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Technical Analysis Before After Cement Market Internals
Tuesday, April 25, 2006

Nightly Update - FRK & The Sector Performance Scan

Tonight's update is going to cover a position that we are no longer in. That position is FRK. The reason why I want to do this, is to point out what actually happened after we exited the trade. In fact, it is often good to review your trades to see what worked and what didn't. This way you learn what works and what doesn't work in terms of technicals. In fact, most good traders print out their charts and they keep a record of all their trades. They record onthe chart why they entered the trade and why they exited the trade. This is a good practice to follow. You will learn from your profitable and un-profitable trades. I digress, in any case this is going to be a before and after study of the FRK trade.

Florida Rock Industries Inc. (FRK) - Weekly Chart & Monthly Chart
The first chart of FRK is the current chart. The reason I am showing you this is, because FRK just reported, and it looks like it is going to make new highs. My point is that longer term charts smooth out the noise. In contrast, short term charts often whipsaw us out of a trade on a day to day or week to week basis. If you are long term trader placing a trade based on a monthly chart absolutely do not look at the weekly, daily or intraday charts then. In order to make sure your next trade is profitable, you need to examine your previous trade. The fact is that more traders trade because they are bored or frustrated with a stock rather than trading what is really going on in the technicals. Often technicals will not help you trade better. However, technicals will tell you when to enter or exit a trade. That is what Trending 123 is all about. Trending 123 uses the best of technicals to confirm what is going on. The tools on the website can help give you perspective on the market. Please learn to use them to your advantage.

The 2nd Chart is the original buy alert. Now the buy alert was given on FRK on January 20th. At that time I was focusing on oil and energy stocks, NEM and bio-pharma , and cement. I recall cement was hot. Now look at the second chart .

Here is what I suggested on the update:

"Florida Rock Industries Inc. (FRK)- Monthly Chart

FRK is a cement play. On the monthly chart you can see that FRK is forming an ascending triangle pattern within the uptrend channel. Furthermore, it is now backtesting the uptrend line. FRK is also a failed topping pattern. A very large one at that. Currently FRK is at support at $49.00 and resistance is at $55.00. Once it breaks above $55.00 we should start to see some momentum. The next resistance level is at $56.00. Indicators are bottoming and look to reverse to the upside and the stock is at support. Keep your position small. " Throughout the time we owned FRK, I was getting into bio-pharma, and for some reason I couldn't wait to exit the FRK trade. I just wanted to exit the trade. The technicals themsleves for FRK did not tell me to exit the trade.

The Stock Sector Performance Scan
The reason why I was so supportive of FRK at the time, is because of the performance scan. The Stock Sector performance scan shows what sectors are out performing the market. The stock sector performance scan lists the stocks and sectors that are going down the least and this often tellls you what is rising the most. As a group that is what is the strongest. It is not important to look at rank, but rather what is declining the least. That will tell you on pullbacks what is holding up the best. At the time of the FRK trade, cement was the 4 th best sector and it was 11th in rank, but the % it was down from the highs was the least.

The Sector Performance Scan and Front Runners
Now, let us look at today's Stock Sector Performance Scan. By the way, the Front Runners are not really a sector, but a sector that I made up. The Front Runners usually go up when the market goes down, which typically means that something sneaky is going on. For example, today was a down day in the broader market, but the Front Runners actually moved up. That is significant. This is when we, as technical traders, have to pay attention to the underlying rather than the average in order to see what is really going on. It is sometimes better to look at the Front Runners, rather than looking at the broader market indexes to see where the strength lies. The front runners in each sector will lead the way in the market because of their historical performance.

Now, lets look at the industry sectors in the Performance Scan. What is holding up the best? Cement, Railroads, Banks, Investment brokerages, and some commodites. However, one would think that more energy and oil stocks and Gold stocks would be in there. They are not, and that abscence is significant, it indiactes poor performance. What else is holding up? Well, computer based systems and chemicals are declining the least off of their respective highs. Historically higher energy prices are not good for chemicals like DuPont. Finally, today, Cement is in an even a better position even if only slightly than it was in January, when we bought FRK.

Furthermore, if you look at today's sector performance scan, you can never go off the % off of the low, but rather the % decline off of the highs. This is imprtant to remember. The % decline off of the highs are your friend. Bottom line, remember that is what bull and bear markets are defined by. The actual definition of a bull or bear market is actually how much it declined off of the highs not vice versa. That is all you have to go on. It is never about how much a market or equity is up off the lows. Finally, you can recall the Fibonacci 72% level which is what negates what you thought prior to that level being reached.

Tonights update is just one of those "let's see what happened update"

Stock Sectors
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Stock Sectors

April 24th
FRK Chart Pattern

April 25th
FRK Chart Pattern