Friday, August 29, 2008

Financials and Banks

Many financial and bank stocks are showing bottoming continuation patterns. However, SKF, the inverse ETF that I use to short the sector, is at a key support level and may be good for a quick trade.

The probability of the trade working is likely not better than 50 percent. However, risk is good. If entered here, around $116.50, stop could be placed around $114.50 (just under the 50 day ma). If your target is yesterday high at $123.50, that would give you a 3.5:1 reward to risk ratio.

Thursday, August 28, 2008

Monday's Trade Report

Below is the Trade Report I sent members on Monday. Many of the themes still apply, especially my focus on commodity short setups.

http://docs.google.com/View?docid=d5z8q8w_153kmg679f4

PRXL

I am hesitant to make any big moves going into the holiday weekend, but may take a few small positions in low risk setups like PRXL. Nice looking breakout-pullback play.

Wednesday, August 27, 2008

Intuition, Risk Taking and Trading

I had a discussion with a Trade Report member earlier today, who asked me about obsessions, compulsions and risk taking. He said his risk taking nature was hurting his trading results by getting him into trades he had not been charting, but had an intuitive "feeling" about. I am by no means an expert in this field. However, years of trading has given me and understanding of how these traits relate to my own trading.

I am a risk taker. I'm not talking about the type of risk control I blog about when making a trade. That's more of a trade management issue. What I mean here is the fact that I like to live dangerously and on the edge. When I'm playing poker, I'm the type that loves to bluff a weak hand, just for the adrenal rush I get during and after the bet.

I've worked hard to fight my risk taking inclination, but I still allow myself to make small high risk or speculative trades every now and then. Using the poker play as an example, I'll bluff, but only a small pot with little money invested. There is no way I would ever make that play on an "all in" bet.

Back in 2006 I was concerned that these types of trades might be a bad thing, so I asked Trading Psychologist Brett Steenbarger his thoughts. Here is the 2006 post:

One of my ongoing battles in the game of trading has been fighting my propensity for risk taking. I've used a variety of measures to combat this bad habit, one of which is actually allowing myself to take a risk every once in a while, as long as I use proper steps to manage that risk. For example, setting a tight stop and entering with a small position size. However, I've always wondered if this is a bad idea. Afterall, those with chemical dependencies are supposed to go cold turkey. Is allowing myself to "feed my habit" every once in a while going to lead me down a road I don't want to go on?

I posed this question to the esteemed trading psychologist, Brett Steenbarger. He sheds some great insights that have already helped me restructure my plan to fight risk taking. Here is his response:


You're asking a great question. There are traders (often who have
attention-deficit related problems) who seem to be attracted more to the action
of trading than to the making of money. They approach trading like gambling and
have difficulty tolerating periods in which they're not trading. I have
uniformly found that this *need* to trade and take risks is never truly filled.
Eventually the trader habituates to one level of risk taking and has to go still
higher to get that thrill. The result, invariably, is a blow up.

This is very different from the scenario in which a systematic, rule-based trader
decides to follow an intuitive hunch and place trades outside the rules. Those
intuitive hunches may represent a pattern recognition that results from long
hours of seeing and internalizing markets. I think those kinds of trades are
fine, as long as they're properly sized and as long as you keep score on them to
determine whether or not your intuition really is based on something driving
supply and demand.

In general, I think it's important to have outlets for one's needs that are outside of trading. If you have social needs, it's important to have separate outlets for those so that they don't interfere with trading. Similarly, if there are needs for risk and excitement, it makes sense to get those fulfilled outside of trading so that you can better focus on your discipline when you're in the markets. Unfulfilled needs often drive our behavior, and I'm not sure "cold turkey" is a practical solution. That's very
different from making the occasional intuitive trade when an idea just feels
right.

Brett N. Steenbarger,
Ph.D.

Now that I think about it, I wouldn't characterize my "risks" as "falling off the wagon" type risks. They are usually based on intuition gleaned through experience with the markets, which would seem to be perfectly healthy as long as proper risk measures are taken. Thus, no need to change my trading plan. What a relief. Thanks for the advice doc!

MOS Trade

I've decided to increase my short position in MOS, with 200 shares at $89.61 (update: sorry about the typo--that's 108.61).

Tuesday, August 26, 2008

Stalking U.S. Steel

I am currently stalking X (US Steel), waiting for some low volume strength to get short. I'd like to enter as close to the 200 day MA as possible.

Monday, August 25, 2008

Trade Update: QLD and MOS

I went short 400 shares of MOS at $109.11. I highlighted this stock in the blog last night as one of my favorite commidity related shorts. See my last post for the setup. My stop is around $115 with my initial target at $95. This is where I would take partial profits, move my stop up, and let the rest "ride".



I bought 300 shares of QLD this morning on weakness, at $77.55. I highlighted this setup in last night's trade report:

There is less confusion in the Qs than SPY. The July accumulation zone was marked by strong volume and positive divergences in RSI and stochastics (we noticed back then and traded it). Q then raced higher and mounted both moving averages before pullback back to support. Thursday it printed a hammer tail at support, which was confirmed on Friday. The pullback created an oversold stochastic that is turned up. This is the type of healthy price movement we want to see in a long setup. I may enter tomorrow.

It's Time To Short Commodities

Over the past week I have been watching for the commodity bounce to reach resistance and begin to fade. We are nearing that point in many commodity stocks. I will likely stay away from energy, as I do see more room to the upside for oil. This could boost energy stocks.

Steel, agriculture, copper, gold and silver related stocks all are close to good short entry points.

MOS is a good example of stocks in the ag industry that look ready for another run down. The topping formation is complete and we are now looking at the continuation setup. Price has pulled back to the what was once support for the topping formation. It is now resistance and provides a good entry point.

My intial target would be the recent lows. This is where I would take partial profits, move my stop up, and hold on for even more potential gain. There are two logical stop points. Either just above the 200 day MA or the resistance line.


Friday, August 22, 2008

AAPL

While I am by no means bullish on AAPL, a break of $180 would provide a clue as to the stock's short term price movement.

Thursday, August 21, 2008

Quick Trade Update

I bought VLO on weakness this morning. The stock has been showing strong accumulation during the bottom consolidation area, along with positive divergences in indicators. I also took partial profits in my energy plays (USO and DIG).

More details later. Here is the VLO chart from last night's trade report:

Wednesday, August 20, 2008

Playing the Breakout Trading Range: IPHS

IPHS broke out in early August and is now developing a trading range between the breakout highs and lows. This has created a low risk set up. I would like to buy on a pullback to the $33-35 range with a target of $40 and a stop around $31-32.

Overall, the stock shows a nice volume pattern, stochastics are oversold and we have a nice uptrend in place. The only concern is the negative RSI divergence. This may set the stock up for failure on a retest of highs. Since that is the target, the breakout trading range trade still looks good.

Trade Review: UTHR

As noted in my the setup post for the UTHR trade, I had placed my stop below the August 14th confirmation candle. I was stopped out today for a small loss.

I highlight this trade because, frankly, it was not one of my better entries. Take a look at the chart for UTHR:




Technically, the setup was nice and in fact, still is not bad. That's the problem. My entry left me with no choice but to place my stop at an exit point that prematurely takes me out of a still developing setup.

Notice that my stop was above the huge late July breakout bar and just a above the 50day ma. A more ideal place for my exit would have been just under the moving average and breakout bar. However, since my entry was too far from these support lines, I had to place my stop under that confirmation bar (at $105 rather than $103) to better manage risk. I don't allow for big or even meduim size losses.

In hindsight, I either should have passed on this trade or waited for a pullback that improved my entry and gave me a better stop while still fitting with my risk parameters..

This one goes in the journal as a bad trade.

Tuesday, August 19, 2008

SPY Trade Analysis

Last Monday (August 12th) I took a small SPY short position based on a "failed breakout" scenario, above $131 (I actually used SDS--the inverse ETF). It's now trading at $126.69. Below is what I wrote to my trade report members. It explains not only the setup, but the thought process and trade management strategy that went into the trade:

Price action in the SPY crossed a major hurdle by closing above the 50 day moving average today. The key now is to see if this level will hold. I still expect a pullback, and actually went short today at the close. Very small position. There is absolutely no setup that I trade that told me to go short today. I can't remember the last time I took a short position when a stock crossed above the 50 day moving average. This trade was based on a hunch and some "risk strategy".. I have a feeling that the market will not be able to sustain this upmove without a pullback.

Many of you are probably thinking this is a dumb trade. I won't argue with you, but let me explain my reasoning using poker.

This weekend I was at a table with 5 other players. All five players had called a $12 bet, and I was the "big blind". If you don't play poker, don't worry about what that means. All you need to know is I needed to put $6 into a pot that was had already built up to $60. Thus, my pot odds were 10:1.

I did not have a great hand. I was holding pocket 9s (two nines). Considering everybody was playing, at least a few players were likely holding a card higher than 9, and the upcoming community cards would likely have at least one card higher than nine, there was a good chance I would lose the hand. However, there was an eight percent chance that one of the community cards would be a 9. That would give me a set, which is a strong hand that I would likely win. Chances are also good that if a 9 did come on the flop, I could sucker at least one or two players with a higher two pair into betting more money that they would inevitably lose.

Let's say whenever a 9 comes I can figure on winning an average pot of $120. Using the 8 percent chance, I will win $960 every 8 out of 100 times this happens. I will lose a total of $552 total in the other 92 hands for a total gain of $408 over 100 hands with pocket 9s. I know some of the poker buffs will argue with my $120 figure--I'm going by my own experience and ability to read opponents and disguise my own hand.

An aside for the poker fans: What actually happened was a miracle . . .a 9 did come down on the flop, and so did an king (and no flush or straight draws). The guy with the king went all in, $230 and I called. I ended up winning a $300+ pot (excluding my own contributions), based off an initial risk of $6 that allowed me to see the flop.

Now can you see where I'm going with the SPY short trade? There is a good chance I will lose with the trade. I know this going in. Based on my stop placement and position size (200 shares) I am risking very little just to see what happens. I have placed my stop around $132 (I am actually using SDS to short, so $132 and 200 shares are is not exact figures).

Now if we get a failed breakout (SPY breaks back down below the 50 day MA), I think there is a good chance of a retest of lows ($120-122). Let's say I place my target above that at $122. I have risked $230 with the chance to "win" almost $2000. I can get stopped out 9 out of 10 times, as long as one of the trades reaches my target, and still break even.

See the logic? There is a method to my madness. I'll take looking bad for a trade or two (or 8), as long as in the long run it makes me money.




There were a few days that I thought about getting out of the trade (when SPY remounted the 50 day ma), but decided to stick with my original analysis and stop. Spy has now convincingly broke down below the short term trendline and 50 day ma.



This might mark another decent entry point, as I would not be surprised to see more downside near term. Here is what I wrote about SPY in last night's trade report:

The early "failed breakout" short play in SPY that I took on last week is still in play. Price closed just below the 50 day ma, but not enough to get really excited. If SPY closes tomorrow below the trendline in the chart below, I expect we'll see lower prices.

If not already in the SPY short trade, I still feel there are only two places to enter short. Either on a break below the trendline and 50 day ma, or a rise to the 200 day ma (see yesterday's report)




Finally, here is the SPY discussion from Monday's report, which setup the short scenario in more detail:

I noted early last week that the SPY presented a low risk short play. Remember that low risk does not mean high probability. Risk is only a measure of what you could lose versus what you can gain. I also laid out how I take on many low risk trades, lose out on some with small losses, but will have a few big gains that more than make up for the losses.

While SPY the low risk short has not officially turned into a loss yet, it has mounted the 50 day and Friday held up above that support level. The stop is above the recent high of $132, so the possibility of the failed breakout trade working out still exists, but there is not doubt the bottoming pattern is still in play. While I will stay with this trade until the stop is hit, I would not recommend initiating another SPY short just yet.

However, I am not likely to go long either. Volume on this upswinging bottom play is not the type that propels price dynamically higher. This could be a result of options week, but still, I don't like entering longs if volume does not confirm price.

If you are looking at an opportune time to short SPY again, there are two low risk entries.

1) If price again breaks down below the 50 day ma. The low volume makes this a decent possibility.

2) On a low volume rise to the 200 day ma, in the 135-137 range. This presents a great short on two different time frames. We already know the daily like the back of our hands, so let's flip down to the weekly chart.

Daily




Weekly:
The first thing that jumps out is the head and shoulders top formation. During the top formation, RSI has down trended and volume has shown a great amount of distribution (selling). Now, price is pulling back up towards the neckline of the head and shoulders formation, which should act as support. This is a good, low risk area to place a short trade. Add to that that this level is also right around where the downtrending 50 week ma is hoverning (138), and is also the same area where the daily 200 day ma is located (136)--well, talk about a great short setup.




It will take time and patience for this trade to setup, but keep on the lookout. In the meantime, watch for a breakdown of the daily 50 ma, and focus on trading setups.

No new sectors that we have not already discussed jumped out at me, so I'm going to go straight to the watchlist. Lots of stocks setting up. This week we have over 60 that we will focus on.


Whew . . .it's been an exciting trade with many ups and downs. This is a good example of how important it is to stick with your trade until your stop or target is hit.

Monday, August 18, 2008

Trade Entry: VISN

I bought 400 shares of VISN at $18.38.

This stock was highlighted in today's trade report, with a buypoint in the $18-19 range.

The Setup: Breakout pullback . Volume pattern is solid. Stock is pulling back from recent highs and seems to be showing strength at moving average support. The pullback has been somewhat volatile. However, strong volume pattern still makes this setup attractive.

Risk: Stop can be places under the 50 day ma or the bottom of Friday's support confirmation bar. Target is the recent high, in the $24-26 range.

Friday, August 15, 2008

Trade Entry: SAFM

I took a small 1/4 size pilot position in SAFM today, buying 100 shares at $43.29. This stock was highlighted in the trade report, with a buypoint in the $42-34 range.

The Setup: Breakout pullback following a strong bottoming formation. Volume pattern is solid. Stock is pulling back at recent highs. I expect a pullback to the bottom of the breakout bar, around $42. It's also possible that healthy pullback could reach the 50 MA, at $40.50. For this reason, I took a small probing position with the expectation that there could be more of a pullback. If the pullback is orderly and on low volume, I will buy more at the mentioned support levels.

Risk: Stop is under the 50 day MA with a target at old highs, around $50.


Thursday, August 14, 2008

Trade Entry: UTHR

Entered long 100 shares of UTHR at $108.29.

Setup: Breakout-Pullback. The stock pulled back to the bottom of the breakout bar before confirming support today. The recent trend is higher highs and lower lows. Buying pullbacks has been lucrative. Nice volume pattern.

Risk: My stop is under the tail of today's candle, at $105. the intial target is the recent high at $117.

Concerns: Large down volume two days ago, the stock closed only a little off highs. Would have liked to have seen more volume today.

Wednesday, August 13, 2008

Free Sample Trade Report

I am providing the Thursday, August 14 edition of the Market Speculator Trade Report today for blog readers to sample.

http://docs.google.com/View?docid=d5z8q8w_102d23q5jfm

If you are interested in subscribing to the Trade Report, click here for more information.

SPY Breaches Key Support Level

As I noted in the member only Trade Report two days ago, I took an early entry short position in SPY (via short ETF SDS)based on the idea that a failed breakout could lead to big gains, while continued up move would stop me out for only a small loss.

Today we got the breach of the 50 day moving average (as of 11:45 ET). The next key level is the long breakout bar posted 4 days ago. If that support level does not hold, I would not be surprised to see a retest of the recent lows, in the $120-122 range.

Tuesday, August 12, 2008

A Blast From the Past

I like the breakout-pullback setup in FFIV, one of my favorite momo stocks from what now seems like ages ago. Stock broke out over resistance, there's a nice volume pattern and money seems to rotating into select tech stocks.

The fact that the recent breakout was not on heavier volume leads me to believe there will be a pullback. I see to buy areas. First, the support area marked in the chart below, in the $32.50-34 range. However, if the market pulls back as well, I wouldn't be surprised to see a deeper pullback to the 50 day MA, $30.85.

Monday, August 11, 2008

USO Trade

As planned in last night's post, I took a small position in USO once we got some weakness. I entered long 100 shares at $91.47. My stop is placed under the 200 day MA.

OT: Looking For Gavin Walsh

Gavin Walsh,
Please contact me at Singhjd1@aol.com. Do not use the e-mail address that starts with "service . . . "

Sunday, August 10, 2008

Oil is Setting Up for an Oversold Bounce Trade

Oil is reaching extreme oversold status. If USO (the oil ETF) drops a few points tomorrow morning, or within the next few days, it will provide a low risk long entry. Note that these oversold bounce plays require short hold times and a tight, logical stop. I would place a stop under the 200 day moving average.

Wednesday, August 06, 2008

Trade Entry: POT

In last night's Trade Report, I highlighted commodities as an oversold bounce setup. I used POT as my primary example and entered today based on last night's analysis.

I bought 300 shares of POT at the open at $176.31.

Setup: Oversold bounce setup, within a longer term topping pattern. Stochastics are oversold and the stock bounced off strong support.

Risk: My intial stop is under the 200 day moving average. My target is not as precise. The intial target is $195, just under the breakdown bar. However, we could see a move up to $215, around the 50 day moving average. I will likely take partial profits as each target is hit and move my stop up.

Concerns: Downtrending stock and sector. Volume could have been higher today.

Tuesday, August 05, 2008

Airlines

I have been saying almost non-stop over the past couple of weeks that airlines are in a short to intermediate term bottoming formation!!! Take a look at the capitulation day in mid-July, followed by that purdy volume pattern. Does it get any better than that?

As noted earlier today, I exited UAUA, for a gain, but not as big of a gain as I could have had if I had held it to the close. Going into the fed announcement I felt I was over exposed on the long side and I was holding two airline stocks.

I did hold onto CAL. I took partial profits at the close, but am still holding a nice sized position going forward.

CAL was first mentioned as a bottoming setup in the Trade Report on July 21. It was trading at $9.25 at that time and is now trading 58 percent higher, closing today at $15.91.

Quick Trade Update

I have exited SSO, LVS, UAUA and AUXL for gains. I also exited the remaining JRCC short position for a positive gain.

More details later.

Monday, August 04, 2008

Trade Update: JRCC, UAUA, CAL, AUXL, SMG, CRY, SSO, POT

Here is an update of today's trades. I hope to have charts posted tonight.

I covered half my short position (200 shares) in JRCC at $37.40 (short at $44.10) for a $1340 gain (+15%). I still have a 200 share short position. My stop is moved up to entry.

I am still holding my UAUA and CAL positions.

I bought a few stocks on my weekly focus list (which was distributed last night to subscribers):

200 shares LVS at $43.14

100 shares AUXL at $70.41

100 shares of SMG at $22.46.

200 shares of CRY at $13.21.

100 shares of SSO at $58.54.

Note the very small position sizes. I am not making any big bets here, and any losses on these will be small.

I also went short POT on the early morning pullback the opening highs, buying 100 shares at $194.68. I closed out half the position at $187.40, which was near the three day low. I am still hodling 50 shares.

Quick Trade Update

I took partial profits in the JRCC short, bought a few of my weekly watchlist stocks on dips and made a couple of daytrades in a few commodity shorts (Ag and energy), while still holding partial positions.

I'll have more details later.

Staying Away From Steel

While I am decidedly bearish on most commodity sectors, the one sub-sector I am staying away from is steel. Steel stocks are all over the place.

Take a look at the sampling below. Two steel stocks have made huge upside moves and could be reversing the recent topping pattern (AKS and X). MTL, ZEUS and RIO are in ugly downtrends. Then there is MT, which is caught in the middle.















I'm going to stick with the easy commodity trades. I feel much more comfortable trading a sector where a majority of stocks are headed in the same direction, like indpendent oil and gas.

Friday, August 01, 2008

Message for Trade Report Subscribers

If you are a subscriber to the Market Speculator Trade Report and have not received the Report or my e-mails, please email me at SinghJD1@aol.com and supply me with two different e-mail addresses to send the Report. Yahoo members seem to be the only ones having problems. Make sure one of the e-mail addresses you send me is not yahoo.

I have also set up a site that archives the reports. If you are a yahoo member you may not have received the e-mail detailing the archive site.