$RL Work needed on your exit points. $study

- Yesterday went short given a downgrade in $TIF and $COH ( http://www.marketwatch.com/story/coach-tiffany-others-cut-at-jefferies-2011-01-03?siteid=yhoof2 ) and how these two were behaving; I thought $RL was bound to follow. Ended the day at break-even and almost covered.

-This morning Citigroup upgraded the stock and I thought would short it if up about 2% since that was my guess as to the max. the upgrade was worth. I wrote on my journal "naive averaging? bad risk management?" Well, thankfully I did not listen to my doubts.

-Thoughts : again like in the previous post (http://jpotrading.blogspot.com/2011/01/sbux-good-trade-should-have-been-better.html) a lot of money was left on the table. Again a simple trailing stop would have made it a much more profitable trade. Must work on this. Particularly since COH and TIF were cratering and this was your basic premise to enter the trade in the first place.





$SBUX Good trade. Should have been better. $study

- Entered the day with a short position at 33.25 . Reasons for it explained in another earlier post.
   http://jpotrading.blogspot.com/2011/01/bbby-and-sbux-betting-resistance-would.html
-Everything going according to yesterday´s thesis , and when there was a pullback from the downtrend I shorted some more at 33.02 (10:25) .
-Covered position at 32.71 (12:04) .

- Thoughts: only problem was the exit. Could/Should better plan the exit with trailing stop. Quickly looking at the chart, a good cost/reward trailing stop seemed possible; stock still went in a clear downtrend from my exit.

$BBBY and $SBUX ; Betting Resistance Would Hold. $study

  

-I had it that the level 50.10 was resistance for BBBY. This level emanated from the earnings report (23rd December) and the behavior on that day and the following days (http://jpotrading.blogspot.com/2010/12/importance-of-opening-level-in-gaps-ccl.html).

-So as shown in the chart I shorted at around that level with a stop at 50.55 that was almost taken out. Fortunately it was not and the trade was profitable. 
 
 



-With SBUX I again bet that a resistance level would hold. The level was (is) 33.15 from the charts. The position is at break-even and I held it overnight.

-Thoughts: By the time it reached my resistance level it was up close to 4% with no news, so that made me comfortable. Today must be careful since with a strong market it looks poised to break that 33.15 level convincingly.

$DE double top...for now. $study

-Shorted 84.58 (11.42). It was shorted via a stop order since looked like might lose strength if traded back at 84.58. Had not broken through previous recent high at 84.85; agricultural commodities were up but modestly so; $cat and $fcx also seemed to be running out of steam.


-Covered at 83.78

Thoughts: watch 84.85 for a breakout.

$APC to be or not to be taken over? $study

-Shorted 76.68 (9;37). Thesis being I do not believe in the takeover given the source (Daily Mail - see what has happened to $IMAX which has the same source), and the market cap 37 billion. Also the last half of Friday’s trade was one big downtrend, and given this downtrend seemed to want to continue thought it was worth a shot...with a dollar amount derived stop at 77.78 which was triggered at 10:33.


Thoughts: fair enough it ended below my entry point. Should I have done this better? Re-visit tomorrow.

$BIDU not a good trade...for now. $study

-Shorted 50% of position in the pre-market at 98.15. That was up 1.70% from Friday; thesis being it is a wounded stock trading below 20 SMA and it is dying to re-test the 95.00 level; it was up merely due to pre-market strength in the stock futures.


-Shorted some more at 97.88 (9:43); had broken down through 90.00 at a time market was reaching new highs.

-At 13:27 removed the 100.20 stop; felt they were simply going to pop the 100.00 stops.

-At 13.36 shorted some more at 100.19; general market seemed like was going nowhere further and felt this was simply a stop popping exercise above 100.00

-13.57 put in a buy-stop at 100.52; felt if the move above 100.00 was simply stop popping , should go no higher than 100.50.

-14.06 high of the day at 100.46

-End of day held position at average price 98.56

Thoughts: why trade in the pre-market? Should have been more patient. Stock showed relative strength after breaking 98.50 at 10:32. On the other hand original plan was held since original stop when entered the trade was 100.20. Let’s see what tomorrow brings.

The Importance of the Opening Level in Gaps. $CCL $RCL $ADBE $WAG $study

I never leave a position open in a stock that will have an earnings release. That is gambling in my book. Once the earnings are out they offer excellent volatility, especially in a week where the indexes barely moved.

All three broke out after the earnings release, at which point you have to decide whether you will fade the move or not. Making your own assessment of an earnings report and what the market reaction should be is risky and difficult ; a better option is to wait for the market to tell you what to do.

I suggest using the opening level as a guide. If a stock is going to break out convincigly it must not re-visit its opening price for it shows lack of certitude on the part of the break out. Its like a 400 meter runner that starts strongly and opens a distance to the other runners and slowly sees it reduced as the race progresses. You might want to short these and go long those that start strong and never look back.

ADBE gapped up 6.2% to $31.00 and never really went anywhere.

WAG gapped up 7.9% at 39.75 and had an even cleaner break of the opening price than did ADBE.

RCL had a smaller gap up of  2.6% . It behaved differently than the previous two in that it re-tested the opening price and it held. The opening price became an important support.

What happened to RCL was even more interesting although it had no earnings release. It gapped up 3% and never looked back on its opening price, never giving a hint that it might be a good short despite its apparently exaggerated move. In fact you should be looking for support levels from which to go long in powerful moves like this that basically could not care less where the opening level was. Its the runner that starts strong and finishes strong.

$AMZN overvalued? Yes...buy it! $study

I always like having an ideia as to the valuation of a stock  I trade. For a day trader like me this may help OR hinder you as I will explain. First the valuation : Analysts expect 43 billion in sales for the year ending in Dec. 2011;  around 30% growth. Let us use a very optimist profit margin of 5%.
    
                        43 * 0.05 = 2.15

So 2.15 billion dollars in profit; let us apply a P/E of 30:

                        30 * 2.15 = 64.5

At yesterday`s closing price of $175.57 , $amzn had a market cap. of 78 billion and an Enterprise Value of 73 billion.

So it seems overvalued . I will now try to forget this exercise and not let it bias me into not buying it for day trades as long as the important $173.50 support holds. Too much thinking about fundamentals may be harmful to your bottom line.
 

My son in Cascais telling me to sell three contracts.

"Prognosis only after the game" - A move is overextended only in hind-sight. $study

An interviewer once asked football player João Pinto, then playing for Benfica, what his prognosis was for the game. He dryly replied "prognosis only after the game". I will describe two successful day trades  I made based on  assuming the moves were overextended, one in $HD and the other in $AKAM.

The AKAM trade was done on Monday 15th November. It was falling around 6% against the sp500 on an Oppenheimer downgrade .http://blogs.wsj.com/marketbeat/2010/11/15/oppenheimer-cuts-monster-stock-akamai-to-market-perform/?mod=yahoo_hs . The week before the stock had fallen given worries of lost business at Netflix http://seekingalpha.com/article/236411-netflix-inks-content-delivery-deal-with-level-3-confirms-akamai-worries?source=yahoo . The first buy trade was at 10:52 and I sold the position at 15:52 .

In this trade as in the next one I hedged market risk by going short the SP500 via $SPY; I shorted 130% of the AKAM position.

The Home depot trade was done yesterday, 16th November. Results came out in the morning and were ok. The stock was outperforming the SP500 by about 5%. I thought this was excessive and started  shorting at 10:16 . I closed my position at 14.47

I was long 90% of the position size in SPY. Again, I was betting on the relative performance of the stock, not its absolute performance.

The thing about both trades is I had to make a judgment call on whether the moves were excessive or not; unlike the football player at the beginning of this post,  traders have to prognosticate before the end result is known in order to make money.

The link between not using stop losses and Peter Sellers in "THE PARTY" $study

Sometimes (many times!) I go into trades and don’t immediately insert a stop loss order. I then find myself looking at a small loss then a large loss and then a very large loss. I realized that the emotions I feel as this happens are perfectly depicted by the scene in "The Party" where Peter Sellers destroys the bathroom.


He should just have walked away when the water did not stop running; that would be his stop loss order. Instead a disaster ensues. The inability to act and take your losses is perfectly depicted by his bewildered look as the toilet roll doesn’t stop rolling (1minute 55 secs.).

$DE The trade I should have made. $study

$DE had been trading aboove 69.22 for the last couple days. This was a clear resistance and now support level. On Friday the agricultural products gapped up, again, as represented, for example by $JJG. The sp500 opened with some weakness but $DE gapped up and during the initial morning weakness never went below $69.72  which was still positive for the day. Best of all a clear double bottom was established at 9:58 . Nothing is certain in trading, but all of the above indicated a possible breakout and best of all a clear stop ($69.60 for instance) was established.

Easy Trade I Screwed Up $ORCL $study

$ORCL had good results and many houses were lifting price targets in the morning. Its not expensive , the SP500 was stable enough so I gave it around three minutes at the open, liked what I saw and bought at 26.69. Soon after I sold at 26.99 and it could be argued I should have held on longer with a stop 10 cents below my entry. Either way it was a good trade.

The problem is what happened afterwards. I started shorting around 26.85 and throughout all the area shown by the rectangle in the graph. What was I thinking!! Well I was thinking it would range trade and I would make a few pips...but then it crossed 27.00 and never broke it again. On the re-test at 12:10 I should have covered...Basic Trading 101.

So what have I learnt ?(and I should know this by now!!!). Follow the logic (cover at 27.10ish after support did not brake) and more importantly do not throw logic out of the window (what was the basis for keeping shorting at 27.20 27.20 27.35 ? None!! It was just stupid...failure to acknowledge a small loss led to a big loss. Ended up covering at the end of day for a nice loss.

One big mac, no coke please. $MCD $KO

Reading the Tape so as to avoid losses. $AKAM

I entered thursday short the market, including a short position in $AKAM. I was not too sure about this position; $akam is a "weird" stock but $nflx was down heavily on wednesday the market was not strong so I thought maybe high beta stocks might fall.

But come thurday mornig , the market is indeed falling a lot in the pre-market, but $akam was suspiciously stable. I decided I would give $akam a very short leash; I would give it a chance to fall quickly at the beggining or else... When it showed no relative weakness in the first minutes I covered at 9.31.31 and at 9.33.26
Good thing I did , because from then on its relative performance was very stong. I use relative (to the sp500) strength often to tell me what a stock "wants" to do.

A trading mistake.

I went into the employment numbers heavily short. This might have been a mistake since I had no particular insight into the numbers. The only rationale was we were at recent highs so maybe a better than consensus number was needed for significant upside. The real reason was I was on a loosing streak and was hoping (hoping ...how embarassing) for a bad number.

But this is not the mistake I refer to in the title . Rather the fact that , lucklily, the numbers were a bit weak, and I suddenlly saw myself with almost $3000 in profits...and then I got greedy! The sp500 was falling 1.5%, a big move...but I thought it would go down 2% (why!?) so I relaxed and held to the close...and my excellent profit turned into a mediocre $600 profit...and leaves me hoping (argg!) for a neutral or down opening on monday.

So summing up...do not get greedy. Also do not let your recent perfomance influence you. In my case my abismal recent performance influenced me into being greedy , since consciously or not I´m sure I was trying to hard to make up for recent losses...normally I would take the $3000 .

Contrarian versus Trend trading

Type "trend trading" in google and you get 5 250 000 results. Type "contrarian trading" and you get  2 690 000 . ( It would be funny if contrarian >trending !)

$GS and $MS will suffer from prop spin-off

I beleive one of their advantages , if not the main one, is that their flow (customer) trading gives them an advantage into what the"market" is doing. This allows their prop. desk to benefit...in a way its kind of legal inside trading. If they install a real chinese wall, this advantage is gone. (This applies to other investment banks as well, but more so to $GS and $MS...just look at the % of profits from Goldman´s famous FICC department.)

SP500 new recent high not convincing.

While the sp500 reaches new recent highs, the russel 2000, the banks, and the semis could not give a shit. very suspicious.

Thoughts on my trading style

I believe most successful traders develop a style that fits their personality for whatever reason, consciously or not. The basic choices available are trend following or mean reversion AND your time frame. I trade predominantly in the "square" under mean reversion on one axis and intraday or overnight in the other axis.
My investment horizon has a half-life of three days ; i.e. one week IS the long term for me.