I find myself today with a perplexed feeling regarding the market behavior this week. Don’t get me wrong though, I am more than thrilled with the stampede run for my long positions. I am grateful, just wondering how far from reality the market is right now. A lot of headwinds, a lot of negative events in progress around the world. I guess we don’t care.
Nonetheless, I trade what I see. And what I see are stocks like LULU that run 20% up in a week. Or a stock like PCLN that breaches the 500 level with the greatest of ease. Incredible.
I am closing most of my remaining Swing long positions as we ramp into the end of the quarter. I have no current Swing short positions at this time. I do have several Short positions in the LT account that are part of my Bricks & Mortar Shell basket. My largest option trade, in the Options account, is a Risk Reversal on XLF for June strikes of 14/18.
I Believe, I have accepted. I also believe that I should be nimble.
One of the important tools that I use in my trading execution strategy involves the use of stops. This week has provided me with several interesting situations where I noted stock behavior that was geared toward the “hunting” of stops by programmed trading systems.
I took a stop in my short of VMW from last week today, and although I am fine with the result, it bothered me that I was not able to avoid these Stop Hunters as I normally can. I saw a similar behavior with my MOS long position today as it pulled back from an intial move over the 77 level. The real test for me however came in my trade of CREE.
I went short on CREE a few weeks ago based on this chart:
The stock had a poor earnings report and gapped down on 3/23. It attempted a small rally today and thus I moved my tr stop down to 45.25 and posted such on twitter.
As I watched the stock movement today, it seemed destined to get to that stop. I decided to remove the stop and put on a 5 minute chart to monitor it more closely. My experiment was to see how close it would get to the posted stop on twitter. It overshot by one nickel and then rolled over. One nickel !
I saw a great quote today in this post, and saw a few folks highlight the quote on StockTwits as well:
“Remember, this is the game you signed up for.”
I am putting back on a pairs trade that I had in place late last year. The trade involves being Long 1 AMZN and Short 8 GME. The thesis is still that GME will continue to come under enormous competitive threats, from the likes of AMZN and WMT, in the retail of games and other similar products.
The real threat however comes in the form of this: at some point game players will download the games directly and/or access them via the Internet. The demise of GME falls into my Brick and Mortar Shell basket of stocks.
Given my current view of AMZN, having found a bottom here near the 163 level, It feels like the right time to put this trade back on. The AMZN Daily chart, as well as the GME Weekly chart are both below:
As a bonus to this pairs trade, one could start to consider CSTR as a threat to GME (and somewhat AMZN) if they do in fact begin to provide game rental/exchange/purchase through their network of kiosks as well as their supposed download service.
It is Wednesday, the middle of the week, what some call “hump” day. I find this part of the week to be a great time to review live Stalk lists and review the Trading Journal – ensure that it is up to date.
Since I do utilize a day trade account for intraday trades, it is a good time to bring the Journal up to date as much as possible. It is also a good time to visit stocks that have not triggered yet – a chance to learn from their charts.
I have had a smaller number of price alerts trigger this week, so I have been reflecting on the data to determine why this may be. From my initial review, the only key difference I have found is this: I have a higher percentage of short candidates set up in my price alerts. Many gapped below my trigger point, and I don’t chase, so that explains the lower number of trigger opportunities. One additional data point is the fact that I am setting tighter price ranges on the alerts in this volatile market – that explains some of this as well.
For those that have asked about this week: I have a Stalk List that contains 43 entries currently. A CREE short was added today. BRNC did trigger for a Break Out today but I have no position yet.
Be prepared. Be Focused. Be Ready.
Now on to the stock market. The SPY (Spdr S&P 500) had a rough week given all the events happening around the world (Japan, Middle East to name a few). Although the SPY does look vulnerable here for a further down move, I am seeing some “bottoming” taking place in some of the more common indicators. Take a look:
As I point out with the left-facing RED arrows, the MACD (Moving Average Convergence Divergence) has been falling for a few weeks and is now slowing its descent. The Stochastics have bottomed already and spent the week churning. With that said, it is concerning to see the 20 day moving average rolling over, and headed down to cross through the 50 day moving average – this would be a bearish cross.
The RSI (Relative Strength Index) has a reading of 34.95 which is just above what is considered oversold. Price did makes it way back inside the lower BB (Bollinger Band) but did print a bearish candle for the day on Friday. The volume for the day notes continued selling pressure.
At the moment we are seeing the U.S. markets indexes showing a nice bright green color. The vast majority of the stocks on my various watch lists are green. Everyone who is long feels wonderful after the green beer on St. Patrick’s Day.
So why am I short?
Like most traders, I utilize a variety of market “tells” – things I watch that help me to understand what is really happening “under the hood”. This week I monitored a small selection of stocks that either held up well on the blood RED days, or performed miserably on the GREEN days.
On Thursday I determined that CMG was not showing up to play ball – it just wanted to ride the pine. I sent out a few tweets regarding that and ultimately put on a PUT spread for April. Other stocks that made this “ride the pine” list were FFIV and VMW. In addition, StockTwits provided me with other solid short opportunities (one from Greg Harmon, @harmongreg, in SKX).
As you are likely aware, today is OpEX day so expect some “extra” volatility. Good Luck.
One thing you can be certain of, the stock market does not like uncertainty. With the unknown outcome of Japan’s current Nuclear crisis, the jitters are ever apparent in the U.S. stock markets this week.
So, are the things that we can be certain of? I think so. It is clear to me that Japan will need to rebuild the areas that have been damaged by the earthquake and tsunami events. With that said, here are a few companies to look at:
CAT is a good provider of construction equipment and power generators.
GE is a key builder of Nuclear Power Plants and will have some involvement in repairing the damaged plants in Japan.
PCL is a lumber provider.
You no doubt can think of other companies that should participate in the rebuilding efforts. Good luck Japan, our thoughts and prayers are with you.
Here is what I was working from today:
This is a spreadsheet where I monitor various types of trade setups. There are additional columns to the right where I put in various comments, a ranking system that I use, and other variables. This gives me one place to look when I review my stalk lists at night, as well as when I run scans looking for new setups.
There is a component to trading that NO ONE finds fun at all. The moment that you have to close a trade at a loss provides no enjoyment whatsoever, but it remains a task that we all have to do from time to time. There are many reasons that one finds the need to close a losing trade, but hopefully your Risk Management is why you are doing it in the first place.
For me, I determined today that my Long swing position in DOLE was weakening to a point where a failure through prior support was quite possible. I elected to tighten my stop to the 13.90 area and let it hit to close the position at a loss at -.32 cents a share. This is what I saw in the chart:
It looks to be the start of a Rounding Top pattern with a LOT of area below to the 200 day Moving Average below. The trade setup for getting me in was the Bollinger Band “squeeze” as noted in the chart. These can shoot up or down however, so you have to be prepared for that.
Don’t be worried about losing it from time to time, just keep your wits about you. LOL.
One of the common trade setups is the Break Out. There certainly are a lot of varying definitions for what this trade setup can look like, but they all ultimately have one common goal: to catch a stock that is right on the cusp of a big up move, either up through prior resistance or up through a moving average overhead.
A current stock that I am monitoring for a Break Out is PKT (Procera Networks, Inc.). As you can see in the chart below, it is “coiling” just under the 10 level:
Some would argue that the stock may be forming a Cup-n-Handle pattern as it seeks to break up through the psychologically important 10 level. As the rising 20 day moving average below inches closer up to price, I see it forcing more action.
For now I am content with having my price alerts in place and will continue to “stalk” it here as it churns.