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...

Sell Stop, Penalty Box, and Year in Review

I took a much needed break over the holidays so I neglected to post my stop out on (ACM) on 12/18 for about a 4% loss. As I said in my previous post, this was not unexpected and I immediately put myself in the penalty box for three weeks, which means I will not trade until at least 1/8.

I think the penalty box is a great limiter to prevent further losses. It eliminates ego from the equation. It doesn't matter if the problem is the overall market, my picks, timing, buy points - something is wrong if I stop out on 3 or 4 stocks in a row, and if something is wrong I need to take a break.

In this case, I think the last few months of the year there was far too much chaos in my job to allow me to invest effectively. Work took all my time and energy, leaving nothing for my family let alone a second job investing. Under these circumstances, it was probably a mistake for me to invest.

Additionally, we continue to languish in a bear market that is whipsawing even the most seasoned traders. The only safe bet at this time is the one not made. I still think we will see the S&P 500 trade down to 600 before it ever makes a new high, though that does not mean we can't have a tradeable rally before we sink to that level. As always, I'll try to keep my thoughts and feelings out of the equation and evaluate the price and volume action of the market indiscriminately.

At some point I'll need to dedicate some time to a thorough review of my trading last year, but for now I'll simply say that I showed improvement but I still have a long way to go. I'm pleased that most of my losses this year were actually costs of research materials, from trading I actually only lost $600. I made some mistakes and I could've earned money this year, but I'm moving in the right direction. I greatly outperformed my mutual fund benchmarks, mainly because I spent most of my time in cash. This is further confirmation that the first rule of investing is capital preservation.

This year I should soon make a career change that will afford me more time to refocus myself on investing. I intend to use this time to get back into the 'Trade Your Way to Financial Freedom' book and build a business plan for my trading activities. I expect this next step in my development will yield favorable results.

I wish anyone reading this a Happy and Prosperous New Year!

-Geoff

New Buy:(ACM)

Today I bought (ACM) again. I felt that it formed a handle with a $31.15 buy point and my order was executed at $31.19. The handle was not ideal as volume didn't drop as the handle formed, however the shape is good and it's formed in the upper part of the overall cup pattern.

I think what keeps bringing me back to (ACM) is the overwhelming strength it's shown for the past five weeks - all up on heavier than average volume. This is the kind of quality in a stock that will cause me to overlook characteristics like a flawed handle or a weak industry group rating.

I also see the overall market showing strength one day after another. Again today the indices dodged a distribution day following the accumulation day yesterday on the news of the Fed lowering rates to 0%. If I looked purely at the indices and ignored the daily news (which is what I'm training myself to do) I'd think we're in a solid bull market.

There are however some caveats. For one thing, volatility remains extremely high. This factor alone can frustrate even the most seasoned investors. In times of uncertainty I react by using tighter stops on my buys, increasing the likelihood they will fail, creating more uncertainty (fancy word for fear). Certainly it's prudent to limit my risk when the market is unsettled, but I wonder at times if keeping such tight stops creates a self-fulfilling prophecy.

The other issue I see is a lack of quality stocks breaking out of sound bases. This may take some time to develop but for the time being I don't see any obvious market leadership.

I'll continue to evaluate these factors, but I think when you cut through all the crap the bottom line is investing is tough in a bear market and less tough in a bull market. It's easy to look dumb right now. I don't mind taking chances when I feel the market warrants it, as I do now. However, if I stop out again I will put myself in the penalty box for three weeks - barring myself from any new buys during this time period. I've read about similar strategies and feel it's an effective move. Whether the problem is me, the market, or dumb luck, if I'm striking out it's time to step away and get a new perspective.

Anyway, it would help me to relax and enjoy the holidays.

-Geoff

Stopped Out (THOR) and (ACM)

Stopped out of both of my positions yesterday, I had moved the stops up a bit so I took about a 3 to 5% loss on each.

This market continues to whipsaw, yet it doesn't roll over. As I'm typing this it's absorbed the news that the auto bailout was voted down and is now trading positively.

I can't predict the market and I won't try, but I'm still seeing evidence of a rally here. Whether or not it's tradeable remains to be seen - my results have been poor so far.

I've got one stock left on my watchlist that is setting up for a possible buy point next week. If I have another failed buy however, I will put myself in the penalty box for three weeks. I've heard of this strategy and I like it. No matter what the market is doing, if I fail on three to five trades in a row something is wrong and I need to take a break and re-evaluate.