DiNapoli Opportunity on Akami Technology, Inc.

Kent Shaw Has Identified A DiNapoli Trading Opportunity

Note the Detrended Oscillator (DOSC) at the bottom of the chart. It was clearly oversold yesterday. Joe DiNapoli advocates using the DOSC and after 10 years of using every other oscillator out there I must agree. The DOSC has 2 great benefits: 1) its very simple and 2) it isn't bounded like stochastics so it's much easier to spot relative overbought and oversold levels and see how a stock/index changes character during a trend. DiNapoli also mentions his Oscillator Predictor which indicates what price tomorrow is needed to reach overbought or oversold levels. It ain't exactly rocket science -- just algebra, so I worked out the math and added it to one of my spreadsheets.

When a stock is nearing an overbought/sold level you can use it to help you place limit orders to exit or enter trades. Once again reinforcing how D-Level analysis can help you dramatically improve your exits. Combining Logical Profit Objectives (LPOs -- please see earlier article on the MNX for an explanation) and the Oscillator Predictor creates a powerful combination for swing trading and will allow you to squeeze a respectable amount of profit from a trade rather than waiting for it experience a large pullback and then wishing you'd already exited.

Daily Support

D-level support is indicated by the yellow area. Note that the primary Fib nodes are generated from the low of a gap. Gaps are not used in conventional Fibonacci analysis but are used along with Thrusting bars in D-Level analysis. These levels were drawn 3-4 days ago. I've been long AKAM and raised my stop once the retracement began and placed it about 1.5 points below the D-level area that occurs at $30.40. If you wanted to trade AKAM from the long side based on this setup you could have place a resting order near $30.40 for an aggressive entry. Obviously, if the stock was weaker than expected and the support didn't hold you'd be faced with a quick loss. A good place for a stop would be below $28 where the 618 node occurs. (ie. the 61.8% retracement of the primary swing) For a more conservative entry, please see the last chart.

DiNapoli doesn't mention anything about volume but I watch it quite closely. Notice how volume generally declined as AKAM sold off over the last 4-5 days. Much of DiNapoli's book discusses applications for futures markets which tend to have less meaningful volume data.

The chart below is a 5-day chart with 30 minute bars. After AKAM tested the D-level support at $30.40 that occured in the daily time frame it rallied to a high of $31.60 before a brief retracement occured. This retracement also pulled back to an area of D-Level support which would have been a good opportunity for more conservative traders to enter after the daily support at $30.40 was successfully tested. In this case, the opportunity did occur intraday so entering in this manner would require that you had the time and resources to follow such opportunities. I rarely do but if I'm in a position and considering exiting, either for an a loss or a profit, I may use intraday D-Levels to time my exits and squeeze a little more out of a trade. This is especially helpful when trading options because the bid/ask spread and the core prices themselves tend to react quickly to intraday volatility so if you can place an order as a stock is pulling back you're likely to get a much better fill because the option prices tend to over react. Although I'm already long AKAM, I'm considering adding an options position tomorrow based on this setup. I still haven't decided what kind of strategy I'd like to use. Most likely nd ATM or ITM short put vertical.

This kind of multiple time frame analysis could also be used with a combination weekly charts to find major moves and then daily charts to better time your actual trade entry. DiNapoli ALWAYS advocates analyzing all major D-level in the market you're trading. In other words, don't just look at the daily chart. Start with something like a 5-year weekly chart and find the major support and resistance areas so you're aware of them. It will help you in the end although it may not be relevant for every trade. Most market participants have no idea where long term support and resistance levels are because they focus too much on short term price action. If you know where the levels are you will be better able to profit from them.

As always, good trading to you and please mind your risk!

-Kent Shaw

Recommended Resources

Joe DiNapoli on Video
Teaching Everything You Ever Wanted To Know
About Fibonacci analysis and trading.

Fibonacci Trading Course
Money Management, Trend Analysis & Trading with
DiNapoli Levels.

Technical Analysis of the Financial Markets
How to read charts to understanding indicators and
the crucial role of technical analysis in investing.