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Yesterday we said and is starting to seem like its going to be the most likely outcome going forward baring an unforseen event, news driven or otherwise :
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 one 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.
Over the coming day’s we’ll be honing the watch list to reflect this trade set up, as you scroll thru you’ll start to see more of this set up mentioned below.
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A Good Going Higher And A Bad Going Higher
If These Are Your Problems?
We’re all for going higher if thats what the market wants to do as who are we to judge. However we are more interested in low risk entries verses vertical assaults. Rather than show you what a good going higher is because its all about POH’s and variations of we’ll show you what we feel is a bad going higher, at least from a risk management standpoint.
Now going forward If If If this issue were to stage some sort of POH from here? you know what we’ll be thinking right? you got it, going long BUT not now.
There are a lot of names recently that have done just this. If they want to keep going higher like this? Fine they can do so and do whatever they want, we just won’t be going along for the bus ride as we’re more interested in risk management and sticking more to who we are and how we do it. All of which is low risk alternative entry points all of which is risk management based. So are we going to contiunue to miss some screamers? Yes we are, have we missed a lot of screamers? Yes we have, have we had a lot of the screamers that we sold too soon? Yes we have.
Did we know we were going to go vertical here? Did YOU know we were going to go vertical here? Did anyone on the planet know we were going to go vertical here? Quick resounding answer? NO.
All of which leads us to again saying you just never know how far and fast things are going to go when they turn. It also tells us something too about problems. We’ve recently highlighted tons of the screamers for you folks over the last few weeks ALL BEFORE this vertical assault.
So, If these are our problems? Get used to it because these are the problems one wants to have considering the alternatives. What it also shows us here is that folks we are almost always fishing in the right pond here at All About Trends. Just ask our do it yourselfers.
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Short Side Coming Attractions
In the short term: Given how far up this market has came there is a strong possibility that we can have even a strong pullback yet it wont retrace enough to make shorting worth ones while going forward.
Case in point look at the recent action of RAX and IRBT. Sure those issues fell and triggered short sells in the market’s June rout to the downside HOWEVER they never really were able to give up the ghost per se to the downside.
Couple that with today is day two after the holiday and we are sitting here marking time in the indexes with individual issues trading to the beat of they’re own drum. Some up, some pulling back but none really getting hit hard. Even though they are big time vertically extended ? This MAY be telling us something about going forward.
All of which makes us cautious on the short side going forward. The last thing we want to do is load up on the shortside to end up seeing names pullback BUT never really get any downside traction (think RAX,IRBT as of late)
Besides we have more names actually looking decent structure wise on the longside and that may be telling us something.
As for our two miniscule short holdings? Right now they are basically none the worse for wear here and we MAY use any market weakness to wash of stop out of them. ESPECIALLY IF we see bull channels form (POH’s) from here you had better be prepared for a launch forward. In which case you do not want to be short.
Therefore focus upon the longside watch list as that is where all the action looks to be setting up at this point in time.
A good example of what to watch out for on the short side which is what to watch for on the longside mind you is shown in BIDU below. What I’ve done is mark up the chart to show what we need to see to make us want to go long that issue.
BIDU
While on the subject of China type stocks check out this one below. Same deal, we see a POH develop from here? You know the drill upon an upside crossover.
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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) AND FIRST THRUST UP’s as they are the only patterns you’ll ever need.
7-6 This list is going to get real huge from here. One can also add NXPI, BIDU,FMCN and just about everything else out there that is vertical- Its all about a POH from this point forward to develop. All the names mentioned above for the most part are going to end up here over the next day or so.
ZAGG
NEW NAME
NANO
NEW NAME
FTNT
NEW NAME
ICLK
NEW NAME
ENTG
NEW NAME
SLV
NEW NAME
7-6 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
7-6 We wiped the slate clean here to allow for space for the time being. All one has to do is look at a past newsletter or two to see the most recent batch. SODA, IPGP,APKT,SFLY,ARW etc. etc. etc.
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 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 7.40
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Let Your Stocks Tell You What To Do By The Action They Exhibit"
LONG SIDE POSITIONS
None, but stalking a lot as shown on the longside watch list.
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 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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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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