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.