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In the stock market, you will want to invest in the sector leaders because you have a limited amount of capital and you would like to make the best use of it.  What characteristics does a sector leader possess?

 

1. A sector leader should have the best performance among its peers.
2. A sector leader should have liquidity so that it provides enough room for funds to buy in.
3. A sector leader is more resistant to doo-doo storms caused by the general market.
4. A sector leader should be good-looking, aka nice,clean and smooth charts (daily, weekly and monthly).
5. A sector leader almost always moves before its pack does.

 

A well known company’s stock does not necessarily become a sector leader becuase it might be alredy priced in.  Therefore, do not confuse companies with their stocks.  Here are a few real world examples from the solar sector and the coal sector. We will look at them one by one.

 

Solar Sector

As I mentioned on Twitter  last night.  If I should long the solar sector, I would pick TSL or STP instead of FSLR.  Their performance today manifested the importance of this rule.

 

Click on the images to have a better view
 

TSL

 

 

STP

 

FSLR

 

 

Coal Sector

The coal sector is kind of under pressure since China has slowed down stockpiling natural resources such as coal.  But it is not too hard to see that MEE and WLT are the sector leaders and PCX is a laggard.  I think WLT has the best potential since its uptrend is still intact.  MEE’s pull-back is a bit too deep, which requires some serious consolidation to drive out those trapped bulls. PCX has a very disgusting chart from a bull’s perspective.   Correct action should be shorting into the dead cat bounce when there is any weakness.   I will not go long until it breaks the dense congestion area(8-10) effectively.   On the flip side,  PCX has a very nice chart for the shorts.   I give them my due respect.

 

 

WLT

 

MEE

 

 

PCX

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.

Perhaps a lot of us already know how important it is to let our winners run.  However, scalping is totally the opposite of that idiom.  And it works for day traders.

 

Almost every stock can move a few percentage points every day. The stock market consolidates 60-70% of the time, during which most stocks chop around.  Choppy moves are the biggest enemy of the traders who like to ride winners. However, scalpers love choppy moves since they try to capture very small moves only. For example, it is very easy for AAPL or BIDU to move up/down 1% during any time frame.   A good scalper might capture a 0.5% move within a few minutes and then repeat it over and over again. Not only are smaller moves easy to capture, but they are a lot more frequent than bigger moves as well.  For example, AAPL might chop around 5-6 times a day and each chop moves 1-2%.  But it might have only one big move of 3-4% during the whole day.  Small profits add up very quickly.

 

A good scalping trade is profitable right after your entry.  So you will be closing your position in the next few minutes.   This kind of rapid firing makes your trading stake less exposed to risk. This also solves one problem for some people who can never hold onto winners

 

There are 2 hurdles in scalping though.  One is the accuracy of your day trading rifle assuming your marksmanship is a constant.  The other is that it is a bit of exhausting since you might need to aim and shoot more than 20 times a day.

 

As for me, I used to be a scalper (strictly day trader) before 2008. I did pretty well back then.  I averaged 6k-7k per month in profits for 7 moths in a row in 2007 running a 50k account.  And it started to go down hill from Jan 2008. I lost 10k in that month alone and stopped scalping immediately after that.  That quick and solid damage control really saved me.  

 

One single best thing about scalping is that you can trade any stock you want since all of them have multiple small moves of 1-2% every day.  Now I am determined to pick up scalping for day trading again. I will need to look at my previous trades again to see why I made those good solid scalping trades and why I failed in Jan 2008. 

 

See the daily charts of my glorious days of scalping  DRYS, RIMM, FSLR and VMW.  Of cousre, there were many other more stocks I day traded.    Each dot is a trade I took back in 2007.

 

Click on them to have a better view

VMW

DRYS

 FSLR

 

 RIMM

 

Of course my swing trading is all about “let winners run”.  I hope you are all doing well.

 Tubusa (flying wing in Japanese) is actually a big bird that comes to our little pond for meals everyday. There are a lot of fish in the little pond. She is a very shy bird. No one can get close to her. In fact, I do not know if it is a she or he. That is not important though. What is important is that she is a very patient and focused hunter. She can stand still for hours and hours before making a move. She is a very skinny bird as you can see. So she wastes no energy flying up and down looking for any possible fish movements. She just disguises herself by standing still. She waits, waits and waits….. Once a perfect opportunity presents itself, she makes a decisive move. …

 

 

 

 

I have been warning since yesterday on Twitter that a sharp snap-back might occur anytime. If you are following my blog, you know where and when I shorted a few stocks. Old shorts had hefty gains. They needed to book their profits. Today, the market swung like crazy. Nadz swung from -30ish to +20ish. That was a 60 point move. This was exactly the kind of volatility we needed. I wish we had this kind of volatility everyday. But the market is very dull 70% of the time. So Tubusa is here to remind us from time to time that patience is truly a virtual. You do not need to trade everyday, period!. But once there is an opportunity. You take a shot at it aggressively.

 

 

It is very obvious that why I would choose to go long here. The market is oversold and it approached a very strong support 8000. All the shorts and the longs(like me) were watching on the sideline. Any signs of strength would cause the longs to jump in and the shorts to get out. FSLR and RIMM were super strong all day long as I mentioned quite a few times on Twitter. So it is not too hard to see why I bought them. MON is the strongest fertilizer stock. MOS and NOV are not bad and very volatile, which is exactly what I like about them. Now the wheel is motion. Exit and stop loss orders have been placed. I can not touch them at all no matter what. My minimum target for each one of them is 15-20%. if one of them hit the target and the other ones die, I’d almost break even. If 2 make it, I’d very happy. If all of them die, it is just a part of the game. No big deal.. We will try again.

Losers in your portfolio are like tumors. They grind away your new tissues and eat into your existing healthy tissues. If we look at losers in that way, it is not too hard to cut them.

Today, I just cut a tumor. Yes it already took away some of my hard-earned money which hurts You can see how much I lost in my GS short position in My Portfolio . Nevertheless,if I did not cut it, it might turn into a cancer. GS went up 7% for no apparent reasons. But the reasons are not important. We traders do not need to know why. All we need to know is what. I believe it is useless to predicate the directions of the market. However, we can react to it. Read the rest of this entry »

What I had been worried about happened eventually. Here is my portfolio.

 

The unprecedented rate cut took away 90% of my profits I had in RIMM and FSLR. Who should I blame? No one! There are no reasons to blame the FED or anyone. I never blame anyone but myself for my losses. In fact, I do not blame myself for these 2 stocks since I followed my plan as I said I would in my last post.

 

You start to worry about your position from the moment you open it. Your mood index fluctuates with it. It drives you crazy. I am still trying to gain confidence in my system. So it is inevitable that I am still psychologically unstable. What would you feel if you lost 1800 profits today + 1000 profits yesterday?

 

However, once I can statistically prove that my system works, I will be as mechanic as my computer. I will have no emotions for either my winners or my losers, which is the ultimate trading level I want to reach. And of course, by then I will make multiples of what my husband does. So he can stay home and cook for me ^_^. He is smirking while I am typing this.. LOL

Quite a lot went through my head today. It was one emotional day. But I toughed it out. Every trade was executed 100% according to the plan.

 

I watched 400 dollars of profit from fwlt vaporize right in front of me. Fwlt hit my trailing stop. I had no choice but to get out of it. My 700 profit in flsr almost did the same thing. The fate of the 700 fslr paper profit is still unknown yet. Thank God, it did not hit my trailing stop.

 

As of now, you know what emotional waves I rode today. My rules are very rigid. Once a plan is set, no human interventions whatsoever are allowed even if a stock flips on a penny. I pat myself on the back for being very disciplined today.

 

I am not too worried about rimm since it is not a very volatile stock. I thought about shorting drys since it exploded in the past 3 days. My system generated a short signal at 10.61. But I second guessed it.