Game Plan for the Week of 11-10-13 through 11-16-13

Last week I was playing Cisco (CSCO) to the upside on a pre-earnings play.  Made a nice profit and got stopped out of the position on Thursday.  I entered the trade Monday at a bid price of $1.06 and got stopped out at an ask price of $1.52.  All-in-all, a fairly good gain.

On Friday, the Non Farm Payroll report came out.  It was an outstandingly good report.  The market was expecting somewhere in the realm of 100,000 new jobs, and instead about 200,000 new jobs were created in the private sector.  Now, most pundits (myself included) expected the market to react negatively to this news because it would give the Fed extra excuse to taper.  The market did, in fact, open lower and fall lower during amateur hour.  However, the market rebounded and ended closing near all-time highs.  For once, Wall Street actually responded positively to good news, which was refreshing.

The market calendar and the years-end rule both dictate that the market should rise going into Thanksgiving, followed by a sell-off from after Thanksgiving into the end of November.  Currently, there are three very nice upside signals on JPM, C, and NVDA.

C is currently caught in a triangle pattern, between a narrow support and resistance band, which may limit it's upside.  This makes it the least attractive of the three.

JPM has a HRFP going up, and this signal is coming off of a very long-term up trend line (making it even more attractive).  The only knock on JPM is that, historically, it goes down in the month of November.  Even though the charts are showing a strong upside tendency, this goes against history, raising some caution in my mind.

NVDA is coming off an earnings beat.  It has a HRFP going up, and this signal is coming off of a very long-term up trend line (making it even more attractive).  In addition to this, historically NVDA goes up in the month of November, making it even more attractive on top of that.

The combination of strong upside signals, post earnings potential, and historical success make NVDA a very nice upside play in my mind, with JPM coming in second.  C may wind up being a good upside play if it can break through resistance and bust out of the triangle pattern it's in.

And now the charts...

Nvidia (NVDA)

JP Morgan (JPM)

Citi Bank (C)

Game Plan for the Week of 11-03-13 through 11-09-13

I still have my position to the upside open in Cisco (CSCO) and it looks like it's finally gaining traction to the upside.  It has a very strong history of trending up going into November earnings.  They report on November 13th.  I think it would be wise to pull out by this coming Thursday, though, given that Nonfarm Payrolls report Friday.  Why?  Well...

Nonfarm Payrolls report Friday, November 8th.  This will be a good indicator of the overall health of the job market, which plays a key role in the Fed's tapering plans.  If the Nonfarm payrolls are flat, a little good, or a little bad, stocks should continue upward.  If they are really good it means the job market is really good, and the Fed may speed up their tapering plans, so the market will drop.  If they are really bad this means the job market is really bad, which means the overall economy sucks, so the market will drop.

In earnings news, some good reports are coming out next week.  Disney and Whole Foods report next week.  These are two stocks that the analysts love to beat up when they report earnings.  One can almost expect there to be a post-earnings pullback on both of these stocks, followed by a rise once the pullback ends.  Wait for the drop to end, then buy on the pullback.

Recent Trading Mistake

I'm posting a recent trading mistake I made because I hope to never EVER repeat it again.  I was making a trade to the down side using put options on Tesla Motors (TSLA) and got scared out of the trade on 10/24.  Why did I get scared out?  Because instead of using my Daily charts I was watching the short-term 5 minute carts and got freaked out when they moved dramatically against me.

Luckily I exited without making a loss OR a profit (so I broke even) but had I stayed in the trade and FOLLOWED DISCIPLINE I would have made a tidy sum as of today, October 29th.

The lesson here is this: whatever time frame you use to make your trading DECISION, stay in that time frame and don't look at shorter-term charts because they WILL fluctuate and they WILL throw off your discipline.

See the chart below...

A Friendly Reminder...

Always... always... ALWAYS... stick with your decision chart once in the trade.  Big charts trump little charts.  Always.

The trend is your friend, give the trade time to work.

Possible Trades for the Coming Week

Between now and the end of October is where stocks tend to bottom out and head upward.  Assuming there's no October crash (and assuming the Fed says nothing about tapering) the markets should rock and roll sky high in November.  

If the Fed says they'll taper this week, we could probably expect a crash (and unfortunately I'm not joking here).

I've got charts posted below for four potential upcoming trades.  The only downside trade I have posted is Yahoo, and that's because it's got quite a ways to go before it hits any resistance on the charts.

Activision Blizzard (ATVI)

Goldman Sachs (GS)

Petsmart (PETM)

Yahoo! (YHOO)

Warnings Trade

Most companies that warn do so after the market is closed or prior to the opening.  On the warning we will automatically make the decision to buy Put options.  There is no decision chart for a warnings trade - the fact that a company warns IS our decision.

When the market opens the 5 minute chart will act as our action chart.

Wait for a good pullback (in this case, a rising stock) where a quality trend line can be drawn connecting at least 3 points.  Following the break in the trend line, the majority of the charting indicators must be signaling a falling price and the MACD Histogram must agree with this.  Patience is a must here, as the correct entry point may take as long as a couple of days to materialize.  Be mindful of the market calendar and any upcoming events and plan this trade accordingly.

Purchase either in-the-money puts or 1 strike price out-of-the-money puts.  If it's early in the month you can buy this month's puts, otherwise it's safer to buy next month's puts.  It is also safer to use in the money puts.

General Notes:

Warnings happen every warnings season.  Basically, a warning is a company issuing lower guidance on their upcoming earnings projections, and saying they won't beat their upcoming projections.  These projections are issued by the company... so by them saying they won't beat their own projections, that tells Wall Street one of two things: the company either sucks at what they do, or they are liars.  Either way, the stock will go down.

Be mindful of the market calendar.  If you attempt a warnings trade when the entire market is set to rise, it may not work.

"Year Ends In" Rule

The stock market is no mystery.  It does the same stuff over and over again.  There is a rule of decades that dictates that every year ending in a certain number acts like every other year ending in that same number.  For example, 2013 is behaving like 2003 and every other year that ends in "3."

Keep in mind that these are generalizations.  For example, years ending in 9 are supposed to be where the high is set for a bull market, seeing insane moves both up and down.  Well, in 2009 we saw insane up and down moves, but certainly did not hit any kind of bull market high due to the recession.  In fact we hit a bear market low in March 2009 and have been recovering since.

Year Ending in 0
Roaring bull market that may continue to hit highs.  Likely to develop a hard resistance that begins to kill the bull in the fall (around October).

Year Ending in 1
Typically a bear or bearish market.  Market will begin to slide off from the highs of the previous year and decline harder as the number of people experiencing larger losses increases.  After a small rally in the spring, the market slides as more people bail out of their stocks.  A pronounced late summer (usually August or September) slide should be expected, but is not guaranteed to happen.

Year Ending in 2
A bear market, market generally hits its lows in years ending in 2, and usually does so late in the year.  Generally flat to down with larger downside than upside moves.  Expect a sharper downside slide in the summer.  There will be a pop up after the summer low, followed by a decline.  Frequently hits its low in October or retests its summer low.  The fall low is typically the death of the bear.

Year Ending in 3
A baby bull market.  Previous year's lows will be frequently tested in the beginning of the year, generally by March/April.  The rest of the year is generally robust with an up-side bias.

Year Ending in 4
A sluggish bull market.  The market is digesting the gains seen in the last half of the previous year.  Generally a good year to the upside, but not as good as a year ending in "3."  A very good Fall/Winter move should be expected.

Year Ending in 5
A bull market.  Typically good, exceptional to the upside, especially in the Fall/Winter zone (October 25th - end of the year).  The early part of the year can have significant moves in either direction (up or down), but the Summer slide downward is less pronounced; it may only be slightly down or sideways.  The Summer time slide is seldom seen to the degree that it is in other years here.

Year Ending in 6:
A bull market.  Typically trading sideways to up as it digests the previous year's gains.  Good moves in both directions (up or down) are expected in the first half of the year.  Good moves to the upside are expected in the Fall/Winter zone (October 25th - end of the year).

Year Ending in 7:
A bull market that gets very choppy with large swings in both directions.  Expect a hard selloff, often considered a crash, or at least a severe correction.  The depth of the crash/selloff is a great place to buy stocks for the Vault, and is likely the low point for the next few years.  The decline can come at any time in the year, but is most likely to hit in September or October.

Year Ending in 8:
A bull market that simply continues the rise from last year that began after the big drop.  A year ending in 8 will have strong moves to the upside, followed by brief sideways moves to "digest" gains before continuing with more strong upside moves.  A sharp Summer decline is likely, and will usually be severe enough to scare a lot of people out of the market.  Following a September or October low, an EXTREMELY strong Fall/Winter zone (October 25th - end of the year) is typical.

Year Ending in 9:
Roaring bull market that generally sees it's high this year or next, with stocks seeing huge/crazy/insane moves in both upward and downward directions.  Basically this is a "strap on your helmet" year, because it's going to get nutty.