How Do You Eat An Elephant?

One Bite at a Time! I know it can be extremely hard sometimes to stay content with small gains, especially when the market is as volatile as it's been the past few months. The tendency to feel like you're a: leaving profits on the table with every trade or b: not being aggressive enough with your account size and/or # of shares, can and will lead to bad trades if you let those 'hindsight' emotions get a hold of you.

If you've been following my blog, you know from my last post that I was extremely bearish after last Monday's 500 pt. Dow run. There are many technical reasons for that (ie. Elliot Wave Theory, market in overbought territory, etc.). There are also plenty of blogs that go into much greater detail in regard to these types of technical analyses and/or fundamentals (ie. Government involvement like the Obama/GM situation, possible war with N. Korea, etc.) I just want to share my thoughts and trade executions as transparently as possible (in true Timmay form). I'll leave the 'professional trader speak' to those more capable.

Having said that, my latest bit of elephant was TCK- a stock that pretty much fit my strategy perfectly (except for the market cap). Props to Investors Live for find. You'll notice (in the chart above) that when TCK reached $6, the RSI (top of chart) read 'overbought', not to mention it had come from the $2 range- where I like these runs to have originated. Below is the chart that helps illustrate my entry/exit:

Did I leave a ton of profits on the table with this trade? Yes. Did I read the technicals right and trade my plan? Yes. I guess tie goes to the runner (with a little extra money for his pants).

On a side note, as you'll see tomorrow on Covestor, my account (at least at this moment) closed at an all-time high since it began being tracked in early '09. If I'm correct, I should be in the rankings somewhere starting tomorrow (my 2 month Covestor anniversary). I believe the 'Pride comes before a fall' Scripture would be appropriate to reflect on at this juncture (No worries Eric and Charlie).

Remembering that the market will humble you at will,

Evan

ps- Yes, I'm still short Maxy and Palm. I'm still long Faz.

pps- I shaved some profits from my last buy of FAZ @ $18ish, and some from my PALM short @ $8.72ish (all this can be found either on my Covestor or twitter pages).

End of Rally?

I don't know. You don't know. I wish I knew. All I can say is- I've prepared for a correction/retracement/dive, etc. Yesterday, at market close (which was perfect timing but only because I had no choice), I sold all of the mutual funds in my 401k and transferred the money into a safer, bond fund. I plan to buy back the exact mix of funds if the DOW dips below 6,500 in the next month. If that doesn't happen- I'm wrong, but 'missed money is still better than lost money'. Also, if we don't correct soon, you can throw RSI's usefullness out the window (cuz we've just entered 'overbought' territory):


As for the Think or Swim account tied to my Covestor ID, I'm also preparing for the end of (imo) the bear market rally. I averaged up my PALM short today, adding 100 shares at 8.81. I'm also long 25 shares of my friend FAZ (avg. about 25.75ish). Forgive me for not updating the avg. prices on the right hand side lately. Knowing that Covestor verifies every trade has made me a bit lazy- I'll try to do better.

In case you're worried that I've stopped posting/trading/reading the Yahoo! Finance boards, etc.- Have no fear! I've been keeping up with all of that and then some. I've decided to build a webpage that focuses on why I trade. Yeah, the 'Mission Trip' part. Mission-trading.com is my new project (like I need one- and be kind, it's not completely finished). The blog you're reading is pretty much 99% about the 'trading' part (and will continue to be so), but fails to expound on the reason I trade. I'm not saying mission-trading.com will be 99% about missions, but it will certainly bring to light the connection between the two passions that drive me.

Hoping the country and my shorts somehow thrive,

Evan

Don't Know What to Call This

     I thought about titling this post 'Never Do This!', but then didn't agree- since I did it and it worked (I've made it work in the past, but have also gotten burnt by it). What am I talking about, you ask? Averaging down. Basically, I'm referring to adding to a position that either A. You're uncomfortable with, or B. Isn't acting how you originally thought it would. You can either average down in equal quantities (ie. short 10 shares at $45, another 10 at $35, etc.), or try to really bring your average share price down by adding even more to a losing position (ie. short 10 shares at $45, 20 at $35, etc.) The latter illustration can get you in trouble faster than you can say, "Margin Call".

     To better illustrate my point, I'll use a real life situation you may be aware of: My recent position(s) in FAZ. After it fell from it's grace around $115, and raced toward support around $40, I felt the urge to buy 15 shares (when it was $45). No biggie- "It'll be 60 in a day or so". Well it broke support of $40, so I decided to average down and buy 10 more shares at $35. "Surely it's going back up to $40 where I can almost break even". Nope- yesterday it just kept on tanking, kicking my sorry 25 shares all the way to $26. I watched the futures like a hawk last night and again when I woke up at 5am this morning for work- they showed the DOW being down about 40 pts. I was a bit relieved, knowing that FAZ should begin the day up (being the short-minded etf it is). Well, when I texted my Mom around 9:30 am, she told me it was 24.48. I wanted in! Again. I decided to buy 50 shares under $25. My order was filled at $24.28.

I don't condone this sort of trading (averaging down) for three reasons:

1. It ties up your capital, making it difficult to trade when a better setup presents itself.
   
2. You're bucking the trend, hoping your contrarian idea is perfectly timed.
   
3. These trades can potentially wipe out gains made in many smaller profitable ones.

With that being said, here's three reasons why I decided to average down with FAZ:

1. The rally we've had in financials can't go up forever.
2. Tomorrow is options expiration day (many will be taking profits).
3. FAZ is extremely volatile, and $29 wouldn't be that difficult when combining #1 and #2.

     I picked $29 because it would make all my recent trades with FAZ profitable (even with commissions). When it couldn't quite hit $29 a couple times, I decided (with some sound advice from my brother-in-law) to lower the target to $28.75. Got it before noon. I'd post a chart, but you obviously don't need one if you've read this far.

     In other news, I covered 100 shares of my PALM short AH when it fell to $7.30 after a dismal earnings report. I'm hoping to cover the remaining 150 shares in the very near future. That will put the account pretty much in cash- right where I want to be for the next perfect setup. Let me say it again so I can remember... Perfect setup.

Evan

Missed Money Is...

I know 99% of my readers know the ending of this saying ("Better than lost money"), but given my trades on JAVA today- I'm still apt to kick myself over missed money. JAVA is a stock I know all too well (unfortunately- having been a longtime bagholder last year before developing my strategy). When the rumor mill started working over time, saying that IBM wanted to buy Sun Microsystems (JAVA), the stock popped after hours like a misguided missle. This first chart is compliments of Stocktwits.com (If you haven't joined- it's a great Twitter-like tool used for stocks):

I can't tell you how I knew JAVA was going to see $7.85 today (that wouldn't help anyone learn a thing). I'll just say when I was scanning with Think or Swim for big % gainers, and JAVA showed up, I was immediately short-minded. I also knew, since this trade wasn't a perfect fit for my strategy, that I would have to let the price action/technicals decide JAVA'a fate for me. Since I'm home to watch the markets today, I decided to short and watch. Below is the chart showing my intitial entry, fearful cover, second entry (wanted blood!), and final cover for an overall profit (which you'll see could have been much higher):

BTW- as I'm typing this, JAVA is back at $8. You gotta be quick in this market, able to take small profits, and move on when a daytrade doesn't work out how you thought.

7pm Update- JAVA surged above $9

Any of you pirates have some cool trades?

Evan

How I Sleep at Night

     I received a pretty cool comment the other day from Yngvai, a trader I've been following for a while now- from his posts on Tim's site to his own blog. It was short and sweet: "Dude, you're the king of holding long term shorts!" I'm well aware that, over the past couple of years, it has been easy making money going short. Now (in the midst of this rare rally) the hoopleheads (a not-so-nice term coined by the character Al Swearengen in the HBO series Deadwood) on Yahoo Finance like to point out with great vigor, that we have seen the bottom and are on our way back up. Maybe. If so, holding shorts 'wouldn't be prudent' (Dana Carvey doing a G.W. Bush impersonation). I sleep well at night tuning out all the noise and using what little technical saavy I possess. Below is a longterm trading range of the Dow, and why I think (along with many other technical traders) we are currently experiencing a bear market rally- and possibly about to head back down to 5000.

For my 401k and IRA's sake, I hope I'm wrong and this rally never ends. With this account, though, I'm perfectly content staying short PALM and MAXY (and long FAZ- a short-minded etf).

Thank you and goodnight!

Evan

F.S.T. (FAZ Support Test)

Yeah- I want to be like Muddy, who traded FAZ profitably like 53 out of 54 trades last week. I've had 3 successful trades with FAZ so far, and am now looking for my fourth. Below is the 'have-to-see-it-to-believe-it' 3 month chart of FAZ:

I realize this may be catching a falling knife (I am certainly trying to here- bought 15 shares @ 45.75). This is a pretty relentless freefall from 100+. Here are 4 reasons (2 valid, 2 ridiculous) why I think FAZ will see 50+ in the next week (and possibly tomorrow).

1. This market's volatility

2. Support level in place around $40ish

3. Fridays make for great profit taking days- especially after a week like this one!

4. Second Friday the 13th month in a row? C'mon, that's gotta bring some selling to the table:)

Is there a method to your madness?

Evan

Took More from FAZ's Fat Fingers

It's been an abnormally long time since my last post. Sorry. I took a mini vacation and visited my brother in Ft. Lauderdale for his birthday. It had been a year and a half since my last full weekend off (excluding the mission trip to the Amazon this past summer). If you've been watching my Twitter feed to the right, you know what I've been trading lately. Little bit of this, little bit of FAZ (wow- what a horrible joke:) I actually went long FAZ this morning:

If you take a look at any chart of FAZ over the past week, it's pretty easy to make hindsight 20/20. Go from 50 to 100 in a short period of time- look for a correction- how bought back to 50? Emotionally, that kind of trade is a bit tougher to execute- especially if you watch every tick. FAS and FAZ are not for the light-hearted (could be the understatement of 2009).

As for my friends PALM and MAXY:

We'll start with longtime short, MAXY. Is it weird that I'm pulling for this stock? I mean, I'm still short- but I find myself actually hoping it will make a comeback! I guess that's the 'always pull for the underdog' sentiment in me. Anyway, I'm thinking about covering my remaining 100 shares in the next few days. Not that there's any great plays at the moment, but enough is enough- and there's nothing wrong with saving your capital for ideal situations. Here's the chart:

As for PALM, she sure has gotten feisty the last few days! I didn't listen to my own advise (wait til $7-$8 to re-short), and it's biting me a little. Not that I don't think it's headed back down toward $5 (already proved it could break $6 to the downside), but it could get interesting. I shorted 150 shares into strength yesterday (dumb), then averaged up today @ 7.55 (could be dumber). This stock was dead to me- and I should have waited for another supernova. But alas, I find myself short 250 shares avg. 6.97. Should be fun to watch!

Y'all had any memorable trades lately?

Evan

ps- If you'd like to see all my posts on FAZ, PALM, MAXY, etc.- just type the symbol in the search bar at the upper left of this page- the oldest posts are at the bottom.