12/28 - We have exited several positions and tightened up stops in
the others. Only 2 exits were in error (MON and MTW took off) but
we plan to wait for the market to select a direction, expecting January
to be volatile until credit uncertainties become more transparent.
12/14 - Back to another Investools Workshop, and we decided to
upgrade to the Masters program; we also exchanged some of our stocks
training for more advanced training given our proven experience with
stocks. The stock training we have will be focused on shorting
strategies and timing, look at the new GOALS
page.
12/01 (65) - Some encouraging signs, there should be a
follow-through of the rally late next week to confirm it.
11/17 (58) - Our methods should have had us exit most trades last
week. We have taken a ride down and should have been watching
from the sidelines. We are expecting now to be near the bottom of
the correction, and are going to double-down on some positions; this
lowers the average cost basis and can allow us to exit altogether and
break even at a lower price, or to keep the position at a lower cost
basis.
The searches are still pretty dismal - the bullish searches showing
mostly things that are breaking down, and the bearish ones we don't
want to trust because this still has the feeling of being a correction
as opposed to a market change. We do expect a slope change in the
market, but not a trend change yet. Of course the outlook is that
the economy is going through a rough spot, it is worth noting that
rough spots come along before most recessions, too...
We need to revise the acquire list again, many stocks on the list
have broken down, and we are watching others not yet on the published
list. There are few stocks still going up in the current
market. Any momentum search will probably find most of them
anyway.
With a couple of the stock positions we have recently taken on, we
also bought protective puts. If the stock holds value or goes up
the puts will expire worthless, their cost effectively added to our
basis in the stock in terms of a profitable investment, but if the
stock goes down we will recover part of our losses from the puts; these
are GS and PCU. With POT, which we just stopped out of in the
stock, we took on a small options position with calls. The calls
we have on FCX and BHP are longer term and we will just see what
happens, they are relatively small investments because of the risk they
represent.
11/10 (66) - We stopped out of several positions this week, and
picked up a few positions, too. It was beginning to look like the
NASDAQ would be largely unaffected by this correction, not so... it is
now clear...
11/03 (59) - We missed last weekend, lots of projects leading up to
winter. Our momentum search shows a lot of stocks rolling
over. Another search looks for stocks that have been beaten down
and are turning up -- it returns a few stocks, but they are more beaten
down than turning up.
10/23 - We had to spend 2 days away from the Internet, so after
Friday we saw futures low on Monday and before leaving town we set our
stops up tighter and crossed our fingers... In the end we locked
in lots of gains, and though the market closed generally up it could
have gone deeper down - stop losses, keep gains, and let the winners
run. We stopped out of lots of positions, but are still in by a
little over 30%.
10/20 (65) - I've been learning to trust this momentum search for a
long time, and it seems the rules may have changed... Knowing the
market is volatile following corrections we have fairly loose stops to
permit that volatility -- but we have had really great gains over the
last couple months, and they are melting quickly...
Monday morning we are leaving town and out of connection with the
Internet to watch things... We will check the futures in the
morning and if the selling seems set to continue we will tighten stops
and let it ride...
10/13 (68) - We are about 86% in now, having stopped out of a couple
trades, and stepped out of a few, too.
Always have a checklist in mind before you click buy... An
error this week led to acquiring a position in an unintended
account. Fortunately the security went up enough that day to
achieve a breakeven position and we exited; but this ties up the cash
in the account for several days until the trade settles out, and it is
a day trade...
10/05 (64) - We are now at about 88% in, but we will be taking XLE
and DECK off the table for nonperformance. That will take us back
to about 80%. We still have some retail and energy, but
differently focused.
9/29 (??) - We have set fixed stops on all investments at this
point. We are picking up a few new positions, cautiously, and
looking for resistance or new highs... No time to update the
portfolios this week, too many projects and not enough time... I
even forgot to make note of the search results this weekend...
9/22 (58) - Well, there seems to be a lot of opinion that the FED
move this large is an indication of panic response to economic downturn
rather than measured response to current conditions... Still, the
market seemed to like the outcome, so far... But it was options
week, too, next week we should see more normal activity.
We still need to begin setting normal stops on our current
holdings. We are working on a new acquire list.
9/14 (60) - Still pretty neutral, slow uptrend continues with a few
positions not doing much in terms of recovery, or even movement...
9/07 (62) - Everything still kind of neutral, waiting on the FED
decision in a couple weeks. We are slowly creeping into profit on
the net for the trades we are in.
8/31 (46) - Isn't that interesting - a generally up week but the
momentum search has a lower count... The S&P 500 seems to
have given an indication of support on the slow stochastic chart.
We have stepped in on a few more stocks, and are in for about 39%.
Other projects have kept us from updating the website for the last
couple weeks, but there's only one day where we were actually out of
touch...
8/24 (57) - We're now back about 75% from the bottom to breakeven.
8/17 (43) - Well, that certainly wasn't plesant, other than the fact
we're only in about 26% - well, it was about 29%... Still don't
know what to make of the momentum search except that some stocks are
still nicely uptrending...
Jim Cramer projected Thursday night that Friday had a 50% chance of
a 1987-like crash. At the same time Bob Brinker sent out a
message that the bottoming process was beginning and any further probes
into the lows of Thursday are a buying opportunity. Friday
Morning the FED lowered the discount rate and Jim called off doomsday
for now...
We are considering 2 strategies for our current holdings...
Double Down, cutting the original basis in half and making it a better
buy, or easier to break even and get out... Protective Puts for
the next month or two that would reduce our losses if the stocks
continue down, but would be a total loss if they don't - even if they
don't go up, either...
8/10 (64) - We're still not sure what to make of the momentum search
count, for a couple years it has been a pretty reliable indicator of an
upcoming correction, normally returning 80-100 stocks and dropping to
the 20's before a correction, but this time it never got back to
returning more than about 60 stocks and still is in the heart of this
chaos... Following Bob Brinkers bulletin we are still cautiously
picking up positions expecting the market we have seen for the last
three weeks to last at least a couple more. It's clear we started
back in a little too early, but so far the charts show that most of the
ETF and many of the stocks should recover and resume trend, but
probably not all...
8/3 (64) - The number of stocks that continue to show up on our
momentum search is a little curious. After several corrections
where it was a clear predictor it continues to show strength now as the
overall market shows weakness... Bob Brinker sees any level below
the mid 1400s on the S&P 500 as a buying opportunity.
Anticipating a bounce we moved early on a few positions, but the
technical signals are now beginning to show a deeper decline in the
short term. Long term still sooks pretty strong. Bob
Brinker has called a buying opportunity for S&P 500 below the mid
1400's which is an update from his previous call of 1380. Because
we knowingly moved a little early, we are tolerating a larger margin
before we cut out of these trades. A deep summer decline often
goes on for 4-6 weeks and pulls lots of stocks down for it. Keep
an eye on the stocks that show strength in this time - they are more
likely to take off when the downward momentum of the market slows...
7/27 (52) - Well, we're all out again. The weakness has not
been shown in a number of stocks, but of those we were in only a couple
are right back on trend - meaning getting out was a good move and we
can get back into a couple as they hold the trends. Others are
still strong, but in a better position to buy back. It's just
time to wait for the technical signals before diving back into the
market. We've had about a 6% drop from the high on the S&P
500 in about 5 days, a bit less for the DJIA...
Our gains between the corrections this year are just over 2.9% of
the total portfolio, not bad considering we rarely were over 40%
invested in that period. Most of that profit was taken in May
when a correction like this seemed imminent - well it was a couple
months early...
7/20 (58) - Still lots of familiar stocks in the searches, not many
new ones, and not much new to add. Because this search remains
relatively strong I remain cautiously optimistic on the market for the
near future.
7/14 (56) - This weeks rally was interesting. It cleared out
billions of dollars in short interest on mid- and large- cap stocks;
yet the small caps are still heavily shorted... We continue to
cautiously take on more positions. We've also entered a couple
virtual trades; one is quite speculative - we are looking into the
strategy of following unusual option activity - a speculation that the
price of a stock may jump dramatically due to takeover or some other
news sometime soon.
7/7 (59) - We didn't stop out of anything else this week. We
are waiting for the relatively weak technical signals to pick up other
stocks now. We will only pick up one or two, which means we may
miss some signals, but in this market caution is better than loss.
6/29 (47) - This is not a shock, there are fewer and fewer stocks in
each weeks search that are worth looking at more closely. Not
much else to say, we stopped out of a few positions and picked up a
couple more. Still very cautious...
6/23 (61) - Now THATS a coincidence... It is a slightly
different 61 stocks, but the market surely feels weak at this
point. In spite of the relatively larger number of stocks this
week, other searches returned little of interest, and we are only
cautiously picking up a couple positions here and there...
6/16 (61) - I don't trust the recent rally... yet... Still, this
number in the search and some other indicators are promising.
Trust will come with breaking the highs from a couple weeks ago and
seeing a few more technical confirmations. At this exact point
the market could continue the rally or turn back having re-tested the
highs from a couple weeks ago. Stocks from the searches are
pretty familiar, still, and many still appear to be rolling over a top.
Just in case, upon the first signs of strength in the market, we
moved into a couple new positions. We will cautiously take on
more positions as market and stock performance merit.
6/8 (40) - The search count produces the usual suspects, but the number stays consistent with the last few weeks. We are only in one strong positive position now, and will let it run with a tighter trail. We stopped out of another 13 positions this week, leaving 9. Of these 2 should stop out with profit as things stand now. Exited trades for the quarter are up an average of 2.3% in an average of 32 days. If everything stops out at the current setting our total portfolio will be up about 1.95% for the quarter.
The Almanac called the Summer Sell signal this week. I'd have
to agree. This is probably a time to sell the rallies. We
push up the stops on rallies, allowing winners to run and accepting
that we sell off of the highs. We're getting close to having a
month or so off. Not because of the Almanac this year, but
because technically it is a time to stay on the sideline.
6/1 (41) - Of the 25 positions we stopped out of last week there are
only a couple that would have been worth keeping at this point.
Certainly some have bounced, but keeping to the strategy has put us
into profit, protected profits, and reduced losses, and most of the
bounces are over...
5/25 (39) - Still mostly familiar stocks, and not much at all from
the other searches, not much worth keeping anyway...
We raised our stops on a lot of positions Wednesday, and Thursday
took us out of half of our positions. Mostly this protected
profits, and we're not going to step right back in to the others, not
for a few days at least. We need to see if trends have changed,
even just briefly. We'll be moving up more stops on remaining
positions, too.
5/18 (43) - Although our baseline stock search continues to slowly
produce more stocks, they are mostly very familiar, and the sum of all
the other searches did not produce very many more stocks. Many
appear to be peaking out and beginning to pull back, it may be near
time to begin taking profits...
5/12 (39) - Still lots and lots of familiar stock symbols. Now
a couple months past the little swoon I think we can drop a few stocks
from the acquire list that were clearly knocked off trend. We are
still moving cautiously, every pause feels like a possible top...
5/4 (41) - More new symbols indicates probably industry rotation,
but there are lots of familiar ones, too. We stopped out of a few
stocks on earnings news, and stepped out of one for the same
reason. Our more recent trades are beginning, once again, to show
the value of the Investools methods - and last year the cost of the
Almanac methods... Keeping in mind that at this point all of our
trades began and ended
since the market swoon of Feb/Mar and our gains are small, averaging
just under 1% in about 20 days, and totaling about 0.2% of the total
portfolio, making up for most of our regular trading losses in the
correction - and then there are our speculative losses...
What about Bob Brinkers buy point at 1380 on the S&P 500?
We may hit it again this summer, or maybe not, who can know. But
if we do this year then he will have been entirely correct, but between
his buy signal and the opportunity to enter at his price, there was
plenty of money to be made... The simple fact is that the IT
methods will sometimes follow the
cycle, when the Almanac is right, and sometimes it will not, when the
Almanac is wrong. In other words, the market is perfectly capable
of
indicating when it is time to buy or to sell on its own, and the
Almanac is just interesting information to consider along the way.
4/28 (48) - More and more symbols showing up with the searches now,
the most since mid January. Meanwhile the wall of worry is being
slowly climbed, and the question is the ceiling of record
levels... Finally got the virtual portfolio updated this week.
4/21 (32) - Each week we run searches and examine the symbols that
rise from the searches and were not results in the previous 3
weeks. The number of stocks resulting form the baseline search
this week is lower than the last couple, but overall results from all
searches was nearly double the number of new symbols over the last
month or so...
Over several days this week we moved into our IRA positions.
We may adjust a few of those positions, but that's about it. We
have room for about 14-15 stock positions now at the rate we have been
investing, and 22 positions to follow now. At this point we are
also planning to double up on some of our better stock positions.
We have been taking relatively small stock positions for 2 main
reasons. First is the plan to reduce single stock risk on the
retirement accounts using ETF investments there with large
portions. Second is to reduce risk moving into the market
following the correction. Now that some stocks are clearly
outperofrming others, we can move additional funds into those
securities as well as follow industry rotation with other funds.
Having over about 30 stocks to follow will be too cumbersome, so
doubling up is practical, too.
4/13 (38) - The searches turned up a lot of familiar stocks still,
the reference search as many as last week. We picked up a few
more stocks and are now in by about 25% of the total portfolio.
We are selecting ETF securities for entering the bulk of our IRA
accounts, but there is a dilemma... We are nearing May - as in go away
in May. The market is near the high it reached before the
correction. The SS(80,30) fast line appears to be turning back
up, though it didn't drop much this cycle. That seems quite
bullish, but this is precisely where we made our biggest mistake last
year. We intend to enter with caution and exit on the first signs
of weakness.
We've been neglecting our virtual trades, but I'll summarize the
index puts as a success. They were intended to be short term
trades, entered in the initial bounce to ride down, and there were 2
likely exit points with fair profit. Since then we've been
exploring a new strategy with options that are deep in the money, as a
substitute for generally highly priced stocks, aiming for a Delta near
1 and a typical contract price near about $20. I'll update it
next week.
4/7 (38) - Last week seems to have been the low for the search
results overall. The weekly search picked up even more results,
which seems good. Most of the resulting symbols are rather
familiar. We also saw more stocks worth looking at more closely,
but we are still deciding if any are worth adding to the acquire
list. While things look good at the moment, we still expect a
pull back to retest the low. The key, for us, is still the
SS(80,30), with the slow line still headed down, and the 30-DMA just
flattening and below the 50-DMA, we look for the fast line to turn back
down and find support at, or at least near, the slow line.
To reach 1380, however, the S&P 500 will have to break down
through the 150-DMA which it has not done in a big way this
correction. So, did Bob miss his call of 1380? I think we
will see it again this summer, and for Bob that will be right on the
mark - so we go up a good bit between now and then. We continue
to be cautious until we see the uptrend confirmed by this sort of
support.
3/30 (29) - Still under 30 stocks show up in the search, usually
pretty familiar ones, and the other searches produced even fewer.
In the last few weeks 29, 23, and 27 new symbols were returned worth
looking at between all the searches I ran, this week was only 12 new
symbols... We only added 4 to the acquire list, which I need to
update...
I think there's still a chance for Bob's bottom call on the
correction... The recent weakness in the market suggests we still
have more testing to do. The SS(80,30) slow line is only
deflected slightly less downward, the fast line is worth watching
closely now, to see if it pulls the slow line further upward or not.
We are in 12 symbols for only about 17.5% of our total
portfolio. It may be a larger position that we care to have, but
we'll be waiting to see how things go...
3/23 (28) - The search this week may have returned a couple more
stocks, but we only added one symbol to our acquire list this week, we
keep seeing the same stocks over and over and they are already on our
list. The correction is not over yet, this is the time to sell if
you are still in and want out. If you look at the correction last
May-June you will see
that 3-4 weeks after the initial drop there was a rally - sound
familiar? With a lower low established a week or so ago there
will likely be a need to test the low again - and Bob Brinker chimed in
with buying opportunity alert with S&P 500 below 1380...
Certainly we seem poised to test the support at 1410, and have
resistance at 1440. In the last few buying opportunity
announcements there have been a very few days with the trigger price
over the next 6-8 weeks. Note that in the correction last
May-June after the little rally there was a lower low set. This
lower low required a retest before the market took off, and the retest
took another month to reach. Watch closely, because below 1380 is
probably good, but below about 1365 would be bad in that it sets a new
low to be tested again later.
If you are inclined to try to take advantage of these short term
moves, this is the time to sell on strength. We are not planning
to take on a bearish position now, but will probably get bullish
depending on the next low over the next 2-3 weeks.
We are considering one last option play which, if unsuccessful, is
likely to be our last. It is based on simple level 2 options,
deep in the money. On 15 August 2006 the January 2007 111 call
options on SPY cost about $20, with an intrinsic value of about $16.5
and a time value of about $4, the ETF must go up about $4 as the time
value expires... To exit this trade we would have waited until
the end of the year, probably about 20 December 2006 at a price around
$31, a profit of $11 or about 55% in 4 months. We would enter
such a trade with less than 1% of our portfolio in any one security and
under 5% total at risk. Based on current numbers we would be
looking to about the $121 September calls for about $20. We will
be looking at SPY, DIA, IWM, MDY, and maybe QQQQ.
We will also be looking at proshares ultra funds which use options
to essentially double the gains of the index they use as a
baseline. We are still cautious in for about 15% of the portfolio
on stocks that have responded strongly to the correction, with
relatively little volatility. We'll see if they ride the rest of
the correction so well...
3/16 (24) - For better or wrose we have exited our bearish ETF
trades. We could have done better, but the strategy has gained
back what we lost in stocks - now it's time to start working on the
options losses... We have a couple new stock positions,
too... Watching very closely...
3/11 (22) - I'm going to add the number in parenthesis for each week. It is the number of stocks we find in our basic weekly stock search. It's gone back down again. We increased our bearish position on the markets, but we have also entered a few new stock positions. One is not a good stock by our toolbox standards (CHD) but we found it on Fast Money (CNBC) and we are considering it a risk trade. There is the appearance of the market coming back much faster than expected. The stocks we have entered have not been affected much by the correction so far; they appear to be stocks that investors are looking to for safety in the otherwise volatile market.
We are watching everything closely, mainly MACD and Slow Stochastic
SS(80,30) (the fast line) for signs that any drop is more than just
normal activity on the stock. The fast line moves with a 3DMA and
the slow line is a 30DMA. The slow line shows the trend, and if
the fast line stays below the trend line then there is weakness.
We are now more convinced this is going to be a very minor
correction, leaving room for a bigger one this Summer. We expect
the market to pull back again and test the bottom from last week.
If the market closes near (but above) that bottom (or 150 DMA) we will
exit the bearish positions, but if the market closes below those lows
then it is likely more down to go...
In any event we don't expect this to be a deep correction, probably
not more than 10% at this time. Once the market seems to turn up
from the bottom we will probably begin to buy again, sill ready to get
out at any moment. Watch the correction from last May/June, down
sharply, up for a couple days, down again, up for a week or so then
down again, flat for a couple weeks, up again, then down for one final
test of the bottom - then it was off to the races...
3/5 - Last weekend I forgot to document the virtual trades we took
on Thursday. They were OTM puts based on the idea of a 7%
correction which we would use to leg into a bullish spread, or just
selling the option of it goes deeper... Well it has gone deeper,
and Thursday was not too late to take on a bearish position. We
decided to make these virtual trades given our track record lately, and
went with the inverse ETF trades we have - both are making money, at
least... So the lesson here may be that if you miss the first
minutes of a correction, the inevitable dead cat bounce is not too late
to jump on the sleigh...
3/3 - We are going to make one more run in speculation based on
options, after this correction. If we can't make money here then
we shouldn't be doing this anymore. We realize this is still
among the worst
traders markets and that we are doing much better with stocks than
options. While we make gains with some option trades there always
comes one to wipe out what we have made so far; if we get nowhere then
why bother with the stress...
After evaluating the situation from many sources we expect this to
be a correction rather like the one last June. This means we are
about 1/3 to 1/2 down the correction, the bottom will be about a month
from now, the bottom will be tested about a month later, then perhaps a
third test, then off to the moon. Bob Brinker is unconcerned
about small corrections like this and while he doesn't usually exit
investments on corrections, he is pretty good at calling the buying
opportunity in recent history.
We also took on an experimental position in inverse ETF securities
which go up or down twice as fast as the market and in the opposite
direction. We selected small, mid, and mega cap index funds to
show where the bulk of the correction is happening, so far it is
clearly the small cap. We will hold these trades until there is a
clear strength and then exit them. When the market enters
recession in the future we will use these securities across most or all
of our accounts.
Some stocks were relatively unmoved last June, we are moving back
into them slowly. There is risk in this move that they will act
differently this correction, indicating rotation of money from strength
there to some other sector, or even cash.
It's not time yet to enter the fire sale, a 10% correction would put
the S&P 500 down to below 1320, DJIA to just above 11500, NASDAQ to
around 2275, and Russel 3000 to around 765, but this could still be a
major correction of 15% or more... The only reasonable bet from
here is NOT UP...
3/1 - We have 2 problems, we cannot win for losing - SAP has had a
tremendous breakout and GS continues to fall. We are unwinding
the spreads that are probably safe, but still in the ones that are
losing... The reason we don't make huge trades in this area is
this - each represents only about 1.6% of the total portfolio.
In the deep down open today we hoped to turn GS into a better
recovery by doubling our stake in GPYOS, it opened at $6 and in 5
minutes was down to $4 where we pulled the plug on that speculation -
the exercise in self flagulation over...
2/27 - I thought it was worth making an entry today; it was a
historic day, and deserves more than 'last Tuesday' at the end of the
week... We are
all out, we woke up to the news this morning and pushed up our
stops. We are out at about breakeven - it was that fast. If
we left our stops we would be down 2% - If we had no stops we would be
down 4% - we stepped calmly to the exit as we saw smoke, we are down
0.2% on stock trades. No panic, we held the doors for the fleeing
mobs...
We do have a problem... GS blew through all our exit points in
minutes without time for us to act. What we sold for $1.68 will
now cost $7 to buy back... or we can face the maximum possible
loss. We are still in on 4 option positions - at this moment only
one is at risk... Each trade represents under 1.7% of our
portfolio...
For the year we are up 0.14% on closed trades, currently in cash,
and the market is throwing a fire sale. We are holding the door
and as people rush out we let them run... Then we will walk back
in as the crowd thins...
At the same time it was a strangely stressful day. Part of it
is that I hate to have an option trade go bad right away every time we
start into them again. OK, not every single time, but they are
more memorable than the good ones that just go away at the end...
About 2:30PST I really started to get the shakes and real
nauseated. I had to take a break from work and when I got home I
watched the CNBC programs Closing
Bell and Fast Money
from earlier in the day.
It was a bit surreal watching them try to describe how to respond -
do you exit your trades or hold on tight - do you go short tomorrow or
just sit it out - do you panic out like everyone else is. We had
been expecting this for a long time, we found it to be a little late -
September would have been better. We didn't lose yet, even
getting on as late as we had done.
If the election were next week I think there would be a mandate the
likes of which the R's don't even speak of in nightmares. But
with a solid winter correction there is likely to be a Spring and
Summer rally for the history books...
2/23 - Last week the weekly stock search returned more stocks (only 28) for the first time in a month. The minimum was 23. This week was 30, yet through several searches last week I filled the search portfolio this week it simply would not happen. We also re-learned the Trailing Stop lesson. Even in the more well traded IYZ, we stopped out when an unreasonable bid caused the computer to trigger our orders to the market. We stopped out at almost the same price we bought at. Now that we are close to fully invested in the retirement accounts we are also locked out because SEC rules require the order to settle before we can reinvest the resulting cash. Perhaps the weakness we are seeing this week will give us a better entry point for later, meanwhile we are basically locked out of trading until those large sales settle... No choice now but to manually manage the stop orders instead of using trailing stops.
This week we started into the adoption of another idea from the
class we have largely ignored. The analogy is this: You are
driving down the road and come to an intersection, a decision point,
the light is green (3-green arrows) and as you enter the intersection
you slam on the brakes... Why did you stop!!? The light was
green, it could turn red at any moment, so you stopped, waiting for it
to turn red before it turns green again...
We have done this many times, finding a strong uptrending stock and
waiting for weakness to buy in. Many times that weakness that we
waited months for is the end of the run. Now we are deciding to
buy the run, if it goes bad we'll get out, and pick another run on
another stock. There are not so many stocks doing this, it's easy
to get through the list of acquisitions fairly quickly...
2/15 - We learned a lesson about trailing stop losses at E*Trade
today. First is that they follow and trigger from the BID (or ASK
for short covers). Second is the side effect of this with lightly
traded stocks. We had a trailing stop loss on DHS, an ETF that is
relatively new and lightly traded. It is not terribly volatile
and we had a fairly tight trail on it. At 09:40:07 EST this
morning all the reasonably priced bids were filled near the market
price and the next bid price was a very low price: $57.80 which
triggered our trailing stop and made it a market order which then
filled at the market price of $59.45 which filled immediately.
Fortunately the ETF price is based on the price of the underlying
stocks; had this been a single stock we would have been at the mercy of
the market makers. Lesson learned, and we exited with a small
profit, too...
We also stopped our of SMG today, our first trade on a stock we
added to our acquire list from Fast Money on CNBC... It was fast,
alright...
2/10 - We took Disnay off the table Friday, but stayed with
everything else for now. The decline on Friday appeared to be
largely due to one stock, Micron, which indicated the coming year will
be softer than expected for FLASH memory. The market, being
overbought, and on a Friday, took the excuse to roll back a bit.
All in all, though, it wasn't by much. Again, the Slow Stochastic
(80,30) is being an interesting analysis of the major markets...
The NASDAQ and Major Market have been finding the slow line to be
resistance, the other markets have been cycling around it, but dropped
down through on the cycle Friday. Is it the begging of a real
pull back? -- let the averages get broken first, then it may be
just that.
2/3 - No pull back yet, but a little more volatility...
Almanac points out that the pre-election year has no losers, but there
have been rollercoasters...
We are now about 57% invested and watching closely as earnings and
the economic news continue to be generally favorable. We are
armed with a new rule of thumb for stop loss levels. Start with
the class stop of 3% below the lowest intra-day price of the dip you
bought after; this way if the stock retests that low successfully you
will stay in. When the stock begins to rise into its cycle set a
stop based on 1/3 of the historic volatility. The historic
volatility is based on the stocks price moves in the last 6 months and
is used for option pricing, but this is also helpful in determining how
much you can probably let the stock fall from its recent high before
it's time to get out... As a rule of thumb you do have to watch
the results, and may want to make adjustments, but this generally puts
the stop right around the 50-day moving average...
1/27 - Still moving cautiously we stepped into a couple ETF trades
on a good day and they went bad the next, we entered a spread and it
went bad the next, and even fewer stocks show up on the search this
week. Each Friday I run several searches, one in particular I
will refer to as the basic stock search. A month ago it returned
about 100 stocks - I do not add all of them to my watch list, but the
search returned with many stocks. 3 weeks ago it was about 70; 2
weeks ago about 45; last week just 25; this week only 20.
If this is to be a pull back in the market then our strategies will
cause us to stop out. If it is industry rotation then the stocks
where money is going will begin showing up on our searches in the next
few weeks...
We had decided to cautiously bengin entering spreads based on the
market and stock trends, which are generally upward. We chose BSC
and entered the spread on Wednesday. On thursday the stock pulled
back sharply and several conflicting trading rules lead to hesitation
which made our trade a loser. The principle rule is don't panic
out of a trade after one day - this has usually served us well, but on
this occasion it was a bad idea...
The trade was for February, a Bull Put spread with a strike price of
$165, meaning we sold the $165 puts and bought the $160 to limit our
risk. The total risk was $5 and the gain when we sold the spread
was $1, to our net risk was $4 - bear in mind this was for 10 contracts
so multiply the numbers by $1000...
Our trading rules provide a range where we will consider exiting an
option trade. It starts with a 50% increase in the ASK over the
BID we got when we sold the $165 put. Remember that you buy the
ASK price and sell the BID price and that there is usually a difference
which makes up the profits of the market makers - the only people who
ALWAYS make money with options... It ends with the cost of buying
back the whole spread being twice the price we got selling it - at that
point we exit the trade.
The problem also traces to a procedural error. We watched the
stock price more closely than the price of the $165 put. At close
on Thursday the price was $3.97 and we sold the option for $2.01,
getting us very close to the 100% price change - at the same time the
$160 put increased in value by $.76 - offsetting some of that loss.
Friday morning the stock opened up a bit, but then continued to
drop. When we decided to buy back the $165 at $4.10 the stock
dropped a full dollar in about 10 seconds and the option went up to
$4.60 as a result... This is where it would habe been good to
exit the trade on Thursday at $3 or $3.50 on the early side of our exit
range...
Within about half an hour the stock BSC had plunged by about $2.7,
and the $160 put was now worth $2.60 but the stock was finding support
and starting to rise again... We confirmed the change in
direction for another half hour and sold the $160 puts for
$2.45... The trade which started with a gain of $1000 ended with
a loss of $1050, and though it could have been a loss of up to $4000 in
the worst case, if we stayed in the trade and the stock closed below
$160 in February, consider this:
Had we passionately ignored the rule don't panic out on 1 bad day
and bought back the $165 puts at $3.50 we would have broken even -
commissions included. Also if we exited even earlier at $3.00 we
would have made about $500 on a trade that went horribly bad...
Notes:
1/21 - More and more signs of a weakening, expecting a pullback we
still cautiously move in with careful buys, and take profits off and
tighten up stop losses. The number of stocks in the basic search
I run dropped sharply this week. Along with other signs in the
market this suggests a possible pull back and/or industry rotation -
perhaps both.
1/14 - Our love of the javafied toolbox continues to find
bounds. I particularly like the slow loading and the inconvenient
defaults, not to mention the inability to print certain records that
would help us restore our own settings if things ever broke...
Nontheless, its basic function seems to be intact, though there are
errors I can see in the javachart - the most useful tool they have and
its database has clear errors. Tech support remains silent on the
subject, other database errors recently - like a misaddressed mass
e-mail to us from their own customer database - stimulate our caution
and erode our confidence that what we are looking at is actually
correct.
Along with a stop we took a trade that looked not so good and one of
our better trades off the table. Later in the week we have picked
up some new stocks, and will probably pick up a few more this week...
1/6 - We took the other ETF investments off the table this
Friday. We stayed in the stocks, however. Those strategies
seem to be worth allowing to run at this time, though one stock seems
to be breaking down (CSH) we will allow that strategy to run as
well. It is likely there will be some industry rotation in the
beginning of the year, too.
This year will be different. While we are cautiously awaiting
the pullback of this bull market cycle, we also plan more active
trading provided the signals appear until then.
12/30 - We hit one stop - AAPL of course, and bailed from 2 (CTSH,
BLKB) which appear to be about to break down. There are a couple
other stocks we are watching closely as they are not resuming their
previous trend. The market in general has turned to a slower
uptrend, but still generally upward.
We also bailed out of our badly timed option trades from May 2005
which were dropping rapidly in value. It was interesting to watch
as we did this on Friday 12/29 that we set our limit prices between bid
and ask on the bid side and at first the market makers dropped the bid
price for several minutes - to see if we would chase after
them... We didn't move and the prices came up quickly to meet our
prices.
12/17 - We picked up a few more single stocks, setting fixed stop
losses at 3% below the lowest price in the dip we are buying
after. We are entering the time of the traditional santa rally,
and whatever happens we are hoping the recent flat market will reduce
or eliminate a dip in January by allowing the slower averages to catch
up to the market a bit.
Our December spreads have expired - we didn't need to unwind any of
them, but better to profit and be wrong than to be wrong and lose...
12/10 - So the first week of December has passed, now it is time to
see if the Christmas rally will take off. We are debating
actively exiting trades on the technical signals after watching HOG and
COH in our current trades...
12/2 - We picked up a couple more stocks, taking a chance on weak
MACD signals. We also unwrapped the market ETF spreads we were
in; the trades are profitable now and without further risk. If
the market pulls back then the covering put options may gain value and
we could make more yet on the trades...
The problem we see at this time is best expressed in the Slow
Stockastic (80,30) study which is generally showing the fast line below
the slow line and turning back down. This suggests that a level
of resistance is met and the security is unable to break above that
resistance level at this time. There may be flat or down markets
in the immediate future - recall that the fast line represents a 3-day
average and the slow line a 30-day average.
The first week of December often has a minor pull back, but the
summer rally has not pulled back much at all. Without a pull back
the Christmas rally may be rather flat; and if it does happen then
January may pull back, and we wonder if the presidential rally will
happen.
In general the market ETF securities have been trading up in a
narrow price range. DIA appears to have broken below that range
and failed to re-enter it, the same is true for the high-end funds
(Russell 1000 and S&P 100, and the NASDAQ Composite). This is
less clear in the broader funds, mid- and small- cap funds. It
does not mean a downtrend has begun, but it may mean the markets are
pulling down to another price range.
11/24 - We stopped out of one of the stocks we bought this week, and
we need to correct our methods to prevent it from repeating:
Based on the most recent updates to the class we have been setting a
stop order at 3% below the lowest price in the dip in price we
purchased after. Our error was in placing a trailing stop loss
instead of a fixed price. Our correction will be to set a fixed
stop loss until the stock goes above a certain level; that level will
depend on the recent volatility of the stock. Once above that
price we will set a percent trailing stop loss which will not be less
than the initial fixed stop price.
This is a reiteration of an older lesson which led us to use 15%
stop losses. We believe we can do better than that, but need to
patch a hole here and there...
Volume on Friday was quite lite. The volatility indices moved
up sharply to resistance on the 30DMA without a significant move on
index prices. The main news on Monday to drive the markets will
likely be how well retailers did on Friday. Articles on CNBC
suggested that based on consumer surveys many consumers will not
frequent stores other than those they did on Friday - the implication
being that retailers not doing well this weekend will not do well for
the season. For the markets to go down at this point the
volatility must go up and break resistance. Until the technical
indicators show otherwise, we remain cautious but bullish.
I added the retirement timed investment plan, which we will be using
for a portion of our portfolio, for reference. In particular we
will apply this strategy to smaller accounts to avoid single stock risk.
I have also been looking at our dismally timed options trades that
were planned as a bullish time diagonal spread. Even based on our
experience at that time it was poorly timed. Consider instead the
same strategy timed with the Summer Rally:
11/17 - Well, Almanac was soooooooo wrong for the Summer Rally, and
it brings some doubts about the presidential rally, too. Still,
Bob Brinker also speaks of the presidential rally, but speaks of
caution because of the length and strength of the current cyclic bull
market. We have tight stops on our current ETF trades, and are
watching our options trades closely as there is frequently a pullback
around the end of November.
11/11 - Well, not much of a pull back, but our taking a position
does appear to have caused a nice stall... The updated and newly
javafied Investors Toolbox is something to get used to, and has to some
small extent inhibited our ability to identify and evaluate potential
stocks in the way we have with the better previous version.
10/30 - In an attempt to cause the pullback we have been waiting
for, we have taken on positions in market ETF's DIA, SPY, and
QQQQ. Unlike the earlier parts of this bull market it is clear
that the large cap stocks are carrying this rally, so quality is the
place to be. We entered the positions late last week over a few
days. We set stops based on the deepest dips of this rally, early
on. DIA and SPY stops are at 5% and QQQQ is at 7%. We have
used the ETF shares across the majority of our retirement funds and
some of our general investment funds to eliminate single stock risk.
We will be entering single stock trades for the remaining funds in
the near future.
10/22 - Well, Almanac finally sent out an e-mail admitting they have
been on the wrong side of the market this summer... We knew that
2 months ago... Next year we will renew their subscription, but
they are relegated to an interesting datapoint.
Bob Brinker, on the other hand, called a great entry point.
Too bad we were paying more attention to the Almanac. There
hasn't been too much to say over the last month, but now there is...
Investools is upgrading; Change is good, they say, but it is quite
disruptive at a time we need to be able to use the toolbox. Only
one user can access the improved toolbox now, this means we can't go
over potential investments together from different locations. We
are told this is because the toolbox in in 'test mode' and 'for a fee'
we can get a second login. I am certainly not giving up the
toolbox, but so far I am quite unimpressed with the javafication of the
website. I am never impressed with javafication. Even
upgrades to javafications are usually incompatible with the previous
version, rendering useless the tools and methods developed around the
past information. Not all the tools in the new toolbox work, but
in the process they are also breaking the old toolbox in subtle ways so
that neither is fully useful for the last couple weeks.
9/24 - OK, Energy didn't go up, but we still made money on the
spreads. We still aren't looking for bullish activity in the
market, and didn't take the time to update the lists. We
did look at last years Summer Rally and found that the rally
extended through September, but in early October we were hit
hard. Next year we will be more likely to look more seriously at
a rally that starts in late July or so. This year, however, not
many of the stocks we liked were offering buy signals - we may stick to
ETFs for this strategy.
9/17 - We unwound those bearish spreads. The stocks reached a
level that has been support recently. Unlike MTH, however, these
unwound spreads are profitable. Now they represent no risk
whatsoever and may yet yeild additional profit, particularly if the
stock bounces at support. September options have expired, and now
we may see if the rally we have been experiencing has legs.
We are still reluctant to buy into this rally, particularly when it
seems so overextended. Next year we may cautiously look into the
Summer Rally; we didn't do too badly last year until the bottom fell
out, and had we been prepared for that it wouldn't have been too bad.
9/10 - This week may provide a sense of direction for September, up,
flat, or down. Not really buying any stocks yet, but we did enter
a couple bearish spreads in the energy group.
9/5 - We exited MTH today for a very small profit - no loss is a
good trade, after all. It has spent too much time between the
narrowing 30- and 50-DMA lines and while it must spring somewhere,
there hasn't been much bad news lately so we don't trust it. We
got a better-than-break-even price and will enter new trades as the
market turns or supports...
9/2 - Small and Mid caps struggle to reach the highs found earlier
in the year, but Large and Mega caps press into those areas. The
Major Market and S&P 100 have established new multi-year
highs. The only small problem is it has all been on very small
volume, and it is September - the worst month of the year. While
there have been up Septembers, they are usually flat at best and often
down. The rally feels very overextended, but having just pressed
above apparent resistance it is hard to predict what may happen.
We are still resisting entering bullish moves, the market forecast is high, but indicating a bearish divergence suggesting there is more up, or at least flat, to come. On the other hand the only two days normally up in September are the first trading day and the monday before options expire. Still there are some fundamental indicators behind the rally we have seen in the market and it may resist the normal trend in these months.
8/27 - I still don't expect to buy in the near future, but we have
updated the acquire list and watch list. We are in an interesting
position now, the market hangs on support after a plesant rally.
Volatility Indexes are at lows, but may go lower. The markets are
at highs but not multi-year highs. As Bob Brinker points out we
are in a secular bear market and in that trend the market always fails
to make new highs. It seems unlikely from that perspective that
we should expect much more of the market. It also seems
interesting he seems to be predicting new highs, so what does one look
to? The Investors Almanac also has been speaking of new highs,
but now speaks of terrible lows.
Our searches show the rally is mostly in weak stocks, not much we
would like to buy. Even if the market does go up from here it may
not have very far to go, it may not go down far either, though.
We may try the spreads experiment we did in July/August
again... It worked rather well, providing 2 sell cycles, and that
was messing up big time, too. The reason we didn't start over
entering this rally is that we didn't expect so much up and planned to
enter on the down cycle. We will probably enter natural spreads
on confirmation of the markets next move...
8/14 - Another week without updating the acquire list. We did
pick up one stock holding, but there's not much that looks safe out
there. We also picked up a bearish spread.
There isn't much direction and there isn't much reason to take a
position one way or the other. After this week, and for the next
few weeks, there may be more of a direction; but probably not a great
reason to buy lots of stocks...
I need to document some virtual spreads we entered - some of which
are probably big mistakes for timing and miscommunication, but we
should document them anyway.
8/7 - We bought back the shorted shares of the spreads with a modest
gain. Had we kept them only 1 day we would have made twice as
much, but as it is we made more than we had to start with. If the
FED causes a rally we'll make even more, and if not we'll reposition
for September or later. Our lousy time spreads gained a little,
too.
At this point we have no risk and a realized (average) bear spread
gain of
over 95% with more possible if the market rallies a bit. In no
event do we expect a long rally and we won't take bullish positions
now. Instead we will wait for the fall in the fall and take
position for that. In the end of the year we will take our
bullish positions and see how long they go.
Multiple (Price/Earnings) deflation is taking over on lots of stocks
these days, the system dropped us out of HANS and thankfully it was
last week instead of today. If you want a great bearish scenario
then find a stock that still has a high multiple with the FED raising
rates that fails to exceed earnings expectations.
Still no real update to the watch or acquire list, but there aren't
many good chances these days and it is best to stay out for a while
longer...
8/5 - Still not much of interest on the stock side, didn't get to
the lists but maybe Monday. If the FED skips we will probably get
a short rally, but likely only a short one, if they raise I don't
expect we'll get a rally... We are positioned for the latter, but
may exit those positions Monday.
This week we re-entered the bearish spreads for a cash gain, but
will give much of that gain back Monday to exit the positions, unless
the market has a rally Monday morning in which case we may give it all
back and then some...
7/31 - Didn't get to update the lists this weekend. Very
little of interest anyway these days... We decided to re-enter
the bearish spreads on the market options today. August has been
very bad for the market over the last few years and, while we may be a
little early we do expect we are near the top of this cycle. We
see a bit more risk in the IWM and MDY than in the SPY and DIA on this
move, but it is only for 3 weeks and it really looks doubtful that
these levels can hold for long...
7/22 - Well, all that concern for nothing... Still I'd rather
be even than losing. Our virtual trades expired this week with
stunning success - this tends to support the idea that our timing for
entering real money trades around annual earnings reports was
inauspicious, but that we have a good general grasp of the
strategy... The alternative is that reality conspires against our
actually profiting from these strategies but allows us to succeed where
there is no risk... I just don't think the universe works that
way.
Meanwhile the acquire list is trimmed brutally back as good stocks
are falling away -- they'll be back - maybe... Be ware of this
rally, August-September has been mainly down for most of the last
decade, without good signals we are generally out of the market until
late in September, perhaps even October... Out except for
spreads, perhaps.
7/19 - Yesterday we bought back our shorted options from the
spreads. Timed as well as their original sale, it has completely
offset the costs of most of our strategies to date for July and
August.
7/16 - The markets now sit at an established support level from last
month. While the market was poised for pulling back, the
situation with Israel was a powerful catalist for the market to enter
that mode. Earnings are likely to indicate more slowing, but is
it enough to break support and continue to pull back, I think that
depends on Israel now...
I found it interesting that the number of optionable stocks over $100 per share was up 50% this week, but generally most of the market seems poised to continue the strategis withdrawl from current valuations. There is a small number of stocks continuing to climb these days, a few of them have made the acquire list, but will they show a buy signal, or a breakdown... Until there are some buy signals that look promising we will remain in cash as the market continues to retreat or remain flat.
At the moment our stock money is in cash, and we have a few bearish
trades in play against the market in general. One thing seems
certain, if we want to drive to new highs then it seems we probably
need to push lower to get that great bounce. But it will be a
combination of factors required to drive up the market and one of them
is the middle-east. I don't see a really great rally taking place
until there is a lot more stability there. That, of course, is
relative when speaking of certain regions of the world...
I updated some notes on the Stochastic technical study on the Rules
page this week.
7/11 - We completed most of our index spreads this morning, and then
a rally in the afternoon, when we were in a remote area and unable to
do or even see anything, made it an uncomfortable afternoon. We
are comfortable with the positions we have taken, but it would have
been nice to get the extra funds selling in the PM instead... ;)
7/4 - The midsummer rally may have picked up with the FED doing
pretty much what everyone expected. We'll see how long it lasts -
I suspect that just one or two bits of the wrong news will tip the
scales. We bought OTM calls across several ETF securities for
August. Since we expect the market to turn down we will use these
options to cover spreads, but if we are wrong then we will sell the
options we bought. We are positioned to profit if we are wrong or
if we are right.
We haven't updated anything else this week, either. Not much
really motivating us to enter the market for now, anyway. After a
couple years we are understanding that the system works, it keeps you
out when there aren't many good opportunities. We'll consider a
few short trades over the next couple weeks, but we'll look into more
bearish trades in a few weeks when we expect things to resume a
downturn... Unless we are wrong, then we adopt a new strategy...
6/18 - Last week we stopped out of the last holding (except SPDV
which doesn't count). I haven't updated any lists due to another
crisis that popped up this weekend. I don't expect we'll be
buying much in the immediate future. We had a few bad option
plays expire this weekend, and a few good virtual trades I still
haven't had time to document properly.
We don't see Brinker as being contrary to the market, he looks at
the long view. Between now and election time we don't expect the
market to be a plesant place, but there may be room for new highs in
the market this year, just not until after October...
The almanacs are predicting the mid-summer rally (traditionally the
last week of June and first 2 of July) followed by bleakness with
discussions of DJIA in the 8500 range...
6/11 - Well, correction tolerant or not, it's time to prune back the
acquire list. It doesn't mean I am not watching our past stocks,
nor the watch list, and I want to find a reasonably good way to pick up
stocks at the base of a correction. We have dramatically pruned
the Acquire list this week, too.
We are finally viewing the new DVD's from BW (from 2 years ago) and
finding useful updates to the system as we learned it. While we
do have a system that works, I think we may add some information based
on this new data. We will do some looking as the market turns
around - not much to buy right now, anyway...
I did not fully update the trades page, we stopped out of HANS this
week. We added a spread on AZO, but other than that no real
changes. The HANS trade significantly reduced our setbacks for
the quarter, but RACK will cancel those gains on its own -- 'nuff
said: Badly timed, and not very nimbly played...
6/4 - I don't think we'll be buying much in the next few weeks
(months?) but we have updated the acquire list... We should be
near a top of the bounce, if it is just a bounce. We'll look at
rolling into the spreads if we see the top we expect - remember the
market always seems to go longer than you might think (down or up)...
5/31 - If anyone is actually reading these, I am sorry I didn't get
to this site over the holiday. I will try to get the updates out
this weekend; we updated the watch list and this page only for
now... Tomorrow we will be taking most of our marbles out of the
game - We expect the current bounce is nearly over, we have made a
modest profit across our bounce trades and are planning to preserve it.
We are working under the assumption of a more significant correction
than we have seen so far. In most such corrections it goes down
in several steps, and in a mid-term (presidential) year there is almost
always a correction - particularly in secular bear markets. I
admit it feels a bit wrong pulling out of the market with technical
indicators so low and seemingly poised for a comeback. If we are
wrong it is a missed opportunity, if we are right we preserve gains and
prevent losses; it seems hard to lose with that logic...
We will stay with our time-diagonal spreads, perhaps rolling into a
new position for June. We will complete our bear-call spreads as
we see a maximum in the bounce - perhaps next week, perhaps sooner;
actually we are considering selling a June option to completely offset
the price of the July options - then anything we do in July is
basically free... as long as we are conservative enough...
Even if the news remaining this week is good for the market we
expect the correction to deepen. Good news for the economy will
mean inflation which means the FRB will continue to raise rates which
is bad for the market - Bad news for the economy may be great for
interest rates, but will not be good for the market. Either way
for now it does not seem the market is ready to be called low yet.
5/23 - I updated the trades page, I won't be updating the Watch or
Acquire lists this week. While the option performance is a little
discouraging we are still ahead overall, and a correction can happen at
any time in the market. It looked like the NASDAQ market forecast
would have a bullish cluster, where all 3 lines (momentum, near-, and
intermediate term) would turn up together from an oversold position -
most of the time this happens the market changes with it; Today,
however, the NSADAQ turned back down as the DJIA forecast continues to
plummet toward oversold... The good news is it should only be
another couple days for DJIA to hit the bottom of the forecast - the
bad news is there is no guarantee how long it may stay there. The
sentiment line (very long period line) has turned down suggesting less
up and more down as we proceed through the summer... We are not
taking any more positions at this time until we see if the market finds
a bottom.
If we are nearing the bottom for this pull back (historically
unlikely) then many of the stocks we are watching are looking to be in
a great buying position looking at the weekly technical charts - a
longer term study. If the market turns back up (again
historically unlikely) it would be pretty good.
But what if the market continues down for a 10% to 20%
correction? We will have stopped out by plan with about 3% loss
on stocks and option strategies... We have picked up some OTM
options on DIA and SPY. If we the market rallies back to highs
these will make lots of money; if the market only bounces they will
cover bear-call spreads. We have also entered trades on several
fairly strong stocks which seem to be finding support now; these will
either be short term trades on the bounce or great deals for a rally...
5/21 - I haven't finished updating for end of options, it has been a
busy weekend, but the last couple weeks, and last week in particular,
have been brutal... I'll finish updating the trades page Monday
or Tuesday...
The pull-back in the market, which may be a correction only just
begun, stopped us out of most of our stocks, and forced us to close
nearly all of our option positions. This cost a lot, though not
nearly as much as it could have. A newsletter I read stated that
options investing will be a game for the nimble this year... But
after actively managing our options just to see them come back OTM last
month, we were too patient this month; or not nimble enough when we
needed to be.
5-16 - Finally got the acquire list updated. RBA and SGMS are
questionable for some indicators, and RBA for low volume, but I think
it's important to put the list up even this late in the week.
Mainly because we could be in a position to move back into the market -
we could also be in a short pause on a long trip down... Who
knows which...
Our gains, or rather losses, are showing now because we have held
most of the investments that are up. If we continue to see the
market pull back then we will take more off the table, but for now we
have mostly acted to limit losses on stocks we think have stalled or
reversed.
5-15 - In picking apart our option trades today I want to start by
saying we got back about what I expected, but we could have got back a
lot more, almost twice as much...
We made 2 mistakes the biggest of which is getting too anxious and I jumped out too soon. The other is setting limits too low for placeholder orders; they should be set past the breakeven point if they are set at all. Totaled this is around $2600 that we could have not lost. It is important to bear in mind with this, however, that if the stocks had risen through the technical limits I set that morning we would have lost substantially more. In the end I got a little more than I expected to be honest, just not as much as we could have.
At the time of this e-mail (about noon) I would consider calling a bottom as all 3 have flattened out for about/over an hour in the delayed chart
They are moving up (losing value) quickly as I write this e-mail…
Only one of these does not get us close to breakeven, but remember
we could have lost a lot more, too...
By the time I finished writing this note knock another $600 off what
we could have made back… Don’t panic but don’t ride the cart
calmly over the edge of the cliff, either… ;)
5-12 - All of our stocks in the .FIS industry group are down hard,
we waited (certainly too long) for the option plays. Where we had
one trade that would have gone bad, our last 2 went with it. We
didn't guard for industry risk and now here we are; a good month going
very bad very quickly...
We had a couple good firsts this week, too. TIE is the first
holding we have had that went over 100% - we sold off 2/3 of it after
it rolled over the top and have made a profit on the trade even if the
last 1/3 of the holding goes to zero - which is unlikely. We put
a 30% trailing stop on the stock and will simply let it go for now...
While we have stopped out of one stock this week and a couple are
looking bad, most remain above the 30 day average and we didn't see a
lot of volume across the board. In short it is not a convincing
correction yet. We may put a hold on buying for a while, but will
certainly keep an eye on things...
5-6 - Searches this week were very productive; so much so that I
have pruned the watch list more brutally than usual. We sold the
first calls on IWM and MDY this
week. Now it is
still possible we are seeing volatility before a change in direction,
only time will tell. We have decided to stay away from Level 2
Options until the market seriously takes any direction, until then we
will continue with level 3 Option strategies.
With everything going on last month there are several virtual trades
we stopped managing. They are impossible to retrace and,
containing no useful information, we are wiping them off the
table. Several bearish trades would have gone bad, and a couple
bullish ones. I think this may indicate a change, though, that
bearish trades have been going bad while bullish ones are generally
doing better...
In looking for possible spreads for June, there are few bearish
spreads that look appealing. Not so many breakouts, but a bit of
general strength in the market...
4-28 - Searches this week were dismal, only the price search
revealed any results. If this continues we expect there may be a
downturn based on past experience, but one week does not change the
trend of the market... We have entered 2 Time-Diagonal spreads
with IWM and MDY - buying Jan'07 calls at the money we will sell
June-December calls and then sell the base calls before year end.
We entered 2 additional spreads for May, but volatility due to earnings
makes them somewhat risky.
Even with this weeks volatility we are not seeing significant
breakdowns, just a few here and there; nor any significant breakouts,
just a few. If one trend or the other expands along with
continued search results better or worse and a clear signal may emerge.
4-21 - April spreads expire this weekend, with all our mistakes we
did not lose money on spreads, but it was only about breakeven.
One simple rule would have saved only 2 of them, same as last month,
and that is to wait unitl the stock price has gone beyond breakeven
before unwinding. While that does make buying back more
expensive, the covering security is more likely to become even higher
in value for the sell to close; this would have made a noticable
difference, but this would have been a fatal mistake for one though we
would have unwound it on the last day, at the lowest cost, and that may
be the qualifying point to this exceptoin. My conclusion is that
I cannot fault exiting any of the spreads we did unwind, I can fault
entering a couple of them as impulsive, which also makes a difference
and is something to act upon. It is one thing to be nimble, but I
can't justify them in hind sight. Never re-entering the only
useful rule from this month. The volatility was not something to
be easily predicted, but remember we did not lose money in spite of all
this.
Let's rewind and play what-if with 2 new rules of thumb:
4-16 - We remain cautiously bullish entering earnings season for the
first quarter. This week should establish the trend for the rest
of the reports. We have entered a few more option positions, but
we expect to be out of those for better or worse by next month. A
couple of our really strong stocks on the acquire list have broken
down, and a couple really weak stocks we have been watching have broken
out. Neither of these means anything without more of the same,
which we are not seeing at this time.
While the forecast suggests some continuing decline, the MACD and
STOCHASTIC studies on each of the NASDAQ, DJIA, and SP500 suggest
oversold and about to continue the albeit tediously slow rise. Of
course news and earnings can turn that back in an instant...
4-8 - While friday had a sell off in fear of a healthy economy, the
worst the FED is likely to do is what they already said they
woule: Continue to raise rates... It will take more
follow-through to change the current trend. Watch
closely... In the past with a downturn our searches yeild few
stocks and we see many strong stocks weakening; we do not see that
happening at this point. In the past with a breakout we see weak
stocks turning up; we don't see much of that either. What we do
see is some institutional buy in on several of our stocks, some stocks
we own, some we have option positions in.
Late Thursday we entered a few option positions, Friday was a major
setback to a couple of them. The position in AAPL is more
speculative, but the chances of making back some recent losses - we
could have done so Friday, but hesitated. We'll see how the
positions work out. It seems that when we enter basic option
positions we should usually have entered the opposite position, we
would like to exit these positions by May, but patience has been
beneficial in the past, the options expire in June and July.
The Volatility Indexes are at resistance to rising, the Market
Indexes are at support. Continued selling is needed to break
those levels, and the trends are marginally upward.
4-2 - A longer term stochastic study, like the one I mentioned last
week, models the market sentiment. That study indicates an upturn
in DJIA, SP500, and NASDAQ which generally is bullish and tends to make
longer upswings and shorter downswings in the market in general.
This does not indicate a great strength in the upturn, only a
suggestion that the mild uptrend we have experienced for the last month
or so is likely to continue for the near future.
Of the stocks we have picked up in the last month, ISE and BXP may
be going bad. This is probably about the right ratio given the
number of trades we have entered in the last few weeks. Our
debate is to tighten the stop orders and reduce losses or let the
strategy play out... Most of our option strategies at this point
are doing well, and with the new market sentiment we are looking to
more bullish strategies into the first of Summer.
3-25 - We started into May spreads this week. There are 2
April spreads we are watching closely: BMHC and FLR. We
will probably look to exit them this week unless things turn
down. For May we expect the pull-back will be done and the market
to resume its slow climb. While experts forecasting the market
are commonplace, and many expect this to be an underperforming year,
you never can tell and it is best to be ready for any
eventuality. We do not expect the uptrend to be very strong, and
are entering both bullish and bearish strategies for May at this point.
I have begun using a slow stochastic analysis SSTO(80,20) and
generally like the results. It has the effect of flattening the
price chart into a trend (up/high for bullish and down/low for bearish)
and
showing where the current price lies (above or below) that trend.
A typical stochastic study has 2 lines, one indicating current data and
one indicating the average. A falling or low average (below 50%)
suggests a bearish approach, while rising or high (above 50%) is
bullish. Overlay this study with the standard MACD(8,17,9)
Histogram and STO(14,5) and I find it useful helping to pick entry
points on the strongly uptrending sotcks we have on our acquire
list. Applying these to the market index charts you can see the
trend is generally up (slowly) and the markets have pulled ahead of the
trend, suggesting they will probably pull back or wait for the averages
to rise to the current price levels. For example the DJIA and
S&P500 lines for this new study are above 90% while the average is
around 85% indicating a good up trend; the NASDAQ has the line above
80% with the average around 75%, a slower but still upward trend,
though it has fallen indicating slowing.
So far this tends to prove out Bob Brinkers permabullish attitude
for the long-term approach he endorses. Applying this study to
our spreads on BMHC and FLR shows us that BMHC has a rising average,
combined with an overbought normal stochastic and a MACD that is not
continuing down to a zero crossing indicates the bearish strategy will
fail. FLR is a little more complex, since the average is
falling and the line is below it about to cross above, generally
supporting the bearish strategy though the MACD and stochastic are
rising suggesting a possible reversal the slower chart has not had time
to indicate yet, rendering the strategy failed if the change continues.
3-17 -This weeks rally pressed us to abandon some of our April
strategies. Our first effort in spreads closed with 8 successful
strategies out of 12; I'm not sure I should count CAM twice, and I
abandoned it though it closed OTM, as did BTU. Including all
commissions and
abandoned spreads up to today (including 3 April strategies) we are
ahead $3760 for 6 weeks. There are 5 weeks to go for April,
though we have a poor start, we will begin focusing on May. We
expect the general uptrend of the market to continue, though we expect
a little pullback after the rally this week and the FED meeting at the
end of the month is an unknown - though somewhat anticipated:
another 0.25%, a couple days down, then back to the trend. We
currently stand to do a little better for April if nothing else goes
wrong; but we are closely watching 2 of them...
I have created a page projecting a relatively conservative strategy
to bootstrap an income-replacing portfolio. While what-if
pages
like that are of limited value, it may provide some recollection of the
power of compounding interest and motivation to save on both sides of
retirement...
We have cautiously picked up a few stocks this week. The
market forecast shows the long-term line flattening from its
downtrend. It isn't much, but if it stays flat or turns up it is
good. For stocks we are planning to take a longer-term strategy,
but we haven't stayed with that very well so far with perference to
keep gains. Still most of the stocks we have sold did continue
their uptrend before we got back in - this helps establish a little
trust in the strategy.
From a 2005 tax standpoint this was a stressful week. File 1120S and K1, get our last form (a 1065b/K1) and find that Turbo Tax does not support the form, nor can they provide a means to enter the data; for 2 lines of data, and $7 of taxable income, I cannot e-file for the first time in YEARS! The IRS, however, was helpful and saved the day - we can force (override) Turbo Tax to take the appropriate data and still E-File. Still may have a penalty for underestimating our taxes due because of the other T-T bug I ranted about a month or so ago... Still, it is better than filling out paper forms...
3-12 - Options week is always a little strange, we are watching
closely as our first real-money spreads trades are about to expire, and
those we have for April accelerate their price decay. In general
the forecast is not terribly bright, but there does not look to be a
sharp decline either. More of the flat market we have come to
know for the last couple years... I wonder what it would be like
to trade in a REAL market, one with a real direction... ;)
Careful what you wish for...
Our searches were meager in results again this week, which usually
does not bode well for the next month or so. You will also note
our current strategies are all bearish, and we have not purchased
stocks to replace those we have sold or stopped on of late, but we are
holding on to gains as long as they last, too.
3-3 - We are entering strategies for April, realizing we are a
little late... We exited 2 of the March strategies for the
minimal fee of $0.05 plus comissions with the plan of reinvesting for
April with 2 additional strategies... Time value is evaporating
quickly, the closer we are to expiration of the previous month the
greater the premiums we can get in spreads for the next.
With few new stocks to look at, and a very flat trend to the market,
we skipped the update of the Acquire List this week. We focused
on finding a few spreads we trust for April. Two weeks to go on
the March spreads, almost time to start looking into May candidates...
2-26 - We have added Options Trading to one of our general trading
accounts and will be modifying our bootstrap strategy: Our plan
of 10 spreads stragegies would be dificult to do each month - after
expiration the previous month good spreads are hard to find; instead we
will be entering 8 strategies each month, starting about 2 weeks before
expiration of the current month we will begin entering spreads for the
next month. Currently this will place roughly $40K at risk each
month in 8 strategies.
Waiting for timing, we are playing a few virtual trades again for
spreads. Our record is fair at this point, and earnings season is
almost over. A couple more stocks stopped out with profits, and
we are considering more investments now, providing market support
holds...
2-17 - The next few days will be interesting. We are doing
equally well with our own spread trades as with those from Income
Trader. In the past the IT trades have been timed variably, some
lending themselves to a leg-into and sometimes they move
immediately. The trades from this week are clearly the former, so
why did I not make such a move?
We looked at the stocks BTU and APC at shorter intervals than a
day. While the day interval suggested the stocks would bounce at
least a little (which they did, at least!) the shorter intervals showed
a price continually bouncing off resistance in its decline. To us
this indicated a likelyhood of a continued decline, a flattening
instead of a bounce. We could, in hindsight, have made more on
this trade but I don't think I would change it as played at this point
except, perhaps, to watch the MACD and risk missing the trade
altogether.
Of the virtual Trades we were in we are still ahead, though 4 ended
up in the money and 2 left us with shares we still need to dispose
of. We will continue to execute virtual trades for certain
circumstances, legging into trades, etc. This log will note those
trades.
2-12 - While the forecast has been turning up, I still feel down
coming for a little while at least. We pruned the acquire list
fairly brutally this week, and with the more volatile markets
continuing we will stay where we are until a direction is
taken... The fairly strong resistance the market has met lately
suggests down, but I'm not sure that is for the long run yet.
Several virtual trades are gone very bad, we will continue with
greater caution and more conservative trades, again looking for a more
certain direction.
2-7 - Two strong days of selling in 2 weeks... Could be
nothing - tightening stops, taking profits, watching closely...
2-4 - It looks like the market may be headed down for a
while... In the past before we had a significant dip our searches
produced few or no new stocks worth looking at, our watch and acquire
lists showed strong stocks breaking down significantly, and stocks we
own also weakened significantly. The thing is that our searches
were a little more sparse than normal, and a few stocks have weakened
so far, but not like we have seen in the past. We have also seen
some of the stocks we are watching for bearish strategies breaking
out...
This leads me to reserve a little bullishness: A test of lows
already established (DJIA-10700 NASD-2220 S&P500-1250) before the
next run up - unless the supports fail...
We are entering our first Real-Money Spread trades Monday...
Stay Tuned...
I have, for the first time, had serious problems with Turbo
Tax. Its incomplete software provided bad totals, leading us to
under pay estimated taxes and make Roth contributions we will now have
to recharacterize with estimated gains from those investments already
made. Two updates to the software provided radical changes to the
bottom line with no changes in the data on the forms. Importing
transactions in our brokerage accounts had several errors. For
the first time I have little or no faith in the computations of the
software, I had to manually check all our stock and option transactions
- uncovering several errors mainly where splits were involved.
Updates activated code supporting K-1 forms suddenly adding in data I
had entered before, but which Turbo Tax failed to incorporate in the
bottom line. The result is we significantly underpayed our final
estimated tax payment and probably face a tax penalty. I will
never completely trust Turbo Tax again.
1-29 - At this point 3 spreads we are looking at are in trouble, not
nearly as bad as last month, and a few more lessons along the
way. Note there was no follow-through from last Friday's selling,
the week went pretty smoothly. I expect some profit taking
tomorrow, but generally flat-up for the next week or so; we are buying
up our portfolio.
There is a tax problem - we made too much money last year when you
count our trading, and inheritance income, and don't qualify for the
ROTH contribution. This means we must back out our contribution
with gains and put it into the traditional IRA instead. We are
also short on estimated taxes, and may have a penalty too... A
lesson to the estate planner - don't buy annuities - for ANY reason -
the IRS won't let you get out of anuity income for any reason...
1-21 - Spreads strategies are progressing well on the virtual
trading page. This pull back feels a lot like that in early
October and while it might be breathtaking we don't expect it to be
long lived.
1-14 - We finally peaked above resistance, and promptly retreated a
bit... Our virtual trade experiment in spreads continues, one
more got unwound, so 4 of 10 of the trades went bad so far; check the
results, though...
We stand about 50% invested with room for about 10-15 more stocks
leaving cash reserves to support the obligations to cover spread
trading... The option trades continue to be almost profitable, we
managed to exit a couple more with profits.
1-7 - Money appears to be going into the market. NASD is above
resistance, S&P 500 is steadily climbing, and DJIA is near 11000;
if the DJIA breaks above 11000 the next problem will probably be the
FOMC at the end of January.
We have traded out of several stocks which have gone flat recently
in order to trade into stocks with better historical performance.
12-31 - No Santa Claus Rally this year. This leaves us in a
better
position to rally in January. A new year usually brings new money
to
the floor but the question is whether it gets invested or just
watches... More stocks are showing up on our searches again,
which
usually bodes well weeks in the future...
The inverted yeild curve is a major concern because it often
fortells a recession, but not always. It also marks rising
short-term
rates with little response in long-term rates and, while not the best
news, may not bo so bad now - watch closely. The FOMC has the
greatest
influence here.
Our option trading is stuck - perhaps I have frozen again, but last
time I gave up at this point is where everything turned around...
Instead of losing about half our options money we would have made
money. I would hate to lock in losses at this point, but I would
hate
to be wrong, too. Don't follow here...
Our virtual trading of spreads is going well, but there are 3 weeks
to go... As for our following the Income Trader newsletter, we
suffered from some problems in keeping notes properly, and in not
following the trades properly. We are starting that effort over
and
will begin reporting January. We will not necessarily be
following
every trade, but most spreads and we will consider different trades
with the symbols they analyze.
12-26 - Having found support we bought back into a couple stocks we
sold, and picked up a few more with caution. There is frequently
a rally in the week following Christmas. Futures are pointing
up at this time. We hope to have a good position to exit some of
the options we still hold. Unless some stocks really run up this
week we will probably hold on and stick to our stop-orders as published
on the trades page.
As for predicting the next year I think we will drop at the
beginning, but be up for January (even if not much). There will
be some positive moves when Greenspan does his swan song, but there
won't really be a party until the 0.25% rate hikes stop...
There are lots of good signs for the next several months out, but I
don't like spending as it is so I find it hard to be too bullish.
Still, I don't want to sound like Jim Cramer, so I am stuck enjoying
any direction at all to the market, and beginning to like the spreads
strategies.
The Virtual Trades page has our spreads trades, some of which we
knew were risky but it is only paper... By next week I hope to
publish there results from our following the Income Trader newsletter
for the last couple months. They boast a very good record which I
think we will begin profiting from soon...
Oh, yes, Happy Holidays --- and if you are offended by the use of
the word holidays instead of Christmas, then remember where the word
holidays came from in the first place: Holy Days... In
respect for many different belief systems. Enjoy your Holy Days,
whatever they may be...
12-18 - I have 2 rules for the end of the year now: (1) I
would rather sell for a gain than hold for a loss. (2) I would
rather not sell a security that has not broken its updard trend.
We expect a pullback at the beginning of the year, but do now know how
severe, and are willing to be wrong. The stocks we continue to
hold are relatively flat now - as if waiting for something to choose a
direction for them.
As expected, the NDAQ Calls expired worthless - let this be one last
lesson on the volatility and risk of option investing; you can lost
100% of your investment. It was purchased when the stock was
showing resistance, not strength. It was a 1-month option; had it
been a January Option we would likely have seen profit from this
trade...
I did not have time to update the watch or acquire lists this
weekend because of holiday parties. Searches are still very slim
in results, and I cannot convince myself this is a good thing in the
short run.
E-TURD has fowled up our ONEQ option, which had a symbol change from
ONQCG to AFYCG this past weekend. When I tried to exit the trade
with a profit was when I found I could not trade with either the old
symbol (now unrecognized) or the new symbol (which E-TURD says I don't
own). This is a nightmare in slow motion, watching a profitable
trade become a loss over hours while the brokerage is very sorry for
the inconvenience... (!!!)
I will be creating a report on the Virtual Trading page as we
explore simple spreads option plays.
12-9 - The market has pulled back, why are we still invested in
options? (!!) We are taking a calculated risk. Now,
historically the market rarely changes its trend in December. We
have seen a pull back, but we are risking on the expectation of a
bounce off the rising average; signs of this bounce were probably
observed today. We expect the market is waiting for the FED
meeting Tuesday, and we don't expect the response to be overtly
negative.
The NDAQ option was a
misdirected purchase; it is a setback but the error is clear and the
order was executed because of a misunderstanding. We also
liquidated three stocks that we expected would not continue their
upward trend, and one which was coming down after a strong run up in
price. We are not planning many new investments before the end of
the year.
Another thing I want to note: For the first time I can recall
one of the three searches I use each week returned no stocks
whatsoever. I can't imagine this is good, but I also cannot
ascribe any significance to it at this time. I substituted an
older search based mostly on recent price performance.
12-4 - We have seen resistance, as expected. What is
encouraging is that we have not seen any significant drops in the
market prices. It is possible we will see drops to previous
resistance, now support. If these levels break down it would
obviously be bad. It seems more likely, or maybe it is just
optimistic, that the trend will continue upward, breaking the price
channels upward, which would be very very good for the next few
months...
We are now essentially fully invested. There is a small
reserve of cash, we don't expect many new investments and will
significantly tighten up our stops by the end of the year.
11-26 - The holiday week took us up higher still, though with fairly
low volume. We stand at 85% invested with 10% in options plays,
with room for 2-3 more stocks to add. Our QQQQ call options from
a while back went over 100% gains this week, we sold half - getting
back our original investment plus a bit, and leaving the rest in to be
pure profit... With time to the end of the year diminishing we
probably won't enter new options trades from here on out. We have
now covered out losses from the beginning of the quarter and, if we can
keep these gains.
As things stand we still expect the market to hesitate at resistance
levels, going flat for a few days, even down a bit... That is
another time to enter the rally... Unless that is the end of the
rally...
11-19 - Now we sit just above all 3 levels of resistance I mentioned
last week. NASDAQ and S&P500 are at are in 4.5 year highs,
DJIA continues to trade in a historically narrow range just 2% below
its own 4.5 year high of 11000. A continued rally above these
levels will lead to new levels of support, assuming they hold...
The stock VIVO dropped out, but we also exited 2 options
plays: CERN and JLG. Look at the gains, both had a sharp
run up before we exited. JLG was an out-of-the-money option, and
while the gains were significantly greater, there is a saying:
"If you mostly play out-of-the-money options you will eventually end up
out of money."
We have entered other options positions, bullish for now, including
a risky OTM call on the DIA ETF.
11-12 - Not that the last few points of resistance were unimportant
or insignificant, but this week will probably prove the turning point
for the end-of-the-year rally: DJIA at 10750, NASDAQ 2220,
S&P500 1240. These are significant levels of resistance and
must
be broken for the rally to continue. That all seems quite
obvious, but these levels have been challenged and unbroken 3 times in
the last six months. It will probably take a couple days to
muster steam for these challenges now, but if things go down too much
they probably won't turn back up for a while, either.
We are making back our losses from the beginning of the
quarter. Look up the November Effect.
11-6 - At the moment it looks good for the bulls at the end of the
year, and that is how we are positioned at the moment. The market
has broken up through recent resistance levels, many of them, including
technical levels and 30- 50- and 150- day moving averages. In
addition the Volatility Indeces have broken down recent support.
Over the next few days we expect the market to be fairly flat after all
these gains, if it does not break down the year end rally should
continue up the wall of worry. Weak stocks we have been watching
for bearish investments are showing consolidation and strength.
The watch list didn't change much in size, not many fell off, not
many added either.
10-28 - Technically we still seem poised for a rally, but looking at
the price performance I see a downtrend unable to break up through
resistance. Obviously nobody can predict where things will go,
and technical analysis only indicates the obvious narrow price
channels. Historically when this channel is broken, whether up or
down, there will be a significant run to follow. Bob Brinker
remains a perma-bull and I find that significant, although I suspect he
would not be surprized or phased by a major correction at this point
(10-15% of market value).
Most of our acquire list stocks remain strong, though some are
dipping and some show signs of a peak in price. At the same time
the list dwindles and has few new candidates each week; this makes it
hard to remain bullish from a trading standpoint. Things may be
good now, but they will probably be better tomorrow...
This week was quite volatile, with Friday gains making the week
slightly up. DJIA is technically above a resistance point at
10402.77, but so was NASDAQ which was left at 2089.88 just below the
magic level of resistance... Neither of these is strong signs of
a rally and except for Banking and Insurance all the market posture
positions seem in a downtrend at resistance - time for a confident bear
to buy puts... However, many stocks in extended declines are
reaching long term levels of support they are unlikely to break down
through.
You will find that we bought a straddle on the QQQQ, both a Call and
a Put. Provided the market moves enough with will pay off either
way - it will only lose if the market stays flat. This position
leaves a toe in the door for either direction at the start of the
move... We are holding some strong stocks now, but next time
around we will not do even this cautious bullish buying while the
sentiment line falls. The odds of success are too close to 50-50
with even the strongest running stocks. We hold the ACL call with
caution, but it has already had earnings and shows no current signs of
breaking from external pressures... This is probably not the best
time to be doing this - it is the worst ever, in fact... Time for
caution and patience...
With the number of strong stocks dwindling and the number of weak
stocks finding support perhaps the bulls will have it after all.
We did pear down the bear watch list significantly, leaving stocks that
are not near obvious historic support and may continue down if the
market continues down...
10-22 - Our expectations have not changed. The forecast is
divided, longer term sentiment is trending down near the midpoint of
the graph while the medium term is turning upward, though weakly.
We took on an option play based on earnings and an index option play as
a hedge, in case the market trend continues upward. Our
expectation, however, is for the sentiment to continue down and take
the market with it. Ultimately this should be a good thing, it is
a chance for the volatility indices to make some gains, providing room
for them to fall again and the markets to raise a bit.
Looking at the Dow Jones Utilities Average (UTIL) we see that
Thursday the 150 day moving average was broken as support, but the next
day it closed just slightly above that average. This indicator is
often accepted as a significant indicator of the underlying market, and
the last few weeks have not been good... Now at a siginifccant
level of damaged support, it is unclear where this index will go.
Technically the market should spend some time going up, but it may not
be much or lasting for for the next few months.
I updated holdings and trades, but the
We have picked up a few strong stocks along the way, stocks that
have continued up over the last few weeks. Our intent is to take
a longer position in these, provided their trends continue.
Our web service provider dissolved without notice 2 weeks ago, we
quickly qualified a replacement and are now at www.brinkster.com, which we hope
will be a bit more reliable.
10-16 - A small gain on Friday indicates a possible, expected,
bounce. It is likely we will see a rise in the coming week,
ending on Friday when options expire (or possibly the end of the month,
but that would be over 2 weeks). Unless the sentiment in the
market changes direction, the current trend is down and likely to
continue. We are remaining mostly out of the market for now, we
will not enter bullish plays at this time, but when things start down
again we will enter some bullish plays...
10-8 - Support broke this week with widely correlated
breakdowns. We took nearly everything off the table including
Options plays which, obviously, had done most of the damage. We
consider the options to be high-risk even though we account them with
everything else. It is hard to tell how deep this correction
might be, we saw a small bounce on Friday, but expect the down to
continue through next week at this point. This lesson in
Options cost 1/4 of our risk capital. This is why we only put
part of our risk capital into play - you see now that leverage can work
for or against you. We are still in the worst traders market in
history, it sure feels like it this week...
Based on the tools we have at hand for technical analysis we expect
a few more days of down, then support, before an upward turn. The
question will be how strong the upward turn, indicators suggest it will
be weak. This is largely based on the proprietary Market Forecast
which seems to be a stochastic breakdown of momentum data. Its
slowest indicator called Sentiment is currently declining and has been
for over a month.
The Combined and Watch lists have grown so similar, I don't see a
reason to keep both. We are going to begin a bearish watch list
for option plays. We expect it is too late to take advantage of
this downturn, we will see how long the bounce is after next week...
10-1 - Few changes, support held again across major markets with
slight rises. We expect some money to move off the table early
next week. We held our options strategies for another week, now
50% back towards break-even over 3 days... In the future we will
be more cautious about August-September - time for vacations...
9-23 - This weeks stock searches yeilded very few new securities -
it has been a bad month in that respsect. The options strategies
are nearing the cut-and-run level, but support seems pretty strong at
current levels. Now if we can go a week without a major
disaster...
While there has been a small level of volatility, I still don't see
many of our watch stocks breaking down; since this has happened before
every correction since I have been watching I don't expect the pattern
to change - so I don't expect this pullback to be a significant
correction.
9/17 - The recent pullback sets our option positions into a bad
light, but I remain bullish for a few reasons. The main reason is
that few of the stocks we have been watching or buying are showing any
real weakness - while some may be turning flat and some are correcting
for recent runs up they are not collapsing and our bullish stock list
loses only a couple securities a week. There seems to be pretty
good support in the market, while there have been down days they habe
not been deeply down. While our portfolio has dropped back
slightly we have not seen any significant losses lately, and only a
handful of stocks that ultimately did not perform with our
timing. We have moved up many of our stop orders now, mainly
because the stocks are gaining, but many still stop losses rather than
preserve gains so far...
9/10 - Things continue to generally look good for the end of the
year. Another option position paid off well - of course we would
have made even more had we stayed in longer, but the gains we have been
making on these positions is fair enough for us...
Meanwhile, another offer from Schaffers - They provide options plays
at a rate of about 6 per week, targeted for 200% gains, and once again
I feel like that used car sales experience... They offer only the
wildest gains (only 6 in 3 months) as evidence of their prowess but do
not offer an honest disclosure of all their plays over a given
period. I am sure that their target customers just yum up the few
dramatic gains and the claims that go with them without even counting
them. The discounted cost of the subscription is no more than one
might lose in a single options play, so I may subscribe next time I get
their final offer for this service, it may be the only way to determine
the truth, but it still feels like they get more from the subscriptions
than the trading - a bad sign if so...
9/5 - The forecast suggests we should see the markets head up a bit
this week. With August behind us we should see volume pick up in
the market, too. I didn't get the watch lists updated this week,
but the Acquire list and holdings are updated. We got free VIP
tickets to learn about InvesTools investment strategy... For
those who haven't been following along, Business Week uses the
InvesTools software, as does CNBC, so if you go to any of those 3 you
will get essentially the same education. So we have free tickets
to the seminar we went to last year and subscribed to, and have been
using ever since.
Two more of the options plays have paid off well. I don't hold
much hope for the housing stocks, but the index options and the
remaining stock call may do well if the market continues to rally...
8/26 - I've been busy with our property investments for the last
couple weeks. We have stopped out of a couple stocks, one option
trade did well, the others initially did well, but I did not get out
when I should have - as a result we are glad they are longer options
and hope for a comeback by the end of the year. Otherwise this
may be another expensive lesson. We have not bought much in the
last few weeks, but expect things to flatten this week - things are
fairly oversold now, and the market forecast suggests a strong upturn
may be likely. That is to say that with the indicators as they
are now 13 times out of 20 you will get a good upturn... We
haven't updated the acquire list or the holdings this week again, but
the watch lists are updated with the forecast...
8/6 - We locked in some profits on several trades this week, some were stop orders preserving gains, some were trades to lock gains. Our expectations on the rest of the year are still generally bullish based on the news and opinions we listen to, but the short-term outlook is down. We expect to hold our remaining trades unless they go very bad, look for support and strength in the market, probably in a week or two, and move back in... I do, however, begin to appreciate those who just stay out of the Summer Stock Market...
7/30 - A newsletter I am receiving (Schaffers Investment Group) is
predicting a 1500 point move in the market by years end. It
specifically states it is not specifying up or down, instilling the
fear of a downward move, and also does not clearly state which market,
but I would assume the DOW - placing their target audience as people
who think the DJIA is an important reflection on the economy. For
just $3000 (alright, $2995) they will provide options strategy picks
for the next 12 months for you to take advantage of their particular
crystal ball. This suggests they way they really make money is
subscription fees gained by instilling a sense of fear unless you sign
up with them to show you the way. This is, in my opinion, not a
very positive approach to the client - compare to the Business Week
approach of simply taking the emotion out of your investing by using
analysis and strategies you learn from them and build upon yourself.
7/24 - Even with relatively bad news a terrorist attack fails to
really drag the market down; the template held again. We picked
up 6 new stocks and dropped out of HANS as it took a dive late in the
week. We have room for about 4 more stock purchases and 2-3 more
options positions. Though the market seems poised for some
weakness in the next week or two, we will continue to buy in as we
can. We will watch closely our option positions and when to
select others.
7/11 - A template for terrorism outside the US seems apparent. A brief pullback followed by a rally. In the current case, perhaps the trigger event for breaking resistance. I mostly skipped the holiday weekend so far as stocks are concerned. We dropped MOVI as it broke support, but since adopting a less reactionary approach. We dropped WSO, BHS and CYH which all have performed without promise of improvement since purchase. We dropped the options with a fair gain, but may step back in shortly depending on the market.
The acquire list has been revamped based largely on recent
performance and excludes stocks we currently own (only to make the
screening quicker)... With the exception of ALDA, ADSK and
possibly MIK
we would still purchase any of the stocks we currently own.
6/26 - Early last week I considered selling out with our gains at
the time. The consensus of so many experts is bullish, but before
we can raise the market much higher we have to have a few days like
those ending last week to shake the bears out of the market.
Perhaps, in the end, staying in was a bad idea. I probably should
have dropped the options at least, but I don't expect to see much more
down and it makes sense to drop a few days before making a run at
resistance again, this time to break through it... Our transition
to 'mental' stops instead of 'hard' stops is probably still a good
idea, but we are keeping an eye on the two stocks we would otherwise
have dropped: ALDA and MOVI... ADSK may also be
problematic, but only time will tell if our tolerance is justified or
just another bad idea...
I didn't have time to sift through the lists and charts this
weekend. We recently added another $35000 to our portfolio for
market investment. This will show next week as the percent of
portfolio and percent invested numbers will jump down. Consider
it proof of our confidence in the marketplace...
6/19 - Still flat with oil rising on fear, as usual, and little
other news to drive the market. We re-vamped the acquire list by
evaluating the 5-Year the 1-Year gains, keeping only stocks with good
performance and gains over 300% for 5 Years or over 90% for 1
Year. This may be a painful week, depending mainly on oil and the
market response to it...
6/14 - Still sitting flat with only a slight rise for the last
couple weeks... But no big losses either. We have resumed
new investment and taken some small profits, and dumped a couple
losers...
5/28 - We rest now, creeping up through resistance on all the major
markets. For the BW subscribers the NASDAQ sentiment is clearly
turning up, and the DJIA sentiment looks like it is starting up,
too. For those who leave the market in May and return in
September, too bad... We are working to keep the acquire list to
about 40 stocks - not to say there are not more great stocks out there,
but there are too many to watch them all. We took some profits
and stopped one loss this week, and rest at about 66% invested.
Expecting a few days of weakness in the near future, we will hopefully
be fully invested for the rest of this uptrend...
5/22 - Well, a couple more days with buying opportunity and up we
went... The market broke resistance and is consolidating before
making a
run at the next resistance levels. I have become much more
selective on the watch and acquire lists. Recall the watch list
has stocks with strong performance while the acquire list is
pre-screened for buying when the indicators show some weakness, subject
to the buy guidelines. The acquire list and buy giudelines are on
the trades page.
While the intermediate and short term forecasts are mixed, the
longer term forecast is beginning an upturn, suggesting a more bullish
market for the near future... Another sign is a familiar pattern,
even on a flat or down day in the market, the stocks I am watching tend
upward...
We have examined our stops for the last couple months. In the
vast majority of cases we would have been better off holding the stock,
only a few continued down from the stop we had set. Because of
this our stop orders will now start on the order of 15% below the buy
price, not 10%. We will still watch closely, but this margin
would have held a number of strong stocks over the recent highly
volatile markets.
5/15 - As expected the broader market fell back to support levels,
providing the buying opportunity recommended by Bob Brinker in his May
newsletter; but our philosophy is to not fully invest until we see the
trend change. A sharp pullback in health care investing this week
demonstrates why you should not weight too much in any industry and why
often all stocks in an industry move together. If Brinker is
right we should soon see another run at resistance. It is
interesting to note the volatility indecies are near the levels they
were at last August when last years big rally started. At the
same time we have stopped our cautious buying until the market picks a
direction to go...
5/7 - We seem at the peak of a second bounce, a test of
resistance. With trend on a cusp, neither up nor down, the
stochastic indicators nearing overbought, the technical analysis would
suggest we are about to resume a downtrend. However, the economy
seems stronger than thought in some areas, earnings generally good, we
have mainly Oil to worry about. I have three points on top of
this:
In a complete speculation, I picked up more Space Dev at $1.59 with the expectation of selling it above $1.8 sometime in the next month or so... In another somewhat less speculative move we are considering picking up AAPL again, between $36 and $37 watching closely to see if it resumes its uptrend...
5/1 - The bounce in the market is generally reaching its original
base level. The Russel 2000 and Major Market are lower indicating
the market in general may continue a lower trend, but the other index
symbols are about the same level they started indicating possible
support and that it would be wise to wait until that support is proven
or broken... So far we have been mostly letting stop orders end
our trades, but we may start actively managing the end of trades too;
nearly all our recent losses had gains we could have reaped if we
bailed... The problem is deciding where we have a 'high' to
sell...
4/24 - If the levels of the market this week are not the current
bottom, we will stop acquiring stocks for now. High volatility
and highly correlated moves involving nearly all stocks show how fear
has gripped the market. The small bounce predicted has been
observed. We will still maintain the lists, including the acquire
list, but may not be buying until the market trend at least flattens
from down, if not simply turns up...
4/17 - Stopped out of AAPL and AEOS, AAPL in clear decline, and AEOS
below the 50DMA... I like these stocks, but the system says they
are not for investment at this time. Nearly all the energy stocks
are off the acquire list now, but it is heavy now in Health
stocks. We have seen a significant breakdown in the market... or
have we... There is likely to be a bounce in the next few days,
how high and how strong it is will tell us if we have a new trend or a
fakeout...
4/10 - We continue cautiously buying from the acquire list, even as
we refine the routines to select that list. There have been
strong market wide correlated movements with energy prices, and there
are signs the market may not like this quarters earnings reports, but
for now the appearance is of an oversold market weakly climbing from
its base. Problem is nothing has strongly pulled away from
support yet. There is no clear indication of any direction.
4/3 - The pattern of breakdowns seems to be paused, this could be
hopeful. Some nice strong stocks were found and added to the
Acquire List which is still heavy in energy related stocks. The
last week held stops and bailouts for some of the recent
acquisitions. We're still ahead overall, and maintaining a fair
APR...
3/28 - The pattern continues, many of the acquire stocks are below
the 30-DMA. To have more acquire stocks I found myself
reconsidering some lower volume stocks. There is a reason they
are not heavily traded, and having few stocks on the list is not bad in
a poor market... That said, the breakdowns are neither so deep or
serious as those last spring.
3/20 - I weeded out some acquire stocks for low volume (even though
we already own SNSA). You do not want your purchase of a few
hundred shares to be a noticable percentage of the stocks play for an
average day. Avocent corrected its expected earnings down by 25%
and the market corrected its price by about the same amount - this is
why it is NOT on the acquire list; we have it through an ESPP and
purchase it at a deep discount - I simply forgot to sell it the day
after the purchase, now it cost me most of our gains - gains only
available because of the ESPP...
I am also starting to look at stock buys with virtual options
trades, so look back to the Virtual page, too...
3/15 - Finally got the acquire list updated. The pattern I
mentioned on 3/8 may be continuing to form, or it could just be profit
taking and correction...
3/9 - I usually don't update in the middle of the week, but this
week has been a bit brutal - but that is why you have GTC/STOP orders
to stop losses and preserve gains...
A few more dropped out today, leaving us with fair gains, and
another example: Stocks in the same group often have the same
performance, such as the .BHO stocks (MTH, RYL, and BZH) as well as the
.HHC stocks (CNC and AGP) the only stock named here that did not stop
out was BZH, we dropped it when it crossed the 30-DMA.
3/8 - Dumped LFL yesterday as it dropped below the 50-DMA.
Looking at recent performance it is clear how moving below the 30-DMA
is a big drain. Since we tend to buy as a stock approaches the
30-DMA the first days and weeks are critical to watch closely.
Dumped AAPL and DRQ today. AAPL dropped below the 30-DMA, we will
keep it on the acquire list for now. DRQ had an unexpected sharp
gain, we sold as it rolled over the top. I have noticed the
possible start of a pattern - lots of pretty strong stocks seem to be
weakening. This was happening last year just before the market
flattened out...
3/5 - This week was punctuated by the spectacular breakdown of
BXG. Here is an example of how STOP LOSS orders don't always get
you the price you ordered. The stock gaped down sharply below the
stop loss order of $21.75 and, by the time the program executed the
trade, finally sold at $17.26, the stock closed at $15.10, below the
150DMA. Other gains for the day, however, made up double the loss
in that one stock. Normally such spectacular swings do not affect
the whole market, but sectors and groups can be volatile, and
individual stocks can be quite volatile as in the example. This
is why it is good to limin single-stock risk.
2/27 - I have reshuffled some of the pages. I moved the
routines to the Watch Page, they are a reminder of how each watch list
is maintained. One additional watch list is the Acquire List
which I have added to the Trading Page along with my current buy/sell
checklists which remind for the details of that last-minute decision...
2/19 - I have added to the Rules Page my daily and weekly
routines. The daily routine takes about 20 minutes, give or take
a big news day. The weekly routine takes a couple hours.
The last couple months seem to prove out the current routine fairly
well. Just remember, though, that gains are not real until the
stock is sold...
2/13 - I will be changing domain service providers shortly. The buys at the first of the year were poorly timed, but have generally turned out to be OK by now. The losses that stopped out brought down the average gain on completed trades, but the weighted APR for gains is still good.
I have added an Acquire list, stocks we plan to buy on the next opportunity. The market is still trading in a narrow band, and I will be going more off the MACD for the buy signal as a result.
I will add to the notes of 2004 with this note: On 7/2 my
father fell and seriously injured his hip, my first day of work at a
new job. After surgery he contracted pnumonia and passed away on
7/12. Only 3 days before that his last surviving brother passed
away, we never told him; we figured it wouldn't help him get better and
if he did not then he would know soon enough anyway. Then on 8/11
the last member of our family from that generation passed away from a
heart attack in his sleep - all in all he got the easiest of them last
year.
Needless to say I was not strongly motivated amongst all this to
figure out why the website development tools were broken.
12/18 - OK, I have not updated anything for a long time mainly
because the tools I was using to automate part of the process
broke. A couple weeks ago I found out they are working again, but
there is a lot of ground to cover for catch up.
7/28 - While I am tempted to go a third round with real money option
trading, the market has beat my enthusiasm, and my needs are not so
urgent now... Let's recap: In March I do my first set of
paper trades in options, and do rather well. In April I do my
first bearish portfolio and do phenomenally well. Coincidentally,
however, these moves made without formal training were executed on the
wrong signals and assumptions, and nomatter how successful they were,
it was purely by accident. Confident from the paper successes we
moved into real money trades with disasterous results. The first
move was just plain wrong, the second was right but poorly timed.
Now I am re-opening the virtual portfolio using the new Business Week
Investors Toolbox paper-trading tool. I will practice there for a
few cycles of swing trading before comitting real money again...
6/30 - A while back, hope entered the equation, this was and is a
bad thing. I still expect a bearish dip, but only slight -
probably not enough to profit from, but maybe enough to reduce losses
from...
6/25 - Noticing a pattern... Last Month I started a bearish
paper portfolio which fell apart, so I started the bullish real
portfolio, which went to heck fast... Many of my bullish watch
stocks are breaking down suddenly, and there are a number of strange
things going on. Past performance is no guarantee, but I think
the
dip is finally at hand...
What do I mean by strange things? Look up TESS, CWTR, ERES,
GTRC, HELE, ISSC, MIDD, PPC, UFCS. It is also easy to find an
unusual number of stocks which closed at their high or low for the day,
indicating the possibility of a gap open or bounce when they next
open. All these things were happening when the last dip started,
let's watch...
6/24 - 3 Lessons this month, but first a quick review. Having
no clear trend to follow this month we decided on a Bearish Swing
strategy; this intends to capitalize on a brief pull-back from recent
highs.
Those things said, I looked at put contracts for people making the
same investments today that I made a couple weeks back, and the herd is
increasingly with me. I am adopting a new exit strategy,
expecting
that more bad news from Iraq will cause todays decline to continue for
a
few days, I will get out when I can as soon as any of these investments
show renewed strength from this point of weakness forward...
6/14 - Bearish buys are back in the money today, following the
so-called Regan Rally. I have revamped the watch lists in
preparation for the next bullish cycle. All the watch stocks have
maintained good price performance in the recent market
pull-backs.
They will probably show weakness over the next couple weeks for
possible
buy opportunuties...
6/8 - Sell on Strength, Buy on weakness. To quote Jim Cramer (www.thestreet.com, KNWX
Seattle Noon-1 Weekdays) the market right now is so horrendously,
ridiculously overbought, you HAVE to take some money off the table if
you have not yet. There will be better prices in the near future,
I am selling off short-term stocks tomorrow. We have our PUTs
portfolio, which hurts at the moment, but will pay off...
5/30 - We expect the market to peak out and start to down-trend over
the next week or two, and are planning a bearish strategy with put
options expiring in July/August/September. Why not June? We
would have recovered some or all of many of our lost plays last month
if
we had another week. The extra time does not cost that much in
comparison...
5/27 - Another thing to note, in this flat market rally, by the time
a stock has moved enough to trip the technical indicators it is about
out of steam. Also that there are few volume spikes to back the
rise in price. This suggests there is still a bit of down to come.
5/25 - Something to note, a market with mixed signals. Many of
the bullish stocks on the watch list may have broken support, not very
bullish... At the same time many of the bearish stocks on the
watch list may be breaking out, not very bearish... Be patient
and
wait for a direction...
5/22 - I have updated the past Calls Portfolio from April to include
comissions and fees, and put it under virtual portfolios instead of
retroactive where it had been...
5/18 - I have closed out the Bearish Virtual Portfolio (Put Options)
and it was more successful than the Bullish Portfolio I ran in
March/April.