Week of August 11
THEME: Aggressive Scalp - Range Bound Trading
FRIDAY:
It IS CRUCIAL right now to finish the day positive. Even if it means quitting at lunch if you’re up a few thousand. Set very modest goals (e.g. $2-$3k) and when you reach that goal, call it a day. You do not need to aim for a monster day just because you are having a good day. It’s too early to aim for monster days. If you have a monster 1st half of the day, then by all means take the rest of the day to study and do not trade. The tendency, the numbers, show you that you tend to return those profits.
THUR:
Make intermittent journal entries throughout the day. Jot down your thoughts. If the market is not following through in either direction, write that down. Return to it. Study the market in real time.
Market’s range bound. It’s quick profits until the ranges expand. Figure out how to use your platform’s trailing stop feature. If you are long 1k SKF, you have to keep your stop just over 1 point. Alternatively, calculate your b/e price and set the stop there.
Near the close, or in the last 30-45 min of trading, switch to shorter time-frame charts because the volume picks up and allows for more detailed analysis. The last hour of SKF on a 2-min chart shows how 124 resistance was tested twice, with the first test being followed by a lower low on the time frame. Therefore, when the 2nd attempt at 124 failed, it was a double top on the 2-min, but you couldn’t see it on the 15-min. The stock closed almost at the measured target from the 2x bottom.
Your short positions in last hour were being questioned by bullish Trend. Although the indications were minor,
remember we are looking for “reasons our positions are wrong, not reasons why they are right”. So even if the chart supported the positions, the clues were in the failure to follow through at new lows and the consistent bullish reading in the TRIN.Keep your losing days smaller than your winning days.
Get your bearings. This are coming together. Focus on consistency. Consistency. Consistency.
Wed:
Trading scared. No reason to. Leaving way too much money on the table. 3 points SKF, 2 points RIMM, 2 points AAPL. 4 points APA, 4 points APC, 60 cents on 10k with UAUA.
You saw the market, you saw the internals getting bullish early in the day as the market kept going lower and lower. You knew there was going to be a big afternoon rally just by the way TRIN went from 1.5 to 1.0 throughout the day as the market kept drifting lower and lower. But when it happened, you took $400 in profits and went flat. Why? Because you are trading scared. The damage from Tuesday carried over into Wed. Beyond the $$ loss, the psychological damage will carry for a few days, so this must not happen again!
As for the bottom that appears to be forming in the near term, wait for the intraday patterns to complete. We are in the final third of those patterns. Let them develop, when the trades go “high prob”, take them and do not be afraid to put on size.
Friday’s rally confirmed by volume.
Biotech Index continues to hover near all-time highs, testing October 2007 levels. Red flag is Accum. Swing Index, which has not confirmed high (except Monthly). A broad market rally focused on Tech, catalyst being USD, will rotate $$ out of defensive stocks (e.g. healthcare). Wait/watch for pullback in this sector.
Asia stocks look very sick.
CRB Index is in a free fall and still has another 10% to drop. Short commodity/ag stocks.
CSFB Tech Index establishing 2x bottom (215-250). Focus on tech. Acc/Swing, CCI and Mom. all confirming.
Internet Commerce stocks look poised for a sustained rally off major lows. Look at DJ Internet Commerce Index daily below (note: l/t charts are putting in 2x bottom).
Dow Industrials are testing prior all-time highs from the ’90’s:
Long-term Dow looking at a rally to 12500.
Trannies broke out on Friday, bullish macro signals. Focus on breakouts and confirmed rally/reversals:
Dow Utility Index looks like a massive H&S top is near completion. What does this mean with regards to the overall market?
DJ Internet Services also confirming bullish sentiment in sector building up:
AMZN chart tells the story for internet commerce stocks:
Bank Index looks like it needs to test those lows or at least establish a higher low. Note financials did NOT participate in Friday’s rally.
Week of August 04
THEME: Capital Preservation. Defensive.
Thur:
Today was the day. Everything clicked. You have to keep your losses smaller. Albeit your big losses were from overnight positions, which you will not worry about anymore, nevertheless, if you can keep your losses controlled, your gains are going to explode your P&L. $9300 in losses, $10,400 in gains. Do the math. You should have had at least a $5000 day. Same thing happened last week. Note it, learn from it, and improve your trading on Monday.
One of the edges at T3, and a big edge at that, is the speed of execution. You were scalping SKF all the way up while making $7000. Use the edge given to you.
Wed:
Don’t be afraid of trading more. You have to work on reconditioning your perspective. This requires “unlearning” many of the portfolio strategy rules you have learned over the years. It doesn’t mean you have to forget those rules, just file them away for another day. This is a great trading market, and you should take your lead from Marc, Laz and Scott. There is a great deal of valuable information being given to you. Learn how to absorb all of it without getting overwhelmed, and you will find a way to incorporate their info and guidance into your own perspectives and strategies.
Tactically, you are making amateur mistakes. With regards to WPI, you traded it correctly into the gap down by recognizing that they were shaking out weak hands and triggering stops. With that knowledge, taking an additional 5000 shares was a smart move. However, you should have released that 2nd lot of 5k when the stock got back up to 29.50. Especially, as Marc said, when the stock failed that breakout and you saw the volume spike, that was an indication of failure. There was one attempt at recovery back above the intraday MA’s, but again it failed and started to test that low at 29.40. You kept looking at the price and telling yourself “it’s only a dime, it’s only 15 cents”. But on a 10k position, you’re talking about leakage that costs you money.
You made the right choice by releasing SGP around the same time you unloaded WPI.
There are 2 ways you can look at today. First, you were in the hole too much and came out of the hole by mid-day and went positive. But to fall back 1/2 way into that hole by afternoon was unnecessary, and it was mostly related to WPI and SGP. “Half Full Cup” means you closed with cutting your dip in half. The half empty perspective is that you made an incredible day of going positive after a dip into a losing day. This is too much leakage.
When sticking to your plan early in the day, you traded like a champ. In the afternoon, when you let the scalpers around you talk you into a trade, you gave back 60% of your day. You chased breaks. That was really dumb.
This week’s focus will be on key sectors of interest. No random trading from one stock to another. We need to find a way to implement your strengths of portfolio trading with the concept of not holding large overnight positions. Once you build a positive balance, some positions will be held over and traded as core holdings. Until then…
It is crucial to instill in your psyche the importance of working for price. Especially at this early juncture where you need to keep risk as low as possible until you have built up some reserve. Therefore, place bids at technical support levels and wait for the market to come to you. Do not chase breaks.
You should be able to employ various strategies at the proper time. There will be days when day trading will produce enormous results and sometimes churn you to death. Other times, position trading is appropriate and profitable during emotional market extremes and longer term patterns.
Create a 5 - 10 stock custom index comprised of the generals, to include: GE, JPM, GOOG, MSFT,
Pivot Points:
Do not use the pivot # for trading; only use it to determine the “sets” of pivots. Do not use the #1 high pivot as support, if the market opens or trades above it. Use them as “envelopes”. Lets say the market opens above the #1 high, look at the #1 low for support and the #2 high for resistance.
I have noticed the #1 pivot works best over time. If market gaps over the #1 pivot high, you’ll have a #2 and #3 to work with. You can either use limit orders to buy or sell at these pivots and use a money stop, or wait for the pivot to “hold” the market. If the pivot “holds” the market, trade an engulfment, doji-star, tail or whatever you see, which is a more conservative entry
DeMark:
Usually when markets have three consecutive up closes, that’s short-covering. What happens is you set up a vacuum under the market and the next decline is even steeper than the one you had prior to that. People aren’t smart enough to catch lows with 3 consecutive up closes.
The same thing happens at highs: 3 consecutive down closes gently exhaust the down side. People who believe they’re smart sellers are selling and they just get taken in.
You see a top, then a down close, then an up close, then a down close, there’s a lot of skepticism on the down side. Just as at the bottom there’s skepticism that the market’s a bottom. People cannot be right reading the 3 up closes. It just doesn’t happen that way.
TICK:
Down-tick readings that exceed -900 and coincide with a bullish candlestick pattern appear near short term bottoms. Short term buy: triggered when two days in which at least one of the two days has at least a down-tick extreme reading exceeding -900 intraday. The second most extreme down-tick reading day should be near 70% reading of the first. At least one of the two days extreme down-tick reading days must exceed -900 (preferably higher). The time frame from the first extreme down-tick reading day to the second extreme down-tick reading day should not exceed five business days. These conditions produce a buy signal.
S&P Futures Chart
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For a sell signal using the N.Y.S.E. Tick Index, look for a double top on the S&P’s futures daily chart where the second top does not exceed the first top by more than 5 S&P points. The first top must have at least 600 or greater up-tick readings. The second top usually will have less up-tick readings than the first top, but which are still near 70% of the first extreme up-tick level. Also, from the first top to the second top, the time frame should not exceed five business days.
A condition that usually leads to a short term bottom is when the day after a -900 or greater down-tick reading is recorded, another extreme down-tick (about 70% of first or greater) is recorded and the market will draw a bullish candlestick pattern.
A condition that usually leads to a short term top is when; the next extreme up-tick day after a +600 or more up-tick day is recorded, (the second extreme up-tick is usually about 70% of the first extreme up-tick) and the day after the second extreme up-tick day a bearish candlestick pattern is drawn. The day of the bearish candle is the sell signal. The second high tick day should not exceed the first high tick day by more than 5 S&P points.
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Rules to watch for when trading with the “Tick Index”
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In run away market the tick index readings will exceed +600 for rallies, and -900 for declines for extending periods of time. When the open and closing range exceeds 3 S&P points the trend is still intact even though tick readings have reached the upper limits of +600 for tops and -900 for bottoms. In other words, no turning point in the market is anticipated until the open and closing range on the S&P’s narrow to less than 3 S&P points.
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Illustration for anticipating a turning point in the market
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S&P Futures candlestick Chart
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The Nikkei 225 looks ready for a rally, find Japanese leaders and look for gap downs to lower risk.
Airline stocks also appear attractive if the market can put in a short term bottom. Long-term technical’s are bearish but short-term sentiment indicators appear to be turning bullish and signaling a possible sustained rally in August.
Regional Banks coming off deeply oversold levels. Ambac and MBIA huge gainers on Friday. Watch the leaders.
Health Care Services as a sector looks very promising. S&P 1500 HLTH CAR SVC index very bullish with confirming technicals. Also watch for laggards in this sector (e.g NKTR). Bearish NON-company released PR’s are flooding the wires.
Utilities have only two choices on this weekly chart. Either in a triangle that needs to end immediately and turn up to new highs, or in a Head and Shoulders pattern. H&S will become working pattern once triangle voids @ previous swing low.
Dow Theory Sell Signal?
Journal Entry - Week of July 28
Tensions escalating again with Iran announcing centrifuge #’s doubled over the wknd. “Peace & Friendship” discount in crude will be cut in half at least. Friendly basketball match b/w Iranian national team and several NBA teams has come to an end. Iran has until August 2nd to respond to G5 offer, which by the looks of things,there will be no response. On the contrary, doubling their centrifuge capacity is likely to be construed as an early response in the negative. This is the catalyst to put in a bottom in the energy complex. Beaten down leaders will see bids but heavily shorted names could squeeze early this week. HOWEVER, the short term rally will likely find a lower high to confirm a medium term top in the complex. Iran is holding out for something more, but also cannot ignore the risks it would be taking in dragging these talks out and missing the opportunity to reach a deal over Iraq with the current U.S. administration. It has never been about nuclear weapons, much less enrichment. Both sides are preparing their publics for a deal, and time is running short. This should be where the final issues get ground under and anyone who wants to derail a U.S.-Iranian understanding will take their best shot. The next few weeks should be lively in this sector.
Solar names are in early stages of potential short-term bottom, keep an eye on first tier names (FSLR, SOL, CSIQ). Others are putting in shadows much like Coal did mid last week.
Has the combination of poor economic news finally convinced the markets that the oil price was unreasonable? Or is something else going on? Don’t try to forecast the price but look at who benefits from the lower prices and what they are doing to influence events. Prices will drop by $20 in a week, but it is not sustainable without a change in consensus about the fundamentals — such a new consensus has not manifested yet. Something else may be going on out there.
Razer (RZ) catalyst expected near term, coinciding with multiple convergence of support at current price, technicals bullish.
Coal stocks should continue short-term O/S bounce
Shorting stocks that are among the 17 names that must be “pre-borrowed” makes no sense. The other financial names are getting CRUSHED as a result of this rule, so focus on short side should instead be on stocks not on the list, with pairs being set up long in names on the list to reduce risk if desired. (eg. See Washington Mutual). In fact, since the rules kicked in on Monday, this is the week where many of these names could get called in, so the odds of getting squeezed are high. Scan for high cover ratios for potential short squeeze plays. Both sides of pair trade could work well if set up properly.
Watch LIBOR for trading signals in financials. LIBOR still elevated too much. Financials will not put in a bottom until LIBOR returns to pre-crisis levels.
“Fannie’s and Freddie’s combined Total Assets ended 1991 at $194bn”. Fannie’s and Freddie’s combined Books of Business (retained holdings and MBS guarantees) began 1999 at about $1.60 TN. In May of this year they exceeded $5.20 TN and have so far this year expanded at y-t-d double-digit rates. Over the past 12 months (through May), Fannie and Freddie’s combined Book of Business had expanded $627bn, or 13.7%. Treasury and the Fed could today easily “cut” Fannie and Freddie (and the FHLB!) a $20bn check or, ok, $50bn. Yet the reality of the situation is that GSE “Books of Business” must expand at least $600bn this year and then as much next year and the year after that… or very serious problems will unfold throughout the conventional mortgage marketplace. There are Minskian “Ponzi Finance” dynamics at work here, as there were in subprime, “private-label” MBS, CDO, & auction-rates.
Continue to watch for news driven catalysts intraday. Market is overreacting to everything on both sides. Listen…
MARKETS:
Naz - Working on multi-week bottom but another leg down to 2220-2240 is likely and needed to set up 2nd shoulder. Over-performed against overall market.
SPX - Retracement to 1235, then build longs.
Early week downside with a rally forming later in the week.
OIH - Chaikin MF bullish divergence. Big tails at 200-d EMA. Easy jump to 205-210
M&M - oversold bounce but still very bearish.
Why are Shipping companies breaking out? Check Bulk Dry Shipping Index
Multiple short term indicators hit highest levels in a while. This can be seen as relief in a down move or initiation of an up move. The rapid decline in new lows leads me to think it is the initiation of an up move…There were 1304 new lows on the NYSE Tuesday July 15. That number dropped to 51 last Wednesday. Intermediate term risk should be minimal until NY NL turns down again…I expect the major indices to be higher on Friday August 1 than they were on Friday July 25
Expect higher offer for Genentech from Roche to emerge this week. M&A catalyst in Biotech continues…
Solar eclipse on Aug. 1
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