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Folks, as you can see its been a busy morning here at All About Trends. We’ll keep it short today and get more in depth over the weekend as there is a lot to cover so don’t miss it.
Yesterday we showed you the three charts below all of which were sporting potential Head And Shoulders Bottoming patterns.
NOTE: See what we have developing here? A POTENTIAL HEAD AND SHOULDERS BOTTOMING LOW in a micro frequency much like we talked about as in "Its gotta start somewhere. Keep in mind in the SPX and COMP there are gaps back there that probably will get filled but who knows the way the Matrix is trading.
Now lets look at what those charts look like today.
As you can see each broke out of the pattern to the upside. Lets watch to see if those necklines become new support.
Like we’ve said earlier in the week "Its gotta start somewhere" and it ALWAYS starts with the short term charts. It doesnt matter what time frame and frequency you are operating in ALL chart patterns happen in all frequencies and time frames. It doesnt matter, a head and shoulders is a head and shoulders whether its in a 1 minute frequency or weekly chart time frequency. Thats why we highlight them time to time.
See you this weekend
Game plan for the week:
For us — it’s all about getting back or close to break even in our current positions.
8-12 And that is EXACTLY what we have been doing.
What we aren’t going to do is break down and sell into fear. Especially AFTER the market has already been pummelled and the inverse ETF’s are in chasing a bus mode here.
8-12 And that is EXACTLY what we did not do, break down and sell into fear.
Listen to NEO from "The Matrix" he knows what he’s talking about, as you’ve well seen the last few days.
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Short Side Coming Attractions
On a snap back rally (Wave 4) up to NEW resistance I’ll have a ton of names setting up. Lets get to the snap back rally mode first. My gut says it’ll be fast and furious and wicked just like we’ve been seeing since first of the year.
Its all about a snap back rally. Wait for it. Over the coming days/weeks we will be adding to this list and drawing up "What we need to see to make us take a short sell" lines and patterns. Over the coming days/weeks this list is going to get huge and honestly? I’m looking forward to building it, truly I am.
8-12 Its the weekend and that gives us time to scan for patterns we can work with. Let’s see what the weekends scans bring
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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 UPs as they
None
FEATURED BUT NOT TRADE TRIGGERED BY US LIST
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.
Current Holdings
AAPL September 345 Calls to open (We WERE long 1 Sept. 345 call at 30.60 as of 8-8-11)
This morning we walked away on strength on this one at 39.60 , we paid 30.60 and walked away with a $900.00 gain- All for the cause
When we bought these the stock was at 363.85 when we sold these the stock was at 378.64 or 14.80 points higher. so how come we didnt catch 14.80 points like the stock did? Simple, time value. when we bought these they had about 10 points of time value in them. When stocks move they suck the time value out of them as soon as they can. that is exactly what happened. Now had we gone much deaper in the money? Sure there would have been less if not any time value but the trade off is those calls are going to cost more. Just another example of why we hate paying for time.
GMCR September 80 Calls to open (We WERE now long 1 Sept. 80 call at 13.60 as of 8-8-11)
This morning we walked away on strength on this one at 25.80 , we paid 13.60 and walked away with a $1220.00 gain- Here too all for the cause.
VMW September 90 Calls to open (We are now long 1 Sept. 90 call at 12.30 5 as of 8-1-11)
As we post they are currently trading at 5.80
NOTE: In the trade alert on 8-1 this issue in the header showed a Aug. 90 call option. No biggy if you bought those as we’ll post them here in this space as well.
As we post the Aug. 90 calls are priced at 2.62
CRM August 135 Calls to open (We are now long 1 Aug. 135 call at 14.05 as of 7-28-11)
As we post they are currently trading at 5.00
NFLX August 235 calls to open (We are now long 1 Aug. 235 call at 25.75 as of 7-26-11)
As we post they are currently trading at 11.50
TSCO August 60 calls to open (We are now long 2 Aug. 60 calls at 7.50 as of 7-21-11)
As we post they are currently trading at .80
ARBA August 30 calls to open (We are now long 2 Aug. 30 calls at 5.20 as of 7-19-11)
As we post they are currently trading at .15
MAKO August 25 calls to open (We are WERE long 2 Aug. 25 calls at 6.70 as of 7-19-11)
As this stock moved up near the price we paid for the common and a resistance level AFTER coming back from the dead in the 22 range we opted to cut and run. We bought these at 6.70 and sold this morning at 4.40 after basically being worthless on S&P day. Thats a massive recoup. Its also why we DO NOT lose our cool and sell into fear and weakness.
In the end we lost $460.00, sure beats $1340.00 had we opted for fear.
NANO August 15 calls to open (We are now long 2 Aug. 15 calls at 4.10 as of 7-13-11)
As we post they are currently trading at 1.20
ENTG August 7.5 calls to open (We are now long 2 Aug. 7.5 calls at 1.50 as of 7-13-11)
As we post they are currently trading at .45
NXPI August 20 calls to open (We are now long 2 Aug. 20 calls at 3.70 as of 7-13-11)
As we post they are currently trading at .25
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Let Your Stocks Tell You What To Do By The Action They Exhibit"
LONG SIDE POSITIONS
AAPL (We are now LONG 50 shares at 363.85 as of 8-8-11)
This morning we walked away on this issue at 378.64 and when all said and done we walked away with a gain of 1479.00 all because we managed our fear, bought in the face of fear at a classic all about trends entry point.
GMCR (We are now LONG 100 shares at 90.07 as of 8-8-11)
This morning we walked away on this issue at 104.25 and when all said and done we walked away with a gain of 1418.00 all because we managed our fear, bought in the face of fear at a classic all about trends entry point.
BWLD (We are now LONG 200 shares at 65.02 as of 8-1-11)
This morning we walked away on this issue at 63.02 and when all said and done the damage done to our position on its own was 3% or $400.00 this position made up 7.6% of our overall portfolio and the total impact to our portfolio thanks to trade size risk management was 2/10ths of one percent.
One thing is for sure, it sure beats selling in the face of fear at 52.50 on the S&P day! had we listened to our fears and emotions? Had we did that it would have been an loss of $2504.00 vs $400 .00 dollars. HOG (We are now LONG 200 shares at 44.00 as of 8-1-11)
VMW (We are now LONG 125 shares at 100.09 as of 8-1-11)
CRM (We are now LONG 100 shares at 146.01 as of 7-28-11)
8-12 Speaking of chart pattern recognition in short term time frequencies.
NFLX (We are now LONG 50 shares at 256.54 as of 7-26-11)
TSCO (We are now LONG 200 shares at 65.85 as of 7-21-11)
RAX (We are now LONG 200 shares at 43.42 as of 7-19-11)
This morning we walked away on this issue at 37.54 and when all said and done the damage done to our position on its own was 13.5% or 1176.00. The total impact to the overall portfolio per trade size risk management was 6/10ths of 1% based upon an overall 3.65% position to the whole.
NOTE: TRADE SIZE RISK MANAGEMENT SAVES THE DAY- AGAIN
One thing is for sure, it sure beats selling in the face of fear at 31 on the S&P day!. Had we listened to our fears and emotions? Had we did that it would have been an loss of $2484.00 vs $1176.00 dollars
RUE (We are now LONG 200 shares at 33.69 as of 7-19-11)
ARBA (We are now LONG 200 shares at 34.56 as of 7-19-11)
MAKO (We are now LONG 200 shares at 31.08 as of 7-19-11)
This morning we walked away on this issue at 29.42 and when all said and done the damage done to our position on its own was 5.3% or 332.00. The total impact to the overall portfolio per trade size risk management was 2/10ths of 1% based upon an overall 3.65% position to the whole.
NOTE: TRADE SIZE RISK MANAGEMENT SAVES THE DAY- AGAIN
NANO (We are now LONG 300 shares at 18.71 as of 7-13-11)
NXPI (We are now LONG 300 shares at 22.96 as of 7-13-11)
ENTG (We are now LONG 300 shares at 8.71 as of 7-13-11)
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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 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 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 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 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 portfolio dedicated to options and how to make it a piece of your overall 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 portfolio of options or shall we say allocate a portion of our overall portfolio to options the way we would look at it is the following:
For example, let’s say the total value of your portfolio is $100,000. The most we’d consider allocating towards an options strategy is 10% of the whole portfolio. In this case $10,000. So now you’d have a $10,000 option 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 portfolio, what’s the risk to the total value of the overall 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 portfolio? 10% right?
Now let’s take that a step further. What’s the total impact to the overall investment portfolio of 100,000? 1% – that’s right 1 measly percent. When it comes to options you need to employ some sort of 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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