One of the characteristics of successful traders such as Wally, Dana, and Callie is they rarely trade on FOMC decision days. Unless they have a significant edge they can turn into profit, its usually wise to watch the reaction after the actual FOMC announcement since the following day will be the real move.
Ironically, that 90 min reaction on Tue was somewhat crippling personally but as luck would have it I wasn't near a computer otherwise my jaw would have dropped. Fortunately, today, the real reaction to the federal government taking a 79.9% stake in Dow component AIG in exchange for an $80 billion loan was negative and allowed me to sell my second 1/6 of a position. So essentially today's gains and yesterday's losses were netted out.
The T2108 indicator is now below 20, or 15.40. So at some point in the next three weeks, historically there will be some type of countertrend upmove. It could start tomorrow, or it could take 15 business days.
Rather than get semantic on how history plays out, I'm looking at both longs and shorts as flip trades. We're hoping to leg out of our current short before the market decides to pull the mother of all reversals should it occur.
Callie mentioned UT as the next likely bank to go poof. I thinking WM is probably next, but likely goes into conservatorship. In any case, we're both probably betting someone files for some type of help this weekend and the Federal Reserve will once again on a Sunday bail some other pathetic financial. But this time, the reaction on the following Monday could end up being a catalyst to cover one's shorts so we need to really to watch those charts in the final hour late Friday to possibly give a tell on whether I should be more proactive in locking profits.
YTD +5.11%
Wednesday, September 17, 2008
Monday, September 15, 2008
Martin Zweig, $100k cash max, 504 point down day in Dow, Risk Management
While the rest of the world suffers, its the daytraders and the few swingtraders that made money today. Fortunately, we got lucky and went back to and old style trading method from almost 20 years ago learned from Wall Street Week's Martin Zweig, and the payoff got me back into the black ytd. This is only the 3rd day in 2008 where I'm on the positive side of the ledger. Although I sold 1/6th of a position today, that still leaves 5/6 exposed, and any unexpected government intervention such as tomorrow's FOMC meeting could turn that profit back into a loss.
The Tradestation T2108 indicator dropped to 21.3 after the Dow recorded its sixth worst point loss in history. Historically, a reading below 20 puts the odds in favor of a countertrend rally but the timing could be as early as three weeks from a potential bottom. As mentioned earlier, the drop was likely caused by the closure of some of LEH's positions in the markets, as the company filed for bankruptcy this weekend after both the federal government and BAC said no way to investing or acquiring their Level 3 junk.
Assuming that LEH had at least $40 billion in positions covering all types of instruments, the market makers aren't simply going to throw the whole thing out at once, but they aren't being discreet about unloading at unfavorable bids. While most of the indexes dropped 3%, financials via the XLF ETF down 9.7%, energy and materials dropped 9% as the plurality of LEH's portfolio shows they doubled down in the summer hoping to ride out the financial downturn and lost. Unfortunately having to sell their winning energy and materials positions is exacerbating a 33% pullback from the 52 week highs in these sectors.
Originally, we had planned to sell over five separate days, just as it took six days to acquire the position through probe trades. But the market does NOT care what I think. There may come a time when you will be forced to close the full position at a moment's notice in order to prevent the previous profit from turning into a loss.
While I have one of the smaller accounts when compared to my daytrading colleagues, one thing we share is the dilemma of occassionally holding over 100k in cash. Similar to an FDIC bank account, I don't want to have over 100k in cash for more than one day in the 1/100 chance my broker decides to go poof. While my account would be covered up to 500k (if I had 500k), they only insure up to 100k in cash. Therefore, I am somewhat forced to keep about half of my net worth invested in something (whether long or short) at all times. I am always looking to find the potential turn or when the current trend could potentially reverse. Notice that today's action, KO was the only Dow component that was up today (up .25). If I think there's a potential for a trend reversal, I want to pay attention to what could be the new leaders. Forget the reasons about why something is behaving that way. The price chart is all you need to be aware of.
For those interested in the ultrashorts, the EFU (interesting ticker symbol), and the SDS show nice uptrending lines.
I am reminded by others that risk management is the difference that separates those who can survive all kinds of markets. Understanding when and when not to use margin. Many of the daytraders I interact with, understand that margin is a temporary tool to augment gains. You will NOT ever see any of them carry a position overnight with a margin risk that threatens them with a potential margin call. They are proficient at what they do because they balance: a maximum trading position versus, reserve cash for future trades, and understanding the cost of margin loans. There are few trades that pay 8-9% consistently in a short timeframe unless you are churning 30% plus profits annually before taxes and broker commissions. Let the big institutions play with the high margin money. Trading is hard enough as is and having to profit a set amount every period to cover interest on a margin loan is unnecessary stress for the inexperienced trader.
The Tradestation T2108 indicator dropped to 21.3 after the Dow recorded its sixth worst point loss in history. Historically, a reading below 20 puts the odds in favor of a countertrend rally but the timing could be as early as three weeks from a potential bottom. As mentioned earlier, the drop was likely caused by the closure of some of LEH's positions in the markets, as the company filed for bankruptcy this weekend after both the federal government and BAC said no way to investing or acquiring their Level 3 junk.
Assuming that LEH had at least $40 billion in positions covering all types of instruments, the market makers aren't simply going to throw the whole thing out at once, but they aren't being discreet about unloading at unfavorable bids. While most of the indexes dropped 3%, financials via the XLF ETF down 9.7%, energy and materials dropped 9% as the plurality of LEH's portfolio shows they doubled down in the summer hoping to ride out the financial downturn and lost. Unfortunately having to sell their winning energy and materials positions is exacerbating a 33% pullback from the 52 week highs in these sectors.
Originally, we had planned to sell over five separate days, just as it took six days to acquire the position through probe trades. But the market does NOT care what I think. There may come a time when you will be forced to close the full position at a moment's notice in order to prevent the previous profit from turning into a loss.
While I have one of the smaller accounts when compared to my daytrading colleagues, one thing we share is the dilemma of occassionally holding over 100k in cash. Similar to an FDIC bank account, I don't want to have over 100k in cash for more than one day in the 1/100 chance my broker decides to go poof. While my account would be covered up to 500k (if I had 500k), they only insure up to 100k in cash. Therefore, I am somewhat forced to keep about half of my net worth invested in something (whether long or short) at all times. I am always looking to find the potential turn or when the current trend could potentially reverse. Notice that today's action, KO was the only Dow component that was up today (up .25). If I think there's a potential for a trend reversal, I want to pay attention to what could be the new leaders. Forget the reasons about why something is behaving that way. The price chart is all you need to be aware of.
For those interested in the ultrashorts, the EFU (interesting ticker symbol), and the SDS show nice uptrending lines.
I am reminded by others that risk management is the difference that separates those who can survive all kinds of markets. Understanding when and when not to use margin. Many of the daytraders I interact with, understand that margin is a temporary tool to augment gains. You will NOT ever see any of them carry a position overnight with a margin risk that threatens them with a potential margin call. They are proficient at what they do because they balance: a maximum trading position versus, reserve cash for future trades, and understanding the cost of margin loans. There are few trades that pay 8-9% consistently in a short timeframe unless you are churning 30% plus profits annually before taxes and broker commissions. Let the big institutions play with the high margin money. Trading is hard enough as is and having to profit a set amount every period to cover interest on a margin loan is unnecessary stress for the inexperienced trader.
LEH files bankruptcy, AIG is next, MER stupidly saved by BAC
Premarket futures looking to gap down -3% at the opening bell with LEH going bk. With Hurricane Ike causing an expected $18 billion in damage to the Gulf Coast, take a guess how much AIG will have to eat given their own balance sheet is a mess of Level 3 Assets. In the words of the National Weather Service from four days ago, those who ignore Jim Rogers and casy's opinions "face certain death". Well LEH is today's casualty, so unless some other idiot such as BAC comes to rescue AIG, they are next.
Rumors have it that the Federal Reserve put a shotgun to BAC's head to make them save MER since anyone with common sense knows MER would have dropped to below $4 without BAC's intervention. After all if BAC was stupid enough to overpay $15 for CFC, they're stupid enough to overpay for MER.
With LEH's bankruptcy, the unwinding of LEH's positions will take place. The questions to ask are: 1) what could reverse the "sell" psychology? and 2) Could the Federal Reserve throw a surprise rate cut tomorrow or next Sunday before the bell?
Instead of worrying about the CNBC pundits or media chatterbugs, turn off the television and look at your playbook. You should have already written down how you will handle your positions given all scenarios. You can worry about why something moved a certain way AFTER you are out of the position; but until then, you should focus on your price charts, your technical charts, and what your signals tell you to do.
Rumors have it that the Federal Reserve put a shotgun to BAC's head to make them save MER since anyone with common sense knows MER would have dropped to below $4 without BAC's intervention. After all if BAC was stupid enough to overpay $15 for CFC, they're stupid enough to overpay for MER.
With LEH's bankruptcy, the unwinding of LEH's positions will take place. The questions to ask are: 1) what could reverse the "sell" psychology? and 2) Could the Federal Reserve throw a surprise rate cut tomorrow or next Sunday before the bell?
Instead of worrying about the CNBC pundits or media chatterbugs, turn off the television and look at your playbook. You should have already written down how you will handle your positions given all scenarios. You can worry about why something moved a certain way AFTER you are out of the position; but until then, you should focus on your price charts, your technical charts, and what your signals tell you to do.
Friday, September 12, 2008
"Get out or FACE CERTAIN DEATH" National Weather Service advisory regarding Hurricane Ike, The Evil Team of Rounders, and the Evil Patrick Green.
Our prayers go out to those in the path of Hurricane Ike.
On another note, residing out here, I've met many honorable people. But consequently, I've met many evil people such as a softball team called Rounders that competes in the Huntington Beach City Men's League. Last night, their catcher almost caused serious injury to two of our star players, and had the bravado to march over to our dugout by himself after the nearmishap and justify why he was in the right. So your analogy is if I decide to break every fiber of your body in the next game, I have the right to justify that to the rest of your team right.
Boys, this is a rec league where 1st place gets you a $15 t-shirt. No one will be awarded a $100 million contract to play in Major League Baseball. If you want to play that way with your dishonest and dangerous tactics, your team will face certain death the next time any of your members pulls a stunt like that against us. You started the war. You have a choice. Either be the better team or we will terminate all of you.
At some point, I will turnover my most wanted list to one of my colleagues. Most wanted as in, every person who has ever slighted me in my lifetime. The most recent douchebag is this 28- year old named Patrick Green from San Diego who conveniently convinced a Wednesday social group of 26 people whom I used to practice softball with, to have two people who never played softball as captains and then rig it to where I was picked last. I have never been picked last in anything in my entire life until that day. And if they seriously think they are superior to my skills in an even up contest, they are deluding themselves if they think they could survive in any city league. Nevertheless, another one on the hit list.
On another note, residing out here, I've met many honorable people. But consequently, I've met many evil people such as a softball team called Rounders that competes in the Huntington Beach City Men's League. Last night, their catcher almost caused serious injury to two of our star players, and had the bravado to march over to our dugout by himself after the nearmishap and justify why he was in the right. So your analogy is if I decide to break every fiber of your body in the next game, I have the right to justify that to the rest of your team right.
Boys, this is a rec league where 1st place gets you a $15 t-shirt. No one will be awarded a $100 million contract to play in Major League Baseball. If you want to play that way with your dishonest and dangerous tactics, your team will face certain death the next time any of your members pulls a stunt like that against us. You started the war. You have a choice. Either be the better team or we will terminate all of you.
At some point, I will turnover my most wanted list to one of my colleagues. Most wanted as in, every person who has ever slighted me in my lifetime. The most recent douchebag is this 28- year old named Patrick Green from San Diego who conveniently convinced a Wednesday social group of 26 people whom I used to practice softball with, to have two people who never played softball as captains and then rig it to where I was picked last. I have never been picked last in anything in my entire life until that day. And if they seriously think they are superior to my skills in an even up contest, they are deluding themselves if they think they could survive in any city league. Nevertheless, another one on the hit list.
Tuesday, September 9, 2008
LEH is next to be toast
Seems a rumor floating about that LEH looking like the next BSC as its stock price is down 40% today. The put options activity for Sep and Oct would seem to support that traders expect LEH to be toast.
Since the government already used their ammo on Fannie/Freddie, does anyone really believe they're going to step up and help LEH.
I say no. But the only way to know is to bet against the financials, or the S&P, or stay in cash.
Since the government already used their ammo on Fannie/Freddie, does anyone really believe they're going to step up and help LEH.
I say no. But the only way to know is to bet against the financials, or the S&P, or stay in cash.
Day after Fannie Mae and Freddie Mac bailout and why PIMCO's Bill Gross is not so smart as Barrons would have you believe
It's safe to say that Jim Rogers and casy was the only one to call this from several years ago. Even though I thought Fannie and Freddie were nothing more than scams, both had the guts to go on record and say they were insolvent over a year ago (and both were deservedly right and profited massively from their convictions).
The bailout has proven other things. One that Bill Gross is nothing but a shill, given anyone stupid enough to invest $638 billion in unsecured Fannie and Freddie bonds should have seen their investment declined by at least 80% in a bankruptcy. But the mother of all government interventions saved him and foreign governments who were dumb enough to purchase this stuff. Investing involves risk. Just because something doesn't move your way doesn't give you the right to go on CNBC and cry out for a government bailout. So because foreign governments and Bill Gross pretty much put a gun to the U.S. government and said, "if you don't bailout Fannie and Freddie, they would retailiate by not purchasing any U.S. debt instruments going forward to finance Congress' irresponsible spending."
This shows first hand how debt or spending over one's means makes you a servant to the creditor. When you owe money to someone, they have power over you and can dictate unfavorable terms that will restrict your freedom or lifestyle. Just because the U.S. Congress is irresponsible does not mean you can do the same. It is up to all of us to set a higher standard and example of what it means to be an American. Right now, the rest of the world is laughing at us especially, yesterday on CNBC Europe, and no one should give nations such as France the last laugh to say "I told you so".
The bailout has proven other things. One that Bill Gross is nothing but a shill, given anyone stupid enough to invest $638 billion in unsecured Fannie and Freddie bonds should have seen their investment declined by at least 80% in a bankruptcy. But the mother of all government interventions saved him and foreign governments who were dumb enough to purchase this stuff. Investing involves risk. Just because something doesn't move your way doesn't give you the right to go on CNBC and cry out for a government bailout. So because foreign governments and Bill Gross pretty much put a gun to the U.S. government and said, "if you don't bailout Fannie and Freddie, they would retailiate by not purchasing any U.S. debt instruments going forward to finance Congress' irresponsible spending."
This shows first hand how debt or spending over one's means makes you a servant to the creditor. When you owe money to someone, they have power over you and can dictate unfavorable terms that will restrict your freedom or lifestyle. Just because the U.S. Congress is irresponsible does not mean you can do the same. It is up to all of us to set a higher standard and example of what it means to be an American. Right now, the rest of the world is laughing at us especially, yesterday on CNBC Europe, and no one should give nations such as France the last laugh to say "I told you so".
Tuesday, September 2, 2008
Post Labor-Day gap up turns it a Market Fool ya
While I'm potentially a little out of sync with the markets; especially given at 3:59p EST last Friday before the holiday I was toying with getting a bunch of UWM and BKE (it's a dana pick from eighteen months ago I kept a loose eye on), but for some reason didn't hit the trade button for either.
Flash forward to this morning as UWM was up 3%, 30 minutes into the day and I'm thinking, this really sucks. While BKE held on to most of its gains closing up almost 5%, and looking like it will run to $70/share, the market averages rose just above their resistance lines and then sold off to close in the middle of their 5 week trading ranges.
I'm not sure if it was dumb luck that I didn't attempt to trade the market averages or because I suspected I wasn't quite right with taking the trade but maybe its all for the best and we just have to take it day by day to see what materializes in the final four months of 2008.
YTD -1.5%
Flash forward to this morning as UWM was up 3%, 30 minutes into the day and I'm thinking, this really sucks. While BKE held on to most of its gains closing up almost 5%, and looking like it will run to $70/share, the market averages rose just above their resistance lines and then sold off to close in the middle of their 5 week trading ranges.
I'm not sure if it was dumb luck that I didn't attempt to trade the market averages or because I suspected I wasn't quite right with taking the trade but maybe its all for the best and we just have to take it day by day to see what materializes in the final four months of 2008.
YTD -1.5%
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