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Welcome to EARNINGS SEASON! Filled with thrills and spills, oohs and ahhs.
Over the weekend I read an article about how analysts were REDUCING expectations. In fact below is a chart of what that looks like.
What ought to be interesting is not so much that they reduced estimates but as usual the reaction to those. Keep in mind when Wall Street does this they usually set the bar so low that the buzz word will be "Better Than Expected"
If thats going to be the case? And names pop on the so called better than expected? We’ll go on a run. This is how Wall Street keeps the spin going. Watch for it.
Alcoa is after the close and kicks things off, I don’t particularly pay attention to the first week as I’m more interested in when the meat of the season starts and that is a week away. If you look on the top left of all out watch list names we’ve added the release date for earnings per zacks on all of them so make note of that.
As for the indexes? So much for a retest of the highs talked about over the weekend, today its all about PIIGS. Specifically ITALY. Get used to it, its going to keep rolling and will be a theme for quite sometime as you can’t deleverage a 20 year credit bubble in 3-4 years by throwing good money after bad. What happens when you run out of other people’s money (Germany’s, Etc.?). Or still what happens when people get smart (and they are) and say enough is enough. If that happens? Its say goodbye to the EU.
Does this all sound familiar? It should, its happening in the states, just listen to Rick Santelli- STOP SPENDING! as in stop spending OUR money. What is it going to take? Are we going to have to drag out Twisted Sister with they’re 1980’s hit of "We’re Not Going To Take It? One last thing then I’ll get off the soap box.
Speaking of these macro issues over the weekend I also read an article by John Mauldin about the headwinds we face. Do yourself a favor and subscribe to his free newsletter. I’ve been a subscrber to it for years and he really digs deep and calls it as he sees it verses the tried and true of the mainstream with an agenda. Great Macro stuff.
Here is the link.
As for the markets or shall I say the market of stocks I must say that what I’m seeing has the look of a corrective pullback the last few days. Just look at all the names on our longside watch list.
we have three power patterns setting up in that department. They are Pullback Off Highs (POH) ,First Thrust Up’s with most now building a POH and of course there are a lot of names that have the look of completed cups that are in the process of forming a handle which is really a POH as well. I’m not a massive fan of buying breakouts into new highs (See ILMN? CRR? OTEX? CRM? PPO?TIBX?) but I am a fan of POH’s and those handles that look to be forming are all I need to know- You Too!
Right now we need to treat this pullback off resistance as just that. We’ll know if its the real deal once earnings get fully underway and of course this week is July options expiration so expect more of the unexpected.
We’ll also be using this pullback to step in and start to build positions in select names with chart patterns we can work with.
Below are your index charts for the day.
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Short Side Coming Attractions
NONE
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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.
7-8 Yesterday in the mid day update we said:
Look we are all for going long BUT we need to see some POH structure or pullbacks to support levels that we can work with first THEN we are willing to go long.
7-10 This list over the coming days is going to get real large. This also means that we won’t be able to take every trade that comes our way. But it does give you a feel for what is going on out there. It’s like this, when we see a ton of names setting up on the long side that is where our focus needs and has to be. If we see a ton of names on the short side, that is where our focus needs and has to be. This is how the market talks to us — All Via Chart Patterns.
Trade what we see right?
AVGO
7-10 35-36 range would be a nice level to consider going long.
RAX
PRGO
IPGP
BACK ON THE LIST
7-11 Both RAX, PRGO and IPGP still need a handle to fully form but we are starting to get that look building out as shown in each. We’ve drawn some small pink POTENTIAL POH lines but they may be a little premature at this point. At the least it gives you a visual idea as to what we need to see develop chart pattern wise.
PLCM
7-10 30-31 Range would be nice to consider it.
NXPI
7-10 Keep an eye in this stock, these folks are leaders in NFC chips. These chips are what allow consumers to get information about a product by simply swiping their phone in front of a tag located by the product. Taking it a step further consumers are also now able to swipe their phone in front of a special terminal and the purchase is made. No more credit cards (like America really needs them right?). Mobile Commerce.
7-10 Looking good and better everyday. BIDU and FMCN are also sporting this type of trade set up.
ZAGG
FTNT
7-10 25-26 Range definitely gets us interested on the long side
ICLK
7-8 7.75 to 8.00 gets us interested.
ENTG
7-10 9.00 ish gets us interested.
BIDU
Note Earnings are due soon so we may want to step aside from this "Where The Wild Things Are" name for the time being.
FMCN
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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
NANO
7-10 If this issue puts in a handle over the coming week or two? Sure we are all for that and will consider going long this issue. Hmmm 18? 18.50? which is the right side of cup crossover level.
SLV
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 6.00-6.30
Folks, these are AUGUST expiration and we’ve got a lot of time. Look how extended the stock is here.
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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)
7-11 Let’s get to the pullback mode in the markets and then see what that does to these two names. For now? Based upon what the indexes are saying, what many many names are saying? We’re not doing anything in this market with these two. Don’t Quit, Don’t Split, Just Sit as they say.
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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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