Wednesday, December 31, 2008

10 Market Thoughts to Start the New Year

1. Be patient with trades and setups. Do not chase trades. Let them come to you. If you miss a trade, that's okay.

2. The best setups in this market focus on extremes. Buy extreme weakness and sell extreme strength.

3. Watch for accumulation patterns that form as prices base near lows. This will get you in on "bottom" trades early.

4. Ignore the market forecasters and pundits.

5. It's all about the charts. Price, volume, support, resistance, overbought and oversold indicators are all you need to make money.

6. Manage risk vigilantly.

7. Define your stop-loss and target before entering a trade, and stick to it!

8. Keep an eye on breakouts and watch for sectors that are well represented in breakout scans. These sectors will lead the next rally.

9. Do not watch CNBC.

10. Write down a few important resolutions, post them on a big board in your office, look at them every day, *act* on them everyday and stick to them. I will post mine soon.

Monday, December 29, 2008

A Momentum Stock: EBS

Stocks that fit my trend-pullback setup have been few and far between since the summer months. That's why EBS is like a breathe of fresh air. I'd like to see it pullback a bit more before entry. Notice that RSI 50 and stochastic levels at 20 have provided good entry points.

Sunday, December 28, 2008

Saturday, December 27, 2008

Oil (USO) Entry

USO is very oversold. Price went down almost continuously from 40 to 28 and seems to be stabilizing here. I may take a small position on weakness.

I already have an intermediate term holding in DXO.

Monday, December 22, 2008

X: Low Risk Setup

X provides a low risk setup as it pulls back to the 50 day moving average. If the market tanks, X will go down with it, but losses are easily managed at this level.

Friday, December 19, 2008

Trade: DXO (Leveraged Oil ETF)

I entered 600 shares of DXO at $2.65. This is a new, leveraged oil ETF. Price is near lows (support), stochastic is oversold and RSI shows a positive divergence. I consider this somewhat of a speculative trade with limited risk.

Thursday, December 18, 2008

Today's Game Plan

Here is the video podcast from last night's report. I'm still working out the kinks and video quality is not as good as I'd like. However, audio is fine and it gives a detailed analysis of my game plan for the coming days.

Any comments or feedback on the video would be greatly appreciated.







Wednesday, December 17, 2008

Trade Report Video Podcast

Last night I included my first video in the Trade Report. I'm still working on the video quality, but it will still give you a good idea of my game plan for the coming days.







Monday, December 15, 2008

Focus List Stocks Nearing Entry Points and Free Trade Report

Many stocks from my focus list are nearing entry points. Below is Sunday night's Trade Report. While it's a day old, all the stocks on the focus list are starting to setup.

http://docs.google.com/Doc?docid=d5z8q8w_527r2m4qvfr&hl=en

December 15, 2008 

Market Notes:

There are many positive signs for the market, but it's still tough to find a good entry.  Positives include a strong volume pattern underlying positive price action.  This is a sign of accumulation by the "elephants" or big money.  Price shows a bottoming formation and is making higher lows and highs.

The problem for entry is that stochastics, while not extremely overbought, are still above 50.  A better entry would require more of a pullback.  

Those looking to enter still have a low risk setup.  Entry on weakness tomorrow, with a stop just under Friday's low, provides a 3:1 reward to risk ratio if using the recent high as a target.  Note that because stochastics are above 50, I don't consider this a high probability trade.  Still, the good risk ratio makes it a justifiable trade.


Focus List:

I am finding a lot of setups with positive underlying volume.  This is another factor that leads me to think the market is setting up for a rally.  

New Additions:

WW, ESS, MCK, GEF, ESL, CNQR, LRCX, MAN, EXP, AMZN, SBS, UYG, USD, MDC

Focus List:  Buy Dips
Here are stocks from the focus list that can be bought on low volume dips to support.
BHP, TXI, STR, CX, TXI, CLF, X, FWLT, VMI, SGR
Friday's Trades:
STR:  I bought 200 shares at $30.06, after the stock recaptured the 50 day ma.  
I talked about this strategy a few weeks ago.  Stocks with positive volume and price patterns that recapture the 50 ma quickly after breaking down tend to resume the trend.  If have not  done any formal research on this, but I have a high win rate with these types of trades. Thus, whenever a stock on my watchlist with a strong pattern breaks down below an moving average, I watch it for a remount entry.







Using Morning Weakness for Entry

I'm using weakness this morning to make a few entries in stocks listing in last night's Trade Report. I'm only taking small positions with tight stops

Sunday, December 14, 2008

Bullish Setup in Financials

A nice bottom pattern is forming in financial stocks and the leveraged ETF UYG.  Trade management is made easy with a stop placed below Friday's close and the target near the recent high.  I may be tomorrow on weakness.

Friday, December 12, 2008

Trade: TXI

I bought 300 shares of TXI at $31.50, as my limit buy order was hit this morning. This is a manageable low risk trade in a good setup that offers strong price and volume support. The setup is both a bottoming and breakout-pullback setup.

If the market tanks, my stop wil likely be hit for a small loss. If it doesn't, I would expect a retest of the recent highs.

Thursday, December 11, 2008

SKF Trade

I exited the remaining portion of the SKF trade at $119. My original entry was $103, with partial profits taken at $111 and $119.

I am considering reversing as SKf nears resistance and going long UYG, but have not done so yet.

Wednesday, December 10, 2008

SFK Trade, Partial Exits and Poker

I received a number of similar questions about the SKF and Poker posts:

How did you determine your partial profit target for the SKF trade; and when do you decide to use a full exit versus partial exits?

I like to use partial exits when major resistance is more than 10 percent from my entry. This happens quite often with certain setups, like oversold bounce and breakouts-pullbacks.

For the SKF trade, major resistance is near the 50 day moving average at about $123. That's my target. However, that's about 20 percent away from my entry. If my targer never got hit, I would not want to give up a 10-15 percent gain. To remedy this problem I use a partial exit at around 10 percent, move up my stop to lock in that profit, and hold on until my next target is hit.

It seems that you were upset with yourself about the "big hand" in the poker post, but you said you had a 95 percent probability of winning. Why is this a bad move?

I confused some of you about what I was upset about with regards to my play that night. It wasn't the intitial $3600 bet I lost. I'll take a 95 percent probability every time. What I was upset with myself about was the $900 I lost after that hand. I made poor decisions because I was an emotional wreck, or on "tilt", because of losing based on a good decision ealier. So I wasn't criticizing my play on the big loss, it was the smaller losses after that hand that I need to work on.

Buying and Sellng Extremes: The SKF Trade

My strategy over the past few months has been to be patient and wait for extreme conditions to surface before making both long and short entries. A good example of this type of trade is the SKF position I entered yesterday (detailed in the trade report).

Here are my entry notes with chart:

I took one "low risk speculative" trade today, shorting financials via SKF. The inverse ETF has dipped down to a strong area of support, making it a low risk entry. I bought 100 shares at $103 and have a mental stop under support at $97-98. I will likely take partial profits if it bounces to $110, and then again at $120.

If the market continues to rally, I'll lose a minimal amount. However, if it pulls back, this could be a very profitable trade. For those looking to take this trade, I probably would not enter above $103-104. As price moves higher, risk increases.



I took partial profits today at $111 and moved my stop up to entry level, effectively locking in today's profit. My final target is $120.

Tuesday, December 09, 2008

My Worst Poker Hand and a Trading Lesson



Last night I was sitting at a hold em table with a 10/20 blind and started with $3000. After about an hour, I was up to about $3600, without having played any big hands. Then I got the hand we all wait for, pocket aces in good position. The guy before me raised the pot to $70, I re-raised to $330 and he called.

There's close to $700 in the pot. The flop comes down 2, 3, 6 rainbow and my opponent puts in a $700 bet. I know from playing with this guy before that he's willing to make big bets with nothing more than top pair, so I raise him up to $1400. He not only calls, but puts me all-in. There's over $7000 in the pot. I call and he's got an A-6. The only way I lose is if another 6 comes down. Thus, I had about a 95 percent chance of winning a huge pot.

Unfortunately, he hit a 6 on the river. I lost my $3600. I pride myself on being "zen" and taking emotion out of things like poker and trading. I trade and play poker based on probabilities and risk, but I couldn't control my emotions here. I was pissed. I told the guy that it sucks that a bad player gets paid off for playing stupid (I wish I could take those comments back).

I should have taken my loss and went home. Instead, I put down another $3000 and played for another 2 hours. By the end of the night, I had lost another $900 making bad plays. I was what is referred to in the poker world as "playing on tilt", making bad decisions because I was pissed.

Can you see how this related to trading? Have you ever taken a loss off a great setup, only to get upset and then start making bad trades? If you have, take heed from this poker lesson: never play when you are emotionally off balance because of a losing hand.

Monday, December 08, 2008

Thoughts on Market

While I'm bullish on the market, my preference to enter long trades at extreme oversold conditions is keeping me from entry at these levels. I'll buy SSO on a pullback that works off the close to overbought conditions. However, I will also short the S&P 500 via SDS once it nears the 50 day moving average. This would be a very short term trade.

Chart: DIG

There's a lot to like about the DIG chart:

1.   Postive RSI divergence
2.  Successful test of bottom support
3.  Long tail price bar at support
4.  Oversold stochastic turning up
5.  Strong obv and volume action


Sunday, December 07, 2008

SSO Chart

Within the trading range. I'll wait for extremes to emerge.

Thursday, December 04, 2008

Trade Report Members Using Comcast

Again I am having problems getting emails out to trade report members using comcast. If you use a comcast email, please contact me with a different, non-comcast email.

Remember you can use the archive to view all reports. That is the *primary* source for viewing the reports

Wednesday, December 03, 2008

Bullish Chart: CPO

CPO has formed a nice bottom formation. Price has broke out over price and moving average resistance, RSI has formed a positive divergence and volume shows strong accumulation. I like it on a pullback to support.

Monday, December 01, 2008

Trade Update: SDS and SKF

I have exited half my SPY and financial short positions (SDS and SKF). My stops have been moved to entry level.