Relative Outperformance

From the end of November to December has been a much better time than the rest of November. I am still recovering from the very tough trading times from September-November but December has been an encouraging sign and something I hope to continue for the future.

From November 27th to now we are almost completely flat. In that time period however I have achieved about a 20% gain. That seems great, and it is relative to the index but still doesn't put me in the black unfortunately. There are some great lessons to learn. Staying hedged and scaling in and out of positions worked very well. Taking profits quickly was the better strategy during the volatility so it made trades only about a 1:2 risk to reward ratio but holding longer would have resulted in giving back the profit all together.

One example is Apple, I sold some Dec 90 puts and already owned some April 09 calls, the stock went up to 102, which should have been bullish but it ended up finishing at 100 unable to break 102. I sold my calls and bought back my puts at 102, which proved to be very good because the stock is now trading at 90 today for option expiration. This worked because others had the same mentality, people are looking for quick profits and are not fully convinced of any sustainable rally without seeing better economic data.

Buying at support and selling at resistance has been the name of the game so far. Patience is the other key that has been highlighted. If a certain stock gets away from you, let it go, it will pull back, or if not there are plenty others at lower risk entries to be able to manage. In this time I have gone with smaller position sizes as well.

Going forward I think in the short term if the S&P gets above 920 we will go to 975-1000 in short order. Until that happens I will stay fairly neutral. I am looking to get long the Euro as I missed the run from 1.26-1.47 which was frustrating that I didn't buy the breakout at 1.30, I wanted to wait for a retest but that never came. Again the good lesson here though is patience, had I bought in at 1.47 assuming it goes non stop I would have been killed as it has pulled back significantly to 1.39. My hope is that it flags here and finds support then continues and I will buy the continuation or low risk entry at support and start with a small position and add as it goes in my favor.

With all the things the government has done and with Obama coming into office I am hoping that will calm the market more and we have easier trends to follow, obviously it has already helped with the VIX collapsing lately(of course with expiration). I will wait till after expiration to make some moves with options since they are generally cheaper on monday following expiration.

I am keeping in the back of my mind that we could see a significant rally into year end as people try to improve their books and the market panics higher as people don't want to miss the move. We'll see what the market shows us.

EMH: Fact or Fiction?

As the impending doom of the CFA Level 1 test date approaches my review of the material has prompted me to talk about Efficient Market Hypothesis. In the texts they outline 3 scenarios, weak form EMH, Semi-strong form and Strong form EMH. It is humorous how the text essentially says if EMH holds then no single person can really earn above average returns on a risk adjusted basis. At the end it basically says there is conflicting information.

The odd thing to me is how it barely touches on market psychology and behavioral finance when I think that is the more relevant factor that drives markets. The amusing thing to me is when they compare fundamental analysis to technical analysis and how they seem to be mutually exclusive. I always take fundamental analysis to be the more "conservative" discipline however when it is examined more closely how conservative is it? In addition how much different is it to technical analysis? The reason I say that is because no matter what you are doing, either fundamental or technical analysis, it involves two things: speculation and confirmation.

In fundamental analysis, which is supposedly more conservative you are speculating about future earnings and future cash flows of a company and hoping past performance is repeatable. Then you wait for confirmation at earnings time, whether it has an upside suprise or a disappointment, then everyone scrambles to readjust their outlooks and price targets. Earnings is apparently the number one reason for stock appreciation. Analysts themselves are generally fairly poor at determining future earnings. Hell, I got much closer than most on my Apple estimates and I had yet to learn anything about future cash flow discounting, WACC, etc... I think also some studies have shown that analyst ratings are a 50/50 shot at best, which makes me wonder what they are doing. Some of that could be political or business reasons, which obviously shouldn't factor in.

I guess the point I am trying to make is that how can a market be efficient when it is supposedly being efficient based off of speculation and incorrect information in the first place. Yes, once news comes out it is fairly quickly adjusted to, but it is adjusted to again based on speculation and the psychology of investors and traders that push stocks up or down.

Technical analysis is not without its drawbacks either however I think now more than ever it has been shown to be more useful than fundamental analysis. Someone may have sworn that GE was a steal at 18.50(which has acted as long term support so that lends support to the argument). However, the bottom line is everything is driven by supply and demand, if that level no longer holds because demand is not there then clearly people don't think it's cheap or want to buy it. Forced selling and uncertainty about earnings threw any type of speculation on future earnings and "fundamentals" out the window. In that scenario all you can do is watch price and volume movement and wait for things to stop going down. Obviously once things do stop and there seems to be price stability either people now find that stock attractive to buy or new news came out to make them buy it. Either way it doesn't matter, what does matter is that you now see the demand there.

The above example also lends credence to behavioral finance or how market psychology effects things. An efficient market would never have bubbles and subsequent bursting of those bubbles. However the fact is that there are bubbles and they overshoot on the upside just like they do on the downside. Take oil for example, it got to nearly 150, now its down at 50, it's actual fundamental supply and demand is likely around 75, but again you have speculators trying to gauge how bad the recession will be and large hedge funds that were far too leveraged and overweight oil and had to get out. The Oracle of Omaha Warren Buffet thought GS was a screaming buy at 120, he must really have liked it at 55 too. The market is driven by fear and greed and you constantly see things get mispriced because the market is either too fearful or too greedy.

The last thing I want to ponder is the matter of self fulfilling prophecies. Whether it is a GS analyst saying oil will go to 150, or a price pattern, some things just seem like they just get the market to buy into it so it happens regardless if it "should". I was told a statistic(that I need to verify) that head and shoulder patterns complete close to 90% of the time. So even if I am going only off technicals I remain curious as to why the pattern forms and why if it does form should it automatically increase as high as its pattern past the neckline? I have to guess that some of it is just because people think it should do that, it does. Same thing with fibonacci retracements, IMO they have absolutely no basis for working because you can chose a high and low wherever you want and they may or may not line up with support and resistance, but if everyone uses them, they work. My opinion is that most traders use rules and price targets and possibly the lines themselves when trading so they appear to work.

Self fulfilling prophecies are again a market behavior and could be exploited for above average returns if they work. I have to assume they are for the most part self fulfilling because I don't think that as a stock confirms a price pattern like a head and shoulders all the analysts following the company immediately agree(or just before it happens agree) that the stock is under valued by the amount the stock "Should" increase according to the pattern.

Anyways, those are my thoughts. EMH is mostly fiction in my opinion, I wish I had a true way to profit from these opinions but sadly I am sure they are nothing new. What the CFA books did show is that to consistently earn above average risk adjusted returns you just have to trade off of inside information, no big deal LOL.

Note To Self: Stay Hedged

This market climate has been extremely frustrating especially when attempting to go long. Any attempt at being long recently has ended up with an exit and a loss. I was long yesterday, too much so and didn't exactly like when we were testing the lows again. The bear trap was even more concerning when we dropped below 830 on the S&p. To my credit, I did not panic out at the lows, I had the mental fortitude to hold as I noticed there was not any extensive panic selling after stop losses got triggered. It could have also been stupidity to continue holding because I would have had to exit with greater losses. But we had a very large reversal and ended way up on the day. I took that opportunity to remove a lot of my long bias and bought some calls on the ultra short russell 2000 at the end of the day because it was at support and most stocks had rallied back to resistance levels and I assumed we could have profit taking.

This proved to be a good thing because today we gave back quite a bit of the previous rally and during the whole down turn I was making money on my calls. I am still frustrated because I took my hedge off, which worked out great until the last 30 mins of the day. I can't be too upset being down 2% when the market was down 4%, however had I just held my hedge I would have ended up 3% instead of down 2. Obviously hindsight is 20/20 and even if I thought we would give back some of the come back at the end of the day I would not have predicted giving it almost all back. My guess is margin clerks and hedge fund redemptions along with most people locking in some profit before the G20 all added to the accelerated decline into the close.

My thoughts are that until we finally see some improvement in the job market and consumer data I will not be without offsetting trades. I chose the russell today because I assumed if we continued rallying today the russell would not participate as much and if we sold off the russell would sell off more, which was correct. I think the name of the game going into the new year will be to sell the rallies and always have pair trades on. Right now I have to have the mind set of just surviving and not trying to make money because a lot of people are not surviving or making money, even the professionals.

Looking ahead I think once Obama names all his players and gets into office the market will like that certainty even if his policies will be unknown. I think there could be more pain to come after looking at action in goldman sachs and citigroup over the past week. I am surprised goldman has not said anything to address the decline. So far it's looking like shorting berkshire hathaway could be a good play with GS and GE both way down haha, jk.

Historically, the upcoming week is typically bullish for stocks going into thanksgiving. I am hoping so and plan on having my bullish bias into the end of the week then lightening it up and picking up some good looking bearish setups. The action right now is just unpredictable and it is very trying.

I plan on doing somewhat of a case study of previous price action. I want to see if there is any pattern in terms of time length or percent move over the indicies, for example if during a bear market do we have 5 down days for every 2 up days, or in a bull market 3 up days for every 1 down day, etc. This could be a useful way in trying to enhance gains and pick times to add or subtract from positions. Since GE said it's dividend is safe for 09 maybe I'll just let it all sit in that until after my CFA test and sell options against it. :-)

Time to Evaluate

The real test of any theory is how it holds up under scrutiny of analysis through the scientific method. In that spirit, starting from Nov 1 I will be keeping a close track record of my trades and performance to evaluate the validity of risk management and to prove to myself it is the best method in the long run. I will do this also to keep track of monthly returns. My goal is to have positive monthly returns each month.

Why start now? Partly because I believe a majority of the volatility is behind us so it will be easier to set stops and not get completely whipped around with wild swings. In the spirit of my CFA studies and good science I want to find out what my expectancy is, and how well I can do following my strict rule set. I also want to see if there is a difference in daytrading expectancy vs. intermediate term expectancy. In the long run there should be no difference however maybe my psychology is set up better to day trade, or maybe it is better to trend or swing trade or maybe not trade at all.

Expectancy = (Probability of Win * Average Win) - (Probability of Loss * Average Loss)

Let's say I only take trades with a 1:3 risk/reward ratio. If my risk is R and I plan to lose 1R to every 3R gain and I expect to be correct or take trades that help me be correct 30% of the time.

(.30*3R)-(.70*R)=.9-.7=.2

This appears to be a good trading plan because it has a positive expectancy, which means over the long term I should make money. Limiting my loss to R will likely require that I set hard stops so it is never violated. So far I have been good at using my own discipline to cut a loss during a day trade. So far on 6 futures day trades I have made $95 dollars, with 2 of those being successful. This basically supports my trading plan because I was risking less money and making less. However, it is frustrating because my first trade of the day today was a success, then the second one was not because I cut the loss. Had I held a little longer it would have been successful in hitting my profit target(same with other times). However, the amount of loss I hold through did not warrant the return. Not to mention later in the day we sold off significantly, and if that had unfolded right after I bought a future and didn't cut my loss I would have had a very large loss.

The other side of the challenge is setting a target and being patient enough to let it reach it. I bought puts on the DIA yesterday at the close because I felt the rally favored a sell the news type scenario once the president was elected. This proved to be correct, however I took my gain too early in the day and had I held till the close my gain would have been 3x larger. I did attempt to be smart, I locked in most of my current profit then let the remaining contracts go, the downtrend it was following broke so I took the remaining profit assuming a reversal. The reversal was short lived and eventually we had a large sell off into the close.

Speaking to the large picture I think we had some good profit taking due to there really being no actual resolution and no one knows what Obama will do and who he will appoint yet. Cisco reported and met expectations but had a bad outlook which will weigh on tech tomorrow(futures are down 2%), which is unfortunate because I am long Dec calls on the Q's and I suspect I'll have to sell. A further sell off though should set up some nice buying opportunities in some good names I have been wanting to get into such as VMW, AAPL, CHK.

The Jobs report could be another negative catalyst however if we are truly bull confirmed people should start dip buying on these pull backs. We should see support around the 9,000 level.

So, the name of the game now is evaluation. Is this a worthwhile cause? I will compare my results to the averages and see if my rules and timing ability is a pointless affair as most money managers claim.

We Made It!

It couldn't have been more fitting that one of the scariest and worst months in stock market history ended the trading week on Halloween. Volatility has been ridiculous lately, so I have taken to using smaller and very few position sizes remaining essentially delta neutral until the market calms down, not to mention most of my time is spent studying for the CFA at the moment. I think volatility should calm down after the election so hopefully we can start some steady trends and options will be more appealing to buyers.

As of right now we seem to have put in a short term bottom at 8,000. Depending on what happens in the coming months and into next year that may not be the ultimate bottom but it seems more and more likely as we go higher from here. The NYSE bullish percent went on to a buy signal on the point and figure charts, which makes it a "bull confirmed" status, meaning bull market. This is supposedly the lowest a confirmation has ever happened at 20%, it could be a false signal but as of now until it is broken buying the dips is much more appealing and trends should hopefully last longer than a day or two.

If hedge fund and mutual fund liquidations are essentially done there will likely be a steady stream of money coming back into the market over the next few months if we don't get any unexpected surprises like a country defaulting.

I recently got approved for Forex and Futures on my new thinkorswim account which should offer some good opportunities to diversify. If europe is/will be in a recession it seems logical that they will continue to cut rates, and since the our rates can only go down another percent I think this will pressure the euro making it good to be long the dollar and buying on dips. A strong dollar will pressure crude and commodities however those have come down so hard from forced selling I think I'll wait for them to regain a correlation.

We broke above 9,250 and finished above it today pointing to higher stock prices going forward. Today was kind of funny because it was much less volatile during the day(ie normal) and seemed boring after we have had such swings all month. In the final 30 mins there was quite the battle though, in 2 mins I think the futures sold off 150 points, traded in a range then finished up back close to their highs within the last 5 mins. I took the opportunity to trade some futures today, it was slightly frustrating but highlighted the necessity of rules and risk management. 3 times in a row I took trades, with the trend and had to get back out with a loss. Then my 4th trade was profitable and made up for all my losses. I ended up making 5 dollars total in the futures haha but it shows that you can take multiple small losses and still make money. My other lesson was to take positions a little bit closer to trend lines. I would get back out when the lines were violated, but would generally see them come back and would have gone in my favor. Oh well, rules have to be followed as we can see and you can't mess around even trading single contracts due to the leverage they allow. Each trade risked about 1%.

Overall I am cautiously optimistic at least in the short term given what has been seemingly priced in. Consumer spending dropped by 3% which was huge and obviously is the main driver of GDP(which was -.03). I think a lot of the announced layoffs will hit next month which could be an issue obviously and is never a good thing in general(take it from the unemployed haha).

It looks like Obama is going to win the election, which I prefer but hope he has a good plan for creating jobs. Stimulus packages like Bush gave by giving out checks are worthless and do nothing but artificially create spending for a month. I hope that is not the same way Obama goes because it would be equally as worthless and add even more to our debt. If jobs get created then people can spend month after month(and hopefully this time save some too) imagine that!

Well, back to studying...

Volatility Remains

This market remains unpredictable. A large gap open resulted in a fill and then drop of the major averages. The frustrating thing is what happened with GE just a day ago did not happen with XL capital, it bucked the whole market trend and I got out with my measily gain only to see it shoot up another 4 dollars during the day. Oh well.

I tried unsuccessfully to be the contrarian twice to the downward trend. I made money a 3rd time and got out with a quick gain but the averages rallied into the close like I was hoping. Oh well. I need to fully remove emotions out of the equation. I tried to during the day as I took a trade and just a set a limit sell order of my predicted target. The target got close but not quite there so I never got filled and took a loss on the position.

You have to act so fast in this market it's insane. The perfect put plays on POT and FSLR i was wanting to take were only at their resistance levels for the first mins then proceeded to plunge the whole day. Who would have thought with a 4% gap up on the open there would be zero significant rally attempts to take them down at their resistance levels again. All I can hope for is another rally.

I fear the market is in a middle ground area, we could go up just as easily as we could go down so I don't really want to take a directional trade beyond a day. I need to just be patient and let the setups come to me and take the ones that make the most sense.

More History Made

So the rally finally came that I was expecting, although it came with even more force than I expected which caused me to leave a lot of money on the table as a result. Twice I looked for day trades to see if the rally would fade and twice I had to exit again because the trend just kept going up. History books seem to keep being written in this market. With the Dow gaining nearly 11% in the session, the second highest percent gain and the highest point gain in history.

Besides exiting my calls too soon, GE particularly pissed me off. I had my stock set to sell on the open at 22.25, it opens and 22.30 and apparently I didn't get filled because it promptly dropped and kept dropping the whole day. I ended up bailing at 21.20, so there is a 1k less gain on that trade. I did however buy back the puts I sold at .85 for .15 so I made 700 there, not too shabby. It is likely I could have collected the entire 850 but in this market I didn't want to risk it.

My target of 9500 was essentially reached today. I was hoping for a pause at 9000, then a resume on good confirmation of libor rates going down. As of right now it looks like the rally is set to continue with futures up 2%. I am upset I bailed out and missed that extra 500 dow points obviously, but the easier trades will come on the way back down and I won't chase the trend beyond some possible day trades. when we get near 10,000 I will put on a put position. Stocks in the ag and materials sector should also be close to some good resistance and ready to get some puts as well.

My only position at the moment is some stock in XL Capital. They report earnings tomorrow morning before the open so this is partially a gamble. However they are trading at 1/3 of supposed book value so if earnings and guidance is remotely decent we could see a pop. If not, then I shouldn't have too much downside risk. It did run up into earnings so that is a partial concern that it will sell on the news, but again it should be limited risk.

I may look to exploit these high volatility numbers with more option selling if we have a rally tomorrow and reach close to 10,000.

My general feeling is we see 10,000 then as earnings start to come out and are worse than expected and guidance gets cut we will see a lot if not all of this rally come off over the next couple weeks. Then there will be focus on the usual things like consumer spending. If the market is not doing well I don't see a good christmas but if it holds up going into the holiday season I have faith in people to keep spending money they don't have if they are employed.

I will let the chart show the way but these are annoying times to be an option buyer with such inflated prices but I am hoping the vix comes down significantly soon and we start to have more well defined trends we can follow.

The Crash of 2008

It's interesting to think these really are historic times. People will look back and reference this as the "crash of '08" just like people talk about the '87 crash. October seems to be the month for events to unfold historically and this time around it is no different. With the Dow 40% off it's highs from almost exactly a year ago it seems eerily coincidental.

I have been trying to do some research on previous bear markets and crashes to help me gain an edge going forward. I feel like this is a great opportunity to make money on a snap back rally since we are so significantly oversold. Friday was slightly encouraging as we rallied from 670 down to settle only down 128. This could have been because people did not want to be short before the G7 meeting over the weekend but it seemed fairly positive since more forced selling didn't come at 2:30 or was at least overcome by more buying into the close.

Looking at the dot com crash, it basically took 2 years and had 4 steps on the way down to retracing from 1500 down to 800 on the S&P 500. This time around it has taken only a year but still took 4 steps to retrace 1550 to 800. The month following retracement there has a been about a 10% move back up in the opposite direction. The fact that this move has happened so quickly and gone so far means there should be a massive rally around the corner, likely sparked by a government move. I personally think that the government should guarantee interbank lending, that would spark a huge rally, but at this time all they are saying they'll do will be to invest in banks directly which may not do much to inspire confidence.

Comparing the previous declines as well each time it reached a -70 oversold condition there was a rally generally for the next week or 2, we have reached that condition, as well as historic oversold conditions on the McClellan Oscillator and bullish percent index. Even with the late day rally the McClellan is at a -120 level up from -130.

The factor just comes down to time and with the Vix at all time highs it makes options trading very hard. I still bought some November calls on the DIA with the expectation that we see a 10% move in the next couple weeks which should offset any volatility and time decay enough to get a nice profit.

GE reported earnings which were in line and affirmed outlook for the year. This would have normally be big news but seemed to be ignored. I took a stock position in GE at 18.50 which has been a significant support level over the last 10 years. It also coincided with an oversold level which was ideal. Right now after hours it hit 21.50, if we see a rally I think it could see another 10% pop. My first target is 22.50 with a second target of 24. At the same time I sold an Oct 17.50 put since we will have time decay over the weekend and doubt it will finish in the money at all by friday, but who knows anything is possible. I think odds are in my favor which is why I took the trade. Waiting a week and hopefully getting 800 for it is an ideal situation but still makes me a bit uneasy having an uncovered put position. I could have done a covered call but I expect the move to be up so that seemed to not be a good play.

I think the Dow could get back to 10,000 in short order once we see some credit relief but I think 9,500 is a more realistic target.

Who knows if we saw a bottom, but lets hope history repeats itself again and it is profitable. :-)

History in the Making

Today the Dow saw a 777 point decline, the largest point decline in history after the congress failed to pass a bill that was essentially "guaranteed" to pass and help attempt to stabilize markets and quell fears in the market. On a further note the Nasdaq saw over a 9% decline down 199 points, which I was unfortunately long the Q's but got out well before the lows.

Everyone in the industry from pundits to professional traders seem to say this is the worst market they have ever seen and that these are "unprecedented times". Unprecedented times indeed. This has been a trying time for myself as a trader still trying to learn as well as try and balance studying for my CFA level 1 test. In hindsight, the best thing to do would have been to sit out this time and let things settle out. As Jeff says, "everyone in a bear market loses, it just depends on how much." Still, there have been many valuable lessons learned in this market and I have managed to at least survive. I am determined more than ever to succeed especially knowing that easier market times are around the corner. That is not to say I think this bill is going to solve all the problems of the market, however the market operates on group think psychology that needs to be calmed. People need to gain confidence in US markets again.

There are some things to know coming out of this that I will be watching and looking to invest in going forward once we have some more certainty and resolution that the market seems to look for as evidenced by the stock market but more so by the credit markets. Those banks that come out of this successfully will be in great positions, US Bancorp, WellsFargo, Bank of America, JP Morgan and now Citigroup with its aquisition of Wachovia. These will be the leading banks and essentially the only major banks going forward that should see some significant growth. Goldman Sachs can never be counted out as well with their change over to a bank holding company. So, in the short term those select financial stocks could see some decent upside. My other sector is the homebuilders. The homebuilders have held up fairly well in the face of the sell off and once this bill eventually passes, which I think will happen, they will benefit. The XHB is a diversified way to get in here, or you can choose individual stocks such as Meritage homes or Centex.

I am cautious on getting into anything consumer related that isn't something like the consumer staple stocks. The global slowdown is still very much a factor in this market even with a bailout however it will make some very good companies going forward very attractive if you are looking to hold long term such as AAPL.

The last aspect that we learn from today and that I learned again is that nothing is ever a certainty and we cannot rely on politicians. This bill was basically supposed to be passed and everything indicated that it would pass, which I took as a bullish sign for stocks. I was overly long going into this so I suffered and gave up all previous gains I had and they turned into significant losses. This is obviously a big lesson to learn even though this is not a usual market action of losing 7% it would have been smart to lighten positions going into the weekend because you truly never know what will happen and how slimy politicians will try to cling to their positions and not stick their neck out because they want to keep their position of power.

Long story short, I found it somewhat amusing to observe action today and have been a part of history. I will live to trade and invest another day and will move forward with more insight and caution and more reinforcement of following rules.

Day Trading to Stay Green

So a lot has happened since I have posted last. The S&P touched 1200 since I last posted and highlighted the break of 1300. Oil traded up to within 1 dollar of 150, and has since toppled nearly 25 dollars. I unfortunately did not take my bearish stance as planned beyond a short term trade that I was early in and ended up exiting for a loss, but would have returned nearly 700% (I had an average cost of of about 1.50 and it is now worth nearly 10 dollars).

Can't look back, have to look forward. Recently I had calls on GS, which has gone up 20 dollars in 2 days. I was only along for the ride the first day, I left a few contracts to go to today but sold at the open and still left quite a bit on the table, but oh well I still made a good profit. That all important line of 180 was reached and I was not convinced this was a rational rally that could be supported(read there was not enough economic evidence to break above that resistance). So I bought puts assuming we go back down if any financials are inline with write downs or have unknown issues. I am down on my puts but it should play out as it looks like an ugly day tomorrow.

I day traded puts 3 times on GS with all of them being successful, i would enter at 180 and exit as it bounced down, one time I came back and it was above to 184 and I figured we would have a sell off back to 180, so I took a ride down again. All times I entered, set my target and set a limit order and walked away. Once I only got filled on 5 of the 20 contracts so I had to sell the rest for only a small gain. These trades were the only reason I was up today, as my AAPL calls barely participated in the rally then sold off at the end to be even.

GOOG missed as well as MSFT so I fear the worst for apple tomorrow. Both were down 6% afterhours, Apple is down as well.

I am hoping the money I gain back from my GS puts will help offset my loss from AAPL. I plan to do some day trading again tomorrow likely on GOOG, possibly GS, or AAPL. I think it could be an ugly down day so that will be the way I play it with puts unless I see otherwise.

Hiatus

Well I haven't had much activity lately. The reason is I have been busy and I have been letting things pan out in the market. Currently things are not looking too good if you are bullish. S&P is cracking below 1300 levels and oil is close to that 140 level.

I am sitting back as I am helping my GF move and am out of town, I'll be back watching things and trading more in July after the 4th. Unless there is something very compelling.

Levels to watch is 150 for oil, if we hit 150 I am taking a contrarian viewpoint and buying puts on oil and buying stocks because I think that could signal a bottom, who knows my view could change as it approaches but I think all this is result to oil pressuring inflation as well as commodities due to a weak dollar. The psychological level of 150 in oil could be the top and then we see it drift lower, which will then possibly be followed by commodities and allow the fed to raise rates as inflation gets under control so the dollar strengthens and oil and commodities continue to go down and we see a gradual recovery.

I'll continue watching and start trading once I get a consistent internet connection and time to watch, I may take some more day trades to see how that goes as well. stay tuned!

The One That Got Away

Today, Lehman reported and came in with the loss they had previously announced, which was apparently positive for them and the rest of the financials. GS reports Tuesday and if it also has a good report I think there could be an ease in the credit fears and the market could move back higher. GS actually broke and finished above 180, which would have signaled me to get long some calls but with earnings coming I don't want to gamble since I am currently down. I was positioned bearish ahead of LEH's report on LEH, GS and MS. All had rallied recently and I thought if there was any kind of news not already out it could take them back down. That did not happen and I cut my losses shortly after the open. This proved to be very smart because GS then moved up 7 points after at its peak and both MS and LEH moved 4%+ on the day which would have killed my calls.

The largest disappointment was missing the trade on AAPL, and when I say missing I mean I took the trade but didn't get filled. My bid was 1.75 and AAPL was following a nice trendline and I assumed a retest and I would have gotten filled, but no the ask was 1.78 and it then broke out. My order was for 25 contracts. The stock moved and I assumed if we could break above the previous close we could get to 175, which was precisely what happened(actually closed above 176), so my option when I checked it again was worth 4.65. Had I paid up an extra 3 cents I could have been up an extra 7k in a single day and trade without having risked more than 2%. The frustrating thing is more so missing the extra capital, had I made 7k I could take 14 more losses before I was back to where I started and in that time I should hit one or two more big trades like that. The comment was made that "those things happen every day" meaning the stocks move like that every day, which is true but the likelihood of me getting in like I could have and getting a return like that does not happen every day. Who knows, maybe it could happen again tomorrow and I am in the trade, however the odds are not in my favor. Speaking of which I have to work tomorrow for most of the day so I probably won't be in any trade.

I have to look forward, that sucked and I am sure it will happen again but I am glad I cut my losses, that is half of it. The other half is taking advantage of those large winners and being along for the ride.

Ping Pong Game

So Tuesday I entered into two call positions after selling out of my AAPL position and all other losing positions. I bought calls on CLB that had a break out and then a pull back, as well as FCX that had a bull flag breakout. The next day on a large market down day they were showing me nice gains, today they give it all back. FCX broke below support and I sold out, as I should have. CLB is still a small loss but still held above support.

Today I was planning to buy puts on the indicies at the close, unfortunately I should have done it mid day at resistance because it turned over and headed back down. If we see any strength tomorrow I will likely get into some puts.

This week was a lesson in cutting losses, because had I not, I would be hurting way worse than taking my small losses. I considered AAPL puts just because there seemed to be a concern about Steve Jobs, and I think if it comes out that Steve Jobs is in fact having a cancer recurrence, which would be terrible for him, the stock could easily lose 20% of it's value. I am thinking of looking for an opportunity to get some puts if AAPL comes back a bit after this large drop. With the prospect of Jobs' illness and the apparent market headwinds I think AAPL is temporarily done going up.

I again tried to get some put plays on both GS and MS as they rallied today, missed my fill on GS by .05, same on MS, both I assumed would rally slightly more, i'd get filled and be good, but that did not happen and the stocks sold off. It's hard to look at that, I sometimes will just pay the ask to get in, and I have good conviction, but of course the cheaper I can get it, the more of a gain I can start with or the less of a loss I can take to find out if I am wrong.

It's scenarios like this where I'll have a big up day then it reverses the next day that really tests my patience and ideas that staying with the trend till the end is the best thing. Of course having more plays to balance myself would have helped in the overall picture, individually I stuck with these till they did not work, again as I should do.

I have to work tomorrow so I don't think I'll be able to do much, but I'll keep an eye on things.

Best thing(and off topic), Celtics come from 21 points down to beat the Lakers and take a 3-1 lead in the NBA finals. The series would be over next game if the league didn't switch to this stupid 2-3-2 rule however I am hoping KG and the Celtics can come up with another win on the road and clinch it.

Apple Bites Back

So for better or worse the main theme of today was AAPL. With the WWDC today and announcement of the 3G iphone and many other critical business components I felt like the volatility could be exploited.

I entered the trade when I saw it break out of a range to the upside above 182, in general my bias was long, I thought today would be an up day overall after the speech was done. So with that break I entered into 25 contracts of the June 195's. The delta was approximately .25, I felt with good news the stock could easily be propelled up to the old resistance level of 190 and if it broke we could see 192-195. Initially the trade was doing fine, the option value increased .20 giving me a nice cushion, the stock came back down and found support at the 182 level that I had entered. This held for a while then started to break down as the speech approached. I had a limit sell order on the long side but not on the down side, however I wanted my downside risk to still only be 2%, in this case that meant .2o of loss. I entered at 2.40 so that would be an exit of 2.20.

The stock essentially plummeted down to 175 for no reason just as the speech was starting and I was unable to do anything as I was going to class. At that point I was faced with a decision, do I sell out, average down or do nothing. My inclination was to average down since I knew this was likely unsustainable making a break even only require only half the movement back or even better a profit possible after a large initial loss. I decided to do nothing because I didn't want to compound my loss. I decided to wait it out and ended up setting a sell limit at 2.20 equaling my desired 2% because at that point it was looking like I would be lucky to get out with that small loss. At one point it got back to my 2.40 price but I had already been filled, of course I never could have known it would get there.

In the end, I got filled and was actually lucky to get out with that loss. Had I continued to hold till the end of the day I would have lost 10% of my account instead of only 2%. Remember we have to survive to trade another day so while I am partially upset I didn't take advantage of the initial exaggerated weakness in the stock, it would have likely been more wreckless to average down and holding would have put me in a weaker position to trade with in the future.

The nasdaq was down significantly today, which was great because all my tickers were 4 letters and calls(stupid). My hope was to get weak stocks to rally to buy puts, which unfortunately did not happen. It is stupid to look back and say "should have" but holding all my positions from last week to today would have been the best move yet and I would have had another very profitable day. The reality is that I didn't have them so I must say "oh well" move on and look to balance myself and get back the losses of today.

Theory vs. Practice

So Friday we saw the Dow lose almost 400 points and the S&P lose 43 points. We gave up the gains from thursday and even more because of exactly the reasons highlighted: bad unemployment and oil. Unemployment came in much higher than forecast and oil has it's largest single day increase evAr(that's right with a capital A).

This is EXACTLY the reason we diversify and what was the result on friday? I had an up day that pushed me back over even and would have put me way above had I not let emotions get the best of me. Thursday I was questioning why I wasn't in all calls(just to make a point). This is the reason. ANF reversed as well as MS, my SPY puts at the close seemed like I had a crystal ball. I don't I was simply making a hedge that happened to work very well and had it not worked I would have exited with my small loss.

This was basically the perfect scenario I have looked for. On a large down day my puts go way down and my calls stay flat or increase. My IPI and AKS calls were actually making money, AAPL was hanging in there until close and GRMN was holding support. I checked the market in the morning, knew I was properly diversified and position sized and decided to go back to sleep and let the market do what it was going to. I came back around 11 and checked to find myself back above even by 2%. In this case, excitement got the best of me. I basically took profits on my positions because the S&P was sitting at 1375 and seemed to be holding that old support level so I assumed I made my money on my puts and wanted to finish above even mainly for psychological well being. No harm in taking a profit however, it severly limited them. Had a held till close I would have been up another 10% on my account. There is no way I could know this of course but patience would have paid off big time.

In the end, I can't complain being up 8% when the broad markets were down 3%! That is how it should work. On monday I'll look to balance myself again as I am now left with only call positions. AAPL has their WWDC so I am hoping for good news and bullish action. GRMN held and bounced off support at 50 so I am still in that trade. I entered some ISRG calls at the close since it was holding support at 280. My target is 300 or a break of 280.

IF we get a bounce on monday I'll look to enter more put positions since the rally will not hold unless we see something drastic. I'll look to enter puts regardless but I want to find good enteries.

Surprise Rally

So today we saw a decent rally in the market. Fueled by better than expected retail sales and a decrease in jobless claims the broader market had a very positive reaction. This was all in the face of a 4 dollar jump in oil prices. The catch is that we could give it all back tomorrow if unemployment comes in worse than expected.

I am decently positioned regardless of what happens. I am currently still biased to the bullish side with more positive delta, however it is only at a rate of 4:3. It's at times like these you wonder why diversification is good because 5 of my call positions are up, all my put positions are down. Theoretically if we have a down day I'll hope some of my calls stay up or keep up and my put plays go way back down.

ANF is a case, it drops to 68 today's numbers come out and it jumps to 7o.25, that is not a very convincing close to me and given the possibility of a drop tomorrow I'll stay in for the insurance for now. Same with MS.

Near the close I entered into some SPY puts, the S&P closed at 1404, this should have signaled an exit, again this is a hedge and I am only down .5%. None are at my 2% max loss, although ANF is very close. If we have a bullish unemployment number I will likely cut those positions loose very quickly to limit further expected loss.

The number comes out I think before the open so the futures should tell the story in the morning. AAPL is still sitting right below 190, it needs a nudge which could be this number or the WWDC.

On a side but great note the Celtics won game 1 of the NBA finals. Hell yea, do it Garnett! ;-)

Time to Get Neutral

Another down day with financials leading the way again. It's not looking good for the market at the moment if you are bullish. 1375 Will be tested again on the S&P and I doubt it will hold up for long if there is renewed concern(over reaction) about the credit crisis. Banks getting downgraded make them ripe for puts as they are at or making new lows. I plan to diversify with some puts on MS tomorrow if the opportunity arises.

I got into puts on ANF, it finally broke the 70 level today, I entered early but it was a good entry at 69.50, and it ended up nearly a dollar lower. Too bad I didn't get filled with my anticipatory trade at 71. Oh well. My target is 65, with a break back above 70 signaling an exit.

I sold out of my SIRF, at a little over a 1% total loss, good from a loss standpoint but too bad it wasn't a gain. GRMN looks to have broken out so if there is a pull back to close to 50 I will take down a couple calls. RIO broke an up trend so it looks like a good entry for puts as well.

I definitely want to be selective and diversified right now because if we break 1375 I think we could see 1320 again. The only possibility to help that could be retreating oil, but it definitely has not broken its uptrend but USO looks to be sitting right at support at 100. Jeff Kohler mentioned that refiners are starting to get bought which could signal a pull back in oil coming. I'll keep that in mind as we progress here.

POT could be up for a long position again if it pulls back after this break out of a triangle.

we'll see what tomorrow brings. Hopefully large profits, or small losses.

New Week, New Month, New Positions

So since last week I have made a few moves. Took a trade and got out with a loss below my 2% level. However, it was tough because if I waited till the end of the day I would have still held the position. Today that position would be worth a decent profit(about 50%). I had originally bought some SPY puts as we approached the 1400 level as I was not convinced of the rally and decline in oil. On thursday we went up to 1405, I was at that point holding a loss of slightly less than my 2% which was my limit, not to mention a finish at 1405 would signal a break back above 1400. Since I have a loss already I was not looking to make my losses bigger. I gave it a chance to reverse but it behaved just like an uptrend and bounced back off of support. I cut it off and it did keep going up. However, by the end of day it finished back at 1400. Friday was the same, went above 1400 only to finish back at 1400, a break and close above 1400 was my exit. Today it was down to 1380.

This is an example of emotions effecting a trade, which I don't want. The best thing would have been to wait till the end of the day to enter and see we were not going to finish above 1400. I got over zealous looking to make a few dollars ahead of time. I was wrong, I learn and move on.

Today I looked to get into some other trades. PTEN looked to be bounced off of support in a nice channel uptrend. I took down some calls. I also took down some calls in AAPL. PTEN if there is a break below 31 that will signal an exit with my target being 35. AAPL will likely have volatility going into the WWDC event. I am looking to profit off of this, a break above 190 should signal a move higher likely to 200.

I had a couple other positions I was looking to get into but my limit orders were not filled while I was in class. ANF is looking weak, if it breaks below 70 that is huge and I am looking to buy puts.

I am still holding my SIRF and PENN calls, I am likely going to cut SIRF loose as they are June options and it is not moving enough to warrant holding it and watching it decay. I am unsure what will happen with the buyout of PENN, obviously it seems like nothing will happen or the stock would be trading up, but again the point was to take only a position I am willing to lose completely, so I will hold it until there is more conclusive news. I will hope it gaps to 67, but that will be unlikely. The provision of course is that the buyout price increases for every day that it doesn't close. Theoretically I may as well hold till July expiration if I have downside of 2% and a potential upside of at least 12 dollars of intrinsic value. These trades should be few and far between but I am comfortable right now. I need to find other trades, mostly puts to balance which I'll look for tomorrow if I have time.

Time to read Fortune and then go to bed.

The Watcher

So I was a bystander again today. Saw DRYS pop and move up almost 10% by the end of day, many other stocks finishing at their highs for the day as well. We finished at the 1390 level, I was in class otherwise I likely would have taken down some puts. We'll see if that would have been a failed trade or a good trade, so far DRYS and FSLR rallied back up today.

Today we actually saw some good results from retailers, obviously that is good news for the market because it shows some of an indication of the health of the consumer, which in turn means the economy. I think this is a step in the right direction. Oil is still the big concern in my opinion, we may even get back to 1400, but until there significant evidence that oil could be on hold or declining I don't think we will go above that. Of course the market could see it differently and a break above 1400 would make me more bullish again.

One interesting thing was seeing bond yields increase and from a technical standpoint it seems to have broken out of a range to the upside, generally bonds increase as people move back into stocks looking for higher returns. The dollar rose and gold declined, generally all good things for the market to go up. The next couple days could be telling, I am not sure when the memorial day driving numbers(not sure the official name) come out but I think that could be a big indicator of where we are headed next. As it will confirm or deny bullish oil in the short term.

As a side note, I am not generally a conspiracy theorist but I sometimes wonder if terrorist cells get paid off under the table as they make attacks on oil refiners at seemingly opportune times to prop up oil cost with fear of speculation. The overall impact seems negligible, just like when the US stopped putting oil into the reserves it did something like free up around 200,000 barrels a day, this attack supposedly hindered output by at most 150,000 a day. By contrast we use in the US alone almost 21 million barrels a day. My point is that stopping oil into the reserve did not make prices decline, so why would this make prices go up? From a general perspective though it is not like it rallied back to highs so this could be a short term reaction up as prices start to fall back down. Only the market knows...for now I'll just sit and wait for time and good setups.

Forced Break

Well, Friday showed us the return and evidence of a break in up trend. 1390 broke down to 1375 which was my next target had my puts been filled. Can't live by "should haves" though. I ended up not doing anything friday and didn't do anything today. I may be forced to sit out over the next two weeks since I have class from 1:30-4:30 and laptops are not allowed. So making trades at the end of the day as needed would be nearly impossible.

The market rallied today, likely just some relief from oil pulling back below 130 on demand concerns. I think if we see a weaker number than normal from memorial day driving and evidence that gas could decline as usual the market could rally back up. That has yet to be seen though. I am more likely to buy some puts if we hit 1390 again and fail to break it.

AAPL is still going strong, kind of depressing seeing as how I sold out at a significant loss that would be a gain again, of course holding through a 10 dollar downswing with no way of knowing it will rebound would be reckless. There is more evidence of it being correct as both FSLR and DRYS have fallen significantly farther. If oil starts to decline these names could rally again. I honestly cannot see oil dropping below 100 again and more likely would think it stops at 120 if it does decline more in the near future. I think a real fundamental change would have to occur to send it all the way back to 100, if it was going back to 100 though the market would likely be hitting new highs.

So for now I am watching and trying to pick out some stocks I'd like to be in with good setups, maybe I'll sit out for now and watch how thinsg develop over the next couple weeks until class is over, although there still has to be bullish and bearish stocks I can utilize I would prefer to be able to act if necessary and not be stock holding over night. Maybe I'll start attempting to use mechanical stops and see how it goes.

Back to the Drawing Board

Well, apparently a lot can happen in two days, especially when those two days are the largest drop in the market since february. I have already highlighted my concern about my over bias to the bullish side and apparently I should have acted with more concern because after partially weathering those down days oddly enough on this supposed up day I lost the most. From the opening to the close I gave up my gains for the entire month(what was left) and went into the red.

Am I upset? Hell yes. Should this have happened? No, absolutely not. Is it my fault? Yes.

Like I said before where money is lost there is a lesson to be learned(same can be said with money gained). Pretty much there is something to be learned from each trade.

This problem stemmed from a few things:
1. Giving losses too much room(hoping).
2. Too bullish(not balanced out with puts)
3. Large swings in one day.

I honestly have no idea how the market was supposedly up because none of my positions were, in fact they were all down significantly. AAPL, DRYS, GS, V, were all down huge, if not overall but had a huge range throughout the day.

DRYS was the biggest swing. Going from a +1700 yesterday to -1400. It was down 10% today alone, generally I would not expect such a massive break of trend with no recovery. Waiting till the end of the day (or anything besides the open) just meant further loss.

AAPL fell off a table part way through the day and also had a 10 dollar range. I waited the sell off out though and got out on the rebound, however it had to rebound significantly to even get close to my sell limit. In these scenarios the call options shed value a lot faster than they gain it back so even if say an option was 5.00 when apple is at 178, it sells off then gets back to 178 it could be worth much less than that.

I attempted to sell out of GS yesterday on the break of 180, I only got 1 of the 4 contracts sold. Bad luck because today its continued sell off was helped by a downgrade to "Sell" by an analyst.

My new positions went from sitting at less than my allowed loss to much larger than my allowed loss. However I can't say that for all.

Let's look at why risk management and sell rules MUST BE FOLLOWED. Visa, had I only allowed it my 2% risk, thats 2600 I could have saved. Stupid. FSLR, another big move down, should have signaled an exit a couple days ago, I held, could be another 1100 in my account. ACH, again going by risk alone would be another 1000 back approximately.

AAPL and DRYS, are harder situations because the swings came in a day and originally were not violating rules/trends. However, they don't even matter, I can't plan for those, but the above issues I can. Even with the unexpected moves in DRYS and AAPL, by following rules in the other 3 positions would have meant I was still up 14% after this move down. Since I did not I am now down 4%.

These changes have to be made, if I need to come up with a mechanical solution I will. Ideally I dont' want purely mechanical stops but if I can't do it myself it will be necessary otherwise we can see the result. The problems were being masked by initial gains, which sounds much like my original demise.

Lessons to take away, CUT LOSSES SHORTER. I also need a little more patience for cleaner entries. GS and DRYS are ideal entries, unfortunately those moved large against me to show the break of trend, but generally that is what I want to see to take a trade.

I am almost entirely in cash, taking a break till tuesday and I will reallocate my positions with diversification and precise entries/exits and proper loss management.

Overall, the market is still arguably in an uptrend, 1390 is not violated however I think it could come. If oil keeps going up and inflation rises and jobs decrease, there is no reason for the market to rally at all.

The gains I lost can be made up it will require dedication and application of lessons learned. Possibly a shift to the bearish side, but only once we see that in the charts.

Buying the Dip

So today we saw a pretty big down day, Dow down 200 points. I was down about 1%, inline with the nasdaq. The sell off apparently due to inflation worries and higher oil. These are a concern because I think the market is entirely fixed on these two items. With the credit crunch arguably and mostly behind us the new focus are these issues. Hence, I think if oil keeps going up, the market goes down. Wholesale inflation rose twice as fast as forecast at .4 percent, that was core PPI, oddly it was only .2 percent with food and oil included.

If the added oil and commodity costs get passed on to consumers this is not good for the economy or market. In general I think this sell off was necessary, but is concerning because it seems like a perpetual cycle, where once we start to see inflation it will encourage companies to pass along costs and just add to the problem until significant change happens.

I ended up not buying into DRYS for a contract on monday. 1 contract would have been about 1k, and with volatility decay and only a modest expectation of a move up I could at most have made 500 dollars, not a bad ROI however if I am wrong I could have easily lost 500. Even though I am playing with all profit a 1:1 risk to reward is not something to take so I passed. Rightfully so, as it traded down to 96 today. I decided to get back in as it is sitting at horizontal support. If I am wrong I get out with my loss, but I could see it getting back to 110 again if we bounce here, so the R:R is excellent in my opinion. Heavy down volume is a concern but as we can see the trend is still in tact.

I heavily bought this dip to the long side and I am slightly concerned because I did not get any put plays yesterday, CMG was already too far gone and none of the others had broken, they rallied. If we see another heavy sell off I could be caught with my pants down so I am looking for bearish plays. I bought DRYS, AAPL and GS today. AAPL was strong in this down day and has the supposed announcement of the new iphone coming out which should send the stock up, if it breaks 190 I think 200 is the next stop which is my target. GS is close to 180 which has been a very significant level so I should know I am wrong if it violates that line. Even though people seem to be generally bearish on financials GS is a good stock and could see a big move next time we rally. On monday I bought into RIG and ACH as well. FSLR bounced off its diagonal uptrend but finished below 300, although it was also strong today in a down market.

One position I am eyeing is PENN, it sits at 43 with a supposed buyout happening june 15th at 67, logic would dictate that if the deal was going to happen the stock would be sitting right at 67 because there are more people in the know than I am. However, in the odd case it happens I am going to buy some calls. Even if the deal ends up being for only 50 dollars I should make some money and I'll risk the entire premium as 2% of my account so it is just like any other trade. Again the R:R is very attractive and I will take that trade everytime.

The S&P looks like it could pull back to the 1400 level before moving higher. That seems likely unless something happens to drop oil significantly, which is almost a zero probability. Some index puts could help even out my account a bit but is not the most ideal scenario.

Options Expiration

Friday we saw the expiration of options which generally leads to stocks ending at round numbers or slightly below or above likely depending on the outstanding contracts of certain positions. This week ended up being profitable but very volatile which is not ideal. What is ideal is that I am at a new high in my account, I now have a 30% gain in under 1 month back trading. :-) The best thing about this is that again I am following rules and managing risk and still making very nice gains. I can only hope to keep up this pace, however I doubt it will always happen like this.

I sold my EWZ, DRYS and FXI calls at the open after they had gapped up. DRYS has been my best trade so far since being back. Had I held I could have made an extra 500 but I followed my plan of selling if it hit 110 and I locked in over a 100% gain. I considered buying a single 110 call to hold over the weekend into monday the case of a gap up. EXM(another dry bulk shipper) will be reporting earnings before the open monday and DRYS will likely benefit if there is a beat and EXM rallies. I will likely still buy in before earnings after the close, especially if there is a sell off on monday. I don't think the uptrend is over with these stocks and DRYS could see old highs(130) very easily on a good earnings report.

EWZ was getting close to my 100 target and I wanted to lock it in as well since I assumed we would see volatility throughout the day. This actually kept going up and I left money on the table, but overall I cannot be upset. I will wait for a pull back to re-enter. FXI was a wash as I got out with I think a 100 dollar loss but it basically required a move to near my target to break even due to time decay and volatility decay.

I am still holding V, FSLR and SIRF calls. V being the most painful and exception to my rules, which shows why there should be NO exceptions to any rules. FSLR is still only a slight gain for me, it has actually increased by about 4 dollars since I bought calls but time and more so volatility decay has kept it flat. I think it will start moving shortly though and make new highs especially as oil stays at highs. SIRF is again a slight gain, but it is not moving against me so I don't mind holding it.

Looking forward to next week, on monday I will get into new positions and re-diversify. I need to get more tech exposure, I will likely hop into AAPL as I feel it will be propelled back to old highs on news of upcoming products and rumors. I plan on holding a single DRYS contract over earnings, since it will only be risking pure profit and could offer a nice potential reward to the upside. I will need to find some good put plays because all of my old ones broke to the upside(and have continued up). This is why we follow rules, even though it sucks taking a 2% loss, it sucks taking a 10% loss(take V as an example). Cutting the losers short and letting the winners run has worked so far, no reason to change now. :-)

It took restraint to not enter into all my positions today at the close, especially on DRYS, but I figured there is no reason to automatically lose 2 days of time value in hopes of a gap up that doesnt develop. I think we may see a pull back if oil continues its march higher, which it shows no signs of stopping. Downward pressure from oil and commodities could influence next week. I agree in the long run this level of oil is sustainable but I think there is significant additional risk priced in, where supply and demand may be back at the 100 level we have much more fear of an issue happening. It's likely we don't see a major pull back until the end of May when refiners come out of maintenence and step up output.

It's been a great note to end the week on, financially and personally. Now if you'll excuse me I have to get back to studying for my final tomorrow(yes on a saturday). ;-)

Thursday Turn Around

So today I didn't even look at the market or do anything save for a few glances at stock prices throughout the day. I had a final so I just let the market do what it was going to do and take me along for a ride. Luckily, today was a good ride and took me back up to recoup quite a bit of the lost paper profits from yesterday. I am now back to being up 21% overall.

DRYS made a great move as was expected in the long run. I am hoping it prints 110 tomorrow, if it does I am going to sell all my contracts and buy a new strike on monday to hold over earnings, likely just a single contract.

EWZ came back in full force, the sell off yesterday would have been a great dip buying opportunity, but I couldn't bring myself to take advantage at the end of the day. Both EWZ and FXI Are nearing my targets just like DRYS.

FSLR had a small sell off, I would have liked to buy the dip but wasn't around. With Options expiration tomorrow I am thinking we may see some pinning of stock prices, I'd like to see the pinning of prices higher, but I know that is just wishful thinking. I got out of all my puts on POT, LVS and SGR, which today proved to be correct because all of them continued upwards. This again proves to be a problem because I am totally delta positive. I think I'll wait through OE and then re-position myself on monday with suitable stocks.

Visa remains to be the pain and example of why mechanical trading rules are needed over discretionary. I still feel confident in its direction, but it highlights the need for patience of a better entry. If I had cut this loss off at the usual 2% I would be at my highest levels to date.

We'll see how tomorrow plays out, I'll hope for a bullish day but ultimately I don't think price action tomorrow will mean too much.

WTF Wednesday

So, even though its a day late I just have to address Wednesday's action. On top of it being one of the worst personal days of my life, the market didn't treat me much better. I got whipsawed all over the place. I was back at near all time highs in my account only to end the day lower than before with my biggest single day loss from being back and one of the lowest levels in my account since the first week.

This did not make sense, everything I have done up until this point to avoid this did not work, diversification, with puts and calls, position sizing, etc just seemed to do nothing. I had a +8% gain in the beginning of the day, and ended up -8%.

How was this possible? Well we had tame inflation data so we rallied, as was expected, everything was good, however my put plays were all violating their trends with strength. So i cut them loose at just over my 2% loss limit around the middle of the day. With about 1 hour left to go all stocks reversed course. my puts on POT ended up back even however, the other two held up so I was right to sell. All my call positions lost all their earlier gains and then some lost even more than the day before. EWZ reversed course from a 1% gain to a 1% loss in an hour. V acted the same, FSLR was up 13 at one point to only end up 3 by day's end, etc.

This was one of the most demoralizing days because I felt like nothing could have prevented this regardless of how well I was setup, I felt like there was no skill involved whatsoever and I am just 100% at the mercy of the market.

Someone on another blog boasted that he had sold earlier in the day because he had an "inkling" this would happen. Basically, what I said was that was complete luck because he could not have predicted it, just like no one else could have who had similar days to myself. What it came down to was he said he was being paranoid, but had 100% gains in his positions. I told him that is great and if I was in his position I likely would have sold as well but nothing I had was at 100%, at most it was up 30% and I wasn't going to trade to take 30% gains and losses, that wouldn't be following my rules or smart. I could just not trade and save the commissions.

In the end, I had to say "oh well" move on and know that I followed my rules and cut my losses short and let my winners go which is how you will be profitable in the long run.

Up on a Down Day

So, even though I could complain about being up much more during the day than what I finished at(I just did), I have to be happy about being positive in a down or mixed day.

I gained about 1% back today while the Dow and S&P were down. The frustrating thing was seeing my account up 5% at one point. I assumed I would give some of that back but not so much of it. Overall though, things generally did what they should, my calls gained in value and so did my puts.

Except for SGR, which is a thorn in my side, it broke back above 50, which signaled an exit, which I tried to do at the end of the day but did not get filled. When I realized I was not getting filled and tried to correct it the market had just closed and I am now holding it over night. I'll cut it loose tomorrow at the open and hope it doesn't gap up.

My Visa position is testing my patience as I sit with a loss. It sold off hard into the close. I have a feeling we may see manipulation and a pin at 85 for options expiration. Walmart reported today which I thought it was reporting tomorrow. The numbers were good, outlook was cautious, I think the market likes that retailers are still shopping even though its at discount stores.

Tomorrow we get CPI, I feel slightly exposed. I contemplated some front month OTM SPY puts as insurance to a negative surprise. If we get a reading inline or lower than expectations I think we see a rally. If inflation is higher than expected there will be fear of the fed having to raise rates so we may sell off.

I added another bullish position in FSLR. It had a large move today close to all time highs, I feel it will break out and go for a run in the near term.

CPI comes out before the market opens so we'll see how the futures are when I wake up. Oil is still a concern, but the 10 year was up today and the dollar still held.

Lets hope diversification proves to be helpful tomorrow regardless.

Diversification

Well, after another crappy day on friday I ended up making back a couple percent today and also took the opportunity to diversify my account. I now have 5 call positions and 3 put positions. I am approximately 65% delta positive. This should insulate me more from down days while helping my bullish stance on up days.

RIMM was a big mover today, it broke out past a new high in the morning and I wanted to hop on board but waited for a pullback that never came. Visa got hammered for a while but came back. This is a discretionary position that I feel will work out but still don't know if exceptions are good(obviously conviction doesn't trump rules).

EWZ finally started back up and I took the opportunity when it was at support friday to add to my position that I had missed initially. I would like to see a move to 100.

I bought calls on SIRF, there is heavy call volume and open interest on the June 7.50 and 10 dollar calls. For .60 I bought 10 contracts of the 7.50 because that is still my 2% risk tolerance, and it could pay off big to the upside if there are people betting with more knowledge than I have(which is what I am assuming).

FXI showed some signs of life today, which I am hoping will start trading up with EWZ.

Dry bulk shippers were huge today so my DRYS position finally became profitable and I am hoping it will run back to old highs and I can add with dips along the way.

In a related note I bought puts on POT, as the dollar strengthens commodities should weaken and POT is hitting hard resistance at 200, it seems to move quite a bit so if people start selling it could fall quite a bit. I am hoping for it to fall back to 175 or so otherwise I'll exit with my 2% loss. LVS continues to slowly break down but I am looking for a more drastic move to hopefully come soon.

SGR was a new put play along with POT, looking to ride it back down to 40 hopefully, or exiting with a break back above 50. Even though afterhours doesn't mean much usually, SGR was up more than it was down today, but there doesn't appear to be any news so we'll see.

These are exactly the type of plays I am looking for, relative strength or weakness, so I can make money on puts on up days and money on calls on down days because the stocks continue their trend regardless.

I think I may hop on board the Q's again once we have a pull back since I just realized I am not long any tech right now which is a big mistake. I think we could see some good action weds if Walmart reports a good quarter, but tomorrow may lack conviction, but of course I really have no idea. At this point I have 2/3 of my capital at work with 1/3 to help if needed. I feel decently diversified. I'd like to get long the dollar still, which is still bullish but in a different way.

With M&A appearing to come back in that is a good signal for the credit markets and stocks IMO, meaning I may want to get long GS again. We'll see how it goes, either way I hope I am diversified enough to do well and not get caught again like I did last week.

Fake Out

Well, the last paragraph was very telling about my exposed bias to the bullish side. It ended up kicking me right in the gut. I am still up 17% overall but gave back nearly 7% over the course of the day, which is unacceptable.

Obviously the market does not follow my expectations. My assumption or hope of a rally into the close did not happen, the opposite happened and we had a sell off, apparently under the fears about maybe the economy not recovering and rising oil.

This is where a mechanical trading system would come in handy where I could set my exits for either a profit or a loss then just let it go. I would have been stopped back out of both FXI and BIDU today. BIDU broke its trend that was holding so nicely earlier in the day. I came back to find the profits I had previously banked on my V trade gone. DRYS held its previous support level but gave up all gains and turned into a loss just below my limit.

We will see how things go tomorrow because we broke back through 1400 today on the S&P, it did hold 1390, but a close below that would signal a failed break out. In my opinion there is not a reason to completely change stances on the market, and sell offs do occur in a bull market but I can't say we are in one yet, especially if support fails tomorrow.

Time to go shopping for some puts to balance myself out. Obviously I'd rather buy some puts on an up day with downtrending stocks going back up to resistance, but maybe there are some break downs. Not to mention index puts if we go through the 1390 level.

It's never fun to see gains throughout the day then by end of day your watchlist says "you have no gains to display". Oh well, tomorrow is another day and we'll see what happens.

Positive Progress

Sorry about the lack of updates(not that anyone reads this). It's been a busy week for me for school and work. While I was away, my account decided to increase in value, which is ideal. Yesterday which was mostly a down day, I actually gained 3%, mostly thanks to V.

I actually sold V today when it was close to 90, assuming we may take a breather after this fantastic run. It may end up like my AAPL where it just keeps going, but oh well. Never hurts to take a profit and I can always get back in if the trend is still strong or find something better altogether. I also exited my WFR postion, I broke even on that trade, which is sort of disappointing seeing as how I was up 1k at one point. But I gave it the opportunity to go back down and it seems to be showing strength and breaking the down trend so I decided to cut it loose. If I can keep selling for profits and breaking even on losers that's ideal, however it will not be very likely to happen that often.

I decided to buy the dip in FXI, although I am slightly concerned about the fact that it gapped down so much. But, it is close to some support so I have managed risk and will exit if needed. I also decided to buy the dip in BIDU, it was resting at diagonal support so I decided to buy a call and will exit if the trend is broken.

I bought some DRYS, after it broke out monday. I like obviously the break out and the fact that it is an old favorite of the stock market. I have no evidence to support this but a well known name could benefit from extra people piling in assuming past performance, which makes me more money. :-)

I am now up about 24%. Not too bad in 2.5 weeks. The most exciting part about it is I am sticking to my rules and not taking excessive risk and I am still getting nice returns. I bought this dip today on some stocks, I need some bearish plays though since my one put play is done. Not sure why the sell off today in the market, could be that we stay in a range until we get more data but I hope we see some buying into the close to set things up for tomorrow. In writing that, I realize I am too biased to one side because even though I try to pick stocks that are strong even on down days, or weak on up days(for puts) I should not care what the indices do. I am thinking of getting long the dollar since it seems like there is much more upside potential than downside and it will be good diversification.

A Push Is A Win

As they say in Vegas, "A push is a win." Meaning when you tie the dealer in blackjack you don't make any money but more importantly you don't lose any. This week was a push. I am flat compared to last week so I am still up 15% overall since starting back.

I can't be too upset, because of course I could be losing money. However its hard to see the winners I was holding that I cut loose keep making more highs. GS broke 200, so I may get back in, AAPL has yet to really take a breathe so I am not in that but plan to when it does. NVDA is working out nicely so far and I am waiting for a pull back in EWZ to get my full position on.

Visa finally had a pullback, I actually doubled my position in V. I am currently slightly below my 2% loss, in the longer term I don't see any reason for V to pull back much more because as the economy and consumer sentiment gets better spending will increase which is all good for Visa. Visa was getting unloaded though on friday fairly heavily, which I assume is profit taking, it seemed to find support around 82 but I'll have to watch it and cut it loose if necessary.

I still don't have all my capital at work. In fact, I have only 1/3 of it in trades right now. I will be looking to add positions and diversification next week on monday. The more trades I have on the greater chance I have of making money, however I can never decide if I want to put that much out there at once. I'd have to say as a general rule I'd like to have 20% available at any given time if necessary so I still have a lot of head room to add trades.

The good news is that we came down and held 13,000 and 1400 on the Dow and S&P so I think we are poised to move higher. We may be slightly overbought here and could trend sideways for a little while but if there are some good earnings next week and microsoft takes over yahoo it could be good reason to rally. I will need to be on the look out for bearish trades because I don't want to get too leveraged one way. Maybe I can hedge with some index puts if necessary. I'll do some research this weekend and try and get setup

"You've Arrived, How Lovely!"

So it finally happened today. After the market did some thinking overnight and decided they liked the fed's stance enough to assume they will be on hold, we rallied. And as you can see by the below chart of the SPY, we finally broke and finished above 1400 on the S&P500. This should mean we go higher.(click the pic to enlarge)

I basically exited all but one position today. I did leave profits on the table but they reached my targets and I sold just as planned. The dilemma I had is now that they were reaching my targets, the S&P was breaking 1400 which meant there should be no stopping them now. I followed my rules, knowing I will have more opportunities and I plan to buy back in on dips of pretty much anything, such as AAPL, GS, RIMM.

I had to exit with losses too, SLB was a bust, I exited in the middle of the day before the close which made me lose more than I could have, but you never know. Apparently they are putting the oil services in with commodities and oil because it sold off hard. VIA broke back above 39, plus I wanted to exit because it was too illiquid, only lost 350, but still sucks. I cut ACH loose too because it fell below 42, I think it finished barely above it but I didn't like that it didn't participate in this rally, even with the FXI making gains. Plenty of other China stocks I can get into, but of course I am sure it will gap up tomorrow, haha. I need to work on getting slightly closer to my exit on my entries, because with decay I ended up losing more than my 2% on both ACH and SLB, in fact it was about 5% total combined, not good.

I entered a few new trades. I still have my WFR puts, which rallied today back to diagonal resistance, I considered doubling down but decided not to. I will need to learn to do this to really help my profits though I think. My new trades were June 90 calls on Visa(V), June 95 call on EWZ(brazil ETF) which only got 1 contract filled, then promptly went up, wish I had my full load on, oh well. Last was June 22.5 calls on NVDA.

Overall I ended up about 2.5% on the day. I finally broke above the resistance level in my account of 30k, however I gave that back when I took a day trade on the Q's with some puts. It was successful in that I had a plan and traded it and got out with a small loss of 200 when it showed me it still had strength and didn't want to fall.

It goes without saying I don't know what will happen tomorrow, but I am thinking maybe we see some profit taking, and I partially hope so as it will allow me to get into some other stocks that have ran up lately. If the S&P pulls back to 1400 I am going to buy some calls on the SPY I think. The tough thing will be keeping bearish plays to help balance my bullish bias. I am hoping this signals the start of the next bull market because that should make trading a bit easier and options cheaper in general.

Volatile Fed Day

Today was one of those days that again was very volatile, although it didn't happen until the last 1.5 hours of the day. We steadily increased into the fed announcement, dropped, then shot up then promptly sold off after hanging around highs for a while. My account was up +2000 at its peak essentially and ended up +600. I had orders in to sell my GS, didn't get filled, I had it at 19.20 and I think bid only got to 19.05 at its high then it sold off. I am highly considering selling off most of my positions before a fed announcement, but of course you never know, we could have gotten a huge rally(and did breifly).

Diversification actually saved me today, WFR sold hard on an analyst downgrade, dropping almost 10% so my puts gained 950. This actually was the sole reason I was up about 1% today when all was said and done. My other positions are still there, I thought I may have to exit VIA, which I still may because I don't like how illiquid it is, but it closed back below 39 by end of day. SLB closed above 100 but sold off into the close which is slightly concerning, although most stocks did the same. My Q's position was the biggest mover, again I considered entering a sell at 2.30, but thought I'd wait till end of day to see where we ended. The Q's broke a 2 week uptrend hard, but bounced off some horizontal support at 47. This is a scenario where I struggle with what to do, I could add to my position and tighten my stop if I think we still go up. But I don't think I want to add to my risk if we have another big move to the down side, better to play it safe.

We'll see how the rest of the week plays out, I was hoping this would be the push to get the S&P above 1400, which only happened briefly and then we finished below the 1390 level on top of that. I am hoping this was mere profit taking, because the feds language didn't seem very bad IMO, but what do I know. Of course, obviously my opinion doesn't matter its what the big money thinks. People can't argue at this point though that we are in a recession because we were flat with last quarter which was better than expected. This could be revised down later but that means we would need another 2 quarters of declining growth now to technically be in a recession.

Nothing seemed to act as expected though, commodities should have sold off, dollar should have strengthened theoretically if people were bullish on this cut but that did not occur which is why I am weary.

Bottom line, none of my trades are broken so I stay in them. My ACH is beyond my max risk barely but the trend is still there, its a matter of the spread so I am still in. May not be the case tomorrow...

All Eyes on Ben

Well, today's action was fairly flaccid. Although it was pretty much all bad in my account. The only thing keeping my account afloat today was GS and the Q's. I watched as AAPL hit my original target today, which would have meant another 1500 in my account. I have to live with my decision though and assume it will pull back at some point and I can get in again.

My diversification plays worked against me today, both WFR and VIA rallied back up to resistance but did not break. Seems like some traders were doing some short covering ahead of the fed meeting. SLB went against me and gave me a dilemma, it finished below 100 on lower than average volume. It finished at 99.26, then jumped afterhours but it could have been just a missed order going through so we'll see what happens.

Overall I was down less than I thought I would be, a little less than 2%. I doubt much will happen tomorrow either before 1:15 when Bernanke announces the Fed policy from the FOMC meeting. The Q's ended strong so I hope that trend continues, generally a cut is good for financials. That's assuming we get the .25% but you never know. If we get a rally tomorrow it could be the move above 1400 I have been waiting for that signals higher prices.

Let's hope whatever it is, the market likes it.

Diversified Before the Fed

So today I set out to diversify my portfolio with some different options both bullish and bearish. I figured now was a good time because we have a Fed meeting tomorrow and you never know how the market will react. Market opinion seems to be that they will cut another .25% and then hold for a while.

Because the reaction could be a rally or a sell off it's good to have different positions. I added 3 more positions to my portfolio. 2 put plays and 1 call play. I bought puts WFR and VIA, down slightly on both, but less than my 2%, they offered good entry points. Looking to sell at 60 or with a break back above resistance of 70. VIA, broke a symmetrical triangle to the downside on above average volume. I would like to see it drop to 35, however on the 3 year chart it doesn't look like it has dropped past 37.50 in over a year and a half, so we'll see. A break back above 39 will signal an exit. It's hard to find bearish plays right now, however there could be some good ones setting up in POT or FSLR.

My one bullish add was on SLB. A break below 100 or if it gets up in the 112-115 range I'll sell. These are decent risk to reward ratios, my minimum is 1:4, which all meet or are better. Ideally, if we have sell off, my put plays will sell off harder and help insulate me from losses on my bullish plays, since i got in close to my exit on SLB I am hoping I won't lose much and it will hold. If we rally hopefully my puts rally up to only resistance, or even keep going down and my bullish plays rally a lot. It was tough again to see my account up during the day and then lose quite a bit at the end. My account has been treading water lately so I hope it makes some positive advance. However, now that I said that I am sure it will be a big down day and I'll get crushed. I am still very delta positive, but its hard to not be right now it seems. I was actually going to add more bullish plays, but decided to wait and see what the Fed does.

First Week Back Ends

So my first real week back trading actively has come to a close. So far I am pleased with the results, being up 15% overall for the week. The bad thing about that is that I could be up even more had I not been stupid with my GOOG trade. Although I am kind of back into the swing of things now and have the proper mind set.

Today was another interesting one, watched the account fluctuate and end up basically flat from yesterday. Apple was down to 166.xx at one point and I considered buying but did not. I partially wish I had but I didn't want to add another bullish play without anything bearish. However, I did pick up some China exposure via ACH. I bought 5 contracts of the August 50 calls. There was a better entry point at one time during the day however I think it finished slightly up from where I got in, so I am flat on those options right now. There is overhead resistance at 50 but I think if china starts moving again it will break that and head for the next level at 60, which is my target.

GS continued higher, finishing at 192, I am nearing my target. I was considering getting out but I only have 2 contracts, there may be a pull back but we did break 1390 on the S&P finally. I figured since I am so close I should see my target through and pick up those extra profits. The whole point of planning a trade is to trade that plan.

The Q's are still profitable but not as much as they were, but again the trend seems higher so it would not be logical for me to get out at this point. So I am holding for my target until I see otherwise. we didn't move like I was hoping this week.

This was a majority of the earnings this week, its lighter next week but could send stocks higher. We did not get above the 1400 level on the S&P but it was good to see the broader market making a move on its own even with MSFT weighing things down.

I would like to get back into Apple but is it really worth it for possibly 5 points of upside short term? There isn't much that would push it up besides short covering or upgrades. Big news is not likely until at least June, although 3g iphone rumors could come out in May and push it. I think there could be some better plays out there as much as I love Apple. I need to get some bearish plays, the tough thing is that everything seems to be so beaten down, I'd like to find a higher priced stock starting to show a reversal and get on board if possible. It's just a matter of finding it.

I hope I can diversify more and continue with profitability or at least flat trading for next week(and obviously in the long run).