Trade Portfolio Charts: GTLS and DZZ

GTLS is an earnings breakout play that has shown accumultion as it consolidates the breakout move. A key day was early last weak when it confirmed the hammer the stock printed at the breakout point. The RSI and OBV trends are positive and the volume pattern has favored up days.

My target is the recent high of $38, while my stop is just under the breakout point, around $31. This gives me a nice 2.5:1 reward to risk ratio.



I am using the well known gold ETF GLD to detail why I entered DZZ, which is a leveraged inverse short ETF. I am using this chart because it gives a good example of how I like to play "fallen momo stocks". Note that Gold is showing many of the elements that DBA and other ag stocks showed as they broke down.

Why use an inverse ETF rather than short GLD or other gold stocks? The short ansser is I don't have to borrow shares, thus I don't incur any interest charges.



Updated Trading Results:

Trading Portfolio Update: DUG, DZZ, GTLS and NKE

The first four positions of the trading portfolio were made on Thursday and Friday:

300 shares DZZ at $25.85.

300 shares of DUG at $38.13.

300 shares of GTLS at $33.96

300 shres of NKE at $65.90

DUG and DZZ are short bets on Gold and Oil Services. Later today I will post detailed analysis of these entries.

The Market's Response to the U.S. declaration of War on Germany During World War I

On April 6, 1917 the United States broke the isolationist camp and declared war on Germany. The market was not thrilled.



The market would not revisit pre-declaration levels until a few months after the end of the War (November 1918).

The Market Speculator's Trading Portfolio

Over the past month I have focused much of my free time on trading research. Currently my focus is on two research areas, breakouts and bear market turning points (I'm currently studying the markets during WWII and 1970s).

Unfortunately, this has taken some time away from this blog. I have done a good job of laying out trading ideas that have been on the mark for the most part, but something had to give, and it was my personal portfolio updates and trades. I like my trade updates to be the same day I make the trade and lately I haven't been able to do that. I thought about posting them a few days later, but that opens up doubt within my readership as to the validity of my trades, so I decided not to do that.

To remedy this, I am going to create a virtual trading portfolio. This will take the stress out of trying to update my trades as quickly as possible. Many of the trades I make in the portfolio will be trades I am making in my own account, some will not. Rather than just posting trades, I will focus on the strategy behind each trade. I also plan to track the portfolio with detailed portfolio results and periodic reviews. I will be a great learning tool for both you and me.

I started the porfolio today, taking short positions in gold and oil, and long positions in a few select stocks. I will update the portfolio this weeknd.

Old Reliable Looks Good (Bad) Again

During every cycle I have a few stocks that I use as "go to" plays over and over again. I'll keep taking the same trade in a stock until it stops working. Recently, DECK has been one of those reliable stocks and looks to be failing at resistance.

Countertrend Gold Trade

Gold is getting interesting as a short term play (bearish) that is counter to the longterm trend (bullish). If light volume continues on the up move, I will enter one of the weaker stocks.

The Frustration of Waiting for a Pullback

One of the most frustrating things about the breakout-pullback setup is when you've got a textbook breakout out of a base, the stock heads your watchlist, and instead of pulling back to any measure of support the stock keeps going and going.

Last Thursday KEX's breakout put it at the top of my watchlist. I loved the setup. We had a breakout on high volume out of a base that mounted powerfully through resistance.

My dilemma at the time was to buy two points away from support, at around $52, or wait for a pullback to $50. I decided to wait. Three days later the stock is at $56.76.



I am not sure what is more frustrating, missing a move that does not pullback or buying a breakout and waiting forever as it consolidates its gain. Experience has lead me to a few theories on the conditions that lead to each of these outcomes, and I've spent the better part of my free time the past month researching hundreds breakouts, in both bull and bear markets, going back 8 years.

My research is not complete, but there are a few factors that seem to indicate a move sans pullback. One factor goes completely against conventional wisdom.

The Ag Gap

I sure am glad I decided to wait for more of a bounce to short ag. Geez. All of the ag stocks are making big moves based on this headline, "Monsanto ups profit view on corn, herbicide strength," and a few other headlines.

I'm going to take a step back and just watch ag this week. The overall pattern is still toppish, but today's gap over resistance puts this theory in question.

Homebuilders are Hard to Ignore

It's tough to ignore the strong move in residential construction, aka, homebuilders. While my head tells me to stay away, the charts tell me otherwise. For months I have been using bounces in the sector to reload shorts, but not this time. There is something different about this bounce.

Take a look at the chart of Toll Brothers. A few things jump out at me:

1. The stock is no longer trending down. Rather, we see a range bound price movements with resistance around 24.

2. RSI is improved. The mid level is acting as support, which is what happens in strong stocks.

3. OBV is improving. Volume patterns seem to be shifting from sell to buy.



I would not buy here. In a range bound market, I like to make buys at the bottom of the range or on breakout. A patient well timed entry could lead to nice profits in TOL.

Re-Load?

I'm looking to reload some short plays like MON.

My Favorite Trading Setups and More (Q & A Part 3)

Since the market is closed today, I took some time to answer some more reader questions:

Thomas asks: What chart service do you use?

Market Speculator answers: I use Telechart. Every evening, I run my scans (breakout, pullback, etc) and flip through charts from my watchlists. Over the weekend, I analyze the best and worst performing sectors, then drill down to the individual stocks within those sectors.

Thomas asks: What are your typical plays--setups that you trade?

Market Speculator answers: I have a variety of setups that I use according to market conditions and time frames. There are too many to name here. For long term positions (an account I don't detail on this blog), I like to trade long term trend pullbacks and buffet-esque value plays. The few days a year I daytrade, I like to use pullbacks and breakouts combined with sentiment and breadth indicators.

The bulk of my trading comes from the swing trading setups. I trade many different setups. I dont' subscribe to the theory that you should have one methodolgy and follow it religiously. I believe you have to adapt to the market environment. Some of my favorite setups are: earnings breakout, breakout-pullback, trend-pullback, momentum breakdowns, distribution setups, bull and bear flags, bearish topping patterns and simple rangebound setups.

Thomas asks: What indicators do you follow closely?

Market Speculator answers: I don't focus a lot on indicators. I mainly look at price, volume patterns, and support and resistnace levels. However, I do like to look at OBV to help with volume pattern identification and strength. I also use stochastics.

Off topic questions:

Brian asks: You used to post heavily about the television shows you are watching. What are your current favorites?

Market Speculator: Yes, I don't post off topic as much as I used to.

I recently got hooked on the HBO series The Wire. Best cop show I have ever seen. What I love about it is its not black and white, good versus evil. At certain points in the series, I've felt more of a connection with the gangsters than cops and politicians. One of my all-time favs.

Lost is also one of my all-time faves. Love the blend of sci-fi, philosophy, human psychology, mystery and drama. The show keeps getting better.

I watch How I Met Your Mother simply for one character, Barney played perfectly by Neil Patrick Harris. The character is "legend-ary".

Okay, I have to admit, I watch American Idol. I don't know why.

The only other reality show I watch is The Ultimate Fighter. Some great fighters have come from that competition.

Other favorites that are either not out right now or I watch via DVD: Friday Night Lights, Curb Your Enthusiasm, Heroes, Smallville (out but I watch the DVD and Prison Break.

Do I Have the Guts to Buy Financials?

I'm scared as hell to buy a financial, even with a small position size. However, if I didn't know the name of the company behind this chart (Morgain Stanley), I would be buying. We have price breakout over the 50 day moving average after the stock printed a bottoming long tail on heavy volume a few days ago. RSI is breaking out. Stochastics show strength. OBV is improving. This is damn near a text book reversal play.

I may enter on a small position later today.

Quickie Trade Update

I covered the MON short position today and was stopped out of GTLS.

More on DBA

Before we look at the current chart, take a look at my recent DBA posts for a refresher on finding stocks/markets that are topping and ready to rollover. There is a lot to be learned from the charts.

DBA today:

Bespoke's Short Covering Statistics and Market Notes

Read this excellent post from Bespoke showing that the biggest gains yesterday came from stocks with high short interest.

This, coupled with the average volume of the rise, leads me to believe we have not bottomed and are still in a bear market. However, we still may have a playable bounce that could be used for quickielong trades and to re-establish short positions.

Remember, true capitulation that leads to the end of a downtrend usually requires a panic day that closes up on tremendous volume.

How Would You Like Your Eggs

I am wiping the egg off my face as I type. Obviously I was wrong not to trust the morning strength, at least for today. I used today's strength to get out of my leveraged long S&P 500 position (SSO) at the close.

No Trust

I trust this rally about as much as Mrs. Spitzer trusts her man. I may even put on a small "fade" position. We'll see how events unfold later in the day.

Did anybody else notice the new high/low and advance/decline ratios yesterday? Surprising to see so much red on a day that was not significantly down.

It's a Matter of Perspective

Well, after all the hysteria, today was a ho-hum day. No capitulation and not many major breakdowns in stocks that I watch. Instead, most of the stocks on my watchlist traded within support and resistance ranges. Even the stocks that made 5 percent plus losses, like DECK, are within the middle of their S/R range.

Thus, I am still maintaining a trading portfolio balanced with longs and shorts. Until I see a major breakdown or capitulation move, I can't pick a direction.

Those with a long bias are going to say today was great. The bulls came in and cut the losses. That's a minor miracle when you consider the news.

Bears are going to point to all the negatives across the financial landscape, and point out that the bulls could not mount a gain after getting a surprise rate cut.

What do I say? I'm not a bull or a bear. I am a trading agnostic. I try to be as objective as I can. I don't care which way the market goes. All I care about is finding an edge, in either direction, and making money off it.

My only "edge" right now, and it's a weak one, is I am seeing more short setups than long, and volume patterns point to more downside.

DECK

I've made a few trades that I'll have to update later. In the meantime, take a look at this chart of DECK. It's been one of my big winners this year (as a short) and is a good example of how volume predicts price movement. I began posting and shorting it in January. Back then I received a number of e-mails saying it was only pulling back. It's now a broken stock.

Sector Volume and Market Notes

One of two things will happen this week. Either we get a major decline or that capitulation move that everybody has been waiting for will lead to a nice bounce. I have no idea what will happen, but I am positioning myself for either outcome.

Here is a list of sectors showing strong positive volume. A few surprised me.

Chart of the Day: DBA

I know Agriculture has dominated my posts over the past two weeks, but it's too hard to ignore the lack of accumulation in the sector. Here is a chart of DBA:

Saturday Review: Shorting Momentum Stocks

This post from August 2007 offers some timely advice on shorting momentum stocks:


Those of you familiar with my trading style know I rarely short high flying stocks. While it seems logical to go against a stock that is overextended, this type of trade generally takes on too much risk. Stocks tend to trend longer than they "should" due to market psychology and short squeezes.

However, there is one contrarian setup that I do use on momentum stocks. A stock that reaches it's high, without RSI and OBV confirming the move, gets my attention as a short play.

Take a look at the GRMN chart. During the last high, OBV and RSI levels were higher than they are now. This "negative divergence" is a sign that the stock is not ready to rocket to new highs.

A negative divergence is not enough to jump in. We also need to see a failure at the old high level. We've got that here with GRMN. The stock stopped right at $105 and has pulled back.

The last piece of the puzzle is volume. Volume patterns in this stock are not bullish. We've seen more volume on the downside than upside. This was enough to get me in as a short today.

I went short 100 shares of GRMN at $102.65.

Note that I am not making a big bet here. I took a small position and my stop is above the old high at $105.50. I am risking less than $300. It's never a good idea to make big bets against the trend.

A Low Risk, Risky S&P Trade

I bought 300 shares of SSO at $62.23. SSO is 2X long the S&P 500.

You may be wondering why I would go long an index in a downtrend, which I rarely do. The answer is quite simple. I am getting a low risk entry on a risky trade. Huh?

What I mean by low risk entry is I have an edge and an easy place to put my stop.

The edge is a postive divergence in both RSI and OBV. Both are signicantly higher now than they were at the preceding January low which we are currently hitting.

The stop can be placed just under the low. I am going to place mine somewhere in the $59-60 range. That caps my potential loss at about 4 percent and around $750.

So while the action itself is risky--picking a bottom or bounce in a downtrending index--the trade is not. It's the defination of low risk.



Important Update: Thanks to a reader with info on DCR, I exited 500 shares at $9.18 (entry at $8.64) for a $270 gain (+6.25). It's a bit complicated to write up here, but I do not feel it is a good way to short oil.

EOG . . .WOW!

I had much confidence in the EOG trade, but even I didn't expect the move to happen just hours after I entered. I took partial profits at my $127 target, exiting 100 shares for a $846 gain (+7.1%). I've moved my stop up to the entry point for the remaining 100 shares in order to "lock in" this gain.

Today's Trades: EOG and DCR

I bought 200 shares EOG at $118.54 today. The setup is a classic breakout pullback play on a stock exhibiting a strong volume pattern.



Now for the speculative play I spoke of in a previous post. I bought 500 shares of DCR at $8.64. DCR is a "down oil" ETF. It's basically a way to short crude oil.

This trade is entirely speculative and is not based on my usual trading setups. In fact, I rarely go against a well defined trend unless there are signs of an impending breakdown.

Today's Trade: MON

I took a small short position in MON today, shorting 150 shares at $108.53. As noted in my previous posts, distribution has taken over ag related sectors and MON is taking the lead in this phase.

I have yet to see a strong price move coupled with strong volume, which leads me to believe yesterday's bounce was due to short covering. I may have entered a bit early, since we are still a few points away from moving average resistance. However, I do not want to miss the next leg down.

GTLS Entry and a Speculative Play

I entered GTLS today, 400 shares at an average price of $34.22. This is one of my favorite setups, the earnings breakout-pullback. Take a look at the awesome volume pattern. My stop is just below the breakout bar, with an initial target at $38.



I wish I had time to highlight the rest of my trades today. I have plans to make one brave, speculative and possibly foolish trade tomorrow that is based on instinct rather than one of my usual setups. More to come . . .

Quick Thought: The Commodity Bounce

Many broken commodity plays, like the ag sector, have made big bounces today (as of 11:35 AM ET). Keep an eye on volume. One of two things is going to happen:

1. A low volume bounce which will be a "dead cat" signal. If this happens I will intitiate shorts in stocks like MON and TRA.

2. The sector comes storming back on strong volume. This will tell us that the recent action was merely a pullback and it's time to get long again.

Distribution patterns give the edge to the "dead cat" prognostication, but I won't enter in either direction until I get a clear signal.

Exite Trade Updates

CPLA: On Thursday, I went short 400 shares of CPLA at $55.68 based on a pullback from breakdown in its downtrend. I covered 150 shares on Friday at $52.66and another 150 today at $51.85 for a $1029 gain (+6.1%). I am still short 100 shares.

AKS: On Thursday I bought 300 shares of AKS at $54.64. I was stopped out today at $51.95 for a $807 loss (-4.9%). Looking back, this trade was a bad one. I was trying too hard to get into the steel move. The pullback I bought into wasn't the classic low volume pullback that I normally look for.

DECK: I went short 250 shares of DECK at $107.35. On February 20th I had bought 100 shares at $118.20, which I was still holding. I covered my entire short position Friday and today at an average price of $94.23, giving me a $5677 gain.

I hope to have updates on my trade entries later today.

BOOM!

I made some good money and a few trades today. I hope to have them all updated later tonight. Most of my time was spent closing out positions, but I did manage to make a few entries, both long and short. Can you guess which way I went with BOOM?

The Game Plan for Shorting Agriculture

As I previously discussed, I am no longer bullish on the ag sector. As DBA shows, the ETF is showing a distribution pattern common among tops. This weekend I analyzed the sector in search of shorts and came up with three names that head my watchlist: TRA, DE and MON.

Common among these three stocks are broken trend lines, distribution patterns and poor relative strength compared to the sector.

Take a look at the six charts below:



Compare the five stock charts (TRA, DE, MON, CF and MOS) to the ETF DBA. Notice that TRA, DE and MON have broken either a major trend lone or moving average. They all show pronounced downside volume. Most importantly, they all started making lower highs prior to DBA's recent pullback. Compare them to DE and MOS, which still look technically sound.

When shorting, I like to go with the laggards within a group. Therefore, when I decide to short the ag complex, I will likely do so with either TRA, DE or MON.

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DBA Analysis Revisited

On February 26th, I noted my skepticism about the ag sector. At the time ag ETF DBA was trading at $43. As of this posting, it is at $39.50.

I received many e-mails disagreeing with my analysis. This post is not to boast, but to point out how important it is not to get caught up with the hype. When a stock gets too far extended and starts showing a negative volume pattern while moving higher, it is either topping or pulling back to support.

While it's still early to tell, most ag stocks look "toppish" and show poor accumulation. In fact, many, like the ETF, are showing distribution patterns. While I'm not ready to short DBA yet, if we get a break of the 50 day ma, all bets are off.



One final note: If the stock makes a huge comeback today and closes positive, negate everything I just said and go long. It will have printed a long tail on heavy volume. That's very bullish.

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Today's Trade: GGB

I bought 200 shares of GGB, a steel stock, at $31.30.

I bought 200 shares of JOYG at $67.15.

I lightened up on my DECK and CPLA shorts.

I'll get more in depth on these trades later today. I have enough longs now and will look to add shorts on bounce.

Great guesses with regards to last night's post. The stocks that made it to my watchlist from the breakout scan are LVB, FDG and JOYG.

Guess why I made this trade?

The Breakout Scan is Broken

Only 15 stocks made my breakout scan, and of those, three of them were ultrashort ETFs. Three of the stocks on the list interest me. Take a look at their charts and try to figure out the breakout plays.

Today's Trade: CPLA (Short) and AKS

I went short 400 shares of CPLA at $55.68. This was a textbook short play that took a nose dive shortly after I entered. I bought after the stock's failure at the 200 day moving average. This is one of my go to patterns: broken momo stock, drops below 200 day moving average with heavy distribution. Enter on illusionary strength, meaning a bounce on low volume in the midst of distribution.

I also bought 300 shares of AKS at $54.64. The stock closed at $54.32. Steel has been on fire, so I am hoping we get a quick bounce back. My stop is tight, just under the last pivot low.

Market Notes and a Trade

There has been some confusion that I would like to clear up. Some of you think that I am bullish on the market because I am making long play on the S&P 500. Nothing could be further from the truth. This is a short term bounce play within a downtrending market. Until the indexes can break resistance, I am a bear who is willing to play situational longs.

This is the time to play a few bounces and get ready to reload shorts. For short plays, I am looking for broken stocks on my short list (stocks that have topped and now downtrending) that are making feeble bounce attempts.

This morning I added some to my DECK short, 50 shares at $107.35. If we continue to bounce on low volume tomorrow, you can bet I will add some more shorts.

Trade Update: SPY, ICLR, DECK

I bought 200 shares of SSO at $65.84. For those that didn't read last night's post, this trade is based on the oversold stochastic strategy. Not sure if I am in too early, as the read line is still above 20. However, the black line, which I focus on, is at 14. I used SSO instead of SPY for the added volatility, as it is 2 times long the S&P 500.



I bought 200 shares of ICLR at $67.35. This is an earnings breakout-pullback play.



I covered half my DECK short position (100 shares) at $103.14 (entry at $118.04) for a $1409 (+12.6%). I still am short 100 shares.

Trading SPY and Stochastics in a Bear Market

If recent history is any indication, the next time the stochastic indicator hits an extreme oversold reading of less than 20, it will be time to buy the S&P 500. Since October the SPY has hit this level 6 times and made at least a three point gain in 5 of those trades. That amounts to an 83 percent win rate. Not bad.

Study the chart below and device an entry plan. Blue arrows show winning entries and the orange arrow points to the sole loss. Note that this chart is from from Friday's close. Today's stochastic reading is 32.68, which is still way to early for entry.

I will likely enter on an extremely low reading, and use a 1.5 point stop. My target will likely be three points. This is how I play longs during bear markets. I become more precise with my entries (something I've advocated against in the past) and take quick profits.

SPY and Stochastics

I'll have more on this tonight, but keep an eye on the SPY and the stochastic reading (set at 5,3,3). Recent history suggests that an extreme oversold reading will be an excellent short term trade.

Elite Traders Are Not Afraid to Fail

I received an e-mail from a reader who has been gun shy since starting the year off with a couple of bad trades. Here is a post going back to September 2006 that hits this issue head on:

I just had an IM chat with a trading buddy. After listening to me whine about my two losing trades this week, he asked me a question: How many times did Babe Ruth stike out? Then he signed off.

Well, I had to look it up. The answer is one thousand, three hundred thirty times. I'll say it again, one thousand, three hundred thirty times. That's what it took the Babe to hit 714 home runs and drive in over 2200 runs. Interesting. How about some other sports?

Michael Jordan made 12,192 shots, including some of the most clutch shots in the history of the NBA. Guess what? He missed even more, 12,361 to be precise.

My all-time favorite quarterback, Joe Montana threw 1,982 incomplete passes and 139 interceptions. He also completed 3,409 passes, 273 of which were touchdown passes.

What did I learn from this little exercise?

1. Elite players/traders fall down and get back up. The cliche is very true.
2. Elite players/traders are not afraid to fail.
3. Elite players/traders manage risk.
4. Elite players/traders love crunch time.
5. Elite players/traders learn from their mistakes
6. Elite players/traders control their emotions (Montana was often called Joe Cool).

I don't remember many of Montana's interceptions or Jordan's air balls, but these two plays are forever etched in my mind: