Penalty Box

I just realized that I neglected to mention in my previous posts that I'm now in the penalty box through April 16th.

Because I failed on three consecutive trades, all buys of SDS, I must now abstain from any trading for a period of three weeks. This rule protects me whether the problem is me or the market, though in this case it was clearly me.

So, as I said previously, this will give me ample time to work more on my trading plan and be ready when the market turns.

-Geoff

So Where to Go From Here?

Over the past month I bought two solid stocks, (SNDA) and (TNDM), and stopped out on them after making a conservative decision to trail my stops due to a quick distribution day in this new rally.

Then I reminded myself that I still lack patience and discipline by throwing some money away on (SDS), an ETF that works like a short position in the S&P 500.

So what now? Well, the shorting debacle reinforces my need to formulate as strict a system as possible for myself, with all 'rules' clear and well documented. Before my recent vacation I began some work on my trading system using 'Trade Your Way to Financial Freedom,' and I feel it's critical for me to renew those efforts. I intend to begin posting my work here shortly.

The market may even be seeing the beginning of a new bull market as I type this, or we may be in a bear market rally. It doesn't really matter - at some point there will be a new bull market and the more prepared I am, the more I stand to profit. I've dug myself into a considerable hole in my first two years trading, and I owe it to myself to put the effort in required to dig back out - and then start producing the gains I'm working for.

My goal remains to trade successfully enough to retire from corporate America. I've got a long, long way to go, but I view this like quitting smoking. The only way to get 10 years smoke free is to pick a day and get started. What happened in the past is only valuable as it helps me to improve today.

-Geoff

Sell Stop:(SDS), Also Known as Still More Stupid Shorting

You guessed it, I had to lose more money before I learned my lesson.

I'm not going to even waste my time on some big analysis - I got impatient and tried to short the market, and it cost me money. I'm not going to do it again until I prove I'm an effective trader on the long side, and even then I may avoid it.

I did it twice more and lose 5% and 2% respectively.

I had been on a pretty good run of using my head, so I'm a bit embarrased by this, but the important thing is to get back on track and not have a repeat performance.

-Geoff

Sell Stop:(TNDM), More Stupid Shorting

As I said in my previous post, I've been moving my stops up and today I stopped out of (TNDM) for a 2.5% gain. This was a great looking stock and I love the chart, I only tightened up the stops in recognition of the quick distribution day after the follow through day.

I also mentioned that I outsmarted myself and tried to short the market with the (SDS), which is an ultra-short ETF that trades at twice the inverse of the S&P 500. I managed to lose 6% on this trade. I really have no business trying to short the market, but as we'll see in my next post, I hadn't yet learned my lesson.

-Geoff

Sell Stop:(SNDA), Stupid Short Behavior

Unfortunately, I'm once again making this post 'from the future.' Though it's always my goal to post trades within 24 hours of making them (the same day ideally), it doesn't always work out. I think it's less effective to post about my decision once I have the benefit of hindsight. However, my son and I had a wonderful trip to see family in Florida, and my time was well spent with him rather than on the internet.

Back to the market. I stated in my post on March 12th that the market's action on March 6th felt like the beginning of something new to me. I perked up and began to watch in earnest for a follow through day with my watchlist ready.

That follow through day came on March 12th, and I bought (SNDA) that day and (TNDM) the next. Having done that, I began to watch closely for a distribution day. The odds of a rally failing are very high (I've read over 90%) if it logs a distribution day within three days of the follow through day.

The market did suffer a distribution day on March 16th, two trading days after the follow through day. Though both of my positions were doing well, I followed my rules and tightened up my stops, trailing them up through the day if the stock price rose.

I stopped out of (SNDA) at $34.45 for a loss of under 1%.

Then I did something stupid.

Once again, I got too smart and impatient for my own good, and decided to use the S&P 500 ultra-short (SDS). The results were not good, and will be covered in tomorrow's entry.

-Geoff

New BUY:(TNDM)

Whether we're getting an over-sold bounce, a bear market rally, or the beginning of a new bull market (seems pretty unlikely), the market continued to show strength on Friday. I've seen plenty of pessimistic commentary, which I view positively. IBD claims there is a dearth of leading stocks breaking out, but I have seen a fair number. I might be wrong, but I'll continue to make careful purchases and manage my risk until I'm proven so.

I added to my (SNDA) position with my final buy, bringing my cost basis to $34.61. I'm up 5% in this stock in the two days I've owned it - that's the kind of move I'm looking for. I have my stop set around 6% below Friday's closing price now. I want to leave some room for the stock to pull back, but I'm still not willing to put much capital at risk given the current environment. Capital preservation is still (and always will be) the name of the game.

I also took a position in a new stock Friday, (TNDM). This stock made my screen about a week ago, and the one thing that got me was the accumulation evident in the weekly chart. Five of the last six weeks show the stock up on above average volume (one closed down but in the upper half of the range, which is considered accumulation). Additionally, the stock has been finding regular support on the 10 week moving average. It broke out past a $21.19 buy point quickly Friday morning and I got in at a cost of $21.58, higher than I would've liked. This could be an issue because the stock reversed later in the morning after making a new 52 week high, and though it closed up on the day it was in the lower part of the day's trading range. This is decidedly negative action.

Nonetheless, I'm holding the stock for now and looking at the chart I think if it can close above $21 it could really move.

I also like (HMSY) which had a great breakout Friday, I would've purchased this stock but I don't want to put any more capital in play at this time.

Still need to get into my reading and quantify my business trading plan. Hope to make some time to do that tomorrow (fat chance, with it being Selection Sunday - March Madness).

-Geoff

New Buy:(SNDA)

It's been so long since I've posted anything here, I'm glad I remember how to type!

I've had a few friends ask me about the lack of activity, and have to admit I'm glad there's someone besides me who reads this blog.

I try to make it a point not to come here and post my general thoughts and opinions about the market. For one thing, they are almost always wrong. I'm guilty of getting caught up in the moment, and often get dragged a long a bit by whatever the market has done the last day or two. More importantly, my opinion just doesn't matter. It's best to stay out of the habit of formulating predictions and opinions about the market as these can only serve to hurt me.

I believe the only thing that matters is the actual action of the market. That means until we get a confirmed rally accompanied by leading stocks breaking out of sound patterns, there really isn't much to talk about. Cash is king.

To that point, I'm proud to say that I think it's been something like three months since my last stock trade. I've let a few 'confirmed rally's go buy without making any trades, because I just didn't see the necessary leadership. In a market this bad, patience is the best practice. Capital preservation is the most important thing. I've been very successful in this, my only losses are the cost of research materials.

Having said that, I could've made more productive use of this down time. I intended to define a business plan for my trading using my current read - 'Trade Your Way to Financial Freedom.' Unfortunately, a very stressful period at work took almost all of my time and emotional energy for the last six months or so, and the rest went to my family (as it should be).

So, I still have this homework to do, and for the first time in awhile I actually feel up to tackling it. I look forward to commenting on the process here.

Now, about the market. For some reason, last Friday got my attention. It felt 'different.' I certainly don't invest money based on a feeling, but I started paying closer attention to the market's action. I began to look for a follow through day, and consider which stocks on my watchlist seemed most promising.

Today we got the technical follow through day on the NYSE indexes (Dow and SP500). I say 'technical follow through) because it met the definition of up at least 2% in higher volume than the prior day. Whether it will develop into a tradeable rally remains to be seen. We'll need leading stocks to break out of sounds bases and make nice gains.

I liked the action of the market over the past week enough that I made a first and second purchase of (SNDA). The relative strength line on this stock is great, it's in a group with momentum and has a running mate in (NTES), the fundamentals are there and I like the price and volume action in the chart. I made my initial purchase just above the $33.70 buy point at $33.75. I then pyramided up with a smaller purchase at $34.54, 2.5% above the ideal buy point.

We'll see what tomorrow brings, I have to admit it's nice to be back in the market after such a dreary period we've seen. Whether it will end tomorrow is anyone's guess...