Monday, January 26, 2009

Mick Jagger & David Bowie, "Dancing In The Streets"

Really, this just about sums up my day.

If you were a fan of the Stones in the 60s this really should have been the moment when you said, "Okay, these guys are done forever." I mean, just watch 30 seconds of this video. What was Mick Jagger thinking? An awful classic.

The RO Report, "Extinction" Edition

I bet things were going pretty well for the Dinosaurs right before the meteor hit. I bet they didn't even see it coming.

Well, today was kind of like that for me. The meteor was FAS. Ironically enough, this was the same stock I profiled as a "good trade" earlier today.

I got blasted fighting the market between 1:30 and 2 as FAS cratered in my face. I blew out 20 cents from the bottom. I had a lot. Painful? Yes. However, I feel okay. I'm not losing my mind or anything, I feel money is coming. A setback to be sure, but I'm gonna go over it all tonight and master it.

Unfortunately, you know the policy around here... I lose money, I have to post bad music. I lost big money today... so prepare for a truly awful song to drop later.

On the bright side, the RO had a decent day. Nothing great, but solid numbers. Out of 29 traders, 19 were gross positive, or 66%. 5 traders made over $1,000 gross and 2 lost over $1,000 gross. I was Chambermaid, hopefully for the first and last time.

"Lucky Pierre" - Trader Z, $2,576 on 113k shares traded.

2. Trader 10*, $2,301 on 400 shares traded.
3. Trader F, $1,870 on 64,800 shares traded.
4. Trader 9*, $1,757 on 300 shares traded.
5. Trader N, $1,512 on 114k shares traded.

"Chambermaid" - Trader S, -$5,814 on 88,600 shares traded.

2. Trader B, -$4,533 on 217k shares traded.
3. Trader 6*, -$941 on 0 shares traded.
4. Trader V, -$884 on 69,200 shares traded.
5. Trader T, -$802 on 11,000 shares traded.

A Dry Joke, Courtesy Of Dinosaur Trader

I put peanut butter in a mouse trap this weekend. Five mice died from salmonella poisoning.

A Trade In FAS

I started Friday in a very bearish frame of mind. I ended Friday marveling at the market's resilience.

Accordingly, I began Friday getting short developing markets via purchasing EEV, the double short emerging markets ETF. I focused on EEV early because I saw that Brazil and Russia were getting pounded. I have no idea if that's a valid reason to purchase EEV. Anyway, the point is that this trade nearly killed me. I lost a decent amount in it and was forced to reconsider my bearish mindset.

A trading buddy/thorn in my side pointed out that SPY had held 80 support. At around 11am, when we vaulted through SPY 82 on some bogus news about unemployment benefits no longer being taxed (HAH!) he advised getting long. However, how could I buy into that spike? So I decided to wait for a pullback.

Above you see a chart for SPY, which is what I was following to time my entries and exits. After that initial large spike, the market consolidated and tightened up, and SPY set up for a triple-top break just after 1pm. However, I only had a very small SPY position. Instead, I focused my long efforts on FAS (triple financial long... HAHA!) because I noticed it was breaking the downtrend on the 60-min graph. See below.

I was hoping for a more explosive break. But whatever, what made this trade good for me was the way I held and purchased on pullbacks. As long as uptrend didn't break, my plan was to continue adding on dips. My thought was that as long as it broke above the 60 min downtrend and held, that I was safe to add with the overall market rising. So I purchased FAS between the prices of $8.44 and $8.80, building a position of 5,000 shares which I exited an an average profit of 17 cents per share. So I made about $800 on the trade.

I actually got very lucky, as the trade came within a penny of my "pain threshold." But I'll take it... I can't tell you how many times in my career that I've been stopped out a penny or two below my level only to see the stock reverse and go in my favor.

Long time readers know about my early struggles with the hybrid market. My old trading strategy of trading many stocks at once, is somewhat dead because the market is just too fast and illiquid in many stocks now for my taste. I used to take many trades and just "cut losers and let winners run." It's just much more difficult to do this with any precision now given the liquidity issues on the hybrid. Stocks will trade through levels on a 100 share trade, and then shoot right back above it like it never mattered. So, going forward, I'll be looking to put on more trades like FAS, in which I pick a direction for the market and build into one to five names.

That's not to say you still can't trade many stocks at once. I know a few guys who do this very well. However, in order to do so, you need to widen your stop loss levels. I'm not really comfortable with that. When I learned to trade (10 years ago in March, sheesh) losing a quarter point on a trade was a big deal. Now a quarter point is static. But for me, old habits die hard... and so I've had to reduce my exposure to static... it was stressing me out too much.

But hey, if in a month the market rewards trading 25 stocks at a time again, I'll try and be there.