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Hope you all enjoyed the fireworks here in the states over the weekend and of course last week in the markets. The NASDAQ composite along had its best week in like 2 years by rocketing 6.2% all compliments of virtual portfolio window dressing and into a holiday.
Now the question of the week is:
Was that it? OR are we going to end up retesting the highs of May yet again before its all said and done.
At least with the nasdaq comp it would not surprise me top see something like that occur. I’ve said it before and I’ll say it again when a move starts NOBODY on the planet knows just how far its going to go.
This week we’ll see things get back to some sort of normal trade without all the extra hoopla. In other words we now return you to your regularly scheduled programing. Upon spending a bit of time going thru a lot of charts one thing became clear- Its a market of stocks not just a stock market. I see a fair amount of names that one would be out of theyre mind considering on the longside and I see a fair amount of names that are setting up on the longside that have structure that we can start to work with, many are shown below in the longside watch list.
Names like SODA,NFLX,INFA,CMG etc. are out of control and nowhere near any sort of POH entry or any other sort. The flip side with those is that there are no topping patterns present in those names either so one doesnt want to short them.
Given how far and how fast things have gone in such a short period of time we need to either fall out of bed this week or we need to consolidate these recent gains by going sideways or an orderly corrective pullback.
I will say this, IF we are going to retest the recent highs or this is the start of something bigger (Summer Rally?) then normally when you get a vertical ramp of this nature (of a market trying to emerge out of a correction) we’ll get a pullback here then another move higher. All on has to do is think first thrust up (which we just did) now a POH then a launch higher. The wild card is going to be EARNINGS SEASON. Lets visit NXPI too for a moment as its going to be our template for our famous
What do I need to see to make me take a trade on the longside.
7-5 As you can see as far as the indexes are concerned they are out of control and nowhere near any low risk entry points in fact they are closer to resistance levels than support levels.
So what are we going to do about it? Nothing. We are going to see what kind of substance any sort of pullback has and then we’ll be able to make some better informed decisions. So long or short we need to see a pullback in the market before we consider doing anything here.
What we will do is keep building our lists and I must say that I see enough setting up on the longside after a pullback that we should be able to pick off some positions. Just keep watching the longside watch list.
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Short Side Coming Attractions
In the short term: With each of them it’s all about a downside break of the pink line for those who feel the need to trade on the short side.
Most likely we wont see that till AFTER the Holiday
But for now it’s all about a break to the downside in the pink lines shown below in the charts
Unless you like shorting in the face of emotional fear and lets face it, on the short side it is in the face of fear these past few days. which is exactly what one should be considering.
BIDU
7-5 GThis name gets deleted from short side watch list.
TZOO
6-28 See that break of the pink line to the downside? Neither do I , hence nothing to talk about.
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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.
ZAGG
NEW NAME
NANO
NEW NAME
FTNT
NEW NAME
ICLK
NEW NAME
ENTG
NEW NAME
7-5 Basically aside from ZAGG all of the above need Pullbacks Off Highs (POH) to form in order to get us interested on the longside which given the 60 minute index charts should not come as a surprise here.
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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
SODA
7-1 OOC As in OUT OF CONTROL
IPGP
APKT
NFLX
ARW
7-5 This is a good example now of WHAT TO STAY AWAY FROM, that is unless it stages a POH from here. Of course its also a good example of the power of moving averages as support (200) and resistance (50 day).
6-30 WOW WOW WOW , the 200 day strikes again
GLD
6-24 See the mini double top around 152ish? This issue goes from not exactly healthy to outright sick.
6-23 Isn’t exactly looking healthy here now is it.
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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 AUGUST call options
NONE Currently but this can change real fast and will change real fast over the next few days.
Current Holdings
DECK August 95 puts to open (We are now LONG 1 Contract at 9.80 as of 6-30-11)
As we post they are currently trading at 8.80
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Let Your Stocks Tell You What To Do By The Action They Exhibit"
LONG SIDE POSITIONS
None
SHORT SIDE POSITIONS
CAT (We are now SHORT 150 shares at 104.25 as of 6-29-11)
DECK (We are now SHORT 175 shares at 87.88 as of 6-30-11)
7-5 Here is another one that one has to be out of they’re mind to want to go long on AFTER its already ran. The what to watchout for on the shortisde is for it to stage a POH pattern. We’ll monitor and should that pattern occur? We’ll have to consider walking away but presently? I have no problem with being short this issue here.
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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 t o 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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SUBSCRIBER ONLY WEB SITE
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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