A Wash for the Volatile Week

Just about everyday this past week had a violent pre-market swings, as well as regular hour dramas, all fueled by the rumors and news regarding the sovereign debt crises in Europe.  Futures up hugh, only to wane significantly by the time the market opened; or vice versa.   I really didn’t know what to do at all with this news driven market.   But the volatility could also represent missed opportunities.   Plenty of painful “what-if” hindsight thoughts.

During the first 3 days depending on which chart you looked at, the SPY prices consolidated either below the 200 day SMA (the red line in the above chart), or above the 200 day SMA (the blue line in the stockcharts.com chart).   Yep, the discrepancies between the 2 charts had come back to haunt me.  One chart did not have historical price adjustment due to dividend payout, the other one did.   As a result, one chart suggested weakness while the other suggested strength.  So I was torn and frozen and didn’t do anything other than some day trades.

Thursday was a bears’ haven — a gap down and crap day, down 2.19%.   Friday was just the opposite — a gap up and rally day, up 1.69%.   But I was travelling on both days!!

In the end, it was a wash.  Nothing happened.  But as the short term trend has been up, this “nothing happened” consolidation favors bulls.   This week, *ONCE AGAIN*, we’ll be waiting for the outcome of the Euro Zone meeting.  It’ll shake the market, like every single time.  But each time I’d thought it was a done deal, yet there seemed always another meeting that the market hinged on, as the world played the delay game to sustain the financial house of cards.

Portfolio Value: $127,800

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Anatomy of Today’s Price Actions

Today was a boring inside day with absolutely no due action items as far as swing trades were concerned.   I decided to just watch the SPY chart and do some paper trading for fun.  Then I realized today’s intraday chart showcased a lot of typical price actions and setups, so I annotate it for what it’s worth.

Referring to the yellow numbers annotated in the charts:

  1. (and 0) During the 1st hour, reversals often work well for scalps.
  2. H1 long.  It corresponds to the resumption of trend after the first pull back.
  3. Open range (OR).  The 2 horizontal magenta lines define the range attained during the first 30 minutes of trading.  They define good pivot points for intraday trading.  In this case, the upper range served as good resistance most of the day.
  4. Channel overshoot.  The green long tail that overshot the lower up channel line typically hints that prices want to stay within the channel.  In this case, the set up failed.
  5. Trend line and channel break.
  6. L1 short off the 20 MA.  As the trend wasn’t strong, it didn’t do much.
  7. L1 short off the 20 MA.  Much better results on the 2nd signal and stronger trend.
  8. Lunch time lull.  Lots of price overlaps.  Avoid trading during lunch hours.
  9. H1 long.  This was the first pull back after the rectangle breakout.  In this case, the set up failed.
  10. H2 long off the 20 MA.  As always, the 2nd try is more reliable and yields better result.
  11. OR break.  Break of the upper OR line is bullish.
  12. H1 long.  With strong trend, H1 is good for a scalp.
  13. The projected upper channel.  The green dash line is replicated from the solid green line and serves as a good price target for exit.
  14. L1 off the 20 MA.
  15. Closing dip.  Everything goes.  In this case, we had both the OR break and channel break.

 

This was the forth day in a row with late day weakness.  However, with the prices grinding without significant correction, the oscillators have been in the process of recoiling– not what the bears want to see.   Once the oscillators reset, the bulls could rocket another leg higher.

Portfolio Value: $128,200

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Wifey Put Down Her foot

My wife has likened my following the proprietary long term leading indicator, which I currently subscribe to, as following a cult.  She’s seen me suffer time and again this year having being on the wrong side of the market as the market did its whipsawing all year long.  She’s pleaded me to ditch it and just day trade. (Btw, I’ve been counting my blessings — how many wives ask their husbands to day trade ?)  But I’ve told her about its amazing calls in the past — unless this time is different.  But the verdict has not been out.  Yes indeed, I do feel like a cult member, relying on blind faith and ignoring advice of bystanders.  My best compromise has been to cut down my position size, and I was fortunate enough to be able do so last week during the Thanksgiving sell-off.

This morning when I woke up, I habitually checked my Android phone for the pre-market.  Oops, SPY up 1.5%.  My heart sank and I whined as I painted a mental picture of SPY breaking out of the wedge.  My wife heard me and questioned if I was still in my long term short position.  Yes, I am afraid so I said.  She asked if I had added more these few days as  the market bounced hard (2nd biggest weekly rally in history).  Yes, I am afraid so I said.  She became furious and said I was hopeless.  She ranted for another few minutes but I didn’t really listen.  I was depressed.  I was on the verge of losing the blessing from my wife.  If that happens, that’s the end of full-time trading.

I had a brief thought of going in big on possible exhaustion top, but at this point while mentally bruised, I dare not do anything drastic.  I added a laughable 100 shares of SPXU just to make a statement.  I also added 500 shares of SDS in my IRA account.    I day traded lightly and took the afternoon off.   As jinx would have it, the day turned out to be owned by the bears.

The intraday chart began very much like yesterday’s chart except for the color of the gap and that the bottoming pattern failed as the breakout of the magenta line failed (see the circled area).   This was encouraging for the bears but at this time the financials XLF was still up 2.20% — strength in the financials were not what bears wanted to see.  At this point, I called it a day and took my boy and my parents out for a hike in the park.

Coming back I was surprised to see the market weakness at the close.  Of course the first thought was that I could have done well had I doubled down my SPXU holding at the open had it not for the depressing conversation in the morning.  But then I remembered that my new plan had been to keep the position small, as I ride out the current call per the proprietary leading indicator.  I’d just be low key and preserve my capital.

According to chart patterns, today the bears did very well.

  • The 200 day SMA test failed (125.89, not shown).
  • The back-test of the broken up trend line that formed the symmetric triangle failed (see daily chart).
  • The break-out of the down trend line that formed the symmetric triangle failed (see green line on both daily and 60 minute charts)
  • The 3 day up channel failed (60 minute chart).
  • The up channel since the Thanksgiving low was broken (60 minute chart).
  • The test of year-to-day break-even level also failed today (dotted horizontal red line on the daily chart).
  • And we have a dark cloud hanging candle on the daily chart, following a doji (see daily chart).

$BPCOMPQ (see below) was on the verge of crossing up but the sell-signal persisted.  News-wise I wasn’t sure what happened.  May be something to do with the GOP trying to block the liquidity swap this morning.  Whatever.  For now, at least things looked hopeful for the bears and I get to enjoy my weekend.

Portfolio Value: $129.000

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(Bad) Trade Review

I made all kinds of mistakes day-trading today.

  • Bad start too early. Without much planning, I shorted at (1) during the first 10 minutes thinking 124.50 would be revisited.  It ended in disaster and set the tone (and psyche) for the rest of the day.
  • Over-trade.  I made over 30 round trip trades on SPY today.  What?!  Much was due to “fire-fighting” bad entries.  The goal of fire fighting is to reduce loss.  I might as well not trade and and be better off  and not incur any loss at all (just making a point to not enter a trade too quickly).
  • Not honoring stop loss.  After entering short at (1), I kept moving the stop loss up.  Initially at the top of the entry bar; then I moved it up to the previous day’s high.
  • I entered long at (2) thinking it was an H1.  That was a mistake because the up trend channel was broken and there was a moving average gap.
  • Average down.  Well that’s part of “fire fighting”.   I ended up shorting on the way up and buying on the way down during the first 2 legs of the day.
  • One thing I did right was after the 2nd leg (down channel) was broken, I didn’t go long immediately but waited for the bottoming pattern.  See the magenta line, I went long on the break of it.
  • I went short on (3) thinking it was L1.   Here I made the mistake that I avoided earlier.  The trend was up (or no trend) and I should have waited for a back-test before making counter-trend trades.
  • I took loss at (4) for my short entry made at (3).  Why???  May be I had enough for the day?  Or may be I should have given a little bit more margin to allow overshoot?   Actually, it had much to do with the fact I was in the middle of taking profit of my NFLX day trade.
  • Distraction. So the NFLX day trade distraction did a double whammy.  First, I prematurely took loss on SPY at a pivot in order to get to NFLX.  I did that subconciously to avoid a potential disaster on the SPY trade. Second, I ended up taking profit way too early on NFLX as I exit the trade in a hurry.

Bad trades.  Bad day.  Fortunately, the lessons only cost me $110 for the day.

Incidentally in preparation for the upcoming gloom and doom, I bought a McDonald deal today from Living Social. $13 for 5 Big Macs and 5 Large Fries.  Vouchers have no expiration dates which reminded me of forever stamps, which I bought a couple of books in case postage goes up with hyperinflation.  LOL.

 

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Difficult Market, Bankrolling, and Wake-up Call

So this has been one of my worst years trading without doubt.  One comforting thought was that, as jinx may have its way, I’ve picked one of the worst year to embark on full time trading.

These days I follow The Fly on ibankcoin.com to gain candid perspectives of a professional money manager and entrepreneur.  So much so I am afraid I’ve already grown accustomed to his frequent foul language.

When I started following him back in August, his managed portfolio was up around 14% (btw, don’t quote me on any numbers, all from memory and all ball park numbers) for the year.  Then came September when the August low was broken.   He had to take proactive losses in order to protect his year-to-date gains of about 7%.

Then October rally came and not only did he jump right back in but with a vengence – very gutsy at the time.   Man, he could have hated himself for selling at the low (and slightly short I might add) and could have missed the biggest monthly rally ever.  That didn’t happen.  He kept his head cool despite doubling the use of his foul language.   At the height of October, his account was more than recovered, up a record 17% for the year.

However, may be the greed took over a bit.  Despite the European woes, he was banking on the Thanksgiving rally and stayed very long (granted, 40% was in gold and silver stocks) with only 10% cash on the side line.   Technically, the bullish stance was even appropriate given the symmetric triangle continuation pattern.  Market being what it should be, it broke all jaws and broke instead to the downside, making the Thanksgiving week sell-off the worst since The Great Depression!    That wiped out ALL of his year-to-date gains, going all the way back to 0%.

Once again, he did not quit and held on to his positions.  “It’s one thing to buy high. It’s entirely unacceptable to sell too low.”  On Monday’s 3% pop, he didn’t sell but vowed to get his record return back.  Today the market popped another 3.5%.  Good for him!

Why not follow his trades?!  Of course I did, but I either picked his losers (e.g. RENN, LULU) or got his bad timing and did not follow through.  Sounds familiar?  Hello jinx!

But the point is that during the last 4 short months, even a professional money manager went from +14%, to +7%, to +17%, to 0%, and to now +11% for the year.  Tumultuous!

This brings up another topic: bankrolling.  If a pro does 17% for the year, that would be a splendid year.  What if I had the same stellar performance, the best case scenario?  My $130K account would have a gain of $22K.   Is that enough to earn a living?!    Oh yes, but on the poverty line!   Unless I have a million dollar account, or I day-trade like a jack hammer, I don’t stand a chance.   That got me thinking.   Why wouldn’t it?!   Guess what, you, too!

Speaking of the subject of bankrolling, there was another blog from ibankcoin.com by chessNwine that was rare and relevant.  In short, I need to have at least 6-9 months of money standing by in case of a bad losing streak or difficult market when one should not trade and therefore no income.  If I feel I have to trade to pay my bills, I will probably blow my account.

Still over 2 hours to go before the bell, but below is a snap shot of the SPY daily.  I missed the 50 day EMA add for my short position due to the huge gap up this morning.  That’s a rare break, assuming we’re still in a bear market.  I added 600 shares of SPXU this morning averaging 14.42 — too early as it’s went all the way down to 14 since I bought.   I need to remember not to repeat the goosing back in October.   Sitting on my hands and typing away, this would be my third post today.

Portfolio Value: $129,800

Update:

Market rallied another 50% during the last hour and closed up 4.2% for the day.  Holy smoke!  SPXU down 12.66% and TZA down 17.75%.   Should I cry uncle?

Portfolio Value: $129,000

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TLT – Warning Sign

Two days ago someone in a forum was bullish on TLT during a bullish intraday rally.  I took a look at it.  Then something on the 60 minute chart stood out like an eye sore:  despite the bullish price action, the MACD barely budged.  Today a big gap down with the equity market rocketing 3.70% (so far).

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BAC – Missed Opportunities

I was eyeing BAC yesterday afternoon because of the enormous positive divergence on the 60 minute chart.  But that would be a counter-trade on the proprietary long term selling signal.  My conviction in the BAC trade even prompted me to place an order on its Dec 5 call, albeit it was a low ball and never got filled. BAC closed yesterday at 5.08.

After hours S&P downgraded some 37 banks including BAC.  I thought I was close in getting the bait and fell victim of jinx yet again.  But behold, aside from a brief dip below 5, the price recovered and settle at 5.08 — that was some MESSAGE!  I told myself, that’s a big show of strength.  But my greed and fear dismissed even the idea of a small token position.

This morning China lowered its reserve requirement to increase the pace of growth, and the Fed agrees to swap dollars with the EU debts.  The WHOLE market jumped.  Premarket was up nearly 3% on SPY.  And look at BAC’s last trade show on the top of the chart: 5.39, up 6%!!  The jinx prevailed after all via a boomerang.  That certainly hurts, that’s why I am typing away as the market opens right now so I don’t do anything emotional and stupid.

Oh, also look at the 5 minute chart below.  Yesterday I was waiting for the bottoming confirmation after it attempted to backtest the low, resulting in higher low.  Too bad we ran out of time.

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