The day that was - June 29th 2007

Some early buying on low volume led to end of day selling on higher volume. The DOW experienced an intraday swing of over 200 points. Up almost 100 by mid morning to down almost 100 by late afternoon. The combination of higher crude oil prices, the car bombs discovered in London, the holiday coming up, the already volatile markets conditions, and the end of the quarter "shifting" of assets by the money managers at mutual funds all led to the markets behavior.

Look at the DOW chart I have in my public chart list. Keep in mind that we are still inside a trading range. The markets are still undecided here. While I am bullish on the markets for the near future the fact that we are in this sideways trading range makes it difficult to get too heavy on new trades. What is happening here is that for every attempt the bulls attempt to rally the bears come to the party and kill it. Makes swing trades very difficult.

The one current open position in the FP80 portfolio (BIG) also pulled back on Friday but is still above the buy price. We are waiting for it to advance above $30.50 as a confirmation of more buying intensity before we go in with an additional 1/3 of our swing trade funds. Scaling into a swing trade or position trade is the safest and smartest way to trade. You get the advantage of having some of your money in at the lowest price while at the same time we are testing the trade (dipping our toes in the water). And if everything is OK then we go in all the way. Normally I would scale into a swing trade by starting with 1/2 of my normal swing trade funds allocated for any one trade. And upon confirmation of a successful setup I add the second portion. But with the increased volatility right now I am temporarily using 1/3 as my starting position. By doing this the risk is reduced even further if the markets take a dive and the stop loss point is triggered then the loss on the trade is even less than if you had gone all in from the start. Reducing ones risk is always a key to success.

To help illustrate the concept of how one should divide up their capital for swing trading see the chart here (click on the chart to enlarge). Remember, it does not matter how much you set aside for swing trading. The concept is to take whatever that amount of funds is and divide it up into 10 slices. And then each swing trade becomes one slice of your total swing trade funds.

I am working on some new swing trade charts and ideas. And I will post new charts by Sunday night for you to view.

Final thought for the day. The hype in Apple (AAPL) is done. The excitement in the iPhone is done. And for now the stock price of AAPL will likely pullback as the hype is quickly vanishing.

Sell off Friday

Selling is picking up as we get closer to the end of the day. With the news of another bomb found in London there is some additional apprehension about leaving money in the market over the weekend.

All sectors are selling off here into the close. Our play (BIG) is also taking a hit but it is still above the buy point and I have no worries about it. Looks like my prediction on Apple will come true and may close in the red. Big share holders in Apple have been selling today on the increased volume brought on by the iPhone hype.

As expected.. profit taking now taking over

Apple is now heading down, again as I predicted it would. Large sales of Apple now passing through the ticker as the large money traders are cashing in.

The broad market is also selling off here. Will there be any brave soles to step up to the plate to take a swing at a few trades before the end of the day? Can't say. But at this point during the lunch hour it looks like the pros are taking their money and calling it quits for the day and heading home with their loot.

Mid day update

The buying volume is generally on the light side. I'm expecting to see some profit taking in the afternoon leading into the weekend. Also with the additional news of explosive devices being discovered in London and the announcement that New York City is tightening security because of the events in London will likely have an added effect for the market today. The last thing the pros want to do is leave their money in the markets over the weekend when there is news that may give investors fear. So they like to take the money out and keep it under the bed until the "all clear" is given.

Apple is trading on high volume so far and soon I am expecting to see a lot of profit taking. I would not be surprised if Apple ends up closing in the red today.

Pre market view - June 29th

Trying to find something to gauge the market this morning and so far there is nothing notable to to get a clear picture of where we are going today. With the news this morning of a car bomb discovered in London I looked at the FTSE index and find that it is down currently. I don't see any evidence that the London markets are being impacted by the news of the car bomb in their Country but instead it looks like it is down over concerns over our FOMC statement from yesterday.

The only stocks doing good this morning in London are energy related stocks. Oil producers and services are up while the financial sector in London is taking a hit. If we are to get a feel for how our markets will do today then I would expect to see some volatility in the financial sectors here today. And the oil and energy sector may have some buying today.

The Asian markets were up a little and Toyota was a big winner there.

Futures are down, gold is up a little bit, and crude is up a little and is over $70 (70 seems to have become a psychological number, people hear 'over 70' and it has an impact on people. So whenever we see crude go above 70 the impact starts to increase).

Yesterday after the market closed Research in Motion (RIMM) released their earnings and it was good. RIMM is trading up in pre market. This may have an impact on Apple (AAPL) today. With Apple already having a good run over the past couple months and today being the big iPhone day there is likely going to be some profit taking on Apple now. Remember that in trading the pros will use liquidity (volume) to get out at a decent price. Think of it this way, if you owned 50,000 shares of Apple and you wanted to finally take your profits you will wait for some big news event on the stock to sell in to. You take advantage of others buying so you can sell yours without it having a big impact on the price. Selling while others are buying is how large shareholders take their profits and slip away without it being noticed too much. With the iPhone being the big news all over the media it will probably bring "new money" into the stock as the retail investor will now want to get into the action. So they start buying and the big money will take advantage of that and get out. So we will see some added volatility in Apple today.

As I said last night I believe we will have another pullback in the major indices again soon but my long term view is still bullish at this time. We are still in a trading range in the indices so until we see the the break above this range we are still in a "yellow flag" condition.

The day that was - June 28th

All morning the markets were quiet. Everybody was just standing around waiting for the FOMC statement. It was expected that they were going to leave the rates unchanged so there was really no anticipation over that matter. What everyone was waiting for was how they were going to word the statement.

It's interesting, the FOMC statement is gone over with a fine tooth comb looking for clues like it was something from Miami CSI! The analysts tear apart every word in order to determine what the FOMC members are really thinking. They are trying to read into the future. It is not good enough to simply take what the FOMC statement says on the surface, it has to be analyzed, x-ray'd, dissected, and scrutinized in every which way. In the end the general consensus is that the FOMC members feel the economy will continue to grow at a moderate pace over the next few quarters. And that inflation was generally in check but they did add this statement: "sustained moderation in inflation pressures has yet to be convincingly demonstrated". That gives them wiggle room for the future and that kept the market from turning completely bullish. The overall mood of the statement was good whereas the markets are concerned, but it was not a strong call to arm for the bulls.

The FOMC statement can be read here.

The reaction after the statement was as expected, about 15 minutes of whirlwind gale force winds as everybody scrambled as the analysts started dissecting the statement. In the end the market still finished "OK".. no bull rally, but no bear stampede either.

Tomorrow will be a real test as the statement will have set in overnight in all the market players and they will have been working on their playbooks for tomorrow. We will have to see what plays they have planned before we really know who wins this game.

But for us we will carry on as usual and let the market tell us what side to be on. Remember, in the markets we really don't care who we root for.. we just root for who ever will make us money! If it is a bull market then wave the bull flags... a bear market then we wave the bear flags.. pretty simple. Right now it is a tie ball game.





The DOW chart shown here from today shows we ended the day in a 'doji' (means indecision). We also hit a minor resistance level today. I anticipate another pullback in the broad markets coming up. Will it retest support and bounce like it did yesterday? Or will it fall through? My felling is that we will go back up.

Our current open position (BIG) is doing well and almost hit the second buy point today. Original buy price yesterday was $29.20. It closed today at $30.41. Stop loss for this trade is $28.20.



I will have some new chart setups and watch lists soon. Note that on the right side of the web site I have added a section where current open positions will be listed as well as watch list items when they are added in the future.





Fp80

FOMC issues statement - looks bullish for markets

The FOMC statement left the rate unchanged as everyone expected. Their wording said they expect economy to grow at a moderate pace over the coming quarters. Mostly bullish for the stock markets.

Keep an eye on BIG. It is getting close to the next buy point. Add another 1/3 to your position in BIG on a move over $30.50

Fp80

Calm before the storm ?

The markets are generally quiet so far. Most people of course are waiting for the 2:15 announcement from the FOMC before knowing what direction the market may take. Until then a lot of folks are taking a few zzzzzz's before then.

My new position in Big Lots (BIG) is doing fine. It is just churning around a little like a lot of other stocks right now. Next buy point for BIG will be when it moves up over $30.50.

Once this market finds some direction and settles out I will be posting new charts and setups for us to watch.

Fp80

The day that will be..

Is in the hands of the FOMC and what their statement is when it is released at 2:15 today. So far it is a fairly quiet morning in pre-market activity. The Asian markets closed up a bit following our rally yesterday.

Apple (AAPL) is trading up a little bit pre market on light volume so far. The hype surrounding the iPhone is priced in to the stock at these levels I feel. Once the iPhone is released if there are any problems at all that make it to the press (dropped calls, phone locks up, problems with the battery life, etc) then some of this hype that is now built into the stock price will dwindle away. How do I feel about the iPhone? I'm not going to stand in line for one. I'm more than happy with my iPod and my Verizon Wireless phone. But I will say the iPhone is really cool! :)

So we wait for the FOMC statement. Just before 2:15 be sure to set paperweights on top of your desk to keep everything in place in case there is a windstorm reaction to anything they say. Usually when the FOMC issues their statements there is an initial reaction gust that lasts for about 10 to 20 minutes before settling down. Sometimes these initial gusts can be hurricane force and other times they are a mere sneeze. But with our turbulent market over the past couple weeks I predict strong winds around 2:15 today. Which way will they blow, now that I can't predict. Only Ben Bernanke, FOMC Chairman, can answer that.

Quote of the Day

To affect the quality of the day, that is the highest of the arts.

... Henry David Thoreau 1817-1862

The day that was..

Good evening fellow Rebels..

Today started out with the futures down and that is how we started out the trading. I said this morning that I expected some buying to come in on the theory that some large money movers would step in on the decline and start buying up some things at a big discount. Not that their action means the market became safe again, but instead was a signal that many have positioned themselves for the chance that the market had bottomed in this recent turbulent period.

If you look at the DOW chart from today you will see that the index bounced right at the bottom of the trading range that I had identified last week. This is why some of the large money holders placed their bets today. They were keying in on the trading range support and that would be as a good of a spot as any right now to take a position on the chance the market will recover from here. The question still remains of course and that is will this recovery be short lived or not. Will the markets test their support ranges again or not? On Thursday the FOMC will release their statement following their two day meeting. A lot of where the markets go from here will rest on what they say.

Even with the news this morning from the CEO of Toll Brothers (housing sector) that he did not see a recovery until next year did not seem to keep the large money from making a stab on some very oversold stocks.

At lunchtime I was observing the trading on Big Lots (BIG) and we had good up volume following a few days of churning at the trend line support area. I like the play in BIG because the support is strong and the potential is good for about a 15% gain. In other words this play has a good risk/reward ratio. The only thing is that the broad market we are in has been nothing but risky. So that is why I decided to take an entry on BIG with only 1/3 of my normal swing trade funds. This way I got in on the bottom bounce and will add more when the next technical confirmation takes place (which will be on a move up past $30.50). But in the event something else happens in the markets and BIG fails then I am only in with a 1/3 of my normal trade size so if I get stopped out then my loss will be very minimal. But this is a good trade with good potential. Now we just have to get the broad markets to stop playing around and continue it's uptrend :)

The chart shown here is the play I identified on 6-19 for BIG. It is the current chart from today and you will notice that it is very oversold but has been holding up well right around the trend support line during the market turbulence of the last couple weeks. Today's move off the trend line was a signal that the sellers had left the room and the buyers had control. Now we have to find the key to the door and lock it to keep the sellers out ! I'm using a stop loss on this play of $28.20 which is just a hair under the Fibonacci retracement level shown on the chart.

All eyes and ears will be on what comes out of the FOMC meeting on Thursday afternoon. At 2:15pm we will get a read on what their thoughts are. Expect the broad market to be volatile at that moment.

A big thank you !

For all of the emails I have been receiving saying how much they enjoy the new rebeltraders site. And for the compliments on my market commentary and other articles that I write.

I enjoy making the site work and I am even more happy that there are people reading it and gaining something from it. The number of users signing up to receive the updates is increasing each day and I thank you for that.

Again, many thanks for the nice compliments. :)

Fp80

Big Lots (BIG) - buy 1/3 position

This morning the markets traded down as expected by the pre market futures. And I stated this morning that there may be some buying in the morning as the major indices have bounced from support (see the DOW chart in my public chart list, the DOW bounced exactly at the point I indicated would be a major support area).

With that in mind and right now there is still some buying I want to take a position in BIG as this chart is still one of my favorites right now. For the past few days it has been churning right at it's long term trend support line. And that support line has been keeping the stock from falling any more. What I am going to do since we are still in a volatile market is I'm going to go in with only a 1/3 of my normal swing trade size to start with here at these current price levels. This way we position ourselves with only a small amount of our swing trade funds in case the market takes another big dive then our stop out will be on only a small amount of funds.

If we get some market recovery then we will add another 1/3 on the move above $30.50. And then the final 1/3 I'll decide after I see how the chart ends the day.

You can buy here now 1/3 of a normal swing trade on BIG. Don't be too concerned if the price moves around a bit today as it is churning here. The key support level is $28.65. So as long as it stays above $28.65 it is still safe to buy a 1/3.

Long BIG @ $29.20 (1/3 of swing trade funds)

Stop Loss: $28.20

Housing sector

This morning the CEO of Toll Brothers said he did not expect to see a rebound in the housing market until at least April 2008.

What a bummer.. any more bad news someone wants to throw at us do it now and lets get it overwith so we can get the markets back in shape!

Pre Market - futures dropping

The 'durable goods' data was just released and the numbers were not well liked by Wall Street. Futures take a sudden drop.

Is this setting the stage for another down day in the markets? Or will this be the proverbial "last straw" that opportunity hunters will pray upon and thus start buying? I think we will see some buying early on that very idea by large money speculators. But what will happen by the end of the day is the question that can not be answered yet.

Remember that the FOMC meeting begins today and the results to be released tomorrow at 2:15pm.

Fp80

Quote of the Day

Some men see things as they are and say "why?" - I dream things that
never were and say "why not?"

... George Bernard Shaw, 1856-1950

Buying on the way down...

Last night before I had to leave the house to go to a meeting I caught a few minutes of Cramer (the TV was still on CNBC from the morning.. really, it was). He was in the middle of a discussion on buying a stock each time the stock price went lower. He said if it drops a point then buy another 100 shares, drops another point go in even more, and on and on. What was completely void in his discussion was the topic of charts. Not once in the time I was watching did he say anything about long term trend support, support & resistance, etc. Nothing at all about the chart. He only said to keep buying as the price went down.

This has got to be the biggest and worst things I have ever heard him say. To me it is irresponsible to advise people to do that with their money. That is the wrong money management plan and is a potential disaster in the making for your capital.

Remember that the chart is our x-ray into the company. The chart tells us the health of the stock. For it represents all forms of money involved in that stock. It shows the big hedge fund money, it show the mutual fund money, it shows the investing public money (you & me) and everything else in between. The chart does not filter out anyone. It displays all monies involved day to day in the stock. So the chart is the most important tool we have in our trading arsenal (second only to our own grey matter) to read the health of our stock.

When you have a chart that has been trending up for many years and can be identified by major trend lines on weekly and monthly charts then that trend is your key to knowing when there is a significant shift in the people moving money in and out of that stock. In chart analysis the break of a major trend line is the most significant marker of a change. Pullbacks to moving averages, breakouts from consolidation, triangles, etc. don't measure up to the importance of a major trend line break. A trend that has been in force for 5 or more years for example is paramount in its significance to the health of the stock.

So when Cramer started speaking about how to keep buying when a stock starts dropping is irresponsible without addressing limits and charts. If the uninformed investor who watches his show decides he is going to do as he suggested and he has a stock in his IRA that has been dropping and he decides to keep buying more (based on Cramer and his buy, buy, buy idea on the way down) what is to prevent this investor from buying more shares of a stock that is in serious trouble? Without consulting a chart and understanding some basic technical analysis concepts this investor will just throw more money on a potentially already bad stock. When all is said and done this poor investor (and he will be poor when his investment turns to nothing) will be wondering why years later he has not made any money, or even worse has lost money.

Mr. Cramer has made it clear on numerous occasions that he does not believe in technical analysis. As he so demonstrated one night when he stood on his head and said he was a "head and shoulders" pattern and mocked people who study the charts. Well if he ran a hedge fund years ago then he had to of used charts and understands how to read them. So why would he now boo hoo charts and technical analysis? Guess only he knows that answer. Perhaps he does not want to give any power to the viewers to see through his recommendations???

The point I'm making here is that no one should ever buy on the way down unless they fully understand the chart and can identify the major trend lines. This way the investor could tell if the drop in price was nothing more than a sector rotation drop or some other minor cause and can say that the stock is still healthy (because it is still above the major trend support). And I should add that adding to your position is only acceptable for long term investments. But the chart still takes priority in the decision making process, even with a long term investment. I feel bad for the investors who blindly follow Mr. Cramer and don't take the time to understand for themselves the risks of buying on the way down. Without knowing the danger signs that a chart can signal then that person could be buying more shares of a stock that is on its way to the stock cemetery.

Did you know that during the Enron collapse some major investment analysts were advising their clients to add more shares, to buy more! Yes, it is true. While the smart investors who looked at the chart knew it was in trouble and got out before losing everything.

I want to quote another passage from one of William O'Neil's books (founder of Investors Business Daily)..

One of the most unprofessional things a stockbroker can do is hesitate or
fail to call customers whose stocks are down in price. That's when the customer
needs help the most. Shirking this duty in difficult periods shows a lack of
courage under pressure.
About the only thing that's worse is for brokers to take themselves off the
hook by advising customers to "average down" (buy more of a stock that already
shows a loss). If I were advised to do this, I'd close my account and look for a
smarter broker.
Everyone loves to buy stocks; no one loves to sell them. As long as you
hold a stock, you still have hope it might come back up enough to at least get
you out even. Once you sell, you abandon all hope and accept the cold reality of
temporary defeat.
Investors are always hoping rather than being realistic. The fact that you
want a stock to go up so you can at least get out even has nothing to do with
the action and brutal reality of the market. The market obeys only the law of
supply and demand.

My advice is to never average down. If you have a trade that is not working then why throw more money into the fire. If the trade is not working then you should not be in it anyway. Because your money management rules would have you out of the trade when it went the wrong way. Protect your capital! This is key to winning. Never deviate from your stop loss rules, ever!

Volatility kills the market again

That darn $VIX !! Today, just like yesterday the VIX spiked again and today it ended the day at the highest level of the week. The chart below is the volatility chart for the past two days (5 minute chart).

The markets have become extremely hostile for us traders. Even long term buy and hold investors are seeing some of their gains from the early part of this year slip away. Again, just like yesterday some money was placed on the table to only have the pit boss (bears in this case) take it away. More later...

Fp80

Once again the indecision has turned into hard selling

At 2:30 the sellers are picking up the pace (again!). Now the major indices are red (again!). The gains of the morning have all been taken away. This is why we are not in there trying to fight this action right now. The big money is causing this price action right now, hedge funds, large money speculators, day traders, and other large money controllers are what is moving the markets right now.

We are just small potatoes and if we try to trade in their with this mayhem we will be mashed potatoes!

We are stuck in this range still

Trading is oscillating back and forth within a range. there is no conviction at all to the market direction. Again, this is why I'm not taking any new trades just yet. And you should not be trying to enter new swing trades here either. With the trading moving back and forth within a range the chances are good you can get stopped out of your trade.

Remember that as swing traders we want as many forces working in our favor for us to succeed. This volatility is not one of those forces we want.

Today the market has gone up fairly well at one point to again have it all erased. There is no need to fight this action.