Some New Ideas

First off, review of my charts from last week...

LDK: Last week was looking for a breakout to the upside, but apparently it was a fakeout. Everything looked good for a move up but I guess it wasn't the time. From failed moves come fast moves (as indicated by the highlighted area)- the next day you see one big long red candle. Really don't know where to go with this one as the chart looks broken now. It seems to be just trading in this 12.50-15.50 range for the past months, so perhaps playing the channel would be okay until it breaks down or breaks out.



RL: Dropped below that support I had indicated previously, and I entered APR 35 Puts today for $3.00. A nice doji for today and a bounce off the prior support. A tight stop would be right above the 41.74 line, and that will likely be my stop. Although they are April puts, I could probably reload if it gets to the prior high and stalls there.


BBY: Dropped below the resistance line as planned, but today had a very good up day relative to other stocks. I will stay away from shorting here, and will see how it responds to the descending line at 30.5-31.


WLP: The biggest mover of the ones I mentioned last week. I missed the opportunity on this one as I was waiting for a better entry. But, it just sold off hard from the start of the week. A failed backtest of 43.84 could be a great short.


Some new shorts:

GES - Guess Inc. - Highlighted is where I would try out an early short, but it may proceed to ride the line upwards if the general markets continue higher next week. Obama hype? :) Pretty defendable position just above that area.


PALM - Palm Inc. - The ones who make the palm pilots, handsets, etc. This chart is incredibly run-up in a short time. Really no news on it, so I'm guessing just a short squeeze. I bought Feb 7.5 Puts on this today for 0.80, we should know pretty fast next week whether it will continue higher through this resistance, or retrace a good amount. The end of day on PALM showed some weakness, so my position is already ITM. Target is probably 5.2 for a first possible profit taking level, followed by the gap fill level of 4.50.


MYL - Mylan Inc. - It looks like it's coming into critical area as it's been riding the lower trendline since the October lows and now meeting resistance at around 11. I would wait on this one until it breaks eitherway.


DV - Devry - This one could be real interesting. It's entering the area where it's found resistance since late 2007. This area is also it's all-time highs. Not sure why the education stocks are so strong, maybe because a gloomy economy results in people going for cheap and quick technical colleges? Anyways, I only mention this because I've noticed ESI, also on my watchlist, being relatively strong. This seems like an easy short- enter short when it gets close to the resistance above, set stop above all-time highs. You could also say that there's a inverted H&S in there, but that will have to be confirmed. From the looks of the chart, it looks like one of those stocks that just never gets down, so I'd be careful with this one.


One long:

GLW - Corning Inc. - Target is 11 on the upside. It could be a decent buy on Tuesday if it doesn't gap up hard or anything. Safer would be to just wait for a pullback again, but may miss it altogether. Also of notice is that it's catching some support off the flattening 50DMA.


That's all folks. If I have time before I leave, I really want to do a post on today's /NQ futures trading that I did as it was extremely profitable and what I was thinking when I made the trades. Today was likely my last full day in front of the computer for the trading hours for the next couple weeks as I am headed out of the country (Taiwan). As I will have no computer access for the first couple weeks, I believe I will be limited to i-Cafe's. So, I'm going to have to do some careful advanced orders to position my portfolio for not-much-hurt while I'm away. Will need to place some carefully chosen OCO orders on most of the positions I opened today, with a stop and a target limit price to cover/sell at. Lord help me. :)

Edit: Alrite, /NQ trades today. I caught 27.5 points I believe, if my calculations are correct. That would be 27.5 x $20 per point (also known as handles in futures jargon). So that came out to around $550 today just from trading the /NQ. But, gotta take out the comissions, so that leaves $550 - 28 = $522.

See below for short entries and where I covered:


I think the biggest two things to take away from this are:
1) When we're trending, just let it trend until the trend changes! If I had kept my first short of the day and let it go until the downward channel broke (about when I covered one of my later shorts at 1173), I would have caught 24 handles on that one move. Add in the long trade, and it would have given me 40+ handles for today, you do the math! As you can see, instead I got in and out of shorts all throughout the morning. For the most part, it was because I was anticipating a, rip-your-face-off rally due to OpEx all day, and so I set in tight stops. So on every retracement, I'd get stopped out... which gets me to my second point...
2) Trade price action, not your emotions! Setting looser stops today would have been my friend today. Although this is all hindset, it did not really make any sense for me to set really tight stops. As I mentioned, it was because of my anticipation of future price action that caused me to do so. Resultingly, that let me ride the reversal all the way pretty much. But, had I got rid of that notion of, rip-your-face-off OpEx rally, I may have been more inclined to just set a stop above the previous highs, and tighten them just above every following lower high (which is what I did on the way up- raising the stop to just under the next higher low).

To my surprise, trading /NQ has been the most profitable for me since the start of this year. My other option trades have been 50/50, and I've left a lot of profit on the tables, as well as making a stupid mistake (again based on emotions) by buying OTM Jan 87 SPY calls earlier this week. They expired worthless. :)

Looking For Jobs... in China?

While perusing our university's job website, where employers can list openings for us students, I came across a listing by The Princeton Review - Taiwan. See the location for this opening:


I can't tell whether it's our university's job site that allows employers to select "Taiwan, Province of China" as an option for location, or whether The Princeton Review was given a blank box to write it in. Regardless, times are tough for a Taiwan that is recognized as separate from China. Today's top story in the TaipeiTimes points towards calendars being distributed in Taiwan, as having "added/extra" holidays. Holidays that you would not celebrate, unless you are Chinese.

So much for Ma Ying-Jeou's promises of "633" economic prosperity and claims of protecting Taiwan's sovereingty and doing what the people of Taiwan want. Even the most pro-KMT and conservative polls give Ma Ying-Jeou at best, a 30% approval rating. Hmm, just about what outgoing President Bush has, except Ma did what President Bush took 8 years to do, and perfected it in just 7 months. Obviously there's a disconnect between the people and President Ma. If he can't recognize a sagging approval rating as a sign that where he's taking the country is not what the people want, well then Taiwan is obviously screwed.

LDK!

LDK looking like a decent breakout move today. I added some Feb 17.5 calls, and may add more if it successfully back-tests the 15.50 resistance.



On this move, 17.50 should be real easy. But, as this resistance has been huge over the past 2 months, I feel like there could be more upside than the two points that the chart suggests. But, I will trade what the market says it wants to do, not what I want it to do. Currently have a stop at 14.95, a little loose due to the whipsaw shakeouts that have been apparent this past week.

Edit: I'd just like to point out that these levels mentioned, the 15.50 resistance and potential first resistance level on a breakout (17.50) correspond to within pennies of fib levels marked from the Election Highs to the November lows. Just shows that fib levels are very useful.

And here's three shorts out of the many I'm looking at, but these look nicer than the others:

RL- Ralph Lauren - Closed right on the support at 41.74. Downside volume is increasing. Short-term target if it breaks could be 38.5.


BBY - Best Buy - Broke below 28.77 on decent volume. Stochs pointing down, might catch initial support at the higher low of 26.


WLP - Wellpoint - Falling out of the rising channel and at the same time failing to overcome the 43.83 resistance. Volume also increasing today with stochs pointing down. A target of 37 looks reasonable. As Brian Shannon from AlphaTrends.net always says, from failed moves come fast moves.


Also, just for fun, CNBC's seemingly bearish front page spells more doom and gloom this week, time to go long? (Red-highlighted-areas are my own editing for consideration) :)



Lastly, I completed my transfer from TradeKing to ThinkOrSwim this past Tuesday, and I approve of TOS- two big thumbs up! The funny thing is that TOS was just acquired this past Thursday by TDAmeritrade... hopefully things don't go downhill for TOS from here. TDAmeritrade's comissions are ridiculous and it'd be sort of lame for me to go from TD Waterhouse -> Merger TDAM -> TradeKing -> TOS -> back to TDAM (TDAmeriSwim?). As such, started trading /NQ futures... I must say, it's pretty addicting as the leverage it gives for just a few point moves makes it very appealing. Also because the account I moved to TOS is not qualified to be a Pattern Day Trader account, so getting in and out of indices isn't a problem with futures. It might just become something I trade much more often... I haven't traded the double ETFs since I moved the account to TOS, so... it's looking to be that way.

Three Rules For The New Year

I can attribute a huge part of my "unsuccessful-ness" this year to one trade. From this trade, I will draw up three rules that I will follow this year. I've never been someone to do "resolutions" as I found it stupid to do for generic life stuff, like, lose weight, and lose weight; But, I feel that having rules/resolutions for my trading system would be very helpful for me this year. I've had mental rules, but I've never set them out on stone. Thus, I will do so here.

Setup:

Started building call positions in LDK late spring/early summer for their 2Q earnings announcement on 8/11/08.

By 7/23, I had built a position in LDK calls that was just about 1/4th of the account value, which is a lot.

What happened:

LDK had blowout earnings, and resulted in a subsequent move from 34 PPS to just above 50 at the peak, in less than two weeks. My calls exploded in value and I was quickly profitable on that trade by about 60-70%.

Result:

I lost 50% of the initial investment when it was all said and done. How can that be possible you may ask?!

Reason:

I was greedy and no longer thinking with a level-head. Add to that, I had no rules set in place at that time.

The Chart:



This was probably the one trade where I "bet the farm" and "backed up the truck" for 2008, and I blew it. I made a profitable trade and let it slip right out of my fingers. I urge everyone who trades to take a look at this and draw your own conclusions as to what went wrong, as well as take in what I feel I did wrong here.

My lessons:

• First and foremost, looking back, I realize how well it actually turned out when compared to what could have actually happened. I did not account for the fact that it is possible, that LDK had a bad quarter and I could thus lose the entire trade.
  
• Based on the above, I should have set a stop under the bottom red line (just under $31) as it found support there numerous times.
• After the gap up, at the very least, moving my stop up to just under the gap, or enter in a trialling stop would have been very smart.
• By the time LDK broke the previous high at $48 (upper red line), I should have moved the stop up to just under $48. Had I done that, I would have been out of the trade the day after it broke above $48, and only would have missed out on 4 more points to the upside. Whereas, I ended up holding, and lost 4 more points to the downside.
• The VIX crush post-earnings really hurt my trade, as you can see- I exited above my purchase price on the underlying, but on my calls, they were down.
  

Three New Rules:

1. Stops on every single trade. Near the end of last year, I was still trading without stops on some trades. Why? Because I was trading with the expectation of where the price will go, without regard for what the market was actually telling where it was going. Regardless of a stop or trailing stop, or how tight or how loose, a stop must be in place!
   
2. Cut your losses when the trade goes the wrong way. This goes along with the above, but I've always had a good mentality about, "letting your winners run," as seen in the above example; But, I also had a bad habit of letting my losers, lose. This would have been apparent in my trade above had LDK reported not too hot earnings, and with no stop in place, it would have resulted in a far worse trade than what transpired.
3. Be very cautious with options around earnings. Made the right call on the direction, but the VIX crush moved against me. A Rule? Well, just need to always be mindful and wary of volatility crunch, especially around earnings.
   

The Obligatory End Of The Year Post

I'll keep it short and sweet.

Taiwan

A lot has happened since Ma Ying-Jeou was elected, but I, like many others, feel that the worst is yet to come for Taiwan in terms of its sovereignty, freedoms, and economy. Perhaps a glimpse of what is to come, Hu Jintao (Communist leader of China) held a speech outlining China's policy towards Taiwan. The key quotes and what they actually mean:

• "As long as the 'one China' principle is recognised by both sides.... we can discuss anything," (Read: As long as you admit Taiwan is a part of China, of course we can talk about trade agreements and international space, but that doesn't gurantee anything)
  
• If Taiwan's opposition Democratic Progressive Party gives up "splittist activities" and "changes its attitude," it would elicit a "positive response," (Read: We hope your party dies, once we take over Taiwan, your party will cease to exist; if you happen to give up your splittist activites, then maybe we won't kill you when we takeover the island- just place you in jail)
  
• "We understand the Taiwan people's feelings on participating in international activities, and we attach great importance to related issues on this," (Read: Blah blah blah, fluff fluff fluff)
• "...We can have realistic negotiations to reach a reasonable approach for the issue of Taiwan participating in the activities of international organisations on the premise of not causing one China, one Taiwan." (Read: Again, we can negotiate participation in international organizations if you admit Taiwan is a part of China; that does not gurantee anything)

A few articles mentioned some sort of armistice or peace accord. That is exactly what I described a few months ago as one of the signs that Taiwan is falling into the grasp of China. The sad part is that the 50-60% of Taiwanese who support 'status quo,' are too afraid or actually think that what is happening is still, 'status quo.' By the time the 'status quo' actually changes, it'll be too late.

The Markets

Over the past couple years I've read many books on investing and trading. One key theme throughout all the books (it seems like), is similar to what Dwight Schrute said in the television show, The Office:

Mr. Brown: Great, well, what is a hero to you?
Dwight Schrute: A hero kills people, people that wish him harm. A hero is part human and part supernatural. A hero is born out of a childhood trauma, or out of a disaster, that must be avenged.

Most notably, the last sentence. One theme throughout those books was that they "saw the light" or became "great" at what they did, only after going through a crash, or losing it all once, or something like that.

Like a hero born out of a disaster.

Those who were in the markets for 2008 should be able to claim this year as a disastorous year. Perhaps it is as it is, that only after something like this year, can we truly become a great investor/trader.

Earlier this year my account was at an all time high. At the time, since it's inception in December 2006, my account was up somewhere between 350%-400%. Sometime between then and now, my account value ended up really close to where it was 2 years ago. No I did not lose everything, but all those gains that I never realized when my account value was at an all time high, evaporated in just a few months.

Looking back, I easily thought I knew what I was doing when I was up 300%+. I mean, who does 300% ROI in their first year trading? This year has been a tough year, but I'm glad I learned what I learned in my first 2 years of trading- better now then later as they always say.

Here's to those who survived this year: May we become true heroes.

The Perfect Storm

So I've been "bunkered" down in our house for the past week with what started as mediocre snow in this region, but the past few days, has become quite a blizzard. Having ventured out once, traffic is slow, people are pissed, people do not like shopping in this weather.

This is icing on the cake, for a poor shopping season for retailers. Huge markdowns and last minute e-mail trying to get me to buy their items with free 2-day shipping to get it in time for Christmas speaks volumes. Now add to the fact that many families are stuck in their houses, and now you have less shoppers than even intended due to weather. I wouldn't think there be much impact if it was just this area, but this is happening across the U.S. Despite what they say, the patriotic thing is not to go out and consume and buy up more stuff on credit. Work and save is the way to go.

Too lazy to put up charts, but I'm in VFC puts and short the actual stock on ANF.

Why The World Thinks Taiwan Is A Part of China

When Taiwan actually does get some front-page status on CNN.com, you can bet they'll get the history of Taiwan wrong. And this is why everyone except Taiwanese people think that Taiwan is a part of China.

"China, Taiwan reopen regular links" - CNN.com

As if CNN were a part of China's propaganda machine:

Taiwan separated from China after the communist victory in the Chinese civil war in 1949, with the defeated Nationalists setting up a government there. Beijing has always considered the island a renegade province and has threatened to go to war should Taiwan declare formal independence.

Please note that Taiwan did not separate from China in 1949. What actually happened was Chiang Kai-Shek lost the civil war against the Communists and fled to the island of Taiwan. At the time, Taiwan was to be a temporary-camp where he hoped to eventually launch a counter campaign against Mao Zedong to retake China. But, that never came to pass and eventually the KMT and Chiang Kai-Shek stayed on Taiwan and occupied it for the next 30-40 years.

Edit: I came across this editorial in the TaipeiTimes.com, which I found to be very well written and digs deeper to the underlying cultural ramifications that underpin how China views the world, and the U.S.

Jeffrey Garten, an undersecretary of commerce in the administration of former president Bill Clinton, has said: “Barack Obama’s first overseas trip should be to China and it should occur within a month after his inauguration on Jan. 20. He should bring Secretary of State Hillary Rodham Clinton, Secretary of the Treasury Timothy Geithner, Secretary of Defense Robert Gates and his ambassador to Beijing.”

“Such a trip would be a showstopper, breaking all precedents,” Gartner, a professor at Yale, wrote in Newsweek magazine last weekend. “The trip would not be designed to negotiate or resolve specific issues. Instead, Obama would be setting the style and the tone of a new US approach to China.”

The Chinese, however, would see that visit as the young, new, and relatively inexperienced president coming, like the envoys of old, to pay tribute to China. In Asia, where symbols command more attention than in the West, an early Obama journey would be seen as the “Western barbarian” submitting to the power of the Chinese court.

What you don't want to do with China is cuddle it, feed it, and make it feel like a superpower. Because they'll feed on it, and use it to their advantage. Don't think you can make a bully not bully you by continuing to give him your lunch money. For the most part, dong hong lang all know that China is the biggest threat to stability in the Pacific region, but do we all realize that China will be one of the two biggest threats to stability, in this world. Watch and see, China /Taiwan & Israel/"Everyone Else In That Region" will be the key tipping points over the next decade.