I am posting today's issue of the member only Trade Report. It is the shortest report I have published, and has the smallest focus list ever presented. There are also no charts. However, there is an important lesson that applies to blog readers as well as report membersqau.
http://docs.google.com/View?docid=d5z8q8w_313cgc6qqtr
Tuesday, September 30, 2008
Monday, September 29, 2008
5 Ways to Play this Historic Bear Market
There are a lot of theories about how to play the current market. Some are predicting Armageddon. Others think this is the mother of all bullish trade opportunities. Then there are those who think it's best to stay out of the market altogether. Very few of these theories provide a sound strategy that allow you to take advantage of your thesis without risking a major chunk of your portfolio.
Here are five sound strategies and how I would employ each one with the idea of staying solvent, while allowing you to "play" without risking your financial future.
1. The "cash is king" strategy.
The simplest, low risk and stress-free way to play this market is to sit back and let everything play out. Only once "normal" trading patterns present themselves should capital be deployed. You won't make anything, but you will have plenty of ammo once it's time to play.
2. Short like there is no tomorrow, but with a safety net.
There is no question that our economy is in horrible shape, and technically the indexes are still far away from multi-year support levels. If you think these levels will be reached, go ahead and short. However, make sure manage entries and risk. Bear markets can have unbelievable bounces before heading lower. Make sure not to get caught in one, and if you do, make sure to get out before it hurts you. I would not risk more than .5% on any trade. Entries on pullback will also help limit risk.
3. Catch the falling knife, with padding.
It's always risky going against a bear market trend. However, if you manage risk, you can take a bunch of small losses and still make money if the market reverses or bounces strong. For instance, you could take 6 losses of .5 percent and still make a lot of money if we get a major bounce in the coming days and weeks. The last five 2008 bear market bounces in SPY all averaged over 7 percent.
4. Go "all in" with a slice of the portfolio
So you are sure the market will scream higher and don't want to worry about managing risk or getting stopped out of a good trade. At the same time, you're scared of being wrong and losing it all. Take a percentage of your portfolio and go for broke with that small slice.
For instance, let's say you have $100,000 in your account and are willing to lose 10 percent of it. This number can vary according to your own risk tolerance and personal financial situation. Take $10,000 and put it to work. For simplicity sake, let's say you only are trading one position, SSO (leverage long S&P). You set $40 as your entry with a target of $67, which is the 200 day moving average. The most you could lose on this trade is $10,000. You will still have $90,00 when all is said and done (though it's hard to imagine that happening--SPY going all the way to 0). If your target is hit you make $6,700. Thus, you're either going to end up with $106,700 or at the worst, $90,000.
Note that this still is not a good risk/reward ratio, though the probability for this trade hitting $106,700 is greater than dropping to $90,000. How do we increase the reward-risk?
5. Put a bigger percentage of the portfolio to work, but risk only 10 percent
Let's take the same SSO trade. This time, instead of only putting 10 percent of the account to work, we use the entire $100,000, buying 2500 shares at $40. The target is still $67. Now, if you are correct, you will make $67,500. To make sure you don't lose more than $10,000 of the $100,000 stake, you must place a stop 4 points from entry. Thus, you would be stopped out if the stock hits $36.
We have turned the reward/risk on it's head. Instead of the negative reward to risk from strategy 4, we have a positive 6:1 risk to reward! The upside is now $167,000 instead of $106,700, while the downside is still only $90,000.
I know it sounds like the only way to go, but there are two major negatives to this strategy:
*If the market did something completely unexpected (As Nassim Taleb would say, a Black Swan event), and SSO gapped down 20 points in one day, you would lose half your account ($50,000).
*You are forced to use a tight stop to maintain proper risk management. This could take you out of a trade that ultimately goes your way.
Note: For strategy 5, I personally would risk a "cumulative" 10 percent of the portfolio, but not with one position. I use one position in the example of simplicity.
While all five of these strategies are very different, they all are viable and will likely keep you solvent. In this market, limiting risk and maintaining the necessary chips to play once we have aces is vital. Don't make any big bets without proper trade and risk management, and trade safely.
Return Home
Here are five sound strategies and how I would employ each one with the idea of staying solvent, while allowing you to "play" without risking your financial future.
1. The "cash is king" strategy.
The simplest, low risk and stress-free way to play this market is to sit back and let everything play out. Only once "normal" trading patterns present themselves should capital be deployed. You won't make anything, but you will have plenty of ammo once it's time to play.
2. Short like there is no tomorrow, but with a safety net.
There is no question that our economy is in horrible shape, and technically the indexes are still far away from multi-year support levels. If you think these levels will be reached, go ahead and short. However, make sure manage entries and risk. Bear markets can have unbelievable bounces before heading lower. Make sure not to get caught in one, and if you do, make sure to get out before it hurts you. I would not risk more than .5% on any trade. Entries on pullback will also help limit risk.
3. Catch the falling knife, with padding.
It's always risky going against a bear market trend. However, if you manage risk, you can take a bunch of small losses and still make money if the market reverses or bounces strong. For instance, you could take 6 losses of .5 percent and still make a lot of money if we get a major bounce in the coming days and weeks. The last five 2008 bear market bounces in SPY all averaged over 7 percent.
4. Go "all in" with a slice of the portfolio
So you are sure the market will scream higher and don't want to worry about managing risk or getting stopped out of a good trade. At the same time, you're scared of being wrong and losing it all. Take a percentage of your portfolio and go for broke with that small slice.
For instance, let's say you have $100,000 in your account and are willing to lose 10 percent of it. This number can vary according to your own risk tolerance and personal financial situation. Take $10,000 and put it to work. For simplicity sake, let's say you only are trading one position, SSO (leverage long S&P). You set $40 as your entry with a target of $67, which is the 200 day moving average. The most you could lose on this trade is $10,000. You will still have $90,00 when all is said and done (though it's hard to imagine that happening--SPY going all the way to 0). If your target is hit you make $6,700. Thus, you're either going to end up with $106,700 or at the worst, $90,000.
Note that this still is not a good risk/reward ratio, though the probability for this trade hitting $106,700 is greater than dropping to $90,000. How do we increase the reward-risk?
5. Put a bigger percentage of the portfolio to work, but risk only 10 percent
Let's take the same SSO trade. This time, instead of only putting 10 percent of the account to work, we use the entire $100,000, buying 2500 shares at $40. The target is still $67. Now, if you are correct, you will make $67,500. To make sure you don't lose more than $10,000 of the $100,000 stake, you must place a stop 4 points from entry. Thus, you would be stopped out if the stock hits $36.
We have turned the reward/risk on it's head. Instead of the negative reward to risk from strategy 4, we have a positive 6:1 risk to reward! The upside is now $167,000 instead of $106,700, while the downside is still only $90,000.
I know it sounds like the only way to go, but there are two major negatives to this strategy:
*If the market did something completely unexpected (As Nassim Taleb would say, a Black Swan event), and SSO gapped down 20 points in one day, you would lose half your account ($50,000).
*You are forced to use a tight stop to maintain proper risk management. This could take you out of a trade that ultimately goes your way.
Note: For strategy 5, I personally would risk a "cumulative" 10 percent of the portfolio, but not with one position. I use one position in the example of simplicity.
While all five of these strategies are very different, they all are viable and will likely keep you solvent. In this market, limiting risk and maintaining the necessary chips to play once we have aces is vital. Don't make any big bets without proper trade and risk management, and trade safely.
Return Home
Trade Update
I took partial profits in DUG today for a big gain at two points, $40 and $42. I am still holding a position.
I exited AAPL for a big loss.
I was stopped out of USD for a very small loss.
I was stopped out of X for a small loss.
I bought SSO at an average price of $46.11 during panic selling.
I bought POT at an average price of $128.37 during panic selling.
Note that all position sizes are small. For example, with the SSO trade, I am not even risking .2 percent of my portfolio. I can take a number of lossed before even making a dent. My thought process right now is to be willing to take some small losses with the possibility of a big gain.
I exited AAPL for a big loss.
I was stopped out of USD for a very small loss.
I was stopped out of X for a small loss.
I bought SSO at an average price of $46.11 during panic selling.
I bought POT at an average price of $128.37 during panic selling.
Note that all position sizes are small. For example, with the SSO trade, I am not even risking .2 percent of my portfolio. I can take a number of lossed before even making a dent. My thought process right now is to be willing to take some small losses with the possibility of a big gain.
Sunday, September 28, 2008
Game Plan
This weeks game plan is to expect a bounce that will fail at a major resistance level. That will be the time to start shorting again. In the meantime, I will look to take a few positions to play a bounce. I am already in AAPL, X and USD, which are oversold bounce setups.
Saturday, September 27, 2008
Postive Divergence in Apple
Today I entered AAPL at $124.92. I like the way the stock has handled the retest of the recent low, holding the level and printing positive divergences in a few indicators. While the primary trend is down, I expect that resistance will be tested. The range marked on the chart below provides a good idea of my entry and exit areas.
Friday, September 26, 2008
Trade Update: AAPL and X
I took two long positions today, AAPL (124.92) and X ($85.53). Both are oversold and will do well if the market bounces.
Thursday, September 25, 2008
Covering the Commodity Shorts For Nice Profits
I could not have asked for more from the PCX, FWLT and POT trades. I covered my entire positions and may short again on strength. Note on the charts below that there is still room to fall. Those of you who have been with me for a while know I would usually leave some of my positions open for more profits. However, this market is very volatile, so I am taking profits earlier than normal--especially when I already have solid gains.
Note that this is not overtrading, which I discourage. I still require a solid profit and at least two times my risk before exiting. However, good traders must adjust trading styles to market conditions.
I am still holding DUG and USD (trade mentioned in trade report). USD may be carving out a bottom.
Note that this is not overtrading, which I discourage. I still require a solid profit and at least two times my risk before exiting. However, good traders must adjust trading styles to market conditions.
I am still holding DUG and USD (trade mentioned in trade report). USD may be carving out a bottom.
Wednesday, September 24, 2008
Trade Update
I sent the following trade update to report members this morning:
Yesterday I covered 3/4 of the position sizes in each of my short positions at the close. I am holding on to the remaining 1/4 positions (plus the addition too POT), in case there is another leg down. My stops have been moved up to entry point.
I added two commodity shorts this morning on strength, PCX ($39.44)and POT ($168.82). Both are small positions. As you know, I shorted POT yesterday and took profits on 3/4 the position. I now am up to 1/2 my original position size.
Yesterday I covered 3/4 of the position sizes in each of my short positions at the close. I am holding on to the remaining 1/4 positions (plus the addition too POT), in case there is another leg down. My stops have been moved up to entry point.
Tuesday, September 23, 2008
Trade Update: POT, PBR and FWLT
This morning, according to my plan last night, I went short (small positions) POT, PBR and FWLT on strength. I tried to short USO--I did not know it is not shortable. Can anybody confirm this for me?
I have a busy day full of meetings, but hope to have postion size, entries and charts later today.
I have a busy day full of meetings, but hope to have postion size, entries and charts later today.
Narrow Focus List
I have narrowed my focus list to less than 10 stocks for tomorrow's trading day. The only decent setup I see is short commodities. Many are right up at resistance lelves. Any trades will be taken with very small position sizes.
Monday, September 22, 2008
Trade Update: All Cash
I've been out of town since Friday and did not have a chance to update the blog. Here is an excerpt about my trades and plan from Friday's Trade Report:
I currently have no positions, though I may make a few small nibbles today. Many commodity stocks are near resistance levels, but shorting is very risky right now.
It's obvious today was a short covering rally. Large price moves like we saw today that aren't confirmed by volume are almost always short covering rallies. I mentioned last night that the 50 day MA would provide resistance for SPY. It's amazing how strong that resistance was today. Under normal market conditions, I would initiate a short position after the failure, but I decided against it. For one, there is the fear of a ban on shorting. Second, we have no idea what type of news will come out over the weekend. I don't want to hold any positions and risk a gap open that goes against my trade on Monday.
For that reason, I exited all my positions today. As noted in the blog, I exited everything this morning for big gains during the first hour of trading. I then re-bought SSO on the pullback. I decided I didn't want to hold anything over the weekend and exited at the close with a minimal gain.
I currently have no positions, though I may make a few small nibbles today. Many commodity stocks are near resistance levels, but shorting is very risky right now.
Friday, September 19, 2008
How I Profited From the Biggest Gap Ever in SPY
Today was the biggest gap up ever for the SPY. Here are links to the past two Trade Reports, where you can see how I outlined my plan for trading SPY:
September 18 Report
September 19 Report
Trade Update: I exited all my long positions at the open this morning for nice profits (SPY (SSO), USO, KSS and TOL). I re-entered SSO a few minutes ago at $56.79 (300 shares). SSO hit the exit point I mentioned last night at the open, providing what is likely the best two day trade (percentage gain of trade, not dollar amount since I had only an average size position) I have ever made.
Update 2: I received an e-mail asking why I am not trading more today. Two reasons:
1. We are in uncharted territory.
2. This is likely a huge short covering rally based on the lunacy of our government. I would not be surprised to see the market crater next week.
More info on subscibing to the Trade Report.
September 18 Report
September 19 Report
Trade Update: I exited all my long positions at the open this morning for nice profits (SPY (SSO), USO, KSS and TOL). I re-entered SSO a few minutes ago at $56.79 (300 shares). SSO hit the exit point I mentioned last night at the open, providing what is likely the best two day trade (percentage gain of trade, not dollar amount since I had only an average size position) I have ever made.
Update 2: I received an e-mail asking why I am not trading more today. Two reasons:
1. We are in uncharted territory.
2. This is likely a huge short covering rally based on the lunacy of our government. I would not be surprised to see the market crater next week.
More info on subscibing to the Trade Report.
Thursday, September 18, 2008
Long Bias
The market is reaching extreme levels, which gives me a long side bias. However, I won't take any full size positions until I see more weakness. We still have not reached the extremes of the July lows, and indicators like T2108 still need to drop a bit.
I also like the commodity sector. It held up well today, and could be carving out a bottom prior to the overall market.
I was stopped out of ARO and LOW for small losses today.
I also like the commodity sector. It held up well today, and could be carving out a bottom prior to the overall market.
I was stopped out of ARO and LOW for small losses today.
Wednesday, September 17, 2008
USO and TOL
I took a small position in USO today. Tight stop with initial target at $80.
I took a small position in TOL today on the pullback. Tight stop with initial target at $26.
I took a small position in TOL today on the pullback. Tight stop with initial target at $26.
Tuesday, September 16, 2008
Buy the Dip
I'd suggest most traders continue to stay on the sidelines. If trading, my preference right now is short term long plays. Homebuilders and airlines look good, but only on pullbacks.
Position Update
My retail positions are holding up quite nicely (KSS, ARO and LOW). KSS and ARO are still above entries, and LOW has not hit it's stop. I still plan to hold these until my stop or target is hit.
I've decided to hold onto USD and lower my stop. It is a bit of a risk, but with the small position size a loss would still be insignificant.
As planned, I made no trades today.
I've decided to hold onto USD and lower my stop. It is a bit of a risk, but with the small position size a loss would still be insignificant.
As planned, I made no trades today.
Monday, September 15, 2008
The Plan
The plan for tomorrow is simple: wait for the buying opportunity. Once panic really sets in and we get some extreme oversold readings, it will be time to buy. That's what my studies of past panic events tells me.
Most likely, the time to buy will not be tomorrow. It's fine to make small position trades just in case there is an early move (as I did with USD) or you want to play for more downside, but the big bets should come later.
I have thrown out my watchlist and trading setups and am focusing on leveraged index ETFs (SSO, QLD, USD,DIG, etc), along with some commodity names.
I go into more detail on my strategy, with comparisons to a past "panic" event in the Trade Report.
Most likely, the time to buy will not be tomorrow. It's fine to make small position trades just in case there is an early move (as I did with USD) or you want to play for more downside, but the big bets should come later.
I have thrown out my watchlist and trading setups and am focusing on leveraged index ETFs (SSO, QLD, USD,DIG, etc), along with some commodity names.
I go into more detail on my strategy, with comparisons to a past "panic" event in the Trade Report.
USD Update
If USD does not bounce from it's current price, I'm going to close out my position. It's already very close to my stop.
Today's Trade: USD
Wow, what a morning. As I noted in the Trade Report last night, it is not the time to make any big bets. However, today's reaction may provide some good opportunities.
I came into today with very few setups. One was to buy USD on weakness based on the oversold bounce idea (though it is a short setup once it hits the 50 day MA). As planned, I bought this morning's weakness, 250 shares at an average price of $33.86.
My stop is under today's low, with a target in the $38-40 range. This guves me close to a 5:1 reward to risk.
My retail plays (KSS, ARO, LOW) have held up well despite this morning's carnage.
I came into today with very few setups. One was to buy USD on weakness based on the oversold bounce idea (though it is a short setup once it hits the 50 day MA). As planned, I bought this morning's weakness, 250 shares at an average price of $33.86.
My stop is under today's low, with a target in the $38-40 range. This guves me close to a 5:1 reward to risk.
My retail plays (KSS, ARO, LOW) have held up well despite this morning's carnage.
Saturday, September 13, 2008
Future Plans for the Site: The Mini-me Account
Back in January I planned three big changes for this site. Number one on the list was the Trade Report, which has been a tremendous success. In just over two months I have five times the amount of members I had targeted for the end of the year. Most important to me, the positive feedback from members has been overwhelming.
Now that I'm getting in the groove with the Trade Report, I am going to start working on my other two goals for the blog. It's still too early to discuss the third item. . However, I am ready for goal number two.
Mini-me Live Account:
Back when I first started trading in the 90s, I started with a little over $2000 and turned it into a significant sum, without ever adding a penny to the account. I've always wondered if it was luck or skill.
A decade later I am a much better trader. Lately I have had the itch to see if I could replicate the results of my early trading days. I have decided to find out right here, in public on this blog. Coming soon I will open a small account. Hopefully it will be within the next month or two. I haven't decided how much to put in, but it will most likely be whatever the minimum is to trade on margin. It won't be more than $5000.
I will link the "mini-me account" up with covestor so that it can be tracked publicly. My strategy will be to take my favorite swing setup, set upside targets at 5-15 percent with downside stops at 2-3 percent. I will only trade that stock until it hits the preset stop or target.
I appreciate your thoughts and comments about this plan. You can leave a comment here or e-mail me at Singhd1@aol.com
Friday, September 12, 2008
Trade Entries: KSS, ARO and LOW
Retail stocks are nearing my entry levels. However, the negative retail report could pull them down further. For this reason, I am taking small position sizes in my retail trades and using tight stops--KSS, ARO and LOW.
I bought 150 shares of KSS at $50.44
I bought 150 shares of ARO at $34.02
I bought 200 shares of LOW at $25.30
I bought 150 shares of KSS at $50.44
I bought 150 shares of ARO at $34.02
I bought 200 shares of LOW at $25.30
Final Exit in Pot Trade
update (11:57am): typos fixed. Thanks to those who pointed them out.
I exited what was left of my POT position at $159.89. The final details of the trade.
100 shares of POT bought at $139.22
Exit 50 shares at $150.04
Exit 50 shares at $160.06
Average exit $155 for 11.3% gain.
Total Profit : $1583
I exited what was left of my POT position at $159.89. The final details of the trade.
100 shares of POT bought at $139.22
Exit 50 shares at $150.04
Exit 50 shares at $160.06
Average exit $155 for 11.3% gain.
Total Profit : $1583
Recent POT and commodity related posts:
Commodity Trades and Last Night's Game Plan from the Trade Report
The Only Way I Know to Trade Post-Boom Commodity Bust
Partial Profits in Commodity Bounce Trades
Thursday, September 11, 2008
Partial Profits in Commodity Bounce Trades
I took partial profits in all three of my positions at the close.
X at $104.10 (short at $96.36)
POT at $150.04 (short at $139.22)
DIG at $68.66 (short at $63.85)
I am moving my stops up to entry levels and letting the remaining shares either hit the next target level or get stopped out.
X at $104.10 (short at $96.36)
POT at $150.04 (short at $139.22)
DIG at $68.66 (short at $63.85)
I am moving my stops up to entry levels and letting the remaining shares either hit the next target level or get stopped out.
The Only Way I Know to Trade Post-Boom Commodity Bust
Today I received an insightful comment about commodity stocks and my recent bounce plays:
I agree with the comparison of the commodity boom and the late 90s tech stocks. In fact, in both my Trade Report and in this blog I have made this comparison, with examples. However, that does not mean we should shy away from playing bounces. In fact, if you study the tech bust closely, you will find powerful bounces that killed shorts and made riches for those who knew how to play them.
I will get into it in more detail over the weekend. For now, keep in mind that you have to be careful both long and short with the commodity stocks. Even in a downtrend, you can get killed going short (especially if entered after big down moves). My studies of previous busts (tech in the 90s, television and radio pre-70s, copy machines, etc) show that it's best to only enter during extreme conditions. Go short when the market is overbought on low volume pullbacks to strong resistance levels.
Play bounces when markets are extremely oversold--and I mean extreme. Keep tight stops. You may get stopped out a few times. That's okay. The bounces that do work will more than make up for the small losses taken.
This weekend I'll post some enlightening examples of the old high flying tech stocks, and compare them to the current commodity bubble.
This market is nasty. The commodity stocks you point out had a little bounce yesterday but are down again today. The selling seems indiscriminate. I have only been studying the market for about 8 year so I lived through the tech bust. The volatility of this market is amazing compared to the tech bust. These commodities names have been destroyed 20% in less than a week on top of the previous declines. Hard to play this market and you are absolutely correct abtou VERY tight stops.
I agree with the comparison of the commodity boom and the late 90s tech stocks. In fact, in both my Trade Report and in this blog I have made this comparison, with examples. However, that does not mean we should shy away from playing bounces. In fact, if you study the tech bust closely, you will find powerful bounces that killed shorts and made riches for those who knew how to play them.
I will get into it in more detail over the weekend. For now, keep in mind that you have to be careful both long and short with the commodity stocks. Even in a downtrend, you can get killed going short (especially if entered after big down moves). My studies of previous busts (tech in the 90s, television and radio pre-70s, copy machines, etc) show that it's best to only enter during extreme conditions. Go short when the market is overbought on low volume pullbacks to strong resistance levels.
Play bounces when markets are extremely oversold--and I mean extreme. Keep tight stops. You may get stopped out a few times. That's okay. The bounces that do work will more than make up for the small losses taken.
This weekend I'll post some enlightening examples of the old high flying tech stocks, and compare them to the current commodity bubble.
Wednesday, September 10, 2008
Commodity Trades and Last Night's Game Plan from the Trade Report
Commodities are bouncing off of yesterday's lows. I entered three trades on weakness today. I bought:
100 shares of POT at $139.22
150 DIG at $63.85
100 X at $96.36
My strategy going into the trading day was to only buy when the stocks were in the red. I don't want to chase the bounces, especially when they may be short lived. However, X is my favorite bounce play and has been showing good strength, so rather than wait for it to get in the red, I bought the morning dip close to the gap level.
Bounce trades can turn on a dime, so I am keeping stops tight and won't hesitate to take small losses.
Here is what I sent to Trade Report subscribers last night:
---------------------
September 10, 2008
A few of you have asked why I have not included my usual "market notes" section in this week's reports. Simply put, I am not trading the indexes, so there's no point. Until I receive a better clue from the market, I am going to stick with my trading themes and eschew the broader market.
Trading Themes
Commodity bounce
I was stopped out of my three commodity bounce positions for two small losses (X and NOV) and one overall gain (POT). Since getting stopped out early in the morning, almost all commodity stocks took a big dip lower. Thus, I am looking to enter again using the "rubber band" bounce setup.
Here are a few things to note in almost all commodity stocks.
1. Volume was huge today--this could act as short term capitulation.
2. Stochastics are more oversold than ever.
3. Prices have gradually lowered over the last few weeks, and today made a huge move down. This could act as short term price capitulation
I am hoping we get some weakness tomorrow. If we do, i will enter one or two positions with a positions 1/2 to 3/4 my normal size. If these stocks open higher, I may still enter, but with a 1/4 position size.
All of the commodity stocks are showing similar setups. Here are a few charts. In each chart, make note of price, volume and support levels. All match points 1-3 that I noted above. I have included EWZ with the commodity charts.
Steel Bounce Play
Ag Bounce Play
Coal-Gas Bounce Play
Energy-Drilling-Refining
Brazil is very dependent on commodities. The Brazilian ETF EWZ reflect this and also presents a good bounce setup
Retail and Other Strong Stocks
Retail dipped today, but we still need more of a pullback for entry. Here are possible entry points for retail and strong stocks on the focus list. Remember that pullbacks must be on low volume and with orderly price movements--not big down moves to support levels.
KSS: $50
DKS: $22
ARO: $34
BKE: $54
URBN: $35
MDVN: $30
ZLC: $26
FSYS: $46
CRY: $15-15.25
Financial and Semi Conductor themes:
The other two main trading themes for the week, financials and semis, will continue to be monitored. However, I don't foresee entering either tomorrow. Semis need a significant bounce for short entry.
While financials did pull back today, it was not the kind of orderly pullback I look for when buying a dip. I still will keep an eye on the banks and UYG tomorrow. I did make a very small entry in UYG today. Very small.
100 shares of POT at $139.22
150 DIG at $63.85
100 X at $96.36
My strategy going into the trading day was to only buy when the stocks were in the red. I don't want to chase the bounces, especially when they may be short lived. However, X is my favorite bounce play and has been showing good strength, so rather than wait for it to get in the red, I bought the morning dip close to the gap level.
Bounce trades can turn on a dime, so I am keeping stops tight and won't hesitate to take small losses.
Here is what I sent to Trade Report subscribers last night:
---------------------
September 10, 2008
A few of you have asked why I have not included my usual "market notes" section in this week's reports. Simply put, I am not trading the indexes, so there's no point. Until I receive a better clue from the market, I am going to stick with my trading themes and eschew the broader market.
Trading Themes
Commodity bounce
I was stopped out of my three commodity bounce positions for two small losses (X and NOV) and one overall gain (POT). Since getting stopped out early in the morning, almost all commodity stocks took a big dip lower. Thus, I am looking to enter again using the "rubber band" bounce setup.
Here are a few things to note in almost all commodity stocks.
1. Volume was huge today--this could act as short term capitulation.
2. Stochastics are more oversold than ever.
3. Prices have gradually lowered over the last few weeks, and today made a huge move down. This could act as short term price capitulation
I am hoping we get some weakness tomorrow. If we do, i will enter one or two positions with a positions 1/2 to 3/4 my normal size. If these stocks open higher, I may still enter, but with a 1/4 position size.
All of the commodity stocks are showing similar setups. Here are a few charts. In each chart, make note of price, volume and support levels. All match points 1-3 that I noted above. I have included EWZ with the commodity charts.
Steel Bounce Play
Ag Bounce Play
Coal-Gas Bounce Play
Energy-Drilling-Refining
Brazil is very dependent on commodities. The Brazilian ETF EWZ reflect this and also presents a good bounce setup
Retail and Other Strong Stocks
Retail dipped today, but we still need more of a pullback for entry. Here are possible entry points for retail and strong stocks on the focus list. Remember that pullbacks must be on low volume and with orderly price movements--not big down moves to support levels.
KSS: $50
DKS: $22
ARO: $34
BKE: $54
URBN: $35
MDVN: $30
ZLC: $26
FSYS: $46
CRY: $15-15.25
Financial and Semi Conductor themes:
The other two main trading themes for the week, financials and semis, will continue to be monitored. However, I don't foresee entering either tomorrow. Semis need a significant bounce for short entry.
While financials did pull back today, it was not the kind of orderly pullback I look for when buying a dip. I still will keep an eye on the banks and UYG tomorrow. I did make a very small entry in UYG today. Very small.
Tuesday, September 09, 2008
Bounce Play Round 2?
Though I was stopped out of my bounce playes earlier today, I am going to enter a couple again in a few minutes. There are extremely oversold conditions in this sector.
Quickie Trade Update: X, NOV and UYG
I was stopped out of X and NOV for small losses. I took a very small position in UYG. More details to come.
Monday, September 08, 2008
Breakout-Pullback Candidate: ZLC
I'm waiting for a pullback in ZLC. The stock broke out over resistance on heavy volume and is in the midst of carving out a post breakout trading range.
Game Plan for the Week
There are not a lot of great setups going into the week. Currenly I plan to manage my commodity bounce positions, watch financials for long entries and keep an eye on shorts that are setting up.
Sunday, September 07, 2008
Trade Entry: POT
I bought 150 shares of POT at $150.62 (trade posted on blog Friday morning).
The Setup: Oversold Bounce. Extremely oversold stock within bearish downtrend (topping formation). Stochastics extremely. Price is at March support levels.
Risk: Stop is now at entry level. Initial target of $160 hit. Target for remaining 75 shares is $170.
The Setup: Oversold Bounce. Extremely oversold stock within bearish downtrend (topping formation). Stochastics extremely. Price is at March support levels.
Risk: Stop is now at entry level. Initial target of $160 hit. Target for remaining 75 shares is $170.
Trade Entry: NOV
I bought 350 shares of NOV at an average price of $60.54 (trade posted on blog Friday morning).
The Setup: Oversold Bounce. Extremely oversold stock within bearish downtrend. Stochastics extremely oversold in the 7-10 range. Price is at February-March support levels. While the lows have not been reached yet (50), the stock is so oversold that I expect some type of relief bounce soon.
Risk: Stop is in the $57-58 range. This is percentage stop, as price support at this level is loose and drops all the way down to $50. Initial target is $65, with the remaining share target at $70 and stop moved up to entry level.
The Setup: Oversold Bounce. Extremely oversold stock within bearish downtrend. Stochastics extremely oversold in the 7-10 range. Price is at February-March support levels. While the lows have not been reached yet (50), the stock is so oversold that I expect some type of relief bounce soon.
Risk: Stop is in the $57-58 range. This is percentage stop, as price support at this level is loose and drops all the way down to $50. Initial target is $65, with the remaining share target at $70 and stop moved up to entry level.
Friday, September 05, 2008
Trade Entry: X
I bought 200 shares of X at $110.92 (trade posted on blog this morning).
The Setup: Oversold Bounce. Extremely oversold stock within bearish downtrend. Stochastics oversold. Price at April support levels.
Risk: Stop placed below support level, around $104. Target in the $120-130 range.
I hope to have the other trade entry setups posted later today.
The Setup: Oversold Bounce. Extremely oversold stock within bearish downtrend. Stochastics oversold. Price at April support levels.
Risk: Stop placed below support level, around $104. Target in the $120-130 range.
I hope to have the other trade entry setups posted later today.
Trade Update: NOV, POT and X
I took small long positions in X, NOV and POT. These are oversold bounce plays I talked about yesterday. More details to come.
The Commodity Trade
Commodities are extremely oversold. This sets up one of my favorite trades, the oversold bounce trade. I will likely go long a commodity or two if we get more weakness tomorrow. These will be short term setups. The downtrend is still down, and a few days of bounce would setup short plays again.
Keep an eye on commodity stocks like ACI, MON, POT and X for oversold bounce setups.
Keep an eye on commodity stocks like ACI, MON, POT and X for oversold bounce setups.
Thursday, September 04, 2008
The SPY Failed Breakout Trade
On August 12th I went short SPY around $131 (actually used SDS) based on the "failed breakout scenario" I noted in the trade report. While it's been a bumpy ride, the trade is really starting to take off now. This is a good example of how important it is not to pull out of a trade before a support/resistance based stop is hit.
See this post for some detailed analysis of the trade. I highly recommend reviewing this post.
Unfortunately I don't have annotation capabilities from where I am writing this, but take a look at the longer term weekly chart of SPY. As I pointed out back in August, the long term trend for SPY was and is still down, and the bounce was forming a nice looking bearish flag. This is one of the things I took into account when making the early "failed breakout" trade.
Now let's look at the current daily chart. This is what I call a beautiful breakdown (assuming it closes like this) of a trading range support level that we have been watching closely in the trade report over the past month. Those of you not yet in the short trade trade can wait for a pullback toward the top of the breadown bar and 50 day moving average for entry.
I have been quite aggressive with this short setup, so I used SDS rather than shorting SPY. SDS provides 2x the leverage.
See this post for some detailed analysis of the trade. I highly recommend reviewing this post.
Unfortunately I don't have annotation capabilities from where I am writing this, but take a look at the longer term weekly chart of SPY. As I pointed out back in August, the long term trend for SPY was and is still down, and the bounce was forming a nice looking bearish flag. This is one of the things I took into account when making the early "failed breakout" trade.
Now let's look at the current daily chart. This is what I call a beautiful breakdown (assuming it closes like this) of a trading range support level that we have been watching closely in the trade report over the past month. Those of you not yet in the short trade trade can wait for a pullback toward the top of the breadown bar and 50 day moving average for entry.
I have been quite aggressive with this short setup, so I used SDS rather than shorting SPY. SDS provides 2x the leverage.
Wednesday, September 03, 2008
Expect a Bounce in Nasdaq
The bullish setup that I had been watching and trading in the Nasdaq was obliterated earlier this week. While the trend is now decidedly bearish, we are nearing a strong support zone that could provide a bounce that can be traded.
If QLD (leveraged long Qs) drops down in the $70-70.50 range, I will likely take a position. It wouldn't be surprising for the bounce to reach the 50 day ma around $75. I would likely make $74 my target and place a stop in the $68-69 range.
If QLD (leveraged long Qs) drops down in the $70-70.50 range, I will likely take a position. It wouldn't be surprising for the bounce to reach the 50 day ma around $75. I would likely make $74 my target and place a stop in the $68-69 range.
Commodity Game Plan
I know a few people who are using this morning's bounce to deploy more energy shorts. However, I'm going to wait for a few more points to add to my existing short positions. While I agree we may get a quick drop here, risk/reward is not great until we get entries closer to the top of the breakdown bars.
Take a look at the charts of MOS and X, my existing short positions.
Ideal MOS entry: 100-102
Ideal X entry: 126-128
Take a look at the charts of MOS and X, my existing short positions.
Ideal MOS entry: 100-102
Ideal X entry: 126-128
Tuesday, September 02, 2008
Trade Setup: KSS
I have been following KSS for quite some time in the Trade Report. Retail, and KSS specifically, caught my eye as a bottom accumulation setup in early to mid July. The volume on the bounce gave clues that the bounce could lead to a continuation move.
Since that time, we have had two good setups. The first was on the break of the 50 day moving average. The second was on the pullback of the recent breakout highs in mid August.
The two key areas I am now watching are $52 and $46-48. Stochastics are extended, so I doubt we'll see a $52 breakout. I'd like to buy a pullback to the $46-48 area. This is no longer a bottom accumulation trade. I now see it as a breakout-pullback.
Since that time, we have had two good setups. The first was on the break of the 50 day moving average. The second was on the pullback of the recent breakout highs in mid August.
The two key areas I am now watching are $52 and $46-48. Stochastics are extended, so I doubt we'll see a $52 breakout. I'd like to buy a pullback to the $46-48 area. This is no longer a bottom accumulation trade. I now see it as a breakout-pullback.
Partial Profits in MOS and X
I took partial profits in the X and MOS trades. While they had not hit my targets yet, the big drop today was tough to pass on. I still have half the positions on the table. I'll keep these on and hope for some monster gains in the coming week.
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