If You Feel Like Throwing up, Go Against Your Better Judgment

I subscribe to the theory that when things are at their worst, when you have that knot in your stomach that makes you want to throw up, and you feel like there's nothing but gloom ahead, that is the time to do the opposite of what your emotions are telling you to do.

I call this the George Costanza Opposite approach to trading. Pay attention, this is some of the technical stuff I have ever posted here.

George one day realized that every decision he had ever made in his entire life had been wrong. So he decided that when he had a strong instinct to do something, he would do the opposite. No surprise, the decisions that went against his better judgment turned out to be the right moves.

I only had two positions today, so I had little invested in the market. By the time the Dow was down 300 points, I was stopped out of both positions. However, once I saw the red three hundred flashing before my eyes, I got really nervous. I know, it made no sense, since I was 100 percent cash. Yet there I was, pacing back and forth at my desk. I knew I looked like a fool, so I sat down. That's when I felt the butterflies.

Since I had no positions to exit, I told myself I should sell the market. I felt like I was about to miss the big move. Then I remembered something I had read before. When you just can't take it anymore, that is when a bottom is coming. I immediately went into Zen mode and cleared my mind of all preconceptions. I took a look at some charts and noticed how oversold the market was, so I decided to buy.

I bought ZEUS and RIO, even though the steel sector is on my short watchlist. I bought LEH, AAPL, BIDU, CROX and NOV (I'll post the trades tomorrow). Note that these are very short term plays. I still think the expected bounce might not last, and we could see more to the downside.

Since everybody has analyzed the indexes, I'll refrain from posting the SPY chart. Just remember that a positive hammer stick printed right at support on heavy volume. At the least, this is a sign that we will see a short term bounce.

One last point. It seems that everybody thinks a bounce is coming. CNBC, the Fast Money guys, respected bloggers and even crappy bloggers. This worries me. When everybody thinks the market will zig, that's when it is likely to zag. Maybe this will cause the expected bounce to be short lived. Or maybe I'm just too paranoid.

Analyzing FTO trade

A reader wanted a more in depth analysis of the FTO trade. The basic principle is as I stated when I made the trade: a pullback to support with a strong confirmation move. Let's take a look at the chart:


The first thing that jumps out at me is the pullback to the 20 day moving average (mid-Bollinger Band), followed by a high volume postive day where the bar prints a long tail and closes at the day's high. This is a very good sign.

Next we move to stochastics. As the stock pulled back, we reached oversold levels (20), followed by a bounce and stochastic crossover. Another good sign.

Finally, OBV (on balance volume), confirms what we see by looking at the volume bars. Volume has been better on up days and there looks to be positive accumulation.

Finally, we have to decide our reward to risk parameters. The most logical area for a stop is just under the tail, around $44. A good target is at the recent highs, around $49. This is a good place to take partial profits, with hopes that the remaining shares will participate in a breakout to new highs.

I will hold this stock until I get stopped out or my target is hit.

Today's Trades: ZOLT, FUL, TSL

As mentioned in comments yesterday, I sold:

250 shares of ZOLT at $31.80 (entry at $32.30) for a $125 loss (1.6%).

500 shares of FUL at $26.14 (entry at $27.22) for a $540 loss (4.1%). I am upset at myself over this trade because I did not pay attention to earnings. I did not even check the earnings schedule. I rarely hold pullback plays into earnings. Bonehead move on my part.

Well, after 24 straight wins, 3 of my last 4 round trip trades have been losers. Luckily, they have been small losses.

I bought 250 shares of TSL at $51.07. This stock has pulled back to the 50 day moving average and has not broke any major trendlines, although the pullback has been fairly hard. The stock has reacted well to these types of pullbacks in the past, but I still decided to go with a small position size and will place my stop under the 50 day moving average.

New Blog to Review My Trades

I've been meaning to start an in-depth review of all of my trades this year, and the response to my "trade review" post last night was positive, so I've started a new blog that will compliment this one. Please head over to www.reviewmytrades.blogspot.com and take a look at my first trade review.

This blog won't change. It will still focus on setups, trade entries and other topics, while Review My Trades will act as my trading journal.

The new site is still a work in progress. I'm really excited about the growth that I will experience by publicly reviewing my trades.

Feel free to let me know what you think of the new site.