Trade Progress Report: $COF, $CTXS, $CVS

Since I have resumed writing right in the middle of a bunch of open trades,  I have the urge to write about my positions, but feel like it would be a little disingenuous to just come out and say I’m long $AAPL, $CRM, $PCLN and $BAC (I’m not).  This will be a multi-part series (presented in alphabetical order) because I don’t have enough juice to sit here and write about each of my 12 positions right now.  I will annotate the charts with the most important information and follow with some comments.

$COF

COF 2012-03-26

At the time of this purchase, the industry group performance metric that I use had Financial Services slightly outperforming the S&P 500…it has underperformed since March 9th…so I got kind of lucky here.  Reason being, I don’t scan stocks in industry groups that score lower than 0 (in my algorithm, the S&P 500 = 0).  Anyway, in bull markets I like to buy pullbacks…over time that’s where I have found my niche.  Notice the volume drying up on that downward swing in early March…I recall feeling very strongly about this trade when I saw that small white candle on 3/7.  Nevertheless, my confidence had been kept in check by the shakeout in late February, so I somewhat hastily sold a contract on 3/12 for a small loss to lessen my exposure.  This thing has gone batshit since then…up almost 200%.  If the calls hit 12.00, I’m out with a 100% gain.

$CTXS

CTXS 2012-03-26

I have traded this stock before with great results, so when I saw that beeeutiful setup on 3/7, I was ready to jump on this.  As mentioned, I had an itchy trigger finger so I stupidly (in hindsight) took profits on one contract the next day.  The latest pause in price was not very alarming, so I was able to ride it out with relative ease.  Having a small position and being patient allowed me to take in the price advance on a day like today with satisfaction.  My position is well enough in-the-money that time decay isn’t much of a factor at this point, so I’m happy to let it ride for a while.

$CVS

CVS 2012-03-26

I had been stalking a position in $CVS since 3/15.  Something smelled fishy so I decided to hold off on buying.  I didn’t pay attention to it after that, then flipping through charts a few days later, it again caught my eye…and this time looked really tasty.  On 3/22, after seeing that limited price movement I decided to go long right before the close.  My next move will be to take off 1/3 or 1/2 of my position depending on price movement.  1/3 if things go well, 1/2 if I think the clouds are darkening.

Sure these are three winners…but I was also long a full position $KBH into earnings last Friday that fucked me sideways (horribly dumb mistake on my part) with an egregious realized loss.  My losers don’t stick around long, but they do sometimes leave a lasting impression.

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Your Regularly Scheduled Programming Has Returned

I found a job in October, worked swing shift so I could care for my kid while my wife worked mornings (vice versa in evenings).  I thought “damn I’ll have all day to work on the market” (we live in PST). 

WRONG.  12 month olds don’t give a shit about stocks.

After killing it in late Aug./Sept./early Oct. thankfully I could afford to trade small and lock in an above average year (ended up +15.53%).  After the new year, time limitations forced me to cut way back on stocks.  I still had money in play, but discretionary trades were near nil.  Fast forward to early February…my employer decided to hire me on (from a temp agency) and “rewarded” me with no raise and no benefits for 120 days.  My wife suggested that I tender my resignation…I concurred.  Unreal…but it was for the best.  We now have an improved plan in place.

It was nice to get back into the day-to-day with the market again.   I took my time and wanted to get comfortable with trading again before I started to write.  Now that I think about it, I think my trading is improved when I’m writing.  Maybe I’m able to think through my ideas better.  Maybe it’s extra caution, knowing that if I fuck up, the world can see.  Whatever…here I am.

Here are some stocks that I’m keeping an eye on where I could potentially take on long positions.

$DRI – This stock has been in a range between 54-40 since September of 2009 and now sits close to all-time highs.  I think their restaurants are “absolutely dreadful”, but hell, through 55 bucks, what is going to stop this stock?

DRI 2012-03-26

$JBL – 26 has served as a point of contention for a very long time in this stock.  What looked like a clean break last week was not to be, as this one came right back into the 26 vortex.  One of my favorite patterns is the pullback from a “breakout”…this has that look to it right now.  My emergency stop would be around 24.25.  I was really bullish on a number of semi stocks at the beginning of March.  Unfortunately I was shaken out of all of my positions, as many of them rebounded nicely.  This one looks like a keeper.

JBL 2012-03-26

$FLEX – This one looked like it was breaking out twice in March…I was long a number of July 7 calls (from February 17) and ended up taking a loss on March 3rd as neither of those materialized.  Lo and behold, there she goes trying to push higher again to no avail.  Nevertheless, I like what I see here and barring a close below the three month MA and lower BB, I’ll be looking to avenge that loss in the coming days.

FLEX 2012-03-26

$TTM – This stock again gets stuck between 26 and 29.  I like the daily pattern (this is the weekly chart illustrating the indecision in that price range).

TTM 2012-03-26

$GM and $F – both of these caught my eye, but I give a slight preference to Ford.  Look at how it’s finding support from the 1 year EMA.  Drilling down to the daily, this is at the spot where I traditionally like to jump in.  One caveat, these longer setups make me nervous.  In my experience, the longer they last, the greater the likelihood of a shakeout in the opposite direction of the eventual move (that will almost always take me with it).  With that in mind, I’m really searching for long-only trades right now, therefore I would actually prefer to see a break to the downside before I start a position.

F 2012-03-26 weekly

F 2012-03-26

That’s all I have for now.

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(Looking to) Add to Short

I know that I said I really prefer to make my purchases at the end of the day, but this midday ‘rally’ is really tempting me to add to my $IWM short. 

Question: why would this consolidation be any different than the previous three during this correction?

Answer: it isn’t 

I know that now the U.S. stock exchange is kind of being held hostage by the events in Europe…but I’m sure you have noticed, there are plenty of problems for us to deal with here as well.

By the way, I hope you have taken a moment to away from charts of your “market leading” stocks to take note the price of copper.  If not, you should start to pay attention, because it has moved in lock-step with large-cap market leaders as they marched higher since 2009.  Check out what has happened to copper over the past few weeks.  I don’t know much about macroeconomics (read: nothing), but I do know that when these types of divergences appear, usually it’s trying to tell you something. 

Should we trust the price of a company that basically makes toys for grown ups?   Or, should we trust the price of a basic material, the price of which has basically been a primary indicator of economic health the past two years?

Maybe the days of copper being a leading indicator are over…or maybe equity prices are about to get punched in the face, $NFLX style.  Anyway, in the time it has taken me to write this stupid post I see that $IWM is back to heading south again, so I might have missed an opportunity to add…oh well.

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Yes, I Went Short Today

As noted on StockTwits, I closed my speculative Oct 29 call position in $SLV position prior to the close for a very nice gain (selling at an average of 3.47 from 2.75 for a 26% gain in 2 days).  I went to bed last night with Silver futures up pretty strong and woke up a few times last night thinking about what I was going to do if certain events were going to take place…namely a big drop.  I find that if I’m waking up in the middle of the night thinking about a position, I need to lighten up. 

I was in this one to play the bounce…I got a great fill at 3.90 right after the open and took that money and ran with it on a 1/3 of my position.  I sold two other times throughout the day at 3.25 to lock in a nice winner.

What I really wanted to write about is the start of a new short position.  I have been buying ITM puts on stocks in beat down industries on the last two market rallies that I discussed in this post.  This time I just decided to try for the weakest of the major market ETF proxies, namely $IWM.  Sure, small caps were up big today, but that was not the kind of finish that is indicative of a healthy market. 

I purchased a partial position of Oct 68 puts at 3.33. 

Depending on what happens tomorrow, I will either add another layer of risk (if we bounce around the range we were in today), let it ride with what I have (the market drops and doesn’t look back) or get the hell out (the market shows strength and doesn’t fade). 

Almost all of my buys come right at the close, as I like to see what the candle looks like for that day.  This decision is based purely on experience and personal preference…I can understand the price action much better at the end of the day than at the start or in the middle. 

I’ll sell almost any time throughout the day…I like locking in profits on options…time is a killer.

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Here We Go Again

As I peruse the Stocktwits stream this morning, I am mildly amused by the number of people who seem to be anxious to declare the validity of this “rally”.  If this describes your mind set…I’m warning you: there is a high probability that you are going to get sucked into buying at or near the top of another reversal. 

The time to buy was when things looked horrible…i.e. last Friday.  Your upside here is very limited.  Come on…just last Thursday, shit was spiraling out of control…Mad Max style…now people are looking for long “breakout” swing-trades? 

LOL. 

Really?

I don’t know, maybe my experiences with the market are completely wrong and I don’t know what the fuck I’m talking about, but it annoys me greatly when I see people continually pumping ideas for trades based on strategies that are geared toward making money in bull markets.  Even if this isn’t a “bear market”, this is one hell of a correction…and that needs to be respected.

I love Stocktwits…it is one of the only websites that I have open during the trading day…but I feel there is a flaw that needs to be addressed.  @bclund mentioned something similar, in a great video last week, though my concern isn’t as scathing and more all-encompassing.  From what I can gather, much of the traffic and membership of Stocktwits was developed over the course of the 2009-11 bull market (or, longer term bear market rally).  There are many great traders who really share fantastic ideas and have garnered a loyal following of readers based on their timely calls and analysis during this run. 

The problem is when shit gets ugly and difficult (i.e. NOW) and the great ideas that worked so well in October 2010 suddenly are getting smashed in the face with a shovel.  It’s the ol’ square peg, round hole dilemma. 

I’m not saying these people are not to be trusted, I’m just saying these people are not to be trusted…if you know what I’m saying.

This market is fucking treacherous…it’s a mine field encased with razor wire.  My advice: if you are inexperienced in this type of environment, don’t trade.  Don’t listen to anyone’s ideas (long OR short) on Stocktwits. 

I post my trades for the sake of transparency…I would kick you in the shins if you tried to follow my trades in this market.

I know it’s very difficult to sit on your hands and watch a 2.5% rally from the sidelines, but when the people who “just had to get in because this might be the bottom” are sitting there in the red a few days from now…you’ll be happy you were watching Seinfeld reruns or doing something else instead.

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So…Now What?

I’m not one for making prognostications about where the market is headed, therefore I have a hard time saying that we, at the very least, will retest the lows from August (nothing in the stock market is a foregone conclusion)…but we are going to retest the lows from August. 

And more. 

The trend is down…the trend has been down since the start of August, like my post from Friday, why fight against the tide?  The ‘easier’ money is going to be made going short…but you need to respect risk/reward when going short.  Trying to emulate a breakout strategy to the short side is asking to have your face ripped off by bear market rallies.  You have to wait for the bounce. 

I know this technique may seem difficult and/or counterintuitive for traders to grasp because many have been trained to employ strategies that buy stocks at/near a break of previous resistance.  Since this market correction started, in earnest (August), this is the exact time you should have been getting out of your longs and thinking about putting on short swing trades.  Just look at the charts…they aren’t lying to you.

August 17

SPY 2011-08-17

This could be seen as an “orderly consolidation” before the next move higher.  Wrong.  Volume was drying up, which means that the ability of bulls to push this market higher was running out of steam.  Ok, say I’m completely off in this interpretation…what is my risk to the short side?  Not much…I’d place my stops above the highs from this consolidation.  Here is where a dynamic approach to the market is necessary.  If you are looking at this from a long-only perspective, sure it looks like an orderly consolidation, but this isn’t an orderly, nor a “normal” market…you need to be prepared.

August 31

SPY 2011-08-31

Here we go again.  Ok, the market was able to push through the previous high…thus making “higher highs and higher lows”…which is a bullish development…IN A BULL MARKET.  I can’t stress the importance of context enough here.  I went short $C, $USB and $ACI (via puts) all right around this time.  I would know I was wrong if price pushed through the upper BB and the quarterly EMA.  It didn’t happen, and was actually rejected the very next day.  Needless to say, I nailed the shorts that I put on here.  Again…you can see price stalling…this doesn’t mean “orderly consolidation”.  This is not a bull market…those ideas do not apply.

September 19

SPY 2011-09-20

Uh oh.  I can see a lot of people getting trapped here.  I can see it setting up…this is the classic “lower volume consolidation”.  Many thought the clam would step in to save the markets again…therefore it took real balls to go short in size here.  I didn’t go heavily short, but I did have put positions on in $XRX and $MYL.  Risk was again clearly defined at the quarterly MA and upper BB.  The trend was down, but in a news driven market a face melting rally is one comment away…so I was nervously confident in my positions.  I was also going short stocks in industries that had underperformed the market during the early September rally…which provided an added level of security.  We all know how this turned out.

Now that we have taken out all but the lowest of the August lows on the $SPY, where do we go from here?  I am going to continue to look for 2-5 day swing trades using ITM puts. 

But the real question is: what stocks should I be focusing on?  Do I look for stocks that have, so far, resisted the decline, as they are just delaying the inevitable?  Or should I keep looking for beaten down stocks that continue to underperform general market rallies? 

I’m leaning toward the latter, as I never like to short strong stocks.  The problem with many of these stocks is they have already declined to such a degree that I am finding that they are running into long-term support, which makes for a dicey proposition.  Then again, I’m only looking to hold the majority of these short positions for less than a week anyway…so maybe that should not be of too much concern.

Additionally, I’m also looking to go long index ETF’s (via ITM calls) after sharp sell-off’s (for nothing more than a quick intraday-5 day trades)…so I’m not turning total bearshitter on you here (see my call purchases in $QQQ and, to a certain degree $SLV on Friday).  I’m just trying to use all of the tools at my disposal to navigate through this mess as best I can….and that means keeping a HUGE cash position (80+% at all times).

Stay nimble and light…this shit is tough and is not for newbies/amateurs.  Going ‘all in’ (or anything even resembling that) on anything here is, IMO, fucking stupid.

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Why Fight It?

Since early August, the ‘easier’ trade has been shorting the pops.  The setups have been what I would consider “highly reliable”.  Repeatedly, the market has rallied, sucked people into the rally, stalled for a period of 2-3 days, then dropped.  This has happened on 3 different occasions since the big drop at the start of August (8/15, 8/31, 9/20). 

One of the toughest things to do as a trader is to employ a strategy that is dynamic enough to adjust to changing market conditions. 

Continually looking for long trades in a downtrending market is an easy way to continually lose money.

This is especially true in regard to “breakout” trading.  There is a time and a place for that strategy…and it is not right now.  I started trading stocks using that strategy many years ago …and in down markets over the years learned my lesson through the slow (and sometimes fast) bleed of my account balance on trades that would continually get stopped out.  The same patterns and trades that worked in September-December of 2010, are NOT going to work now…they just aren’t.  The environment has changed completely.

So why fight it?

Traders need to a) develop alternative trading methods to deal with dynamic market situations (i.e. what works in time period “A” is not going to work in period “B” and vice versa), b) stay in all cash until your particular strategy is viable again (it will happen, you just need to be patient) or c) start doing research on placing long-term money into dividend stocks to take advantage of locking in shares at a higher yield.

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