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Its A Fed Day Play Day At All About Trends Today.
So whats the play? The best play is no play and that is the play.
We’ll sit back and let the gyrations run they’re course. It’s all about AFTER the dust settles. Expect the market to go big both ways shortly after the announcement. We will be sitting back and doing nothing. Its funny but after all the twist this twist that hoopla that we hear all over the place we really aren’t concerned all that much. We’ll find out if when all said and done its really a non event. One thing is for sure and that is the media is going to be all over this thing, take it all with a grain of salt and let the market show its hand.
We are already past it and focused upon the "Magic Into Quarter End " window dressing believe it or not. We are seven business day’s away from that. Come to think of it I think there is another deadline with Greece shortly after the quarter ends too. After all for the EU its all about buying as much time as possible so as they’re banks can get a grip on everything that deals with a default, why do you think they keep pushing things out thus far. So if there is going to be a downside catalyst for a retest of the 1100 ish lows on the SPX it could then if at all. But in this highly charged news driven climate? Anything can happen.
Look at the charts below of the indexes. The big question on my mind is will we sell off to trend channel support one more time then get a run into the quarter end? You know one of those wash rinse repeat of what we’ve been seeing? I have no clue BUT one would be wise to at least consider it a potentiality so as to have a game plan in the event something like that does occur. I would not surprise me in the least.
Trend channel support on the NASDAQ composite chart above is about 100 points. We;ve seen it before while in this trend channel whereas we get slammed down to it and magically it sticks and away we go higher again. Still though 100 points down on the composite ought to knock the wind out of some of the follow the leaders type of names which could set up some nice quick longside trades. But lets not get ahead of ourselves and lets see what gives over the next few days.
So lets take it slow here and above all DO NOT BE A SLAVE TO YOUR EMOTIONS. Let the dust settle and then we can decide based upon what the charts are telling us as to what the best course of action may be.
Over the weekend we said:
We have a major policy event potentially taking place at the Fed on Wednesday if not a shock and awe event before as operation twist MAY already be built in and that wouldn’t do the trick — news known is news discounted folks so expect the unexpected and something potentially out of the blue.
We assure you we will get some wicked swings IN BOTH DIRECTIONS just like always so be mentally centered for that.
IF (and this is a big IF) the markets want to react positively to what the Fed does or says (which is also policy) these names can bust through current resistance levels and retest the highs all the while being overbought. Welcome to the "Matrix" right?
So you see it’s all about the Fed and reaction. We can build a case for higher and lower. If higher it’s operation pump. If lower then the market is talking saying we do not like the implications of what you are going to do/contemplate. Then we have the Greece issue and European banks LEVERAGED to the hilt to contend with. All of this makes for a potentially dangerous situation.
Therefore for us aside from gold and silver stocks below we really want to stick with what we have and if anything add some of those gold and silver type stocks from the long side watch list come Monday.
As for new positions on the short side? Let’s hold what we have and play it safe by waiting to see what the Fed has to say. And that folks is the game plan for the week.
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SHORT SIDE WATCH LIST
9-19 It’s all about channels. Downside breaks of them that is. There are TONS of names sporting channels out there. Downside breaks of those channels are the "What we need to see to take a trade on the short side".
SFLY
VMW
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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 "
ABV
Setting up really nice and also a defensive issue. If this takes off odds favor market is in safety mode.
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FEATURED BUT NOT TRADE TRIGGERED BY US LIST
NOTE: All of the names on this list are INVERSE INDEX ETFs. This means that if you go long any of them you are essentially going short the indexes. Keep in mind all of the below are LEVERAGED that means 2-3 times market risk. It works for you and against you.
BVN
9-21 Well there you have it! That is exactly the way POH’s are supposed to work. in case a lot of you have forgotten the Pullback Off Highs (POH) mantra is:
The stock is in a clearly defined uptrend, above the 50 day average and PULLINGBACK OFF HIGHS. Once we identify names with that pattern then its just a matter of drawing a pink line and looking for a upside crossover.
TZA
SDS
9-16 With all indexes sitting at some major resistance levels then it should stand to reason that yes these are sitting in some major support levels.
QID
AAPL rolls to downside this issue bounces as AAPL makes up a big piece of this issue
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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.
NONE until the wicked volatility out there can settle down to a more normal stance.
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Let Your Stocks Tell You What To Do By The Action They Exhibit"
LONG SIDE POSITIONS
GLD (We are now LONG 50 shares at 175.55 as of 9-12-11)
EGO (We are now LONG 300 shares at 20.76 as of 9-12-11)
SLV (We are now LONG 250 shares at 38.87 as of 9-12-11)
SHORT SIDE POSITIONS
TSCO (We are now SHORT 200 shares at 65.19 as of 9-12-11)
9-15 Here we are still sitting up against the trend channel resistance but also look at the thin pink line. See it? Its a rising bearish wedge.
Last weekend we said:
Let’s talk about risk management for a moment from an educational standpoint.
What’s the risk? Well if it retests its highs in the 72 zone we’d be down 11% BUT then what? I mean its major resistance so are you going to stop out? Also knowing that the climate is wild in both directions and can easily roll right back over like we’ve see a lot of issues do? On top of that what if one were to take a 5% position (5% of your total portfolio) in it? Know what impact that would have on your portfolio should it make a run to 72? For illustrative purposes, on a 100,000 portfolio an 11% loss on a position that makes up 5% of the overall portfolio is a whopping 5/10ths of 1% loss to the whole. Really? that’s it? Yep. Folks, THIS IS THE POWER OF TRADE SIZE RISK MANAGEMENT.
This is exactly what will allow you to make it through turbulent times! — emotionally speaking.
GMCR (We are now SHORT 100 shares at 94.90 as of 8-25-11)
SRCL (We are now SHORT 150 shares at 80.69 as of 8-17-11)
9-16 The 50 day MAY now be acting as a resistance level, but we won’t know till Monday after the opening dust settles.
HUM (We are now SHORT 175 shares at 74.22 as of 8-17-11)
9-13 Still in the channel so it can still chew around.
CXO (We are now SHORT 150 shares at 85.19 as of 8-17-11)
TZA (Which is really being short as its an inverse index fund)
(We are now LONG 125 shares at 46.13 as of 8-16-11))
9-13 Just one big wicked wide range Pullback Off Highs (POH). That’s a nervous market for ya.
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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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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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