TodayTrader

"Swing Scalping" in 2010

2010-01-02T11:28:00.000-08:00

Let’s face it traders, 2009 was the toughest year in the decade for pure day trading despite the huge move off March lows to finish with some nice gains in the overall averages. The absence of the retail investor led to anemic volume and the rise of HFT computer models was not a good recipe for momentum day trading. Over the years I have always been able to adapt to changes in the marketplace (a quality everygood trader must posess - my SFOmag article) but I must say that this has been one of the toughest hurdles. Although it was another profitable year at TodayTrader, my day trading profits were not near the level I have come accustomed to over the years. I finished the year on a positive note by applying some more patient and selective strategies (to be discussed in YouTube video) and I am encouraged going into 2010. I also accepted the fact early on in 2009 that HFT is here to stay and focused a lot more in my swing trading account as a way to beat the bots.

A technique that has made me some big profits during my day trading career is being able to see a setup (usually accompanied by volume), study the level II and tape, anticipate the move and then pounce with huge size and ride the momentum. With the onslaught of HFT algorithms these setups have been much harder to predict with the price action mimicking that of a Richter scale in many cases making it too risky to play the size I was used to. Since we have always used a lot of setups on a daily chart I started to buy these in my swing account based on intraday volume. I started to notice more and more the same trades I was getting jigged out of day trading were really showing some nice profits in the swing account. A good recent example is SRZ on 12/18. I entered this trade in both accounts at $3.13 based on the daily chart setup and volume. After hitting a high of $3.17 the stock pull backed to $3.08 (2 cents off lows), wicked, and eventually went back thru highs on bigger volume to go as high as $3.52 without a bar reversal. In this case I was able to stay in the trade in both accounts but there would be many times I would get worked out of the day trade.

OK, nice entry in SRZ, now what. I have always applied the same strategies, rules and disciplines in my swing trading as I do my day trading. In the case of SRZ I had a strong gut feeling based on volume. I grabbed a pretty big chunk at $3.13 and scalped out of 2/3 of the position at $3.48 for some nice gains using a stop below the 10 MA at $3.20 on the remaining. We like to refer to it as “swing scalping” at TodayTrader. The advantage that a full time trader has over other swing traders is they are monitoring the markets intraday and can catch these setups. Most swing traders just trade off the daily charts and miss the intraday opportunities. DON’T underestimate this. It was by far my most profitable setup in my swing account. Another good example is F on 12/18. This is one that I had been stalking and already long but bought more at the breakout above $9.14 based on the volume. Once again, it paid off to be an intraday market participant in this action.

So if you are having a hard time beating the bots on an intraday level you might want to give “swing scalping “a try. You can enter a trade with much less size and many times will get a few days of follow thru. “Swing Scalping” can be very profitable but like any style of trading one must apply rules and disciplines

There are other techniques I deploy in my swing trading but in every one of them I am quick to take at least half of my position off to lock in profits when I get a move in my direction and quick to cut losses when it goes against me. I also remained hedged at all times using SDS varying my size with market conditions. The lack of volume scares me and wouldn’t be surprised to see a sudden downside move in at some point in January. This is not a prediction and I will continue to react and not out-think the market.

Making Holiday Shopping Profitable

2009-11-30T04:49:00.000-08:00

This is one of my favorite times of year! Everyone gets in a good mood, there is a lot of energy in the air as people get excited about the holidays and it provides investors a great opportunity to turn holiday shopping into profitable investment opportunities.

You probably read that last line and thought what the heck is he talking about? Well I find the holiday shopping season to be the best time to find retail stocks that I want to buy for the upcoming year. I go to the mall to do my shopping and I look at all the different stores to see who is busy and who isn’t. I also look to see which stores are giving the highest discounts and which are not.

Again, you are probably asking, OK, what does this tell you about which retailers to invest in for the upcoming year?
Look at it this way, when you look inside a store and see it full of happy customers, lining up to pay for items and the sound of the cash register, well that is an inside peek at a company that will probably have great holiday earnings. No matter how many numbers you crunch, seeing people actually lining up to buy things, gives you a true picture of how good or bad that retailer will do for the season. Is this a basic investment theory, yes it is. But, we tend to forget that keeping things simple can be the easiest way to make a profit.

My favorite retail investment was made at this exact time of year. Back in 2006 I was walking around the mall, seeing that most of the stores were doing ok, but nothing that made me go wow, until I walked by the Apple Store.
The store was jammed packed with people looking at the new products that Apple was releasing at that time. Yes, Apple was a favorite among analysts, but the stock had pulled back from 2006 highs in December, setting up for a monster 2007. I could not believe how crowded the store was and how excited people were about these new products. When it was all said and done, Apple blew away their numbers and all possible estimates, which led to the stock running higher throughout 2007.

Here is my advice to you, the investor. When you go shopping pay attention to the stores you go into and the ones you don’t shop in as well. Look to see where the shoppers are and why they are there. We know that Best Buy was going to be busy on Black Friday, but that’s because of their loss leaders for their big sale. I want to see the lines continue after the Black Friday weekend ends (probably not going to be that big at Best Buy). You don’t need an analyst from the Wall Street to tell you that based on their numbers, retailer X is going to do well. You will see with your own eyes, who are doing well and who are not.

Enjoy your holiday season and look to make it a profitable one as well.

I look forward to hearing from those that read my blog. Please email your stories of how you found investments using methods like above. You can email me at mickey@todaytrader.com

We provide a free daily watch list of stocks that we are watching each day. You can see our daily watch list at www.todaytrader.com You do not have sign up, just click on the watch list word on the left side of the page. No registration is required and it’s free. These are stocks we are watching based on how the traded the previous day.

This is not a solicitation or recommendation to buy or sell. These are stocks we are watching for traders. We may or may not trade these picks and do not make any guarantee of success. Commentary of these stocks is for educational purposes only

Mickey Welcher is President of Spectral Asset Management LLC and works with Today Trader. He has extensive trading experience and money management for clients. If you have any questions, please contact him at mickey @todaytrader.com

Trading on a FOMC Rate Decision Day

2009-11-03T18:53:00.000-08:00

Wednesday at 2:15PM, EST, the Fed will announce if they will change interest rates and give a brief statement about the overall economy and how it will affect future rate increases. This occurs every 6 weeks and is a highly anticipated event for the market.

The overall consensus is there will be no change in interest rates at this meeting and for the next few as well. Everyone will be listening closely to the statement, which is what will cause the market to move after this announcement.

Trading on this day is always kind of tricky. First, the volume will dry up after the first 90 minutes or so, as traders pull back and wait for the announcement. No one wants to be holding stocks and have the Fed come out and say something that causes their position to become a loser. After the announcement the market usually gyrates both up and down and can be hard to trade as well.

So, how do you trade this day you ask? We have found the best way is to trade with caution. Look for a few good trades early in the morning, taking profits by 11:30AM EST, and sitting on the sidelines until the announcement. After the announcement, be very careful and let the market make a few directional moves before entering any trades. It is common to see a fast move in one direction, followed by a fast reversal, followed by a turn back to the first move. Waiting for the 3rd move seems to be a better play, but even this can be reversed quickly in a volatile market. The best way to cut volatility is to cut your share size and keep your losses to a level you can deal with. If the market does move your way, you can always add to your positions on the way up, but be careful for that possible fast reversal.

Remember, FOMC days can have good trading in the morning and volatile trading after the announcement. There is no shame in sitting on your hands if you cannot get a good feel for the market because of this volatility.

Good luck on Wednesday.

We provide a free daily watch list of stocks that we are watching each day. You can see our daily watch list at www.todaytrader.com You do not have sign up, just click on the watch list word on the left side of the page. No registration is required and it’s free. These are stocks we are watching based on how the traded the previous day.

This is not a solicitation or recommendation to buy or sell. These are stocks we are watching for traders. We may or may not trade these picks and do not make any guarantee of success. Commentary of these stocks is for educational purposes only

Mickey Welcher is President of Spectral Asset Management LLC and works with Today Trader. He has extensive trading experience and money management for clients. If you have any questions, please contact him at mickey@todaytrader.com

Food for thought

2009-10-27T20:51:00.001-07:00

One thing I have always loved about the stock market is how the use of Fibonacci lines makes an irrational market very rational. Today I was looking back on a monthly chart of SPY and I decided to use Fibonacci lines on the chart. If you are not familiar how to use this measurement, you measure from the peak to the trough. I used the 2007 highs and the 2009 lows to draw this measurement. After drawing these lines I was somewhat surprised, but not too surprised to see that we have made a 62% retracement off lows.

What makes this such a big deal is that this is where you would expect to see this reversal stop. We hit this line last week when we made new highs and now we look to be pulling back. Based on this chart, we will probably see a pullback to at least$100 in the SPY’s. This will be a key area for the market. If we hold up and turn back up, we will probably rally through highs. If we cannot hold up, we could see a drop down to the $87 range.

As you can see it is very interesting to see how a measurement that is based on nature can be a very valuable tool for investing and trading.

You can see our daily watch list at www.todaytrader.com You do not have sign up, just click on the watch list word on the left side of the page. No registration is required and it’s free. These are stocks we are watching based on how the traded the previous day.

This is not a solicitation or recommendation to buy or sell. These are stocks we are watching for traders. We may or may not trade these picks and do not make any guarantee of success. Commentary of these stocks is for educational purposes only

Mickey Welcher is President of Spectral Asset Management LLC and works with Today Trader. He has extensive trading experience and money management for clients. If you have any questions, please contact him at mickey@todaytrader.com

Where do we go from here?

2009-10-26T19:43:00.000-07:00

Monday’s drop leaves us in an interesting position and the possible start of another few days to the downside. The market opened higher, but the dollar moved higher, causing commodities to drop and pushing the markets lower. The bank failures are not helping matters either, but the government seems to have that somewhat under control. So, where does the market go from here? We have seen an amazing rally since mid-March, with a small pullback in July. Since July, the market has moved straight up without much of a pullback. Monday’s drop puts us into a position where we could see another leg down. You can see we broke old support on the SPY at $108, to close at $106.91. If you look on our chart below, you will see there is room to drop down to the $104 level, which is the bottom of the short-term trend line. Saying all of this, you have to realize that every time the market wants to drop, buyers come in and push it higher. The market also knows that the government is there to prop up our economy, which is also making it very hard to short.

Tuesday will be very interesting and we could start to see some cracks in this rally. Of course, I would not be surprised to see the market rally and end the day much higher.

You can see our daily watch list at www.todaytrader.com You do not have sign up, just click on the watch list word on the left side of the page. No registration is required and it’s free. These are stocks we are watching based on how the traded the previous day.

This is not a solicitation or recommendation to buy or sell. These are stocks we are watching for traders. We may or may not trade these picks and do not make any guarantee of success. Commentary of these stocks is for educational purposes only

Mickey Welcher is President of Spectral Asset Management LLC and works with Today Trader. He has extensive trading experience and money management for clients. If you have any questions, please contact him at mickey@todaytrader.com

Paychex is ready to pay off!!

2009-10-22T18:50:00.001-07:00

After Thursday’s big bounce it seems to get harder to find a chart that gives us a good entry point. Most stocks moved higher on Thursday as the market was up big on the day. One chart that I like is Paychex (PAYX), because it is setting up to break out of a three week trading channel. The high of this channel is $29.11, which is resistance for this upside move. If PAYX can break through this level, we should see a breakout move that is driven by trading volume. The biggest problem with this stock is the lack of strong follow through. You can see on the chart there are a lot of “wicks” on candles, which tells us the stock does not hold up well after making a move. There might only be one chance for this move, so watch PAYX closely and be ready for this breakout move.

We have a good selection of picks for Friday, and you can see these for free on our daily watch list at www.todaytrader.com You do not have sign up, just click on the watch list word on the left side of the page. No registration is required.

This is not a solicitation or recommendation to buy or sell. These are stocks we are watching for traders. We may or may not trade these picks and do not make any guarantee of success. Commentary of these stocks is for educational purposes only

Mickey Welcher is President of Spectral Asset Management LLC and works with Today Trader. He has extensive trading experience and money management for clients. If you have any questions, please contact him at micke@todaytrader.com

Big Bank Fall Hard?

2009-10-20T19:08:00.000-07:00

We were watching Bank of America (BAC) on Tuesday, expecting to see the stock drop, but a brokerage upgrade pushed it higher most of the day. The stock rallied before the east coast lunch hour, but could not hold up and finished the day at lows. The stock gapped down last Friday, after they reported earnings. BAC is breaking below the gap low and should break down once it can break the $17.00 price level. We see a possible drop to at least $16.00, if not lower. If BAC does not hold the $16.00 level, there should be nothing holding it back from a quick ride down to $15.00. We like this short in BAC as a day trade as well as a possible swing move if it breaks down and closes near lows.

Two of our favorite upside picks are ROVI and PALM. Check out their charts for Wednesday.

You can see these 2 picks, plus many more on our free daily watch list at http://www.todaytrader.com/watch.html You do not have sign up, just click on the watch list word on the left side of the page. No registration is required.

This is not a solicitation or recommendation to buy or sell. These are stocks we are watching for traders. We may or may not trade these picks and do not make any guarantee of success. Commentary of these stocks is for educational purposes only.

Mickey Welcher is President of Spectral Asset Management LLC and works with Today Trader. He has extensive trading experience and money management for clients. If you have any questions, please contact him at mickey@spectralam.com

Stock Focus PETM

2009-10-19T20:09:00.000-07:00

We have 3 stocks that we will watch closely on Tuesday, but our favorite is Petsmart (PETM). The stock gapped higher last Thursday on good earnings and guidance. PETM consolidated on Friday and yesterday, which is a good sign for an upside move. We are using Friday’s high of $25.68 as resistance and we expect to see a strong move once it breaks through that price level. What’s nice about this trade is the possibility that we could see a multi-day move once the stock breaks through. There is a chance the stock will consolidate again on Tuesday, but you want to watch in case it takes. The worst feeling is when you see a move coming, but forget about the stock and it takes off without you.

We also like Smithfield Foods (SFD) for a bull flag breakout move.

You can see these 3 picks, plus many more on our free daily watch list at http://www.todaytrader.com/ You do not have sign up, just click on the watch list word on the left side of the page. No registration is required.

Mickey Welcher is President of Spectral Asset Management LLC and works with Today Trader. He has extensive trading experience and money management for clients. If you have any questions, please contact him at mickey@spectralam.com

CREE Looks Interesting (Earnings 10-20)

2009-10-18T17:56:00.000-07:00

The market continues to trend higher, even as the smartest people on Wall Street think we are due for a sell-off. I am not disagreeing with those people and I do believe the market continues to move higher because most people think its going lower. Saying that, when it comes to trading, you have to follow the market and let your trades work for you. Trying to short this market has proven to be a losing proposition, but going long has been tough as well. You have to trade each stock based on its own merit and hopefully things will work out for you.

For Monday we are watching Cree Incorporated (CREE) for a breakout move. As you can below, the stock has been trading in a decreasing consolidation range, waiting for a high volume breakout. We have seen a few moves, but there was no follow through, which pushed the stock back into this range. The high of this range is $40.61, which is the price we are watching for this upside move.

You can see our free daily watch list at http://www.todaytrader.com/ You do not have sign up, just click on the watch list word on the left side of the page. No registration is required.

Mickey Welcher is President of Spectral Asset Management LLC and works with Today Trader. He has extensive trading experience and money management for clients. If you have any questions, please contact him at mickey @spectralam.com

Change is Still the Only Constant.

2009-10-14T21:18:00.000-07:00

Here is the link to a recent article written for SFO magazine about changing with the market.
Thanks to the people at SFO for letting me write for them. I will be writing for their weekly E-Newsletter twice a month and the email is free. Sign up, and see you there.

Steve

Here is the link to article http://sfomag.com/article.aspx?ID=1409&issueID=c

Change is the Only Constant

2009-07-19T12:00:00.000-07:00

If you like day trading the rush of volatility and reversals in the first and last 15 minutes of each day, then by all means surf that tsunami. For the most part, we prefer to sit on the shore and watch.

Since the death of Lehman last year, the market has shown increased volume and volatility in the first and last half hour of trading. It seems there is no longer a major appetite to hold positions over night. Also contributing to the increased open/close volatility is the volume of HFT (High Frequency Trading) algos being discussed as of late.

Being slow to adapt to market changes can be one of the biggest hurdles we face as a trader.

Looking back the last two months, it became obvious that the first 30 minutes were hurting our end of day performance. Most of the big losers were trades bought or shorted in the first 15 minutes of our live service. The tremendous whipsaw action in this time frame was not only costing us money, but also the opportunity cost of nursing losing positions instead of hunting for better setups. Having to play catchup all day and churn more commissions has been the result of starting too early in this market.

It's been 8 days in a row of starting green and remaining green since making a conscious effort to not trade in the first 25-30 minutes each day. With the exception of one small position here and there, the first 30 minutes have become the "observation" period and avoiding that period has helped the bottom line tremendously. This example is subjective and the point is to look within your own performance to find areas that need improvement or tweaking. Maybe it's the lunch hour that is killing your method?

500 Prop Traders in China.

2009-06-13T12:27:00.000-07:00

last year Andy and I were contracted to travel to China and train a small group of traders once a month. They only trade US markets so they are all night dwellers. This is a video clip taken from my first visit in March 08. For those that like to scalp stocks with low liquidity, these are many of the traders you are competing against. They are mostly Econ majors chosen from local universities. Foreign prop shops are increasingly sprouting up across the globe.

Live Trading in UNG DYN and DRYS

2009-06-11T17:05:00.000-07:00

Don't forget to watch in HQ video

3 Stocks to watch

2009-06-09T17:04:00.000-07:00

CELG is defending that 44.00 pivot level going back 3 months. A break above today's high of 44.68 on good volume may have legs.

Like the big volume today in LBTYA. A "Hammer" candle with a close above the 10 DMA is worth watching above 14.25

EBAY was looking like a nice wedge setting up for another burst to the upside. A move above 18.00 on volume would be ideal. However, Cramer has mentioned this stock and it will most likely gap up tomorrow. Still watching..

3 Software Stocks on the Radar

2009-06-07T16:08:00.000-07:00

Here are 3 software companies looking to make a move above some key resistance levels, The charts should speak for themselves. For a swing trade idea, look for a close above the yellow line to confirm the move. INTU SYMC CHKP

"Happy Hour" Trading

2009-05-16T13:43:00.001-07:00

In case you haven't noticed, the last 30 minutes of the day lately has been almost a joke in terms of volatility. As a day trader, you have to be on your toes in periods like this. Take your profits quick before they reverse the truck and back up over you.

I have to believe after reading a few smart blogs that the 3x ETF's are mostly to blame as intraday vehicles. The sudden increase in volume over the last 6 months in these triples also coincides with the super volatility in the last hour. As traders use the clock to get out of these 3x positions, it wreaks havoc on the programs trying to keep up. Second only to the last half hour in volatility is the first half hour. Take a look at the 5 minute SPY bars during the first 30 minutes, they are wild and wick-ed.

These 3x ETFs must really be pushing the arbitrage algorithms around as big orders are trying to get the best fills. Rather than trying to make sense of this "Battle of the Bots and Arbs" period each day, we have been doing much more hand sitting during the 9:30-9:50 time and the 3:30-4:00 time. Standing aside has paid off during this period of the day. Just going back and looking at the worst trade of the day, many times it is the first trade of the day; bought too soon and a heavy reversal bar shakes us out. So avoiding that head fake period has helped the bottom line last 2 months.

These crazy periods of the trading day remind me of when I tried to cross a busy intersection in Shen Yang China.

The MBA and The Mexican Fisherman

2009-04-22T14:07:00.000-07:00

David Kellermann the CFO of Freddie Mac killed himself today. I couldn't help but be reminded of this old story about values:

A boat docked in a tiny Mexican village. An American tourist complimented the Mexican fisherman on the quality of his fish and asked how long it took him to catch them.
"Not very long," answered the Mexican.
"But then, why didn't you stay out longer and catch more?" asked the American.
The Mexican explained that his small catch was sufficient to meet his needs and those of his family.
The American asked, "But what do you do with the rest of your time?"
"I sleep late, fish a little, play with my children, and take a siesta with my wife. In the evenings, I go into the village to see my friends, have a few drinks, play the guitar, and sing a few songs...I have a full life."
The American interrupted, "I have an MBA from Harvard and I can help you!
"You should start by fishing longer every day. You can then sell the extra fish you catch. With the extra revenue, you can buy a bigger boat. With the extra money the larger boat will bring, you can buy a second one and a third one and so on until you have an entire fleet of trawlers.
"Instead of selling your fish to a middleman, you can negotiate directly with the processing plants and maybe even open your own plant. You can then leave this little village and move to Mexico City, Los Angeles, or even New York City! From there you can direct your huge enterprise."
"How long would that take?" asked the Mexican.
"Twenty, perhaps twenty-five years," replied the American.
"And after that?"
"Afterwards? That's when it gets really interesting," answered the American, laughing. "When your business gets really big, you can start selling stocks and make millions!"
"Millions? Really? And after that?"
"After that you'll be able to retire, live in a tiny village near the coast, sleep late, play with your children, catch a few fish, take a siesta, and spend your evenings drinking and enjoying your friends!"

Don't Wake the Bear

2009-04-19T09:44:00.001-07:00

It’s been a nice run and the bulls have pretty much had their way the last 6 weeks. The market is up an astounding 24% since its March lows. I am not surprised at all given the historic oversold conditions in early March. I predicted one mother of a rally and was fortunate enough to position my swing trading account to capitalize on it. But as of Friday I’ve taken more of a neutral stance and actually began taking some profits and putting on a few hedges. I’m not trying to call a top to this move but have simply reached my objective and “ringing the bell” as buyers chase prices higher. My objective is strictly technical. The SPY has resistance at the 88.00 level (87.74 Feb high) and the XLF (the sector that started this Bull Run) has major resistance at 11.50. I suspect we might see some smart money taking profits and the Bears trying to regain control at these levels.

Another reason I’m becoming more neutral is market sentiment. A few weeks ago all the chatter from top traders and market analyst was bearish. I mentioned in our Live Service that I thought the run had more legs based on the vast amount of negative sentiment in the marketplace. Commentary on major financial networks and popular blog sites included bearish lines like “dead cat bounce”, “retest lows”, “taking profits”, “it’s been a good run but…”, and “nothing has changed fundamentally”. And yet the market just kept powering higher. Jesse Livermore once said “It is what people actually did in the market that counted – not what they said they were going to do”. And no doubt over the next two weeks people bought stock. But over the last week they are starting to play a different tune. Now I’m hearing things like “train is leaving the station”, “bears are throwing in the towel”, and even “maybe buy and hold isn’t dead”. I might be reading too much into it but it appears the bulls might be getting a little too giddy for my liking.

All that being said, it is our job as traders to react to what the market is telling us by its behavior and this market has not shown any sign of weakness over the last six weeks. My partner Steve frequently quotes Art Cashin that “chance favors a prepared mind” and at this point all I am doing is locking in some good profits and “preparing” myself for what might lay ahead. (A sleeping grouchy Bear).

-Andy

Consumer Credit

2009-04-18T16:10:00.000-07:00

A close friend of mine has spent the last 18 months working like a dog in the credit card/debt settlement industry. He has given me some interesting insight over the last year as his business has accelerated.

Some notable mentions - BAC has by far been the most egregious at both lending unsecured debt and then settling for the lowest amount on that debt. He tells me that in many cases, BAC will settle for 15 cents on the dollar under this program and consumers are eating it up.

I have SIRI in my car and all I hear are commercials for these settlement companies. Right after TARP and TALF were announced, BAC lead the charge on this aggressive write down policy. WFC has been a close second in his opinion. GE by far gets the award for higest average balance. For the last 3 months he has seen an increase in the AAA paper as insolvent, laid-off proffessionals with 6 figure credit lines are now taking advantage of this program. It sounds like the storm has worked its way up the food chain as the sub prime debtors have already taken advantage of this program. -fwiw

Who Moved My Cheese?

2009-04-09T14:34:00.000-07:00

I really feel for the shorts who have not let go of the strategies that worked so well in Jan/Feb. Seeing people average down in FAZ is scary. Hey, I'm not real Bullish right now on this whole mess either. The fundamentals are horrible! But it doesn't matter what you or I think at this moment, Old Man Market is the boss.

"Who Moved My Cheese" is a great book about adapting to change (there is a link to this book on amazon if you scroll down and find it). Those great short plays may be back real soon. But for now, a trader has to listen to what the market is telling us. What it has been saying is shorting is a bitch right now, so why fight it? There will be another round of selling. But until that happens, feed on the cheese of the Bulls until it disappears. Then when it's gone, don't beat your head against the wall for what "used to work". Go out and find what is working again.

Adapting to change

2009-03-18T16:12:00.000-07:00

The shorts have been absolutely run over the last week. A few failed attempts to break the market only made it stronger.

There are many traders who were playing FAZ last month with great success. FAZ and FAS both track the XLF but move 3 times as FASt. I know many were just chomping at the bit for FAZ to drop down to the 35-40 area for another round of fun. The trouble is the XLF is leading this rally. It is only natural to want to go back to the trade that worked so well last time. Not recognizing a change in the market can hurt 3 times harder when wrong in FAZ and FAS.

I am starting to think that looking at a daily chart of these triple levered funds is useless. Other than major price levels of highs and lows, there are no patterns to be trusted in an amplified ETF like FAZ. Its like looking at it with a funhouse mirror. Stick to the XLF on daily charts and use it as a guide. If you are not an experienced trader, please stay away from FAZ and FAS. There are allot of people getting chewed up looking for a bottom in FAZ. Will they be a day early?

btw It didn't take long to hit our SPY target mentioned in yestereday's post.

Are You Fighting This Rally?

2009-03-17T15:13:00.000-07:00

Well that didn't take long. I mentioned in yesterday's post that the sellers may bring the market in and then to look for some bids to hold up this rally. The last hour of yesterday, the sellers brought their "A" game. They did what has been working for the last 12 months. The volume of selling in the last hour was a good attempt to break the market again. It didn't take long for the buyers to charge back and then some on the close. I think this could be a first shot across the bow of the sellers that there is some cash out there ready to come in for some more.

The "dead cat" may still have some bounce in it based on today's reversal of fortune for the shorties. Near term, we are watching the SPY to target 80.00

Here is a visual reference to the sellers hitting the wall today...

Bear Market Rally

2009-03-16T09:24:00.000-07:00

As much fun as it is to cheer a giant move like last week, we have to keep perspective on this market. Some of the best historical moves come in a Bear Market environment. This move in all reality was just another "Dead Cat Bounce"

Look at MS for example. It's been a nice ride all the way up to the 200 day moving average. where does it go from here? How about Goldman Sachs giving PMCS a nod on their conviction Buy list? Wait it had already run 25% when they made that call then ran another 8% the day of. We were short PMCS most of the morning today after a big run last week. How much are they paying people at Goldman to recommend stocks that have had 25% moves?

Don't chase a Bear Market rally. Lower prices may be around the corner and we will see if the bids show up again to hold the lines.

2009-03-08T20:32:00.000-07:00

Remember Peter Lynch? He was the 80’s Mutual Fund wizard who got down on the level of the consumer and took a look around for investment opportunities. Today I decided to spend this Sunday as many consumers might do and see if I could find some investment opportunities. Although this economy was a little different than the economy of the late 1980’s. I am seeing more people using coupons and paying with a bag of change from home.

The real reason I had this idea was that I was down to my last dollar in the old wallet. Sure I could just run down to the ATM and get more cash. Or even easier just throw all of today’s purchases on a credit card. But some people currently don't have that option. Even worse, what if the credit crisis becomes so bad that consumer’s credit cards are turned off and there is no cash in the magic ATM machine available to them?

So to get this Sunday going, I started with an hour of back breaking work sorting the cans, glass, and plastic bottles on the side yard that have been collecting for a month now. Next, it was off to the “other” ATM machine; the local recycling center. This place was crowded more than usual. There sure was a lot of cash going out to people lined up. Publicly traded recycling plays? AA perhaps (it sure is on sale right now around 5 dollars)

On our way to the next destination we drove thru an R&D / Office zone and I have never seen so many Space Available signs. This is on top of all the spec. office buildings that just hit the market with no tenants to move in. I am still thinking Commercial Real Estate has more bad news coming. SRS on a pullback to its trend line may continue to be a play.

Finally we get to Costco, our Brunch destination. COST has the best free brunch around if you ask me. All the major food groups plus desert was available. But you had to be willing to wait at each station for 5 minutes behind the people in front of you. After a good 30 minute grazing session, we then purchased our dinner for tonight, tomorrow, and the next night. Yes, we used the $26.50 from the recycling center and picked up a big hunk of sliced turkey and a large bag of bread… BAM!

On a serious note, I know that most people are still doing alright. All this doom and gloom talk has historically been a contrarian indicator. I hope that’s the case this time. But there is always that little question of, “but is it different this time”?

How To Actively Trade Your Retirement Account or IRA

2008-11-03T14:39:00.000-08:00

Many of us have watched in shock as our retirement accounts have plummeted 30, 40 and even 50% over the last year. The debacle of the housing market caused by subprime mortgages and shenanigans on Wall Street (Credit Default Swaps) created a perfect storm that almost led to a collapse of the financial system and crippled our economy. The credit markets appears to be stabilizing but the aftermath of this “Perfect Storm” might be a deep recession lasting well in to 2009. Many investors have thrown up their hands and given up (capitulated), losing faith in our system and trust in our government. If the typical buy-and-hold strategies hasn’t gotten you anywhere over the last 10 years and you are one of the many who just want to throw in the towel, I can sympathize with you but now may be the best time to put your money to work. With the demise of many of the big brokers and the deceit being unveiled on Wall Street I believe individuals will be given much more control of their IRAs and 401ks to self-manage. It has worked well for me and it can work well for you too.

Over the years I have learned to apply the same strategies and disciplines that I use in day trading stocks to actively trade my SEP (Self Employed Retirement Account) for short term profits. Here are some ideas that you can use to beat Wall Street and get your retirement account heading in the right direction again.

Don’t worry about commissions. If you have control of your IRA move it to an online broker where you can get trades for around $10/trade.
Let the market take you out of bad trades. Immediately after buying a stock put a stop-order at a price you want to sell at if it goes against you. DON’T cancel it for any reason.
Use a trailing stop on winning trades. It’s easy in this environment to have profitable trades turn into losers. As your winning trade moves higher so should your trailing stops.
Obtain a basic knowledge of technical analysis (Japanese Candlestick Charting Techniques by Steve Nison is a good book). People lie but charts don’t (especially volume).
Scale in and scale out. Probe your entries buying one-third of your desired position at a time and ring the bell (take some profits) as they go higher.
Trade the synthetic short ETFs (SDS, QID, SKF, etc). Whether you want to short the market or hedge your longs they can be good instruments in today’s volatile market.

Don’t be afraid to actively trade your retirement account. Buy-and-hold is old school and quite frankly just hasn’t worked well lately. By applying some basic short-term trading strategies and sticking to your rules and discipline you can get your IRA heading in the right direction again even in what may be a sideways volatile market for a long time.

- Andy Lindloff

101 years Later, The Ghost of J P Morgan Lives on.

2008-09-25T19:00:00.000-07:00

If you are not familiar with the Panic of 1907, the Stock Market had fallen 50% from highs and Banks were in Panic as the public began to make runs on their deposits in the banks. At the time the US had no central bank to help inject liquidity. It was up to the biggest bankers on Wall Street to step up and buy stocks, buy assets, and inject liquidity back into the system. This all took place across the street from the NYSE Building. It took place in the office of J.P Morgan.

It was Morgan himself who was credited with persuading the others in the room that they really had no other alternative but to step up or face financial ruin across the board. Fortunately, it all worked out and the plan hatched by Morgan had stabilized the markets and contained all the systemic risk at that time.

So here we are, 101 years later with the same crisis (albeit much more complex). Washington Mutual has just been handed over to JP Morgan (the company bearing the founders undiluted name). Only weeks after getting its hands on Bear Stearns for pennies on the dollar, Washington Mutual is handed to JPM for a mere 1 Billion dollars. How is JPM getting all the sweetheart deals?

Maybe it’s just a case of “you get back what you give”. The JP Morgan legacy lives on.

Back To Work

2008-09-01T19:38:00.000-07:00

August is typically a low volume trading month. The second half of the month being the worst. Most of Wall Street and Europe for that matter is on vacation. Fund Managers of all types are away from the computer screen. While on vacation, you can be sure many of the Fund Managers are weighing portfolio positions in their mind. Looking to trim some positions while adding to others.

After Labor day, the world's largest Fund Managers come back to work. It usually takes a week before volume returns to full steam. The first week back after Labor Day is a week for final research and market observation before many of the big portfolio adjustments start. So for those (like us) who are eager to get cracking after a nice vacation, don't expect too much increase in volume the first and second day back to work.

Everyone knows that October can be a volatile month as companies report their 3rd quarter earnings. Historically, September is the worst month as far a % gain for the month. Over the years, the month of September is on average a negative month. I believe that number is just around -1% on a historical average for the month of September.

We are hoping for a good month in Equities as the Big money seems to be rotating from Energy and Commodities to the Stock market once again. Maybe we can buck the historical trend of September this year. That being said, don't fight the trend.

Personally, I fear there may be another shoe to drop in the Financial markets. If that happens, the key will be observing how the market trades after any negative news. The last shoe to drop may already be priced in to this market. If not, buckle your seat belts.

September was among the worst performing months in all but one of the decades of the 20th century. Only between 1911 and 1920 was its performance above par, when its average performance for the decade came in second. Decade September's rank (1 best; 12 worst)

1901-1910 12
1911-1920 2
1921-1930 12
1931-1940 10
1941-1950 8
1951-1960 12
1961-1970 9
1971-1980 12
1981-1990 12
1991-2000 10

Why Do So Many Smart People Fail?

2008-08-10T13:18:00.000-07:00

I have seen people from many walks of life give an earnest attempt at learning to trade for consistent profits. Some have made it, but many have failed. Doctors, Lawyers, Athletes, Entrepreneurs, Pilots, Scientists, and Engineers have long struggled to make a transition from their successful field to trading for consistent profits. The road is littered with many of these people who honestly took the same approaches that helped them in their prior respective careers. So what went wrong? Why is successful trading so elusive to these intelligent people?

Author Mark Douglas (“Trading In The Zone”) correctly points out that the business of successful trading is in itself a paradox. In other words, it often times does not make sense. The structures and disciplines of prior careers do not translate well into profitable trading. Good traders know when to sit on their hands (Entrepreneurs?). Good traders know how to quickly admit they are on the wrong side and quickly jump to the other side (Lawyers?). Good traders know that the market is ever-changing and cannot be quantified on a constant basis (Engineers, Pilots, and Scientists?) Without even knowing it, our prior work habits and attitudes may hinder the ability to turn our minds upside down when needed. The markets are truly a paradox and we must remain aware of our past convictions that have become such habit to us.

I would like to add another attribute to this article; Patience.

Patience is so important in trading. Have you ever noticed that paper trading was so easy to have patience? But for some reason, once hard earned money was introduced to your trading, patience became a whole lot more difficult to master. Getting out of bad trades too soon, only to see them turn and reverse back to highs. Getting out of good trades because they were pulling back, only to see them run back to highs without you. Sound familiar?

The group that attends our Live Service has heard me say this many times: “There are only two things you can control when trading live. The first is your Attitude and the second is your share size". If you are getting shaken out of good trades too early, consider lowering your share size to a level of comfort to withstand bigger wiggles. If you are constantly changing the game plan while in a trade, check your attitude and try to observe yourself trading as a neutral third party watching a good trader stick to his/her plan. These are just a couple of ways to help you develop more patience while trading your live account. Since you cannot control price action itself, stick to the things you can control.

Happy Trading.

-Steve

2008-08-02T22:20:00.000-07:00

SIT ON YOUR HANDS AND PROSPER

There are not too many jobs in which a person is rewarded for sitting on their hands but trading can be one of them. Jesse Livermore once said “After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting.”

In the early years of my day trading career I thought I had to be banging away at the keys and firing off trades every minute the market was open. A day seldom went by without me trading 100,000+ shares. At the end of the month there would be about 3 or 4 days of big losses that took a big bite out of my end-of-month profits. When I would go back and observe the market action on those days I would notice in most cases it was very choppy with no true direction and a lot of the times extremely low volume. The winning days weren’t a problem to come by but it wasn’t until I was able to eliminate those few big losing days that I started to really profit in day trading. Now the number of shares I trade per day might range from 20,000 on the uneventful days to 200,000 on really good ones.

Here are some ways I learned to sit, be patient and avoid the big losing days.

Don’t be anxious – There are 6.5 hours in the trading day so be patient and try to avoid trading the first 15 to 20 minutes. Use this time to observe and get a feel

Always have a reason to enter a trade – Stop guessing. Trade as if you were training other traders and being held accountable for each trade. (Trust me on this one.) Observe yourself trading with discipline.

Probe (Scale in) -- If you want to take a position of 300 shares enter it 100 shares at a time. If you’re wrong the loss isn’t as bad and you spend less in commissions.

Have a stop-loss every day – Every trader should have a maximum amount they can afford to lose each day. When you hit it STOP trading!

Avoid tight ranges and low volume – This is a time to sit on your hands. Wait patiently for the market to pick a direction. Narrow range days often follow a giant move from the day prior. Buyers and sellers battle for control after such moves. When you spot this scenario, stand aside and wait to see who wins. Then join that team. If you insist on trading a narrow range day actively, then fade moves and go for small scalps.

Day Trading is a profession, so try to treat it like a business and not like a black jack table. Trade when it’s hot and learn to sit on your hands when it’s not. There aren't too many businesses that end each day in 100% cash with no inventory. Protect that cash.

Is Good Trading an Art Form or a Science?

2008-07-26T15:17:00.000-07:00

The answer may be both. I have chosen to take the route of trading as an art form. A good scientific approach will back test, back test, back test, looking for the best results. My problem with this approach is that it may work for a short while but it is bound to suffer the changing winds of the markets. How do you know what strategy to deploy and at what time, for how long?

This is where I believe the art form of trading comes in. The human element cannot be duplicated (not yet anyway). Prop firms that use Gray Box trading are making the best of both elements. Science has found decent strategies through back testing and those trades are taken automatically by a trading robot. These Prop traders must then assess the current markets conditions and use their skills as a trader to target and exit the position. This is where the art form part comes together. A painter or musician will find their own "style", taking influences of others along the way. The path of a new trader is much the same and in my opinion an open art form.

Since I am still a 100% discretionary trader, I rely on the art form approach in my trading. I am open to the possibilities of Grey Box trading perhaps in the future. But for now, I make many decisions during the day to take the trade or not take the trade? How much to risk? Whats my downside? Whats my target objective? What will I be monitoring during this open position? The answers to these questions come from intuition, rules, and money management.