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.

Stock Market Calendar

This Market Calendar works like clock-work and is your primary basis for trading decisions.  It provides the "biggest picture" of what the market is doing, and is to be followed regardless of whether we are in a Bear or Bull market.

As a note: it says late October is a "good time" to buy vault stocks, but the prime time of the year to buy Vault stocks can come as early as late July.  Late October is simply the latest in the year you should buy vault stocks, as the market almost always rises from here into January.

January to February
EARNINGS Season.  Excellent time of the year to make money in the stock market (to the up side or the down side).  A monkey can throw darts at the market and make money.  Do not confuse this with talent or ability.  Expect profit taking in mid January AND in mid February (ie: if the market was going up, expect a decline, and vice-versa).  Look for heavier profit taking at mid February through the end of February.

March
WARNINGS Season.  Look for a small pop after sell-off in February very early in the month.  Generally a tough, tired stock market.  Look for call entry points between the 15th and the end of the month, especially the last few days.

April
EARNINGS Season.  Generally good month (to the upside).  From the 1st through the 10th look for a rising market.  From the 10th to the 20th expect a sell off for tax season (the sell off can last one days or all 10 days, but it will happen during this time frame).  From the 20th through the end of the month, most stocks will be stable to up.

May
EARNINGS Season.  This is a 50/50 month.  From the 1st through the 15th, stocks trend upward as we finish up earnings.  From the 15th through the end of the month, expect heavy profit taking.

June
WARNINGS Season.  Tough, tired-acting market.  Look for call buying opportunities using charts between the 7th and 22nd of the month.  The summer months can be very choppy or just plain dead, be prepared for either.  The summer months almost always have very low volume; most traders live by the adage of "sell in May and go away."  Watch for call buying entry points the last 2 or 3 days of the month.

July
EARNINGS Season.  Can be good (to the upside) but look for profit taking mid-month.  Another summer month; generally a choppy time in the markets.  Use the profit taking in mid month to look for entry points on the charts (especially on stocks with AUG earnings or splits).

August
EARNINGS Season.  Earnings ends quickly.  Usually a choppy market with a negative bias.  Look for heavy profit taking.  Look for a sell off in the last 10 days of the month.  Watch the charts for buying entry points during the last few days for the post Labor Day bounce.

September
WARNINGS Season.  Sometime during the first 10 days look for an upward pop in the market followed by a hard sell off.  This pop is the post Labor Day bounce.  The moves will usually be dramatic (both the pop and the sell off) and will both usually be intra-day moves, rarely lasting more than one trading day.  September usually stinks after the 10th.  Look for buying opportunities (for calls OR puts) on the charts the last few days of the month.

October
EARNINGS Season.  This is a scary time in the market, as most major crashes happen in October.  Part of this is due to the fact that mutual funds must sell their losers by the 30th of October for tax purposes, causing a lot of downward pressure on the market.  Play with caution, taking profits quickly.  Look for entry points (for calls OR puts) on the charts during the last 3 to 4 days of the month.  The last few days to a week are generally a great place to purchase vault stocks (watch the daily and weekly charts for this purchase decision).

November
EARNINGS Season.  If there is no October crash, the markets will rise dramatically the first 2 to 3 weeks.  Look for HEAVY profit taking from Thanksgiving through the end of the month.

December
WARNINGS Season.  Expect HEAVY profit taking from November to continue until between the 5th and 8th of the month.  Look for buying opportunities (for calls OR puts) on the charts around the 5th to the 8th.  December can be a good month (ie: a rising market).  If it is a rising market, it is known as the Santa Clause Effect.  The market can be choppy.  Look for major buying opportunities (for calls OR puts) on the charts between the 15th to the 22nd.  The market suffers Christmas hangover from the 22nd to the end of the month.  Lookf or entry points (for calls OR puts) between the last 2 to 3 days of the month.

OEX Trading Rules

Rules for trading the OEX are as follows:

1) Only purchase this month's options - never buy time.

2) Purchase out-of-the-money options for a multi-day play, or in-the-money options if you plan on being in and out of the trade in the same day.

3) Only purchase strike prices ending in zeroes (ex: 600, 610, 620, etc.)

4) Purchase the strike price with the most volume after the open that is one to five strikes out of the money.
As an example, since we only purchase strike prices ending in zeroes: 600, 605, 610, 615, 620 would be 5 strike prices, but we would only consider 600, 610, or 620.

5) Only use the 55 minute or 34 minute charts as the decision chart, and the 8 or 5 minute chart as your action chart.

6) Due to the charts we are using we expect to be in these plays for a matter of minutes, up to a MAXIMUM of 4 days.

There are usually two very opportune areas in each month to play the OEX:

1) The 7 trading days that include the last 4 days of one month and the first 3 trading days of the next month.

2) The 8 trading days leading into expiration Friday.  Though a play could be started on Wednesday (first day of the 8) it is generally preferred to begin plays on Monday (5 days before expiration).

General Notes:

• All plays should be closed by 1:00 PM on Expiration Friday AT THE LATEST.  After 1:00 PM noone cares about options that will expire in 3 hours.

• OEX options move in either direction very quickly - be prepared!

• There can be no "deer in the headlights" in the OEX.  If you become a deer in the headlights, you will be run over by the OEX.