Levels For Stocks in Play Friday $KLAC $AMAT $NVLS $LRCX $ARMH $ERJ

KLAC

                                                                           AMAT

NVLS

LRCX

ARMH

ERJ

Good Trades Have a Logical Story Line. Overnight Positions Have Missing Chapters. $SPY $ADSK $study

-I had a number of reasonable trades yesterday. The common theme was I could explain the reason for the trade in a logical manner, a "good story", and hopefully the market would agree with the ending I had in mind.

-For example the following $ADSK trade. Citi had downgraded the stock( http://finance.yahoo.com/news/A-60Second-Guide-To-What-siliconalley-2380963544.html?x=0&.v=2 )and it opened down more than 2%. It recovered valiantly to the point that I thought it was too much. I shorted at 40.71 with a stop at 41.02 . My "story line" played out fine. It would be invalidated should ADSK trade over 41.02 .
-Importantly if my story was wrong I would just stop reading it or leave the cinema at my stop level.

-The problem with overnight trades is you cannot tell a good story because ...there will be missing chapters. The story takes on a plot out of your control. You cannot leave the cinema till it is too late. I came in short SPY ( http://jpotrading.blogspot.com/2011/01/yesterdays-trades-spy-de-bidu.html )and by the morning the market had a written a couple of chapters that left me with a loss. End of story; I either liked it or not.

-So no overnight trades please. You have no edge.

Yesterday´s Trades: $SPY $DE $BIDU

-I entered the day short $SPY. There was a bizarre downdraft at 13:09 that gave me a chance to cover, but I thought it signified more weakness to come and did not. Still in the position and not looking to good this morning with futures up.

-DE opened with a break out. I traded it as shown in the chart above. Basic premise was that a significant breakout would not occur.

-BIDU had a weird drop which called my attention. This was well before the 13:09 general market drop.
-I covered when it started behaving relatively strong in relation to the market. My thesis was that something was up when the drop occurred....but if this was so it would have dropped much more significantly when the market kind of collapsed later. My reason for the trade was invalidated and thus I covered.

Yesterday´s trades : $ADBE $BAC $SPY

-ADBE was upgraded before the open by Merril Lynch. I felt the initial pop up did not have much energy to it and shorted it at 32.46 with a stop at 32.55 just above the opening drive high of 32.54 .

-I traded BAC from the long side since it was showing relative strenghth to other banks and to the market in general. Yet , despite being "right" I lost money.

-The irony is that I closed the second try flat because I felt the market was going down if anywhere. I not only closed the BAC long but went short SPY as well as shown below. Would have done much better just holding the BAC long.

- Asian and European market weakness and Friday´s late ramp biased me to trade the SP500 with a short bias. But price action rules , and my first short was stopped out just above the intra-day high as shown in the chart.
- I re-entered via a stop-short sale at 126.88 with a stop at 127.02 . I removed this stop and was looking ok in the after-market as SPY traded around 126.90 . Pre-market action this morning has popped it to 127.50 and I still do not know what I will do.

$ADSK $AMZN $DE $FCX $LLL . Not a Good Day.

-Bought at 41.43 (9:56) on the breakout. Sp500 also seemed favourable with slight uptick. Stop triggered 40.98 (10:51).

-Thoughts. The entry was OK; a fair bet on the breakout. I failed on the stop. If it was going to breakout, a 20 cent stop would be sufficient. I put the stop at 40.98...1% move in the stock price. Not justified. Clean breaking out stocks do not re-trace 1% after insignificant moves.

-Another trade I did trying to ride a breakout was AMZN. Recent high was 187.71, and I bought at 188.29 (10:16). I set my stop at the day´s low at 187.05 , and this was triggered at 10:53 .

-Thoughts : the stop was well placed at the previous low for the day; 0.64% from your entry. The stock started falling exactly when the SP500 did at 10:36 . Just a cost of business loss.

-DE was another breakout trade...and it also failed. It  started falling at 10:36 with the market.

-Three trades , three losses...I was going to have my breakout trade! Instead of relaxing/going for a walk I persisted . This wrong mindset led me to a trade I normally would not take. I went long FCX just because it was showing some relative strength, and put a dollar size stop . The 117.45 line I show in the chart I was not even aware of at the time of the trade. Horrible trade; no method.

-I also managed to screw up two trades in LLL but too tired to write them up now. Funnily enough this one did truly break out!

$MSFT $NVDA . "Work needed on exits." Repeat 1000 times.

- The $DIS trade I blogged about yesterday ended well as I covered at 39.52 (30 cent gain)http://jpotrading.blogspot.com/2011/01/dis-do-your-homework.html

- More importantly I took to heart my own advise of looking for "easier" breakout trades. At 14.00 I wrote in my journal "time to look for pops" and this led to successful trades in $MSFT and $NVDA .

- So, looking for strong stocks I bought $MSFT 28.56 (14:09) and sold it 28.65 (14.49).

- Thoughts: Well done for the effort...totally unnatural for me to do these momentum trades. (Gotta do more) . Horrible exit. There was no reason to exit the trade when I did. I wrote in my blog "market falling and making me nervous" . Well the correct thing would have been a trailing stop at or slightly above my entry.

-My quest for "poppers" then led me to$NVDA. My shorting instincts almost got the better of me at the point shown in the chart.

-Thankfully I did not and went long as shown in the chart. Also set the stop to my entry point and therefore did not get shaken out when it pulled back....but could not resist selling at 19.09 . Bad move...look at all the money I left on the table...and again a reasonable stop would have kept me in the trade.

-This problem with my exits is recurring . Had the same problem with $RL and SBUX and $BBBY earlier in the week . http://jpotrading.blogspot.com/2011/01/rl-work-needed-on-your-exit-points.html

$DIS Do your homework!

- On Tuesday DIS broke out impressively. I refrained from shorting it ; it ended the day at 39.00 .
Then in after-hours bids showed up at 39.30 and i could not stop myself from shorting some.

- The yesterday morning the reason for the after-hour strength became clear ; Goldman was putting DIS in the buy conviction list. Fortunatly the pre- ADP number market was weak abnd I covered at 39.14 . I reckoned the Goldman upgrade meant it could easily outperform the market by around 2%.

- As it climbed up during the day I thought that with the breakout on tuesday and Goldman´s upgrade a lot of good news was out and started shorting throughout the day. Average price 39.81 and holding.

-Thoughts: I might make money or not in this trade. But looking at the chart it is obvious I missed the easy trade...which was to go long the breakout. Reason i did not is by the time it caught my eye it was up 2 or 3%  already. This means I DID NOT DO MY HOMEWORK. Always have a list of stocks which have the potential for breaking out due to being close to monthly/weekly highs and put them in your watchlist. DO YOUR HOMEWORK.

$APC Break even. Good Risk Management.

- APC started off well enough as per my thesis for entering the trade yesterday http://jpotrading.blogspot.com/2011/01/apc-second-chance-at-shorting-study.html .

-So much so that as it fell further I shorted some more at 74.66 (9:55) .

-But it was not meant to be and general market recovery and a pop in oil meant my stop was trigerred at 75.42 just above what had been the day´s high.

-Thoughts: good risk management. It was painfull to see the profits evaporate and tempting to give it more room, but my thesis from yesterday was it should tank , and  by taking out the day´s high in mid morning iy invalidated my "thesis".

$APC A second chance at shorting. $study

-Yesterday I was stopped out of my short only to see $APC fall significantly from my stop level and close near its lows http://jpotrading.blogspot.com/2011/01/apc-to-be-or-not-to-be-taken-over-study.html .

-Last thing I said on yesterday´s post was "Re-visit tomorrow", but as it collapsed further from the start so I thought it was over; this one had gotten away.

-Alas it came roaring back at the end of day and allowed me a shorting opportunity at 75.95 (15:40)

$BIDU Stopped Out $study

- Entered the day short $BIDU as per yesterday´s blog entry:  http://jpotrading.blogspot.com/2011/01/bidu-not-good-tradefor-now-study.html
-Put in a buy-stop at 100.52 and it was quickly triggered at 9:31 for a loss.

-Thoughts: Will wait to see if it fails test of the 20 SMA and recent highs at 102.00. Also, this 50 billion facebook valuation might be helping  all things internet.

$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.