August 21, 2013

It's been a couple of weeks since my last post.  My apologies!  I have been trading and keeping up with the markets, however I have also been starting a business and getting a house ready to move in to.  So between everything going on finding time for the blog has been hard.

Recently, however, market news has come to light and I think we're on the precipice of witnessing a "once in a decade" event on the markets.  All year the market has been riding high on cheap an easy money pouring in via the Fed's bond-buying program, and the stock market has reached all time heights by riding this wave.  Recently some Fed executives have been whispering about the Fed tapering it's bond buying which, in turn, would taper off the some 86-billion-dollar per month bond buying the Fed has been feeding the market with, which in turn would lead to an overall market decline.  Today we were supposed to get some sort of hint from the FOMC meeting minutes as to what they may be planning.  That hint never came, and the markets seem paranoid at the prospects of even a possible tapering.

Add to this the fact that the markets have been declining the past couple of weeks, and add to it that there have been occurences of the so-called "Hindenburg Omen" this summer, and it all spells a downturn in the markets (at best) and a crash (at the worst) in the coming months.  Seeing as mutual funds must sell their losers by the end of October for tax purposes, I say if a crash does happen it happens between now and the end of October.

See more on the recent re-emergence of the Hindenburg Omen on Yahoo Finance and also on Business Insider.  Long story short, the Hindenburg Omen is a mixture of several different technical indicators that, if they all occur on the same day, it is a bad omen.  If they all occur on the same day, and we have at least two of those such days in the same 30 day time span, it spells possible disaster.  If we have several of these such days in a short time span, it spells an almost certain market crash.

There have been 5 Hindenburg Omen's triggered in the last 8 trading days.  The last two times they occurred with this level of concentration and frequency were before the crash of 2000 and before the crash of 2007.

What do I think?  I think a lot of this hinges on the Fed and how much paranoia Wall Street exudes surrounding the Fed.  Sure, things are certainly going to go down for the next month or two.  That's to be expected, what with fall approaching.  What will vary is by how much things go down and if we actually experience a crash.  If the fed begins tapering it's bond buying, I would say we're almost certainly looking at a crash.  If the Fed pledges to not taper till the beginning of 2014, I think we'll see a market decline/correction and possibly a crash.

As long as Wall Street continues to get it's "heroine" from the Fed, it'll keep flying high.  However, as with any substance dependency, once the "stuff" is cut off, there's a hard crash that follows...

Multiple Day QQQ's Play

Rules for trading the QQQ's using a multi-day time frame.

1) When the Daily Nasdaq Futures charts and the Daily QQQ chart indicate a trade, use this as your decision.

2) If using an action chart, use the 21 minute as your action chart.

3) Purchase options either 1 strike price in the money or 1 strike price out of the money.  Only buy out of the money if it's within like 10 or 20 cents of being out of the money.  In the money is ALWAYS the safer bet.

4) Purchase plenty of time, you want enough time to capture a multiple day move.

5) Enter the trade when the bid/ask spread is no more than 5 cents apart.

6) If the Daily QQQ chart is coming off the bottom bollinger band headed up, or the top bollinger band headed down, you can typically expect a large move that can be as much as $4 per share.

August 5th, 2013

Laying down in bed on the iPad so no pics of charts to post today!

Mostly a quiet Monday anyway.  Today saw the least trading volume all year so far, and the markets experienced a modest down day.  Honestly I think they're due for a correction given the incredible up moves that have been taking place lately.  Not a whole lot of bad news rearing its ugly head, and gas prices have remained fairly stable so there's not been any undue stress put on consumers either.

We are winding down some majorly positive earnings reports too so I think that as earnings season closes, we may see a pullback simply because supply and demand requires it.

Of course the talking heads on tv will come up with a reason for the coming correction but hey... If they were any good at this they'd be retired instead of on tv.

Steps to a Great Trade

These are the steps to a great trade based on my own individual trading rules.  I'm posting this here for personal reference.  If you read this and don't get it, it's probably because you didn't take the same classes I took :-P lol

The weekly is to ALWAYS be your trend chart UNLESS a quality trend line can't be drawn with it.  THEN AND ONLY THEN will you use the daily as your trend.  THIS INCLUDES THE SUMMER ZONE!!!!  In Summer, the daily will FREQUENTLY be our trend chart but NOT ALWAYS

 

The 233 chart is only a decision chart and can be used as one throughout the year.  The 55 is only a decision chart.  45 is occasionally a decision chart during summer.  21 is action when daily is decision (also used for intra day Q's trade).  8 minute is action chart when decision is 55 or 233.  5 and 3 minute are used for 5 minute technique, slingshot, and warning trade.  In 5-minute technique and slingshot, the 5 is both the decision & action chart.

 

Big charts = big money (duh!), peaceful trading experience, very few losses (following all the rules all the time), less opportunity but less risk for loss

 

Little charts = little money (duh!), high anxiety trading experience, dramatically increased number of losing trades, more opportunity but more risk for loss

 

Weekly, daily, and 233 are "big" and the rest are "small"

 

Daily charts for decision = the trades will usually last 3 days, sometimes going into weeks.  Fall/winter will usually be weeks, transitional will shorten up as it gets closer to summer, and summer will usually last only a day, rarely 3, and almost never a week.  It depends on what trading zone you're in.

 

233 for decision = trade lasts anywhere from half a day (tho usually at least a day and a half) and possibly turning into 10 days.  10 days is the absolute max.

 

55 for decision = trade lasts a matter of hours (anywhere from 1 to up to 24 market hours).  24 market hours is about 4 business days.  This is the MAXIMUM that they ever go, they rarely reach this

 

34 for decision = trade lasts for a few hours, less than one market day.

 

Number of candles after a cross will RARELY go more than 20.  FEW trades go the maximum length.  If you're in a trade for 20 candles or more, GET OUT!!!!

 

Steps for a great trade!

 

1) Check the trend line

 

2) Go to decision chart.  Only trade the FP or HRFP.  HRFP doesn't indicate the size of the gain, but it indicates the size of the confidence in the trade.  HRFP just works more often than FP, but they're both incredibly reliable.

 

3) When following the decision chart candle closing, switch to the action chart.  EXCEPTION: 233 chart closes 2 candles a day, one at 1:23 and one at 4:00, but we'll consider it closed at 3:50.  This is the only exception to waiting for a candle close.

 

4) The action chart will look like the move has been going on for some time, to the point where it'll look like you've missed the move.  You haven't, it's cool.  There will be approximately 3 of the 21 minute candles in an hour if the 21 is your action chart.  Your action chart may be at the top of the bollinger bands, about to turn over, etc... but it's cool!  Wait for it to back up then turn up, this is when you get into the trade.  Wait for a pullback on the action chart before trading.  A pullback is when a quality trend line can be drawn connecting at least 3 points, then having it broken, then having the majority signaling the trade (a FP or a HRFP, but on the Cd he says "Christmas cross" or "macd").

 

5) After entering a trade, you switch to the decision chart & then wait for exit criteria.  RIGHT NOW!

 

EXIT CRITERIA:

 

1) If you're in a trade and hit a 20th candle in whatever time frame you're using for your decisions, GET OUT.  You are playing with fire and WILL get burned.

2)  New Students: up a buck & out.  You have to be right with real money at least 25 consecutive times in a row before you go beyond up a buck & out.  Beyond this, you will be "happy in Seattle."  You're never going to be Bill Gates on a single trade.  You will build a fortune off being "happy in seattle" over time.

 

3) Up 100% = GET OUT!

 

If you work 8 to 5 and cannot see the stock market at all, you do not use an action chart.  You ONLY have a decision chart & an action chart.

 

If you can not see the market during the day while it's open, you can ONLY use the weekly for trend and daily for decision.  If you can only see the market maybe twice a day for 20 minutes total, then the 233 is your best bet.

 

If the 55 is your decision chart, the FIRST candle of the day closes at 10:25, so the first candle of the day closing is your decision chart.  Ignoring the fact that this is amateur hour (for this example), you'd go to your action chart & wait for the action chart to signal a trade.  Sometimes, you will see the decision at 10:25, but the action chart won't signal a trade till like 3:30.

 

Amateur hour is the first hour of the day.  This is where ignorant people have invested purely off stock "news."  Anyone who trades during the first hour will get KILLED!  At lunch time, the market sags a little if it had been rising, or it rises a little if it had been falling.  This is the market going to lunch, so to speak. The beauty of the 233 is that it balances out these 2 portions of the day - the first 233 candle of the day captures both amateur hour and the lunch time sag (or rise).  The second candle captures the rest of the day.  So the 233 candle gives you a good idea of how the stock did despite amateur hour & lunch time.

 

If you miss a stock going up, cheer it on.  Because after up comes down, and you can always watch the up and then make money on the down.  So when a sector is hot, look for it to go down, and ride the down trend for a good play.  If they're talking about a sector being hot early, get on.  If they've been talking for a while, prepare for a drop.

 

Have a basket of 10 to 12 stocks that you trade.  Included in this basket are your expert stocks.  Over time you will gravitate toward 18 to 20 stocks you trade, including your expert stocks. 

 

About the MACD

 

The MACD has a histogram on it that looks like a comb with vertical black lines.  The histogram ALWAYS is a road sign telling us a turn is possibly coming.  The histogram will ALWAYS turn before every trade, but just because it turns does NOT mean it's a trade.  Do NOT turn on that sign, wait for your indicators!  It means a trade may be coming!

 

Remember it's a sign!  The stocks will keep going in the direction they've been going for a little while.  It's like a road sign, you don't turn AT the sign, but the sign tells you the turn may be coming up.  But not every sign tells you to trade, it tells you there's a possible trade coming up.  NEVER get in on the histogram, but know a possible turn is coming.

 

If there's no FP or HRFP, can it be a trade?

 

Yes, it absolutely can.  If you research how a stock behaves over several years of its history, and can identify repeatable patterns through specific dates or events, you can trade without the HRFP or FP.

 

If your charts matches your history & research, you trade boldly there.  If the charts do not match the history & research, you either trade the chart with caution or you don't trade at all.  Just because history dictates something, it does not mean you should trade.  A stock may have a history of doing something the past 10 years, but this year may be different!

 

Studying stock history

 

Different stocks hold at the different average lines in different ways... and they hold in different ways at different times of the year.  That's why you research!

 

Explaining the trading zones

 

In the summer time there's no volume.  This is because everyone's on vacation (ie: less trading).  As a result the market is generally flat in the summer time.  When do people come back from vacation?  After labor day.  After labor day is when the market generally starts rising again.

August 2nd, 2013 QQQ 21 Minute Intra-Day

And now for the QQQ 21 minute intra-day chart.

The QQQ started with a slight dip in the morning, and pretty much took off from there with no looking back.  It is continuing to follow the strong multi-day up trend, and even closed the day at a historical all-time high.

And now for the chart...

August 2nd, 2013

The major news item today had to do with the latest jobs report.  The US economy added about 162,000 jobs, however this fell short of expectations of 200,000.  Additionally, average hourly earnings fell 0.1% in July, which is the first decline since October 2012.  Finally, US job numbers for May and June were revised downward, painting an overall negative picture of the employment scenario.

Furthermore, 69% of the jobs created in April, May, and June were in the 3 lowest paying sectors in the economy - Retail, Food Service, and Administrative/Janitorial.  Unemployment did fall to 7.4%, however Unemployment does not include every person actually out of work, it only includes those who are actively filing for and receiving unemployment benefits.  Considering the massive influx of workers into low paying jobs, and it's no wonder GDP hasn't been growing at the rate it "should" be.  Add in the fact that we didn't add as many jobs as expected, and one has to wonder where we're going next.  Has this truly become a nation of kings and paupers?

The markets, despite the negative jobs news, were up today on strong earnings from a variety of companies.  Today winds down the end of earnings season though, so expect reality to "set in" beginning next week when the negative jobs numbers finally make their way into Wall Street.

And finally, the 5 minute chart of the DOW...

The market opened up and had a HUGE drop to start the day.  Beginning around 9:50, the market staged a small come back until 10:30, then dipped again going into 11:00.  From about 11:00 AM through the rest of the day, the market steadily rose and actually closed at an all-time historical high at the end of the trading day.

August 1st, 2013

Lots of positive news on Wall Street today boosted the Dow and S&P to record highs, while the Nasdaq hit a 13 year high.  Jobless claims were less than expected, and the ISM index for factory activity rose to its highest level since June of 2011, which bodes well for American manufacturing production.

In other news, the SEC won a lawsuit against Fabrice Tourre, an ex-Goldman Sachs VP responsible for the creation of "Abacus" - a multi-billion dollar mortgage backed security that was designed to fail from the beginning, but was marketed to potential clients as a "sure thing" and is considered one of the catalysts that lead to the economic collapse in 2008.  Mr. Tourre was found guilty of securities fraud in excess of $1 Billion.  Goldman Sachs already plea-bargained to the tune of $400 million previously, and the company was not involved directly in today's ruling.  However, there is now speculation that individual investors may use this as a basis for future civil suits against Goldman Sachs.  Only time will tell.

Finally, automotive sales have increased yet again.  Pickup sales are leading the pack as commercial customer seek to replace trucks in their aging fleets.  Commercial customers need replacement trucks because, as the economy picks up and work is required, so to will trucks be needed to do the job.

And I end with a 5 minute snap shot of the DOW

Note the HUGE gain at the beginning of the trading day, followed by the narrow range that the index traded in for the rest of the day.

August 1st, 2013 QQQ 21 Minute Intra-Day

The QQQ gapped up very hard at the open today.  This was mostly due to positive news coming in on the economic front coupled with the Fed declaring it will continue to pump money into it's multi-billion dollar bond buying QE program for the foreseeable future.  After the gap up, it remained flat most of the day, then advanced even further beginning around 2:00 PM today.

I peeked at the daily, weekly, and monthly charts for the QQQ and this advancement will be short lived.  The weekly chart and monthly chart show that it's recent movements upward are following VERY steep trend lines that will be broken soon.  On the weekly it actually recently broke a steep upward trend, pulled back, and is now following a NEW steep upward trend.  Well, it was new as of like a month or two ago lol.

See that note that says -70 LMT?  I recklessly entered a PUT play on the QQQ anticipating a drop today, but I didn't use a trend/decision/action progression or anything of the sort.  I just bought the PUT options because I felt it "couldn't go any higher" which is probably the biggest rookie mistake I've made in a long time.

I'm airing that out here to remind myself that, even after 6 years, I can still make rookie mistakes.  I'll re-evaluate the position in the morning now that my head is clear.

Just for kicks here's the daily of the QQQ...

And also the weekly of the QQQ...

It doesn't have to fall far to get me out of the trade at the spot where I put in my GTC sell order for the options, but it needs to fall quickly, something I'm not so sure of.  Again, this was a very UNDISCIPLINED and ROOKIE trade, and I'll be damn lucky to hit my GTC sell order.