Satuki @ Home

Our first swing trading competition started on 2/16/2010 and ended on 2/19/2010.  People coould enter/exit their trades during that time frame. We try to make it as close to real time as possible. However, people can still enter trades off hours. But their entries are calculated using the last close.  For people who enter their trades during the market hours, we use real time prices determined by the time stamps generated by the forum. 

OK here are the 3 best performing trades.

Let’s take a look at these 3 trades.

ARUN [Aruba Networks, Inc.]

IEM_Chris was expecting good EPS after it bounced off a recent support.  There is a maximum 3% stop loss in place.  His entry was 11.09.  The stop loss was 10.75.  The stock touched a low of 10.80 after his entry. It was close to being stopped out.  But it turned and popped almost 12% on last Friday. 

 Click on the image to have a better view

SNDK (SanDisk Corporation) by jaybee216, who is an old hand in stock options. Here is his logic behind his pick

1. Forming nice triangle for break
2. Sitting below 34 EMA break-out above 27.14.
3. CCI, which is indicator I use, moving up strong here. (We need to get him to talk more about his CCI)

SNDK never retraced after his entry.  So this was a very smooth trade.

Third is my own pick, LZ(Lubrizol Corporation)  My logic was

1. It is a very strong stock
2. It is still in a uptrend
3. It has stories.
4. It bounced at a very strong support

So the prize (25 dollar Amazon gift card) winner is IEM_Chris. Of course, the best prize is participating in the game and honing one’s trading skills. I will also keep a log of who are consistent winners because winning over a long period means a lot more than anything else.

Agriculture stocks have under-performed a lot of other sectors.  However, they have been on the move for the past few days. We all know that MOS, POT were stars in the last bull run in 2007.  I doubt that they would run up to their previous highs any time soon.  But it really should not matter because it is much harder to hit a home run than the hit-and-run guerrilla tactic.

Here is a list of the agriculture related stocks in order of their strengths. They are relatively safer than those that have risen 200-300% because they just started moving out of their consolidation ranges.

TRA [Terra Industries Inc.] is the strongest among its pack, which has broken out to the 52 week high.  With a relatively low P/E (12.5) and a mid-cap size, institutions like it.  Here is its daily chart

Click on the image to have a better view

AGU[Agrium Inc.] is strong.  The chart is fine since its uptrend is intact. However, it might see a small pull-back soon since it has moved quite a bit from the last low.

 
MOS[ The Mosaic Company ] and POT[Potash Corp./Saskatchewan] are on the move too.

BTW, it  is very important to  Follow Leaders , in whch I deteailed why and you can also see a few examples.

STEC has dropped from around 42 to 26 within just 2 weeks.  There are different kinds of rumors floating around about the steep and fast drop. One is that there is increased competition from other solid state driver makers such as Pliant Technology.

I believe that was just a trigger to the crash since STEC moved up too fast and there were a lot of profitable positions ready to be dumped at any moment.  But the drop is a bit exaggerated.  This is trading.  Fear and greed is everywhere.  Due to this type of market exaggerations, there exist money making opportunities. We, as short term speculators, are like vultures that fly wherever there is a possible meal.  I really like the vulture analogy when it comes to shorting.   It is a win-win scenario where you get a nice meal and clean up the environment at the same time.

I believe we might see a bounce very soon in STEC.   Will it make a new high?  I neither know nor care.  What I care is if it can have a quick bounce of 20% from here.  Technically speaking, STEC is still in its uptrend.  And theoretically, every dip of an up trending stock is a good opportunity to buy.  In addition, the little green bar on the daily chart looks like a bullish morning star to me.

Click on the image to have a better view

Here are 2 ideas on the bull side.  One is STP and the other is TSL.  Both of them are leading the solar sector.  Here is a post I wrote about how to identify sector leaders.  Solar is definitely a hot sector that boasts advanced technology and alternative energies.  A hot sector normally has a lot of stories behind it and stories are catalysts for people’s speculation, which is the only thing that drives a stock up or down. 

STP and TSL are not only solar stocks but also Chinese stocks.  As I wrote in this post , STP had some potential even if it was a bit distressed back then, which stood around 13 dollars.  I still think it has more room to move up.   TSL is even stronger than STP.   As we can see from their daily charts below, they are in a very nice uptrend. 

TSL (Click on the image to have a better view)

STP

Since I am a short term trader, I can not give you a target price in a few months or even longer.  I would get out if they have a move of 15-20% from here. Of course, use whatever risk control means you see fit to protect your trading stake. Remember not to average down on any of your losers. If anyone tells you to do so, avoid him like a plague.

American Superconductor Corporation,founded in 1987,is an energy technologies company, offering an array of solutions based on two proprietary technologies: programmable power electronic converters and high temperature superconductor wires. You can read more from AMSC’s website.

Because of this report, Shanghai Electric Cable Research Institute Expands Strategic Alliance with American Superconductor, the speculation that AMSC will have some solid growth started to run wild and it broke out its base in April.  Speculation is what drives stocks up and down.   If all you see were facts, the stock market would be dead. 

So we have some stories behind this stock.  let’s take a look at the chart.    The chart says AMSC has been in an uptrend since April and the trend is preserved pretty well.  After a swift jump from 20 to 29, it started to pull back and has been trading sideways for quite a while.   A solid double bottom formation is in the making.  Last Friday(6/19/2009) was the first day that we saw an increased volume.Therefore, a good long entry could have been made on the last Friday.  The reason I did not open a swing long position is because of the weekend.  I think I might have another opportunity to do it on Monday.

 Click on the image to have a better view

Did you buy FAZ around 30, 20, and 10 thinking it was cheap?  Did you not cut your losing FAZ position in a timely manner?  If your answer is “Yes”, then you are in deep doodoo.  These leveraged ETFs are not meant for the “buy and hold” strategy.  They are for day trading.  I know you did not want to hold it. You wanted to make some quick dollars but FAZ moved in your opposite direction. Now you are holding a bag due to your hesitation to cut losers.

When I started out trading, I was a bag holder for a while too. I remember I shorted HANS around 80, when it moved from 4 to 80.  I held the bag so firmly that I lost 50% on HANS.  So it is OK to be a bag holder when you just start out.  As long as your account is not totally destroyed yet, you might come back one day. But you will have to learn from your mistakes.  Let’s take a look at your mistakes.

1: buy and hold a leveraged ETF as if it were an investment grade stock
2: ride your losers for as painfully long as possible

Do we have a solution to your current deep losers?  Yeah!  Forget that you bought FAZ/SRS around 30, 20, or 10.  Take Friday’s close price as your entry price. For example, on 6/05/2009, FAZ closed @ 4.47. That is your entry price.  Set a stop loss no more than 10% and do not touch it.  Then, set a profit target like 25% or 30%.  If it drops and triggers your stop loss, you are out. If it moves up to your profit target, you are out. That is how I would handle it.

After you are done with it and have learned something worthwhile about trading, you can chalk it up as a tuition.

Here is the 60 minute chart of S&P 500 index. It is a promising double top and it has broken the short term trend line.   Will it materialize?  A lot of people actually talked about S&P touching 1000 before a meaningful retreat would happen.  It is a dangerous sign when a lot of people are expecting the same thing from the stock market. The stock market never behaves as the majority would like it to.  We see a lot of sudden moves in individual stocks because people are caught off guard.   Have you noticed that the stocks you watch like a hawk almost never move?

We might not see wild 500-600 point swing days like those we experienced early this year.  General volatility will dwindle and the general market might bounce around in a big trading range for the next few months.  

Day trading is bread and butter.  If you are skilled enough, it is your ATM. If you are not, you will be the ATM.

It has been quite a while since I took a swing trade last time.  One reason is that I focused too much on the short side.  Consequently I found almost no good opportunities for swing trading.  Another reason is that I wanted to hone my day trading skills, expescailly scalping.

I have been watching MOS and POT lately for a possible swing long position.  These 2 are the leaders of the fertilizer stocks.   I talked exclusively about MOS and POT on the mailing listing last night.  The fertilizer stocks lagged behind the other sectors during the rally that started in March.   Sectors rotate.  I also mentioned about the coal sector about a week ago. But I was too slow to join the rally in those coal stocks such as MEE, WLT and PCX.

From the daily charts of MOS and POT, we can see that the first pop came about 2 days ago.  If I had been quick enough, I should have bought into them that day, instead of today.   Another sign that they demonstrated was that they were extremely strong in a very weak general market yesterday.  POT was up 2% and MOS was sligtly down 2%.  They performed much better than most other stocks.  These strong stocks will be the first to move up once the general market is stabilized ,as we all saw how they performed today, MOS(+8%), POT(+5%).

POT performed slightly better than MOS yesterday.   And  I figrued that MOS would try to catch up with its brother later on. That is the reason I chose MOS today.  I kept my postion very small due to the risk of holding it overnight.  I am always prepared for the worst in case anything like Lehmen Brrothers or Bear Sterns happens to me.

Once I have identified a possible opportunity for swing trading,  I will use my day trading techniques to open a position.  So basically I open a position once my mid-term and short-time time frames are aligned. This greatly reduces the possibility of being whipsawed.  Normally day trading entries are much more accurate than swing trading due to the much higher requirements for accuracy.  With the accuracy of day trading and a wide stop loss of swing trading, you can greatly improve the success rate of your trades.  See the 5 minute chart below. If you use TradeStation, you know that it marks every entry and exit of yours on the chart.  My entry was a text-book wedge breakout.  

Click the pciture below to have a better view.  You can see a white lable saying (150 limit).

 
Of course, paper profits are nothing more than illusion.   Let’s see if my MOS can hit the target.

The system opened another trade in SRS.   Now we are long 200 shares of SRS @24.53.  This is the third try.  Let’s see how it plays out.   For people who are not familiar with this experiment,  Here is Planning Day 1 Day 2 Day 3 Day 4

Here is the chart. Click on the image to have a better view

The market moved in a choppy way today.  Wells Fargo led the Finical sector in the AM and ran out of steam in the PM.  The sell-off near the market close was really hard and fast, which is one of the reasons why it is hard for people to profit from shorting.

As we can see from the picture below, the weakest sector was Financial today partly because of Morgan Stanley (MS).  That is why I took a short position in it.  The entire move from my entry was about 6%.  I captured half of it, which was not too bad. The market has many opportunities everyday from either side.  Trading is not like any kind of 5-9 jobs.  Your success can only be limited by yourself.

There is no entry yet in the automated trading experiment.  The last 60 minute bar is an engulfing bar.  However, the system is programmed to wait until the bar is closed. Once the engulfing bar is closed, it will send in a buy order right at the open of the next bar.  In other words, we will have an entry tomorrow morning no matter where SRS stands (gap-down/up).  Let’s see what will happen.

Today is the second day of the experiment. The computer closed both of them.  The FAZ trade was up 30% and the SRS trade lost 5%. 

When I woke up this morning, FAZ was up 15% in pre market.  And the computer sent a sell order right after the opening bell rang.  It kept checking the gain/loss of these 2 positions tick by tick.  In terms of the FAZ position, if the gain was = or > 25% and a sell order would be executed. Due to the gap up, it was 5% more than the targeted 25%.  That was a bonus.  Of course, that would be extra risk if it were in the different direction than my trade. For the SRS position, the gain never reached 25%, and it hit the stop loss, 5% and it was out.

The FAZ exit was perfect.  It was almost the high of the day.   Question is whether it should be considered luck or discipline.  The computer knew it captured a giant return (30% in 2 days) and it was neither afraid nor greedy.   Greed and fear are the biggest enemies of traders.  The computer has none of those issues.  So It held onto the FAZ position and closed it according to the plan.  It never flinched in any order executions.  I have no problem closing a position when it hits its target.  If you have been reading my blog for while, you know that.  But I still have issues pulling the trigger when there is entry signals  The computer also showed rock solid discipline in the execution of the SRS trade because it followed the trading plan religiously.  The experiment will carry on with SRS.   Let’s see if SRS will show us the darkest side of machine trading.  That is 5 losers in a row. 

Here are the 2 trades closed today.  Click on the pictures to have a better view

What do you think?

Today is the first day of the experiment.  The market dropped really hard today and my inverse leveraged ETFs did pretty well. There was not any meaningful retracement during the whole session.  This means the bears were in total control. So we might see further weakness in the next few days.  As I mentioned a week ago that 8000 is a very strong resistance.  And it is.  The market has been chopping around 8000 for a while.   It is way overdue for a correction.   The economy is not going to get any better just because the accounting method was relaxed.

Bank of American released their first quarter earnings that is 10 times what most analysts expected.  And it tanked hard. Some people must be perplexed.  Do not be.  Most traders/investors think their earnings are just fluff.  Price action triumphs over anything.  Capital One and C also tanked hard.

I did not take any day trades. I was basically just monitoring the automated executions of SRS and FAZ.   Sometimes Tradestaion malfunctions although the software is very stable for my regular trading. Monitoring  is a piece of cake since all I have to do is to make sure it takes/exits the trades as planed, the Internet connection is on, and the trading windows are not jammed.  I did not have to make any trading decisions,which made my life a lot easier.

Probably you are more interested in seeing the trades than hearing me babbling. OK without further ado, here you are.  I will do a thorough analysis of the trades after the experiment is finished. The significant bars are marked with white arrows. Please note this is a variant of the engulfing pattern I showed you.  Fill the gap with some green play doh, you have a big green engulfing bar. In real life, it is rare to see text book set-ups.

Click on the pictures below to have a better view. 

SRS opened @ 30.16

FAZ opened @ 10.18

I am going to have an experiment here to test out automation of trading SRS and FAZ.  I do not know if it works.  It just might. I will open 2 small positions, 5k each in SRS and FAZ.

The set-up is simple.  I am looking for an engulfing bar using the 60 min charts.   The engulfing bar must be big enough to engulf(cover) the last significant red bar. A market order will be sent right after the close of the engulfing bar.   Here is the illustration of the engulfing pattern.   

Here is the Set-Up

• Go long right after the close of the 60 min engulfing bar
• Stop Loss will be 5%. If it gaps down by 10% and it will be considered 2 losers in row. 
• And the risk/reward ratio will be 1:5.   That makes it 5%:25% 

A good outcome will be anything that I do not have 5 losers in a row. The experiment will finish either when one hits the target before sustaining 5 losers in a row or when it loses 5 times in a row. It will start from Monday.  The computer will totally take emotion control out of my hand.  Let’s see how it works. I think it is going to beat me.  The trades will be excluded from my portfolio.   Feel free to ask me questions.

Here are the 60 min charts of SRS and FAZ at the end of 4/17/2008.

Here is the ongoing experiment:  Day 1 Day 2

Here is how I lost only a little bit over 300 on my GS short position. Here is the playback of this swing trade.  I opened a short position on 3/30/09 @ 103.91 and it tanked to around 100.  So there were around 400 paper profits and I ended up losing 300+.  If I had the ability to look ahead in time, I would have covered my GS around 100.  This kind of scenario happens only in my wildest day dreams. To achieve something extraordinary, you will have to be a dreamer, a doer and a calculating risk taker. Here is why…  For example, when you were a kid and your parents always told you that you should …….  I am sorry about digressing.  Back onto trading.

Ok so that was like 700 dollars from +400 to -300.  I am totally fine with this. I was just following my trading plan.  If every time I take a small profit like this, I would never ever catch anything like this (FAZ: 31% Gain (8k+) in 2 Days) or that (How I held onto FAS for a 26% gain for a day trade.). I closed the position this morning when I saw something strange. The market gapped down quite deeply. Yet GS showed all upward strengths.  Within 5-6 minutes, it turned green while the market was still very weak.  Something was not right.   If a stock does not act right, get rid of it.  GS should have gone down with the market.  Yet it did not.  So it did not act right and I got rid of it quickly. I would have been stopped out later anyway. But my quick reaction saved me a couple of hundreds dollars. Here is the chart and my GS trade.

I took a day trade in FAZ and made 400+ and I also opened a small swing long position in FAZ.  Let’s see how it plays out.

We have seen a solid rally for the past 3 weeks that almost erased the entire loss of 2009.   Have we hit a major bottom here?  It is possible.  But it is meaningless for day traders and short swing traders like me since our timeframes are very short.  Let’s assume that we have hit a major bottom here.  The market is going to chop after such a big rally.   I firmly believe that 8000 is a formidable resistance for the bulls.  It is equally hard for the bears to bring the general market to a new low.  So we will perhaps see a chopping range for a few weeks before the market chooses a direction to break out.    Since targets for my swing positions are mostly 15%, so the ensuing range-bound moves should be good enough for my set-ups.    Occasionally my target is 12% for big cap stocks like AAPL, GS or RIMM etc. or 20% for volatile mid-cap such as WLT or NOV.  I like breakouts/resistance/support for day trading.   Day trading is like all you can eat buffet for me.   I almost only buy support and short resistance for swing trading.

 
Since I believe it is very hard for the rally to continue beyond the 8000 level.   I have been looking for short set-ups or long set-ups in the inverse ETFs.   The first one is of course the most loved and hated FAZ. Click on the pictures to have a better view

FAZ

From the chart above, we can see a few characters that are quite interesting.

1.  There is a pretty solid double bottom formation, which is one of my favorite patterns

2.  The first dead cat bounce met the resistance around 22.33 or 23.60% of the Fibonacci retracement line.

3.  The volume has slight increased, meaning there was some buying interest at this level.

I hope it does not gap up on Monday so I will have a chance to get in.  My first target will be around 25 (30% from here @ 19.87).  Second target will be around 29, which is 50% of the retracement.  My stop loss will be around 18.

AMG  [Affiliated Managers Group]

1.  It is a text book double top formation.

2   It is very close to the last resistance area which formed around 2/5/09

APOL [Apollo Group, Inc]

1. It has had very sluggish moves in the past few days.

2. It has touched the suppressing trend line



GS [Goldman Sachs Group, Inc]

1. A double top is in the making.

2. The financial sector has seen a very strong rally.  It might require a strong reaction

WLT [ Walter Industries, Inc]

1.  The coal sector was quite strong in the past few weeks.  It might require some reaction

2.  It has sluggish moves in the past few days.

BXP [ Boston Properties, Inc]

1.  it is extremely weak

2.  It seems to have broken the last trading range
This stock is not volatile.  My target will be 12% if I decide to open a short position

 
FLSR [ First Solar, Inc.]

FLSR is actually very interesting.  It has formed a very bullish wedge.  The consolidation seems to be very healthy.  I will not touch it for now.

No matter how convinced I am by my own technical analysis, my risk control will always be in place.

I think we have hit a massive resistance. As we can see from the Dow’s Daily Chart, the last trading range was very thick and a lot of people went long thinking that was a bottom are eager to get out.  So there will be massive selling in that range. It will take some time for the market to wear out those trapped bulls.  Once some of them are out, we might see upward moves with the help of some good news.

Click the pictures to have a better view

I am still bearish. That is why I have FAZ.  Now I am up 10% in FAZ again. So I will move my stop to break-even. My target is 30%.  I think 30% is very conservative here.

Where do you think FAZ will stand 3 days from now?