volume of Baozun increases in May 2017. That shows that institutional money is flowing into the stock and the liquidity increased. Higher liquidity, a strong trend and good fundamentals means that more and more institutional traders will have that stock on their list.

I am not a big fan of price goals. I never use them. But I cannot see any reason why this stock should not go higher and trade at $100 or more.

The Baozun weekly chart

In the weekly chart you can see that this stock has not a long trading history. That’s good! Young and fresh stocks with less than 10 years trading history produces the strongest trends. You can see that if you go back in time in stocks like Apple, Amazon etc.

You can also see that the stock is trading at all-time high prices. That’s good, too! There is no one you needs to sell to close a past trading position at break-even. And there are no history prices which can be used as orientation marks for trader.

Look at the volume. It’s increasing which shows a higher interests in the stock. There are two big shakeouts which throw out all weak hands and leave room for new traders. In addition the volume is higher on strong weeks and lower in consolidation. That’s exactly what you want to see: Strong buyers and weak sellers.

Daily chart of Baozun

The daily chart shows perfectly the consolidation between September 2017 and February 2018. The trading volume dries up in that time which shows me that not a lot of stock holders are willing to sell. This is a good signs because the strong hands will hold their positions.

With the earnings in February 2018 the stock exploded and gapped up to a new all-time high. This is a very good sign. There is a lot of demand behind it! The buying continues the whole day and you can see the terrific trading volume at that day: 10 times the average 50 day volume!

Now the stock consolidates calmly and prepares the next move. When it’s time to enter? I don’t know, but you will see it if a new all-time high is printed with higher volume.

Of course don’t ignore other scenarios. The stock can gap down on bad news and destroy the whole chart situation. That’s why I only act if I see a strong breakout and new buying pressure.

Recommended books

Here is a small list of recommended trading books about this topic.

[amazon box=”B0755Y5LCZ,0071494715,0071614133″]

Der Beitrag Baozun ($BZUN) chart analysis – China eCommerce stock erschien zuerst auf Trading Blog - Julian Komar.

If you do some research, you will quickly find out that all famous discretionary traders used volume: Livermore, Darvas, O’Neil and many more. But famous today’s traders use volume information, too: Minervini, Zanger, Ryan …

1. Volume shows greed and fear

The trading volume can give you clues about the greed and fear in a stock or any other trading instrument. An example of this trade model can be found on this BTC to USD website, live.

• If the volume is high on up-days it shows greed. Traders are heavily buying the stock and absorb all possible selling volume.
• If the volume is high on down-days people are fearfully. They sell a lot of stocks and throw their trading positions out of the window.

You can easily determine which side is in control if you look at the volume action. But the volume must be in synch with the price action.

2. Price and volume must be in synch

The best way to interpret volume is to look at the price simultaneously. Huge volume and huge price moves shows clearly which side is in control: Buyers or sellers.

If you see small price moves with high volume, you should be sceptical. Why? Because volume should be in synch with price! If this is not the case, volume should be seen as a warning sign. Maybe somebody is selling into strength or buying falling prices heavily.

Small moves and huge volume is NOT a selling signal, but you should monitor the stock closer.

3. Volume and small caps

Stocks with small trading volume are much more difficult to analyze. Sometimes there is one good volume day, but the other day the stock is crashing on low volume. This happens because there are not enough traders which trades the stock.

If only one mutual fund wants to buy a position in a smaller stock, there is not enough buying power for big trends. As soon as the mutual fund completed the position, the price and volume collapse.

A solution is to wait until there is enough interest and volume in the stock.

4. Everyone can see “monster volume”

You will not believe it, but there are traders out there which buys a ton of stocks in a second without looking at the price. Why? Because it’s their job! If a fund wants to buy a position and makes only money by fees, they can buy without looking at the price. In that situation a stock can explode to the upside with high volume.

Everyone can see “monster volume” in the chart. A 5x, 7x, 10x or 20 times the average volume is clearly visible and shows high demand or selling pressure. If you do some research, you will see that the most powerful trends started with more than 10 times the average volume. Screen for such situations and put the stocks on your watchlist.

5. Excessive volume

Volume is good, but too much volume can be a problem. It’s like a motor which is out of control …

In some special situations all outstanding shares are trades multiple times per day in a stock. That shows a high focus of all traders on that stock. And if a stock is highly in focus and everyone knows about it, there will not be enough buyers left. It maybe will work for some days or weeks, but then the stock has no fuel left and collapse.

6. One day wonders

Besides excessive volume there is another type which I call “one day wonders“. A stock explodes to the upside with huge volume and price action. The next day the stock is doing like if nothing happened: No volume, no price action anymore.

Such situations should make you sceptical. If that stock is the best stock in the world, where are the buyers? Maybe there was just one buyer and you. Normally such a stock will return to the level before the huge price move or collapse if no one is there to support higher prices.

7. Volume in ETFs

ETFs and volume is a different thing as stocks and volume. The reason is that ETFs are based on price movements of a basket of stocks. Even the ETF is traded on piece a day, it can explode to the upside. The underlying stocks determines the price movement of the ETF.

But the volume of an ETF can give you clues about the demand of the ETF or sector. If a sector ETF is traded with high volume, it can show you that the whole sector is on demand.

Of course this is not true in every situation. Sometimes there are large short-sellers in ETFs which hedges their portfolios.

8. Options expiration

A lot stocks are traded by options, too. You know that options have an expiration day. On that day, options are exercised and the option holder has to deliver.

The trading volume is very high on such a day, but price movement can be “normal”. You should know these days and ignore it. Of course this effect can have implications on a stock or the price move, but normally this is just intraday.

9. You don’t see all volume

Today there are a lot of ways to trade stocks. Especially market participants with huge volume uses different stock exchanges as you and I. There are market like OTC, Dark Pools or ECNs. The volume of such exchanges is normally added to the main volume after close.

10. Volume on news and earnings

News and earning reports can influence prices heavily. Sometimes this can be good for you and sometimes bad. But you should watch price and volume closely on such days.

If there is a great earnings report and nobody reacts with price and volume action, you should be sceptical. On the other side, if the market reacts strongly I can give you a clue that maybe more price and volume action will follow.

You must always have in mind that huge and smart market participants are not willing to buy their whole position in one day.

Recommended books

Here is a small list of recommended trading books about this topic.

[amazon box=”0471668265,0735201811,1118443926″]

Der Beitrag 10 tips to work with trading volume erschien zuerst auf Trading Blog - Julian Komar.

How can we analyze the markets without a too big influence of our emotions? We look at price charts.

Price charts telling us everything we must know:

• The direction (up, down, sideways).
• The strength of a move (volume).
• The highest odds for the next move (continuation of the current trend).

OK, let’s look at the markets from a higher time-frame. The higher time-frame tunes out the noise of daily fluctuations. This makes it easier to see what’s really going on.

S&P 500 – Strong bull market with pauses

There is a clear bull market in S&P 500 stocks. The price is moving up and the last weeks the move accelerated.

This week the down move wiped out two weeks of strong gains. In addition the volume was higher, but not excessive.

Is it a top now? We don’t know. But the odds that the trend will continue are higher. Maybe there will be a pause for some weeks or months. If the price prints a new all-time high it is a clear sign that the trend continues. Until that it is likely that the market will take a pause.

The bearish scenario is far away. Of course the market can crash, but it’s not very likely. If you look back in the charts, you will see that a real market top needs weeks and months to build.

Nasdaq – Smooth up-trend with consolidations

The Nasdaq shows the same picture: Strong up-trend with acceleration. Now the price moved down for a week and maybe started a new consolidation.

You can see a similar pattern in April to June last year. There was a strong down week and a bull flag pattern. After the price reached the weekly 20 EMA (~100 daily EMA), the trend continued.

The only thing what catches my attention is the volume. It’s very strong during down-moves. But the strong volume is not accompanied by price movement. Maybe there are other reasons for that. In addition it’s a sign that the high volume is absorbed by the market participants.

If you look at the chart, does it looks like a top? No! It’s currently far away from that.

Russell 2000 – The weakest index

I mostly trade small and mid cap stocks. That’s why I pay a lot of attention to the Russell 2000 index. You can see in the chart that this index is much more volatile than the big cap indices. That makes it more difficult to trade.

But the overall picture is clear bullish. There are higher lows and higher highs. And that is by definition an up-trend.

As long as the Russell 2000 trades above the last big consolidation phase in August 2016 to July 2017, everything is ok. If the price moves below $143 ($IWM) it will be a first warning sign. But we are far away from that.

The violation of the last high this week is not a good sign. But it’s still not a trend reversal. It just say that the volatility will continue.

You can see that a look in the weekly chart gives you a much clearer picture. If you look into the daily charts instead, you will see much more volatility. The bigger picture can give you more confidence and objectivity.

T-BOND – A new trend arrived in bonds and interest rates

For me the bonds are currently a very interesting market. Why? They starting a new down-trend. If you look at the 2 year, 5 year or 10 year note, you will see that they move much faster as the 30 year T-Bond.

Yes, maybe the new trend has to do with the FED politics. But the reason is not important. As Paul Tudor Jones famously said: “… It’s your job as a trader to buy what’s going up and to sell what’s going down …”.

The chart tells you everything you must know:

• Head and should pattern is a sign for a trend change.
• There is already a down-trend in place.
• All moving averages are aligned in a bearish fashion.
• The volume increases with the price down-move.
• The last lows are taken out and the trend continues.

There are several possibilities to profit from that new trend. For example you can buy an inverse ETF or trade the future directly.

Gold – Waiting for a decision

The last weeks showed a strong up-move in gold. But if you look at the weekly chart, you can see quickly that’s just a move in a consolidation.

If you want to make big profits you need the upper timeframes behind you. If the upper timeframe is in a consolidation, the lower timeframes mostly are volatile.

You don’t want to trade a market in a consolidation. There can be quick reversals and high volatility. You only want to trade markets in a clear trend which is supported by institutions (smart money). Why? They move the markets and start/support huge trends. If they are not interested in a specific market, you can se it by low volume. As soon as they rush into the market, the volume will pick up and the price moves stronger.

Back to gold. They will be a decision: Breakout or breakdown. Do not anticipate! Wait instead until the chart and volume speaks.

Crude oil – Energy markets in a bull run

The last weeks Crude oil showed a nice up-move. Before the up-move started there was a one year sideway bottom consolidation. You can see the head and shoulders formation which is a sign for a trend reversal.

But if you look at the monthly chart, everything looks different. The current up-move is just a small fluctuation in a down-trend. There can be sharp reversals and set backs. But the opposite it also true. There can be up-trends which lasts weeks and you can profit from them.

I like that the last up-move showed low volatility. It’s a good sign and the market participants show no doubts. We will see how long the up-move will go on.

US-Dollar – New down-move started

The US-Dollar future is mostly the same as the forex pair USD/EUR (or EUR/USD). And yes, there are correlations to Crude oil and gold. But it’s a very interesting market at the moment.

I always try to get into new trends. New trends shows mostly a stronger move because everyone tries to get in and that gives the trend new fuel.

US-Dollar is breaking down from a long top. You can see the first down leg in the chart picture. Now the second leg has started. The odds are high that the down trend will stay for some time.

There are several instruments to profit from this trend: Futures, options, ETFs, forex or the money market itself.

Recommended books

Here is a small list of recommended trading books about this topic.

[amazon box=”0735200661,0735201447,007147871X”]

Der Beitrag Market overview: Stock market, Bonds, Oil, Gold, US-Dollar erschien zuerst auf Trading Blog - Julian Komar.