High risk trade: Long 150 SPWR at close

Quadruple witching Friday. Trading around 97.

Note, we're up about twenty cents/share on AKS. We'll at least its green.

Thoughts and an Earnings Trade

A lot of range in the averages on Wednesday. While I was incorrect on Tue being an up day, I was nearly accurate on today's move with the Dow coming down to its 30 day moving average (the intraday low was less than 3 points away), before it reversed and rallied almost 100 points before closing with a loss of 20 on the day. I bought a 200 share block of AKS at the close and they have an earnings release either on Mon the 22nd at the close or Tue the 23rd before the bell. While I'm disheartened to hear that most of today's move in the steel sector was because of STLD raising next year's guidance, I wanted to put something in the market rather than have excess cash. While earning 4.25% waiting for trades is nice money during range bound or downtrending markets, you don't want to have too much cash when other sectors such as China are making 5-15% daily gains.

Speaking of China, here's where a business school lesson "stick to U.S. based companies", HURT my performance for 2007. While I made a few trades on these China plays, the correct play was to hold at worse one of the index etfs such as FXI. Even the index is sitting at a 79% gain since August. For 2008, when you see something that moves, look at the chart and keep your personal bias out of the analysis. Jim Rogers was right. 80% of the move on a potential winner will occur when you least expect it. If you let your industry or personal bias affect your analysis, you could either end up missing out on a big winner or underperforming a benchmark average.

When ignoring the Stock Trader's Almanac works

As mentioned on previous columns, my copy of the 2007 Almanac sits in the fireplace since it has cost versus making additional profits in 2007 with its historical precedents. However, one of the few times it has saved me money was doing the opposite of what it said for today's action.

Historically, the Monday prior to the October quadruple witch Friday, the Dow has been up 22 of the past 26 years, and has been up 6 straight years. The problem with this precedent is no fewer than 5 mainstream sites from marketwatch, smartmoney, barrons, thestreet, and cnbc were mentioning this record last Friday.

As soon as everyone realizes a pattern, institutions will do one of two things: a) front run the perceived advantage or b) do the exact opposite to force out the speculators.

With the markets down about 1% on the averages intraday, my current plan is to see if Tue is a small positive day, then for the averages to finish lower on Wed, but NOT drop below the 30 day simple moving average. The Dow dropped below the 20 day intraday so while most radars are on the 50 day, I'm watching near the 30 day as an entry point for the close on Wed.

Maximum Portfolio Composition and Cash Reserve

In two decades of investing and trading equities, through chatting with the best traders, there is no set parameter on the optimum portfolio. While many traders have the innate ability to go from 100% cash to 100% invested within minutes, I've found that the personal risk tolerance of the individual greatly determines how much of a potential return one can make in a given year.

In my early years, I held 15-20 equity positions at a given time. During the late 1980's and 1990's, I followed the Peter Lynch ideals of an industry bet where I would cherry pick the top performing companies of a given sector. It wasn't unheard for me to have exposure in only three sectors but have three to seven stocks in each sector.

Because I'm not as sharp as my younger days, today I've found I can only hold a maximum of 12 equity positions given all of the charts I review on a nightly basis. The good news is there is no dollar size maximum I impose on any position. I have it planned to purchase a stock four separate times should it move in the intended direction. For some reason, I always seem to holdback around $10-20k in cash regardless if its a uptrending or downtrending market. I'm not sure if its a subconscious decision of needing a new car at some point or whether I'm still working on unlearning some of the wrong lessons learned in business school.

The things I want to work on for 2008 is whether I can expand new pyramid trades by going from four to five, then to a maximum of seven purchases. Now in late 2006, I got in some trouble with this method because the trades wouldn't last beyond the fourth purchase.

In the most recent buying opportunity in August, I went to my maximum four purchases at progressively higher prices on five different equities. The major difference was the buy points were well below the 52 week high, set just a few weeks earlier. I was lucky that the market resumed their uptrend and that the blip down was caused by a few hedge funds liquidating their long positions to meet margin calls.

While I do get shaken out of a 100 shares here and there when a stock prematurely trips a stop, The goal is to keep at least 80% of the portfolio invested with the current trend of the market. Updating your stop loss points nightly on every position, will ensure you won't make a panic trade when the markets move contrary to your portfolio.

Sell all 35 ISRG at market close today

While I read the smartmoney.com website daily on consumer related advice, I sometimes get worried when a position I'm holding has a standalone article. This afternoon, ISRG was a stock featured on one of their columns. Generally speaking, when one of your long positions is being analyzed in a favorable light by a business magazine or website, it means it might be time to close out the position since the media is usually late to the game and could be trying to pump the stock in order for their own shareholders to sell their positions.

Therefore, I am selling all 35 shares of ISRG at the market close TODAY.

Earnings Update, ISRG reports Thur 10/18

ISRG moved up their release date, so I'll have to be out of the stock on Wed 10/17.

The only reason I would continue to be long after this date, is if I locate something from their SEC filings that suggests a big earnings upside.

Otherwise, the plan to sell all 35 shares before 4pm Wed 10/17.

Oct-Mar, long 35 shares ISRG

From the StockTrader's Almanac, the six month period between October-March is when the majority of the indexes acheive their gains. When historians regard Nov-Apr as the theoretical ideal for index holders, the market tendency in the past few years is to front-run this historical precedent. If anything in 2007, the big money was piling into positions in late Aug and rotated through the sectors through mid September.

Regardless, I want to see if I can do a 3 week swingtrade on one of casy's stocks. ISRG is a stock that was off and on his list. The main reason he didn't play it was he was fortunate to get out before it hiccupped for two quarters. Medical equipment plays are similar to tech stocks because they depend on the momentum crowd. Their low share floats, when the markets are trending higher, make them decent gainers for somewhat short time horizons.

The market is down about 1/2% today but ISRG up 4% today on no news. Since historically they report their 3Q earnings between 10/22 and 10/30, my objective is for one purchase only. and to sell it the day before earnings. So I will buy 35 shares at the close if ISRG is green for the day. I will NOT add to the position and will set a stop loss at 9% from the purchase price. My goal is to sell the stock the day before earnings and looking for a 15-30 point move higher before the earnings release.