Posted on October 7 , 2010 In Daily Updates

The Bulls Are Vulnerable

Tomorrow’s Plan:

I chalk today up as a “nothing happen” kind of day. There was money to be made, but as far as the longer term picture, today’s action changed nothing. Perhaps if we had closed at the lows after the failed breakout this morning, that would be something, but the afternoon rally made it all pretty much a toss. Volume in the morning looked like it was going to be higher then yesterday, but it fell off in the afternoon. The market is obviously waiting for tomorrow’s number to make a decision. I will say that watching the action today, I felt like the bullish case was on much shakier ground then I realized. I saw a chart that showed the commercial hedgers in the NQ are shorter then they have been in the last decade. There tends to be a pretty good relationship between the hedger’s position and short term market tops and bottoms. With VIX having a rejected low this morning, I would not be surprised at all if, within the next few days, we have a pretty violent sell off. This employment number tomorrow could provide just the blow off top to start a correction. It is just a theory, but I like it. Gold and the Euro got slammed today after hitting some new highs premarket. For some reason, gold just tends to correct like that: you get a dribble higher day after day, and then a huge wham! down day. In any case, I am getting more prepared for shorts opposed to longs. Not to say the long side is over, but that the profit opportunity there has dwindled until we get some kind of sell off day.

My plan for tomorrow will depend a lot on the number. If the number pushes the market up to new highs, and those new highs don’t hold: look out below! If the number pushes the market downwards, I will be ready to short, but probably less aggressively then if the market topped out first. In either case, I do not really have much faith in the long side unless VIX takes out today’s lows, the internals are very strong, and perhaps TLT breaks its daily moving averages. THEN I would be a buyer haha. The important thing about shorting stocks in an uptrend is that you want the “shock” value present. I am not looking to short a bullish pullback, which would be on lower volume and choppy price action. I am looking to short a surprise, stampede towards the exit, and everything just has got to go go go.

My Best Ideas:

•SHORT CVS: I am putting this in here knowing full well Pete will probably reject it. The only scenario I like it in is a failure of its 200 SMA that sparks a sell off. I think this trade has potential for a surprise, has plenty of room to fall, had increased volume today, and has very strong resistance overhead. I may just end up trading it in a personal account, as I doubt it will make the list, but here it is anyways.

•LONG ORCL: Here is the bullish shining star. If this stock can get through today’s highs, it might be a yummy bullish treat. It really has to prove itself though because it has a lot of headwinds to deal with. Watching it today, the institutional buyers were just not there, maybe they will show up tomorrow or next week.

•SHORT DPS: I like this short sale if it can get through 34.50, and then 33.50 below. It is sitting right on top of its 200 SMA, which will probably mean the stock dances around here for awhile, but I am watching it.

•SHORT T: I think this stock is still a short until it hits its 50 SMA on the daily chart. It had a bit of a bottom day today, but I think with a small rally, the short side will be reloaded.

•B.O. TGT and HPQ: Target has had a pretty tight range the past couple weeks, and volume has been high. I think when this does break, it will go. HPQ has had the tightest range for the past five days, when that thing moves, it will probably MOVE.

Best of Luck Tomorrow

Today’s Trades:

Today’s Journal Entry:None

Last Note

All I have to say about today’s trade is Whew!

Lucas

Posted on October 6 , 2010 In Daily Updates

How Do You Add To Trades?

Tomorrow’s Plan:

Today was a pretty textbook pause after breakout. Volume fell across the board, the trading internals were all pretty neutral, and most of the stocks in our list had less volume then yesterday. VIX appears to be leading downwards and found some support at the 21.50 area. We will see if this leads to a small sell off, but nothing today indicated the bulls are slipping; they are still completely in charge.
With that said, there was definitely some odd behavior today. Technology got smacked down hard. My custom chart of AMZN+NFLX+AAPL+BIDU took out yesterday’s lows on higher volume. TLT broke out to the upside from a box it has been in for the last two days. So there are all these different indications under the hood that this market is not what it appears to be. There are definitely sectors that were strong that are now being rotated out of. The sectors leading us higher are energy, gold, materials, and consumer staples. When I look at charts like JNPR, NTAP, and COST, I just scratch my head a bit. Whatever is happening in those stocks, and stocks like them, does not lend itself to obvious risks and rewards. I mentioned a bullish candle stick pattern yesterday where a down day is completely negated by a very strong up day. Well today, some stocks, like T or NTAP, had the exact opposite happen to them. Check them out, they are pretty interesting charts.

My plan for tomorrow is to be open to the long side with the knowledge that everyone wants to be long, and it is the day before a big number. Unlike Tuesday’s trading, waiting for the pullback will probably be the best bet instead of chasing momentum, unless of course a particular sector is all powering in one direction. I think people will probably wait until Friday’s unemployment number to start really throwing money around, so I would not be surprised if volume tomorrow fell along with a chop trade. In any case, I will not be trading aggressively before 10 EST.

My Best Ideas:

•LONG QCOM: This bounced off some support today on higher volume. Overall, the volume profile in this stock is perfect; volume falls on pull backs and rises on up moves. I think there are some expectations that this will fill the gap from the beginning of this year, and so I like this to the long side.

•LONG ABX: I think this may have some MATD action in the morning, but after that it’s an obvious long. Volume profile in this stock looks good as well. With the gold sector hot, eventually there is going to be a massive down day in gold; that just seems to be how it pulls back. But until then, gold stocks should be steadily moving higher.

•LONG ORCL: I think this stock traded a bit crazy today, but it still has bulls in it who can push it higher. The next level I am looking for on a swing basis is 30.

•Looking through charts, I like the patterns in DOW, COP, and HON. I am seeing some other stocks that have a similar cup and handle pattern as well. The only downside of the pattern is that it is breaking out into old resistance, and not new highs. I think in the long run, we have problems with this up move, but in the short run, and as day traders, we have to just go with where the mania leads.

Best of Luck Tomorrow,

Lucas

Today’s Trades:

Today’s Journal Entry:None

Last Note

I had written down “make three trades today,” but I chickened out after I made the ABX trade. Sometimes you need to just bookem and go home. Today really showed the importance of adding to winners. You can dick around, lose small amounts of money all day long, and if you add to a big winner, it doesn’t matter. Adding to winners is one of those things that very few trading books actually talk in depth about. Most books cover the whole probability distribution, getting an edge, being a casino, yada yada. I think it isn’t mentioned much because of how much it depends on feeling. You might trade entry patterns all day long, but at some point, you get this feeling that THIS is a trade you have to add to. It is like you see something in the movement and you know, yeah you could lose a lot, but this is the scenario to push it.

Interestingly enough, I have very rarely lost big on a trade I have added to. That is the fear really; you add, it pulls back against you, and then bam, you lose two or three times the amount you wanted to risk in the first place. For some reason, I have never really experienced a big loss after adding. I also don’t really remember when I learned how to add to positions. At some point, I just started doing it I think. I do know that if you start practicing adding, it can accelerate your learning curve quite a bit because it forces you to analyze your trades in real time, instead of just letting the orders do the work for you. Not that there is anything wrong with that, but you get it. What has your experience been adding to trades? Good? Bad?

Lucas

Posted on October 5 , 2010 In Daily Updates

On The Road?

Tomorrow’s Plan:

Well today was a day! I definitely did not expect this huge run, and I think it took a lot of other people by surprise from what I have been reading. A good surprise day like this usually sets up a great MATD tomorrow morning. Today’s stats were what you would expect: expanding volume, great AD line, and a declining VIX. Oddly enough, VIX has still not broken the lows made in early September and August, but perhaps this move will follow through and those lows will be breached. I have to remind myself that VIX is less an internal, and more an indication of the price on insurance for the market. If that is the case, it makes sense that VIX may not just collapse with all the uncertainty around the world. With today’s action, I think a retest of the highs from April is in store by the end of the year. At some point, people will start paying attention to that SPY 122.12 number, and shorts will not want to get in front of that figure as it gets closer. We of course will get tradable pull backs. So my plan for tomorrow: don’t chase momentum, look for something to go long of within the first hour after some selling, and then sit on hands, or get a stock I can sit in for an hour or two as it slowly churns higher. One last note, a lot of stocks in our list made a bullish kicker candle stick formation. It is basically when a stock closes down, and then the next day it opens above the previous day’s range and runs higher. It is a pretty definitive signal of strength, a bit like a billboard sign that says “BULLS ARE IN CHARGE.” Trading has many parables to poker, and usually when you are willing to show the world your hand, you are very confident in your hand.

My Best Ideas:

•LONG candidates for MATD: JNPR, VZ, TXN

•SHORT ADBE: This really did not rally much, the big question is whether it has enough momentum to push lower and test its support in the mid 24 range. I will be watching this over the next few days for indications of some volume and momentum.

•I don’t have much more time to research stocks, suffice to say, I think after the MATD action tomorrow, it will either be chop or a slow uptrend. Either way, I think there is a risk of over trading.

Best of Luck Tomorrow

Today’s Trades:

Today’s Journal Entry:None

Last Note

I have been pretty silent on this website about what I have been doing outside of trading. I will just say that I have been journaling, meditating, and questioning quite a bit. Sometimes, like at certain points today, I wonder if I never really learned anything in the past four years. At other times, like yesterday during lunch, I have a peace that is beyond words. My birthday is on Friday, and every year for as long as I can remember, some mental shift occurs around that time. Sometimes I get into some new thing, burn myself out on some other thing, or have to renew my energy levels through rest. I am not sure what will happen this year, but I have been going through a lot, and it is tough to describe exactly what it is. I will say that I have been questioning some of the deepest beliefs I have; stuff I have believed for as long as I can remember. I really do not know where it will lead me, or whether I will “like” where I end up…or even if I really have a choice in the matter. I am on a road, and its going somewhere, and I do not know where it will end up, but I know I am on the road, at least for this step.

Lucas

Posted on October 4 , 2010 In Daily Updates

Just One Swing Trade

Tomorrow’s Plan:

I think the next few days are going to be fairly tough to trade. The downside is going to be interspersed with buying sprees, and the upside is going to be sold off as people liquidate into this pullback. Volume dropped today, and the internals were all moderately bearish. I would love to see some really hard selling, but I am not going to count on it in this bullish environment. With that said, I think the bearish side will be the easiest side to trade, and most bullish moves can be faded with some success. This morning’s sell off was different then most sell offs we have had recently in that it followed through for longer then 20 minutes. Many of the strongest stocks are pulling back, and I am fairly certain that any time the market starts to slow down (like this afternoon), the undercurrent of buying will come into the market. That undercurrent of buying should provide the fuel for another push lower; rinse, repeat. My plan is to find shorts to trade when the market is moving, and then sit on my hands when its churning. I think the best shorts will be after a rush of buying which the internals do not support. My custom chart of AMZN+AAPL+NFLX+BIDU is coming into the 20 SMA support, so I would not be surprised at a gap higher tomorrow on the opening. I would be surprised if it followed through in a big way. Looking through the list, I did not see a whole lot that caught my eye. Some stocks like LVS might get interesting, but I do not think the market will be supporting any runs they have. Really, my plan for tomorrow is to watch the chop, and see if I can catch a 20-30 minute move.

My Best Ideas:

•LVS LONG: I think this may have some MATD action in the morning, and will probably provide a great long opportunity at some point early in the day, although I doubt it will be as fantastic as today.

•BHI LONG: This would be a passive bid around support play, looking to get a decent price where I can sit in the play for awhile and churn out a slow up move. 42 and 41.50 are good candidates.

•ALTR LONG: this looks good here as a pullback on the daily. The entry long would be over 30, and good volume going through the stock.

•PRU SHORT: Volume is slowly drying up here, but I think we can get another down day in this stock, although it is starting to get choppier as evidence from today’s trading.

•WMT B.O.: This has a very tight range between 53 and 54, I like it as a breakout stock over or under one of those levels (preferably over).

Best of Luck tomorrow,

Lucas

Today’s Trades:

Today’s Journal Entry:None

Last Note

No trades today. I took a swing trade in TXN shown above that I think might have some more potential over the next couple days. It is funny being in a trade that I hold overnight; I haven’t done that for awhile. The funny thing is to watch this urge inside me to day trade the stock. I start watching the tape, I see buying coming in and want to buy my position back. Or I see some selling coming in and want to book into momentum. The experience really shows me the value of having multiple shares on. When you have 1000 shares, its so easy to book 300 there, add it back in at higher levels, take some off when you see buying coming in, etc. Maybe one day I will be there, but for now I have to work under the constrains I have. Have a great day tomorrow.

Lucas

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