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Over the weekend we talked a bit about the 200 day average, the blue support lines and the 38.2% fib level.
It’s all about being able to hold the support zones as shown above and most importantly to be able to build off of them.
Stepping Back
Over the weekend we said:
There are numerous leaders that have tagged the 200 day average and holding. This is typical in market corrections. What we’ll want to see is if these names can now go range bound and build all new bases over the next 3-6 months.
6-20 So lets take a look at a few examples of this from the past as to why we are interested in the 200 day moving average.
BRCM and JNPR below are blasts from the past, namely the summer correction of the year 2000!
With the two charts above (BRCM,JNPR) what I want you to notice is that of yes each pretty much tagged the 200 day before stabilizing and moving higher. But not only that they both did not go higher till they completed 5 waves down!. The blue boxes show the rangebound trade above the 200 day and that of what a lot would say is the bottom of a cup.
While we are on the subject of 5 waves down and just how important that is feast your eyes on the next few charts.
First up is a current chart of SINA
Notice what happened AFTER the 5 waves down sequence? Yep 3 waves up as shown above.
Moving on, lets look at another chart that is still in what looks to be its 5 waves down sequence. Its a current chart of the US dollar.
If we were to overlay a chart of the markets on top of this chart you’d see that waves 2 and wave 4 (both were up waves) corresponded with overall market weakness.
That’s why we say WATCH OUT after we get the 5 waves down. By the way a 5th wave down in the USD could also correspond with our summer rally in the general market, another bit of confluence for you all to consider and fits with our forecast of a summer rally WAVE 2 (3 waves up). And after our summer rally? Well its into the fall , literally. IF IF IF the market has truly topped that is. And if we are completing the first leg down (wave 1, which we are following that script btw) which again leads to a wave 2 summer rally then upon completion comes the wave 3 to the downside. The chart below from the past gives you a clue as to what that COULD (notice we didnt say what is or what will transpire? we said could) occur. We’ll monitor as we go out in time.
Notice the wave 2 bounce in the summer and into the fall? All I gotta say is IF IF If the CURRENT market follows its current script then its mimicing this chart. If it happens? Consider yourself warned. Also consider us having this time over the next few months to prepare for it by getting defensive during the summer rally (raising cash on strength) and to be prepared in advance because its a HUGE HUGE short selling opportunity. That is exactly why we are going to put a lot of time in around here during the summer getting ready for this OPPORTUNITY should it occur.
Now what would that look like to names who have came down to the 200 day, chewed around built bottom of cups below the 50 above the 200 day and then took off to the upside in right side of cup crossovers? Take a look at the chart below.
You might want to log into the subscriber password protected website later tonight and pull this mid day update and either save it or bookmark it for future reference as we may be refferring back to it in the near future.
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Short Side Coming Attractions
TPX
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LONG SIDE WATCH LIST
"Only The Best And Forget The Rest "
"We Trade What We SEE, NOT What We Think, Hear Or Fear "
Remember the name of the game is Pullback Off Highs (POH) as it’s the only pattern you’ll ever need.
APKT
NEW NAME
Per our conversation above about issues coming down to the 200 day average what does that say about this issue? Pretty much falls in line with the examples given in the above conversation now doesnt it?
6-20 Getting really appealing in here.
SODA
NEW NAME
6-20 The best of the bunch if you ask us.
6-18 Definitely has structure we can work with. Reminds us of NFLX just before it tagged the support and 50 day levels.
IPGP
NFLX
6-18 Hmmm right to the 50 day and a trendline support, lets see some stabilization here first.
6-16 Speak of the 6-13 notes devil. Here we are tagging the blue support/ 50 day average. Imagine that. How can you not like how this issue is setting up in here.
6-13 Sure would have liked to see some sort of tag of the blue line/50 here. For us? That is what it’s going to take to get me interested on the long side.
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FEATURED BUT NOT TRADE TRIGGERED BY US
This is where names that we have on our watch list that have triggered but for whatever reason we did not take them (can’t do them all) in our trade trigger alerts. This section is because a lot of our subscribers opt to use our information as they see fit from a do-it-yourselfer standpoint.
LONG SIDE
GLD
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All About Options In The World According To All About Trends
Over the weekend we posted an article in this space entitled:
OPTIONS- Your best friend and worst enemy
That article is at the bottom of this newsletter for reference anytime you need it.
NOTE: The exchanges recently started WEEKLY EXPIRATIONS of options. Going forward, make sure that you check to see which ones you are buying. Let’s stay with traditional options expirations which are the ones that expire the 3rd Saturday of every month.
Options Watch List – All JULY call options
NFLX
NEW NAME
6-20 The ones we want to look at and consider (BUT NOT TODAY, same goes for MAKO) are the JULY 225 calls as they are priced at 25.30 with the stock at 247.10 giving us about 3.50 points of time in them.
We’ll watch this issue closely as there is a good possibility in the next few days we do a face of fear longside trade on this.
MAKO
NEW NAME
6-20 Here too is a stock we can use to reposition our options with. At this moment in time (subject to the next moment in time over which you have no control over because you don’t know what’s going to happen in the next moment in time)
The JULY calls we want to look at and consider are the JULY 25 calls. As we post they are at 3.20 with the stock at 27.14 giving us 2.00 in the money and 1.20 cents of time.
Current Holdings
(We are now long 1 JULY 300 call option to open at 30.00)
As we post they are currently at 20.15
These now have about 5 points of time in them.
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Let Your Stocks Tell You What To Do By The Action They Exhibit"
LONG SIDE POSITIONS
INFA (We are LONG 200 shares at 55.11 as of 6-9-11)
6-19 We own it at 55.11 and here it is at 54.78 currently its trying to bust back over the 50 day average. thats a good thing.
MAKO (We are LONG 300 shares at 29.52 as of 6-9-11)
6-20 And thus far there you have it, a retest of the lows and a bounce intraday off of it.
6-19 Thursday’s scare ’em out lows just happened to be down to a prior support level at the small blue line. should we chew around for a few days next week, it would not surprise us to see this issue do the same.
ILMN (We are LONG 200 shares at 70.59 as of 5-25-11)
6-18 Follow through is going to be key. It will be interesting to see if it makes it over 74 and sticks, we for one would apt to be more of a seller at that level than hang on. Let’s get there first.
SFLY (We are LONG 200 shares at 54.24 as of 5-25-11)
6-18 Five volatile days with the end result being net nowhere. Support is holding and here we are going on 5 days of that.
AAPL (We are LONG 50 shares at 338.15 as of 5-5-11)
6-19 It doesn’t matter who you are or what side of market you are on with this issue the last two days as AAPL has taken a bite out of everyone with its big intra-day moves in both directions. Expect this issue to catch some strength into quarter end as its a key index component.
CAT (We are LONG 150 shares at 105.15 as of 5-5-11)
6-19 Really not a lot to say here except we’ve just had 5 volitile day and the end result? Net Nowhere. There is a bit of overhead supply at 101 ish which sure beats where it is now.
6-13 This issue looks so ugly here that if I didn’t own it I’d probably consider buying it here.
6-12 Super ugly here and selling is after the fact. Keep in mind when they run the dow this is one name they are going to come looking for fast.
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To our NEW SUBSCRIBERS
What we’ve tried to do is break our watch list down into chart pattern recognition structure from a visual standpoint. Learn the patterns and the components of patterns and you’ll blow those Wall Street MBAs away. You don’t need a $3,000 software program either. All you need is a BURNING DESIRE to be the best that you can be and we’re here to help.
We have a lot of new folks here and we thank you! We want you to take it easy, get to know how the routine works around here for awhile and to feel comfortable.
We hope you all aren’t here because you are chasing performance. For us it’s more about educating and making you the best you that you can be first (that’s what we focus upon!). Like many of our long time subscribers they have all found out that they have no use for traditional Wall Street (and we don’t blame them) and it’s our hope that over time you’ll have acquired enough knowledge from us to say the same with conviction.
One of the most important things we want to stress is that of RISK MANAGEMENT via POSITION SIZING. You don’t need to stack your account with just a few big positions as we’ve seen it time and time again that those who get into trouble are the ones who take large positions and do not employ any risk management system IE shoot for the fences. Those are the people who live on the fringes of extremes and yes ultimately get burned.
As a guideline a good initial system is that of the following example.
Let’s say you have a $100,000 virtual portfolio and let’s say that as a guide you never place more than 10% ($10,000) into any one position. Now let’s say that one day a news driven event hits (over which you have no control over anyway) and one of the positions tanks 20%. On its own that position is sporting a $2,000 loss, while that may seem devastating on its own its really no big deal overall.
Why? Simple its all about risk management being properly employed. What is the impact of a $2,000 loss to the TOTAL VALUE of the virtual portfolio in this example.
Answer: A whopping 2% LOSS. Now you know why we say no big deal.
We can also tell you new people here that you will get stopped out of names and you will take hits. There is nobody on the planet living that has ever hit 18 holes in one and there never will be. We’d rather get you grounded in reality right away vs talking about pie in the sky all the time like a lot of other sites. In so doing your head is screwed on straight from the start and when those days happen (and they will) mentally it won’t mean a thing to you. To us that’s what’s most important is YOUR state of mind as it’s your most important asset. We hope you appreciate our honesty.
We have a very good retention rate here at All About Trends and a lot of great outstanding people here. We like to think that a part of that is being upfront about what can happen (in both directions). Verses those up 500%, I turned $50,000 into $3 million or some other absurd number to get you to bite. That’s not who we are.
WELCOME ABOARD!
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Lastly with regards to taking any trade:
Remember the moment you take a trade you are at the mercy of the market and have no control except when to sell. If you are not willing to take the risk and are not willing to pay that price do not take the trade. We are willing to take that risk knowing full well the end result could be a loss. That said make sure that virtual portfolio management trade size is used accordingly. With any position you may take make sure that should something go awry the amount of total impact to your account does not devastate your acct. Try to stick to a 5% position That’s the key to virtual portfolio management, not biting off more than you can chew.
Remember the mechanics of reality with regards to the stock market states a stock can only do one of three things: Up, Down, Nowhere. The moment you hit the enter button you are at the mercy of the market therefore the only control you have is when to sell/cover. You can’t manage your gains as you have none to manage initially. Knowing this in advance it allows you to stay in outcome, that being you will either:
1. Make a gain
2. Wash
3. Get stopped out at a loss
Remember the market IS the boss. IT is going to do what IT wants to do.
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OPTIONS- Your best friend and worst enemy
Let’s talk about options for a moment. First off this is a big universe with a lot of advanced strategies and terms like theta, delta , straddles, butterflies and the whole gambit. For the purposes of this conversation we’ll keep it real simple and not try to get to deep.
We’ll approach it from simple buy puts (short side) buy calls (long side). The first thing I want to mention is that options attract the fast money crowd in hopes of turning 500 into 10,000 overnight. This is also the get rich quick crowd. And more often than not these type of people get broke faster than they get rich. Please don’t be one of them as greed kills.
Time and time again we hear from people who like to trade options, and time and time again we hear the horror stories too. When we hear the horror stories nine times out of ten we can guess as to why their option went to zero. Nine times out of ten it was because they bought out of the money options or at the money options. This is the reason why 80% of those who do options lose money by the way.
Sure there are folks who use out of the monies and at the monies but those are experienced traders that know the ins outs ups and downs.
You see the trick is to NOT pay for time. You want as close to a point for point move as possible with the stock because there is nothing worse than seeing your stock move yet your option does nothing or very little, know the feeling?
So for All About Trends we only want to look at IN THE MONEY CALLS OR PUTS and we DO NOT WANT TO PAY FOR TIME, sure they cost more BUT we want to be as close as possible to being able to see a point for point move with the stock.
We hate paying for time. We want true value without the time. We’re not saying our way is any better than others, we’re just saying it’s what works for us.
Now let’s touch upon how we would build a virtual portfolio dedicated to options and how to make it a piece of your overall virtual portfolio via allocation. Keep in mind this is more geared towards beginners so you advanced people might be bored with it but then again it never hurts to revisit the basics every now and then.
At All About Trends Trends we talk a lot about never biting off more than you can chew and trade size position management. We do that for a reason, we do it so as to when Murphy’s law shows up it never devastates us or blows us up. Typically we try to stay within a 5-7% position size when we do a trade. The same thing goes for options. If we were to start a virtual portfolio of options or shall we say allocate a portion of our overall virtual portfolio to options the way we would look at it is the following:
For example, let’s say the total value of your virtual portfolio is $100,000. The most we’d consider allocating towards an options strategy is 10% of the whole virtual portfolio. In this case $10,000. So now you’d have a $10,000 option virtual portfolio to work with. Now let’s say that you are the worst trader on the planet (we doubt that!) and you lose the whole option virtual portfolio, what’s the risk to the total value of the overall virtual portfolio? 10% in which case you live to play another day. Now let’s touch upon that $10,000 you allocated toward options. Let’s reduce the risk even further (and we haven’t even talked about what stocks to trade yet). Let’s take that $10,000 and split it up into no more than 10% ($1,000) can be allocated to anyone position as a guide. (Sometimes 1000 can get you 3-4 contracts you know). Now let’s say that one of those positions goes bust (and they will! and sometimes more than one at the same time we assure you.) What is the total impact to the overall options virtual portfolio? 10% right?
Now let’s take that a step further. What’s the total impact to the overall investment virtual portfolio of 100,000? 1% – that’s right 1 measly percent. When it comes to options you need to employ some sort of virtual portfolio risk management structure parameters as this way you can get in trouble and you don’t lose sleep – you just have a bad day that’s all.
As for getting rich overnight? Forget about it. That’s just a marketing ploy. As for taking 50,000 and turning it into millions? Ain’t happening overnight but it sure sounds good doesn’t it? And that is why people bite on those marketing ploys.
As for time? We never go out months. As a swing trader we’re in positions for only a couple of weeks best case so why pay for the time to go out further in time when you don’t have to. When the stock moves whether it’s right away or not they sure seem to suck that time out of you just as fast anyway right?
Typically we’ll look at the front month (current month) or the next month but not months. When we say front month if options expiration is a week or sometimes even two weeks away we’ll look out to the next month and not the current. While time is our enemy in most cases, in this case it’s your friend. It’s just that you don’t want to pay for it
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Don’t forget you can view updates in the middle and the end of each trading day complete with current charts, along with our current performance at our subscriber only web site.
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