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See that capitulation today? Neither do I.
Today’s buzz words are:
BACKING AND FILLING
As for all the chatter in the EU? Gosh, reminds me of a recent moment in time where the markets were held hostage which is sure what its feeling like here too. Can you say debt ceiling debate?
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Game Plan For Week Of 9-26
Should we see capitulation or another few really wicked down days we will clean up ALL short exposure. Then we sit back with gun loaded and wait for the elephant to walk by. If we don’t then it’s all about watching for POHs develop.
For those next week who want to do a little shorting (assuming we don’t get a gap down at the open to spoil that) make sure its just for a trade and make sure you are able to jump over that candlestick fast. Think get in get a few points and get out fast.
Those who are long only, those who have large cash positions like we do get ready and get prepared to lick your chops because Wall Street MAY be going on sale. After all Wall Street buys fear you know.
Should we see capitulation and all of the above bell ringing we want to be prepared to go long even if only for a trade. In our long side watch list we have a ton of names that we want to be watching for in that potential event. We say potential because we nor anyone else truly doesn’t know but given the backdrops out there? The planets are all aligning if you will for lack of a better choice of words .
As for when you may ask? It’s really simple, when you don’t have to ask if this is capitulation then you’ll know.
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SHORT SIDE WATCH LIST
Over the weekend we said:
Given that we are in the 5th and final leg of the sequence we really want to play it safe and keep centered. The problem with this break of the trend channels to the downside is that of GAPS! More often than not a big part of the whole moves have taken place in the form of gaps. That makes and has made it very difficult to short from a risk perspective. Expect that to continue.
9-26 Per the above, see VMW today?
LULU
9-26 Nothing to really write home about here today.
9-22 Broke to downside but has bounced back up to the pink line. This one can be taken right here BUT keep in mind if the Area 51 guys want to create a little havoc it could rally back up to the red line or 50 day.
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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 "
9-23 BUT! What happens once this fifth and final wave down is over? Are you going to be ready on the longside? NOW is the time we want to start to think about this because typically Sept. and Oct. is when markets bottom and are good for the rip roaring push into year end.
This is why going forward we’ll want to start a watch list from the standpoint of "What Do I Need To See To Make Me Take A Trade" on the long side.
Per the weekend newsletter of 9-25 what we want to focus upon is when we get capitulation (assuming we get that) and of course the face of fear rearing its head we want to do some buying. The question is who. We’ve seen it time and time again that when we get a turn in the market the market runs to specific names and these are the go to guys and gals. Those are the names we’ll want to focus upon over the next week. BUT we need to see a market going down kicking and screaming per the beginning of this news letter and not until. Given where the indexes are and the macro backdrop IF Wall Street wants to buy fear we are close to that.
So this week and maybe next (The event you are looking for is a Greece default) we want to watch for that. Below are names that we want to WATCH and we stress WATCH until we get the gun fight at the ok corral. That gun fight would be between Nervous Nellie and Wall Street — care to guess who usually wins?
Also assuming capitulation let’s look at a few levels using the S&P 500 chart as a technical guide. Make note of the Pink Channel! Notice where trend channel support comes in?
Word To The Wise: DO NOT assume we are going there and grab your calculator and start playing the mental game of If I short the SPY (or whatever vehicle you use) I’ll make X on my money. To do that is the equivalent of what Kenny Rogers said: Never count your winnings till the dealing is done, heck in the above scenario that’s counting before they are even dealt if you ask us. Stick to risk management trade size.
CRM
Let’s say we see the general climate we talked about at the beginning of this newsletter come to fruition and lets say the S&P 500 as an example above comes down into the zone as shown on its chart, then let’s say CRM is also in the face of fear tagging a support level as shown.
That’s when we want to step into that face of fear and pick some off on the longside. Keep in mind those of you who are perfectionist’s trying to nail a low give it up as that’s a losers game. Once an entry is made its more of an "In the Zone" entry then comes the sweating it out while in the zone. Remember you are buying in the face of fear in a potential capitulation moment in time. That means things will be all over the place. So its imperative you take all that with a grain of salt because in the end you are buying Nervous Nelly’s stock AFTER the markets have already imploded.
This or something like this is what we want to see, need to see to make us take a trade on the long side in a capitulation type of market environment. The red lines in some of the charts below are those what we want to be on the lookout for lines.
VMW
Shown above in short side watch list today
BIDU
9-26 Notice how this issue not only tagged horizontal (blue) support it also tagged the downtrend channel support as well. Now scroll up and look at the S&P 500 chart at the beginning of this section. Should we see the S&P 500 (and one could say CRM too) do what this issue did today? THAT is exactly what we want to see with the S&P 500 and that will get us bullish.
AAPL
ULTA
NUS
SPRD
DG
Names like CRM, VMW, AAPL, BIDU amongst others will probably be the first names they go to on a turn up in the market, heck just look at the August lows and you’ll see these are the ones that catch a bid first and are always first out of the gate. These are the "Where The Wild Things Are" names.
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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.
9-25 If we get a capitulation move ? These take off and we will use that strength to lock gains. We are long only TZA but when we walk away on it take that as a cue to do so with SDS and QID or whatever inverse equity index ETF you may have.
9-26 with all of the below remember today’s buzz words?
Backing and filling, and starting to build a POH from the current looks of things
TZA
SDS
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.
Keep an eye on the new long side WATCH list. We get capitulation then we want to hone in on those names.
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Let Your Stocks Tell You What To Do By The Action They Exhibit"
LONG SIDE POSITIONS
SLV (We are now LONG 250 shares at 38.87 as of 9-12-11)
GLD (We are now LONG 50 shares at 175.55 as of 9-12-11)
9-25 By the way, those of you who are big time long-termers in this issue? Gosh this issue is definitely closer to major uptrend support. So our trader notes may not apply to you, that is unless you think over the next few years there will be no more Central Banks of the world fiat printing that’s going to go on.
If Sarah Palin was a world central banker care to guess what her favorite phrase would be? "Print Baby Print!"
EGO (We are now LONG 300 shares at 20.76 as of 9-12-11)
SHORT SIDE POSITIONS
9-25 Remember in any capitulation type of move to the downside over the next two weeks we want to use that to lock gains and get out.
TSCO (We are now SHORT 200 shares at 65.19 as of 9-12-11)
9-22 Trend channel support might not be a bad area for a little ringing of the cash register. Lets get there first then we can talk.
GMCR (We are now SHORT 100 shares at 94.90 as of 8-25-11)
9-26 A downside break of the 50 day gets this issue rolling.
SRCL (We are now SHORT 150 shares at 80.69 as of 8-17-11)
9-22 I’d be good with locking gains on a retest of Aug lows. Or even a retest of today’s lows. Unless? You got it capitulation
HUM (We are now SHORT 175 shares at 74.22 as of 8-17-11)
9-22 Same here a tag of Aug. lows and I’d be good with locking gains.
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))
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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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