In This Edition....

• Market Update: Digging a Deeper Hole 
• CEL-SCI Investor Update Available (Check it out!) 
• How I Make Timely Trade Exits 

Digging a Deeper Hole

Like I said on Thursday (and despite Thursday's and Friday's market gains), the damage has already been done. Monday's tumble to new multi-week lows is simply the fruition of a pullback that's been long overdue. More importantly though, what can we expect now?

In the very near-term, I have a sneaking suspicion that today - or perhaps tomorrow - we're going to see the same thing we saw Thursday and Friday ....which is a feeble bullish push following a pretty powerful selloff (a dead cat bounce, if you will). I think it's only going to be a temporary effort though. After that, I'm looking for the much-needed correction to continue playing out. 

As for how far we might sink, I'm sticking to my guns and saying the S&P 500's first checkpoint is the Fibonacci retracement level at 844 or so. 

Just to be clear, we may see the downtrend take the index under that mark - I'm just not counting on it yet. 

By the way, Monday's dip pulled the SPX under the 50 day moving average line (purple), which has been a relatively important support and resistance line in recent weeks. The 100 day moving average line (gray) is also just a hair under 844 right now, bolstering the possibility of support being made there. 

On the flipside, the 20 day average line (blue) is resting at 926, and wound up being resistance last week. Unless that 20 day moving average breaks as a ceiling, I'm not going to be impressed by any bullish effort. 
 

CEL-SCI, In Living Color

We've been talking a lot more about CEL-SCI Corp. (CVM) lately, partially due to their contribution to the cancer vaccine movement (which went ballistic after Dendreon's recent success), and more recently, in response to the company's potential swine flu treatment.

The details were great, but for any newcomers, perhaps taking a step back and looking at CEL-SCI's bigger picture is in order.

To that end, the company posted an investor presentation yesterday that pretty much tells you everything an investor would want to know.... different revenue opportunities, the company's unique biotechnologies, and a near-term as well as a long-term game plan. The most powerful parts of the presentation, however, are the graphics of how Multikine treats tumors.

If you really want to look at this biotech company up close and personal - and I strongly suggest you that you do - you can click here to access the PDF presentation. It's kind of a big file, so give it a little time to load. Definitely worth the wait. 
 

What's a Parabolic SAR Stop?

In my last edition I reviewed a handful of open trades that should have been exited based on a technical analysis tool called a parabolic stop-and-reversal signal (or SAR, for short). I didn't get a chance to explain the tool due to limited time and space, but since a large number of you asked about it, I think it's worth a closer look today.

Now, I'm not going to dive all the way into the formula for the indicator, because knowing how to calculate its value isn't nearly as important as knowing how to use it. If you're interested though, there are probably about nine million websites out there that explain the exact calculation.

And how do I use it? 

The parabolic SAR indicator - developed by Welles Wilder - is a very simple bull/bear tool designed spot cases where a trend has been decisively reversed. 

The 'dots' on the nearby chart explain the tool pretty well. When the marker (blue) moves from above the price bars to below them, it's bullish. When the marker moves from under the price bars to above them, it's bearish. And if you look closely, you can tell the 'switch' is made when the price bars intercept the parabolic-shaped line being formed by those dots.

Simple? Yes, it's simple.... almost to the point of being a joke within the technical analysis world. It works though, and I'd rather be rich using a simple tool than be broke using a complex one that doesn't work. 

As with any tool, the parabolic SAR indicator has pros and cons. One of the cons is that it's prone to fakeouts on both sides of the chart. One of the pros - the one I like - is that it's a very effective 'trailing stop'.

I suspect many of you are familiar with trailing stops; your trading software or platform may even have them built-in. If you're not familiar with them though, essentially, a trailing stop is a way to constantly protect your unrealized gains on a trade as they're achieved. 

For instance, if you buy a stock at $40 and it moves to $44, the parabolic SAR marker may move up to $42... a decent exit level in case the stock pulls back. If the stock moves up to $45, the SAR-based stop moves to $43. If the stock moves to $46, the SAR-based stop would move to $44, and so on.

As for how quickly and how closely the parabolic SAR indicator mirrors your trade's chart...well, that depends on your indicator's settings. You get the idea though - the trailing stop prepares for the worst (a sharp pullback), but allows for the best (more incremental gains).

In the interest of full disclosure, it's not the only thing I look at on the buy side or the sell side. It's one of the things I look at though, as it can be very effective even when other indicators aren't.