It is often said that trading is a lonely business. That successful traders trade their ideas and do not trade other's. The truth is that most investors/traders do not want to do their own work. They want someone to tell them what to buy and when to sell. Look at all the services that cost money for advice and also the forums and chat sites (free advice). Actually, this blog is free advice in a way.
I believe to be a truly successful trader, one has to develop their own systems and trade for themselves creating their own trades. Witness this current trade I an still holding. Recently I purchased call options on Intercontinental Exchange (ICE). This is a stock that I have thought could do well over the next few months as it fights to buy the Board of Trade (BOT) with The Chicago Mercantile Exchange (CME) , with each company making counter bids.
When I entered this position, I was trading mostly based on some information I had heard from a well known and successful trader. I had not really investigated the charts or made any determinations based on the charts as I normally would do. The idea sounded reasonable and I ran with it. It wasn't a trade I had considered like I have done with the other trades I have discussed in this site. And sure enough, the markets have been roiling with fear and ICE has come crashing down. My position is heavily underwater by some 8.00 points or so. This is far from my normal stop loss procedure and risk consideration.
I simply have let this position run and forsaken all stop loss points. This position is still valuable from the standpoint of time remaining until expiration as the at-the-money options are priced at some $6.00 or thereabouts. This is not the first time I have been burned by listening to others. I have let myself become convinced that they knew better what was good for my money than I. That is a major sin in the world of investing and trading. You have to learn to fly with your OWN convictions and ideas. Depending on others for advice is setting yourself up for disaster. Letting others make your choices is so convenient because if things go wrong, you can always blame somebody else. The results in the end will most likely be failure.
I have decided that this position has been way over sold. I am expecting a fairly strong bounce in ICE before options expiration on July 20th. That gives me a good 3 weeks to let this position get back into profitable territory. However, this is not the way to become a successful trader. I am tempted to add to my position to lower my cost basis. But that is akin to betting good money on an already bad trade. That is another huge mistake that sinks to many traders. Yes, I have a major loss and it is my trade, and my responsibility. I made the mistake of blindly following some one's advice and it has thus far cost me dearly.
I plan to overcome this habit of listening to others. This is just another fault that I know I have to get past in order to continue to improve my trading. And that is why you always have the choice to be the trader you want to be. It takes realizing your mistakes and taking responsibility for the results. This is how a truly successful and prosperous trader is created. It does not happen overnight, but it can happen in time with persistence and the desire to learn from one's mishaps and errors.
Oh, by the way, where oh where have the Bulls gone? Yoohoo...are you there bully-bully? Just a few weeks ago, things were oh so rosy. What has happened? Maybe this time, the bargain hunting tactics just ain't gonna work so well. And just as I say that, no doubt there will be a blast off to new all time highs. Love it, really I do.
Wednesday, June 27, 2007
Thursday, June 21, 2007
The Volatility Is Rising
For option traders and traders over all, volatility is always welcomed. It gives us a chance to play the up and down moves. And lately, the market volatility has been rising. Today's earlier sell-off has reversed completely. The only question is will these gains hold into the close? And will they hold through tomorrow's trading?
This morning, I closed out the position in ATI for a good gain. With ATI trading at $106.55, I sold the July 125 puts for $18.30 ($1,830). This traded resulted in a gain of 2.50 points or $250 per contract. This type of profit is right in my zone. Like yesterday's trade in FWLT, I could have held somewhat longer and made better gains. However, it is unclear if the Bull run is nearing an end and a bearish cycle may be starting. So, it is best to take targeted gains when they come. There is too much up and down price reaction to sit around and wait. Gains could easily be cut in half or erased on a quick rebound or sell-off. I am happy with the way I am trading this market. I am making steady profits. That is what matters.
I have entered a longer term trade. At least that is my objective. I have purchased the July 145 call option for Intercontinental Exchange Inc. (ICE). I have traded options on this stock before. ICE is about $10 away from its all time high of $167 per share. ICE was trading at $157.10 when the trade was executed for $15.30 ($1,530) per contract. I think that ICE has a good chance of challenging its high and quite possibly breaking through. I had mentioned this stock a while back as an upside play after it had made a decent bottom. I think this stock could get to $180 in a strong upward thrust. It has zig-zagged its way higher by about $25 over the last month or so. I am willing to risk 3-4 points on this trade per option. That is about twice my normal risk parameter. The preliminary upside target is a retest of $167. If this happens I will make further allowances for capturing more upside. I will leave a specific upside target open for now. I have about a month until this option would expire. If the market has a strong downside move, I will sell out this position.
This morning, I closed out the position in ATI for a good gain. With ATI trading at $106.55, I sold the July 125 puts for $18.30 ($1,830). This traded resulted in a gain of 2.50 points or $250 per contract. This type of profit is right in my zone. Like yesterday's trade in FWLT, I could have held somewhat longer and made better gains. However, it is unclear if the Bull run is nearing an end and a bearish cycle may be starting. So, it is best to take targeted gains when they come. There is too much up and down price reaction to sit around and wait. Gains could easily be cut in half or erased on a quick rebound or sell-off. I am happy with the way I am trading this market. I am making steady profits. That is what matters.
I have entered a longer term trade. At least that is my objective. I have purchased the July 145 call option for Intercontinental Exchange Inc. (ICE). I have traded options on this stock before. ICE is about $10 away from its all time high of $167 per share. ICE was trading at $157.10 when the trade was executed for $15.30 ($1,530) per contract. I think that ICE has a good chance of challenging its high and quite possibly breaking through. I had mentioned this stock a while back as an upside play after it had made a decent bottom. I think this stock could get to $180 in a strong upward thrust. It has zig-zagged its way higher by about $25 over the last month or so. I am willing to risk 3-4 points on this trade per option. That is about twice my normal risk parameter. The preliminary upside target is a retest of $167. If this happens I will make further allowances for capturing more upside. I will leave a specific upside target open for now. I have about a month until this option would expire. If the market has a strong downside move, I will sell out this position.
Wednesday, June 20, 2007
It Can't Happen Here!
The markets are free falling heading into the last half hour. Of course this is all an illusion created by the Bears in trying to trick the Bulls into selling. We all know that won't happen anytime soon. It is after all June and the summer rally is about to swing into full power. Full speed ahead, and may the Bears eat our dust. This market is going to soar and Nirvana will continue at least 'till the end of the decade. Buy those dips and I don't mean at the ice cream stand. Come on Bulls, it's time to fatten up those positions with a bit more buying.
I have exited the Foster Wheeler (FWLT) put option trade a short while ago. I got out with FWLT trading at $105.90. I was waiting for a break of $106 and so thought I would close the position for a nice gain of $2.60 ($260) per contract as I was able to sell for $14.50 or $1,450. I still have the open position in ATI puts that has turned profitable.
The markets are continuing to crack as the Bulls head for cover. It is now possible the we have a nice big bearish double top put in place in the Dow and the S & P 500. This would allow for some more selling. However, until something really happens, like 2 days in a row of solid selling, the Bullies are still king of the street.
I have exited the Foster Wheeler (FWLT) put option trade a short while ago. I got out with FWLT trading at $105.90. I was waiting for a break of $106 and so thought I would close the position for a nice gain of $2.60 ($260) per contract as I was able to sell for $14.50 or $1,450. I still have the open position in ATI puts that has turned profitable.
The markets are continuing to crack as the Bulls head for cover. It is now possible the we have a nice big bearish double top put in place in the Dow and the S & P 500. This would allow for some more selling. However, until something really happens, like 2 days in a row of solid selling, the Bullies are still king of the street.
Monday, June 18, 2007
Going Against The Grain
The markets held in tough today with little overall movement. Some individual stocks did well and some not so well. I still think we are a little long in the tooth for this rally and that the market will not bust through to new highs just yet. I hear that many projects for oil refinery expansion will be put on hold or shelved for the time being. That means that we will continue to have a delicate balance between supply we are able to provide and demand that refuses to fall very much. Oil companies are a bit fearful that alternative fuels will, in the coming years, replace some gasoline usage. Therefore, why spend billions on updating refineries when demand cannot be assured. This effectively means that supplies will be tight and prices will not be allowed to fall anytime soon. So much for the reprise from the inflation boogie man. He is alive and well and the only one who doesn't know it is the government.
I have just entered another position. I have bought some put options on Foster Wheeler Ltd. (FWLT). I have bought the July 120 put options for $11.90 ($1,190) with FWLT trading at $109.65. These options are about $10.40 in the money and therefore have some time value of about $1.50. That is for generally two reasons. First, they are not that deep in the money and second, there is still five weeks until expiration. The stock is at a double topping situation with the all time high at $110.37, which was made earlier today. The previous high was $109.90 about two weeks ago. So, either this stock is going to bust through this resistance or it will stall and fall. I will give this a stop of $1.50 and a profit target in the $104-105 area.
I am still holding the put options on ATI. They are slightly profitable at this point. Should we get a downside break of some dimension, these options should do well. I often think in terms of two kinds of trades. One with fewer contracts that needs a larger move to be profitable or a trade with many contracts that needs only a small move to do well. In my estimation, the smaller move is more predictable and carries with it a higher probability of occurring. The trick in this situation is to quickly cut losses if you are wrong in the trade. Big moves over several weeks or months cannot be predicted with a great degree of certainty ahead of time. It is only after much of the move has taken place, that it become apparent. This is in contrast to smaller moves, which always occur on any given day, especially for higher priced stocks. This is something to deeply reflect upon.
I have just entered another position. I have bought some put options on Foster Wheeler Ltd. (FWLT). I have bought the July 120 put options for $11.90 ($1,190) with FWLT trading at $109.65. These options are about $10.40 in the money and therefore have some time value of about $1.50. That is for generally two reasons. First, they are not that deep in the money and second, there is still five weeks until expiration. The stock is at a double topping situation with the all time high at $110.37, which was made earlier today. The previous high was $109.90 about two weeks ago. So, either this stock is going to bust through this resistance or it will stall and fall. I will give this a stop of $1.50 and a profit target in the $104-105 area.
I am still holding the put options on ATI. They are slightly profitable at this point. Should we get a downside break of some dimension, these options should do well. I often think in terms of two kinds of trades. One with fewer contracts that needs a larger move to be profitable or a trade with many contracts that needs only a small move to do well. In my estimation, the smaller move is more predictable and carries with it a higher probability of occurring. The trick in this situation is to quickly cut losses if you are wrong in the trade. Big moves over several weeks or months cannot be predicted with a great degree of certainty ahead of time. It is only after much of the move has taken place, that it become apparent. This is in contrast to smaller moves, which always occur on any given day, especially for higher priced stocks. This is something to deeply reflect upon.
Thursday, June 14, 2007
A Perfect Example of How Traders Lose Money
The markets are again moving higher. It would appear that an all clear signal has been given and the rally is on again. Stocks are again cheap and so buyers continue to scoop them up. The famous rally call from the 1990's is back in vogue; buy the dips. Works every time up until the first time it doesn't. Never mind, this Bull has legs and will not stop for many more years. Do I hear Dow 40,000 anyone?
Early this morning, I sold the open put position on Flour (FLR) for $8.50 ($850) and this resulted in a loss of $2.40 points or $240 per contract. FLR gapped up a bit at the open and that was a signal to bail ASAP. By early noon, this option was trading at about $7.00, as FLR has broken to new all-time highs. In this trade, we have the perfect example of how traders lose their capital and eventually their accounts and ability to trade. Let's look at this a bit more closely.
First off, I had a profit of $2.00 ($200) per contract and this is generally in the area of many of my profit targets. Still, I could have sold, but decided to wait for more gains. Instead, FLR reversed hard and soon my gains vanished. So secondly, at this point, I should have sold for at least a small profit or break even at worst. That would have saved me from incurring any losses. Thirdly, the option traded into to my stop-loss zone of $1.50-2.00. The put option could have been sold in that area with a rather controlled loss. Instead, I decided to wait another day and proceeded to have my head handed to me by the Bulls. The loss was not devastating, but if I had not sold early today, it might have caused me to freeze and not be able to take the loss at all. That leads to bigger trouble more often than not.
My biggest mistake was letting a decent profit turn into a loss. And that happened by not following my trading plans and getting a little too greedy. Fortunately, this loss is not that severe. But the idea of getting away from a preconceived trading plan is somewhat disconcerting. And this is the very idea that traders need to be prepared to face. There will always come a time when you are staring down the barrel of a six-gun in the current trade and you have to make a decision. Your plan calls for you to make a decision. And it is often the failure of making that decisive decision that can start you on the road to ruin. It has happened to the vast majority of traders, believe me. If you think this does not apply to you, then good luck when your wake-up call comes and you are blind to it.
I have entered another trade just recently. I have purchased the Allegheny Technologies (ATI) July 125 put option. The cost was $15.80 ($1,580). ATI was trading at 109.75 and appears to still be in a downtrend. This is a steelmaker and recently Nucor (NUE) has come out and said that it's next quarterly profits are going to be short of expectations. This may or may not be an industry wide event. I will use a stop-loss point of $111.80 for this position should prices reverse from their current direction. The target downside will be the $106-105 area. So this is a similar trade to the one just made with FLR in that I am targeting about 4 points or so of profit. Since this is a July contract, there is a minimal time value of about $40-50 associated with this option.
I am hesitant to play the long side at this juncture. So I will try and get a decent profit on a sell-off of some kind. Not all stocks are joining in the Bull upsurge. Another thing to consider, and I should have mentioned it earlier, was that in the previous trade, I could have taken partial profits when I had them and waited to sell the rest of the position. This is often a good strategy if you have multiple contracts. Say you have 5 contracts and you are showing a profit. You can scale out of the position by selling 3 contracts for a profit and let the remaining 2 go for the ride. Then if those last two positions give up their gains, you can sell at break even and still have a profit on the entire position. This is what I love about trading. Their is no certainty per se, but a trader always has the option to create a trading plan to his or her liking to navigate the uncertainties in the markets. It is the execution of that plan that will ultimately decide your trading fate. If you don't believe that, just let experience teach it to you then.
Early this morning, I sold the open put position on Flour (FLR) for $8.50 ($850) and this resulted in a loss of $2.40 points or $240 per contract. FLR gapped up a bit at the open and that was a signal to bail ASAP. By early noon, this option was trading at about $7.00, as FLR has broken to new all-time highs. In this trade, we have the perfect example of how traders lose their capital and eventually their accounts and ability to trade. Let's look at this a bit more closely.
First off, I had a profit of $2.00 ($200) per contract and this is generally in the area of many of my profit targets. Still, I could have sold, but decided to wait for more gains. Instead, FLR reversed hard and soon my gains vanished. So secondly, at this point, I should have sold for at least a small profit or break even at worst. That would have saved me from incurring any losses. Thirdly, the option traded into to my stop-loss zone of $1.50-2.00. The put option could have been sold in that area with a rather controlled loss. Instead, I decided to wait another day and proceeded to have my head handed to me by the Bulls. The loss was not devastating, but if I had not sold early today, it might have caused me to freeze and not be able to take the loss at all. That leads to bigger trouble more often than not.
My biggest mistake was letting a decent profit turn into a loss. And that happened by not following my trading plans and getting a little too greedy. Fortunately, this loss is not that severe. But the idea of getting away from a preconceived trading plan is somewhat disconcerting. And this is the very idea that traders need to be prepared to face. There will always come a time when you are staring down the barrel of a six-gun in the current trade and you have to make a decision. Your plan calls for you to make a decision. And it is often the failure of making that decisive decision that can start you on the road to ruin. It has happened to the vast majority of traders, believe me. If you think this does not apply to you, then good luck when your wake-up call comes and you are blind to it.
I have entered another trade just recently. I have purchased the Allegheny Technologies (ATI) July 125 put option. The cost was $15.80 ($1,580). ATI was trading at 109.75 and appears to still be in a downtrend. This is a steelmaker and recently Nucor (NUE) has come out and said that it's next quarterly profits are going to be short of expectations. This may or may not be an industry wide event. I will use a stop-loss point of $111.80 for this position should prices reverse from their current direction. The target downside will be the $106-105 area. So this is a similar trade to the one just made with FLR in that I am targeting about 4 points or so of profit. Since this is a July contract, there is a minimal time value of about $40-50 associated with this option.
I am hesitant to play the long side at this juncture. So I will try and get a decent profit on a sell-off of some kind. Not all stocks are joining in the Bull upsurge. Another thing to consider, and I should have mentioned it earlier, was that in the previous trade, I could have taken partial profits when I had them and waited to sell the rest of the position. This is often a good strategy if you have multiple contracts. Say you have 5 contracts and you are showing a profit. You can scale out of the position by selling 3 contracts for a profit and let the remaining 2 go for the ride. Then if those last two positions give up their gains, you can sell at break even and still have a profit on the entire position. This is what I love about trading. Their is no certainty per se, but a trader always has the option to create a trading plan to his or her liking to navigate the uncertainties in the markets. It is the execution of that plan that will ultimately decide your trading fate. If you don't believe that, just let experience teach it to you then.
Wednesday, June 13, 2007
The Importance of Controlling Losses
All of the sudden, the Bulls came back from hiding and put on quite a show. I was a bit surprised by the strength of today's market. I really don't think that this is the basis for a new rally. I think this was a move higher that was mainly fueled by short covering. The retail sales data didn't impress me that much. And, sometimes these rallies are hard to see through since you get a lot of over-anxious Bulls just playing follow the leader. But I have to give the markets credit and perhaps the Bears have made their last appearance for a while. I am not crazy about being bearish; it is that everyone seems so bullish and it is easier for me to be different or be a contrarian. I am not sure where that comes from.
My latest position is now deep under water. Yesterday, the option trade in Fluor (FLR) was up at one point by $2.00 points. That would normally signal a sell, but I had my sights set on more profit. Now, it is in the red by about $1.70 points. Why didn't I sell when it came down to break even? It kept holding near there and I felt that this rally would fizzle out by the end of the day. I became involved in some other things and sort of lost track of the markets in the last 30-40 minutes. But that is no excuse. The prudent thing to do would be to sell when it came back down close to break even. Now you can see what can happen when you do not follow your rules and start making exceptions. My stop should have at least come up to break even and that would keep me safely out of trouble.
This is one of the main reasons people lose in the markets. They might get going good and soon forget their rules (if they even have any established) and soon enough disaster strikes. I think I can get out of this position with a still reasonable loss. That is my hope, unless things don't look so rosy at the start of Thursday's market. We will see. Take note, this is a lesson that needs to be learned for a trader to have continued success. As you progress in your trading career, you will find that things can get out of control very quickly. That is when decisive action is often required.
My latest position is now deep under water. Yesterday, the option trade in Fluor (FLR) was up at one point by $2.00 points. That would normally signal a sell, but I had my sights set on more profit. Now, it is in the red by about $1.70 points. Why didn't I sell when it came down to break even? It kept holding near there and I felt that this rally would fizzle out by the end of the day. I became involved in some other things and sort of lost track of the markets in the last 30-40 minutes. But that is no excuse. The prudent thing to do would be to sell when it came back down close to break even. Now you can see what can happen when you do not follow your rules and start making exceptions. My stop should have at least come up to break even and that would keep me safely out of trouble.
This is one of the main reasons people lose in the markets. They might get going good and soon forget their rules (if they even have any established) and soon enough disaster strikes. I think I can get out of this position with a still reasonable loss. That is my hope, unless things don't look so rosy at the start of Thursday's market. We will see. Take note, this is a lesson that needs to be learned for a trader to have continued success. As you progress in your trading career, you will find that things can get out of control very quickly. That is when decisive action is often required.
Monday, June 11, 2007
Options Expiration Week
This week is options expiration. So, it is likely there could be some manipulation in the markets. Instead of selling off, the markets might hang up until after this week. That would be typical Wall Street action. I am still thinking that prices could head lower in the coming weeks. According to some research I have come across, 2007 could be the last year of this bull run. The next decade could present a significant downside sell-off that rivals the major breakdowns of the last 100 years. Of course, the majority will not want to believe that their precious upside bull market is about to crumble. No prisoners will be taken if this prediction turns out to be even half true.
I entered a new position this morning. I purchased a put option on Fluor Corp. (FLR) for $10.90 ($1,090). The option is the July 115 put, symbol FLRSC. Fluor was trading at $104.40 when the put was bought. The stop loss target will be $106 or there abouts. The all-time trading high is $106.60, reached just a week ago. Since that high, FLR sold off to $99 before the current snap back. I am thinking it will be range bound at best and fall lower if we can get some downside action. For now, the $99-100 area will be the initial profit target, depending on the market action if it gets back down to those prices.
I entered a new position this morning. I purchased a put option on Fluor Corp. (FLR) for $10.90 ($1,090). The option is the July 115 put, symbol FLRSC. Fluor was trading at $104.40 when the put was bought. The stop loss target will be $106 or there abouts. The all-time trading high is $106.60, reached just a week ago. Since that high, FLR sold off to $99 before the current snap back. I am thinking it will be range bound at best and fall lower if we can get some downside action. For now, the $99-100 area will be the initial profit target, depending on the market action if it gets back down to those prices.
Saturday, June 9, 2007
Bears About To Go On A Feeding Frenzy
Well, it has been a while since my last post. Some unforeseen circumstances kept me from keeping up with this site. But, for the time being, I should be able to make regular entries. Has anything really changed in my absence? I think so. The Bears (not the team from Chicago) have made an unwelcome appearance. The Bulls were none to happy to see some of their inflated profits go up in smoke rather quickly. So that begs the question of the possibility of more selling and if it will become serious. Let's look at this for a minute.
Of course, opinions are a penny a gross on Wall Street and what I have to say means little to the direction of the markets. But if you are parked in the bullish camp with the idea that markets only can rise, then you are in good company. Many are hunkered down in this camp with no idea of the destruction that could befall the markets. I believe the markets can have a gory sell off at any time. We are well overdue for a massive scalping of over-enthusiastic Bulls whose greatest feat is keeping their heads stuck in the sand. I am not trying to be anti-market, anti-economy or anti-America. I just love to see a two-way market with ups and downs. Believe it or not, there is often more and faster money to be made on the downside. Many weeks or even months of profits can be wiped out in a few days or in a week.
I think earnings and the overly-massive liquidity bubble worldwide is what is keeping this market going. The bubble will eventually explode and the carnage will not be pretty. And earnings are suspect to any serious scrutiny. As I may have stated before, prices are determined from earnings and PE ratios. The earnings can be misrepresented in any number of methods. The biggest being shares outstanding; as this directly affects earnings per share. Creative accounting is running rampant in corporate America as well as in the government. This is similar to the creative financing that has done in the housing market.
As stock prices rise, it becomes so easy to think that they will always keep rising. When is it ever enough? Wall Street pros love to see the public bid up prices as they chase nirvana in the form of more and more profits. It is only on paper or in book keeping form mind you, but nonetheless, traders and investors are setting themselves up for major disappointments. That is because the majority will hang on far too long as they become mesmerized by the magic of higher and higher prices. It happens all the time and it will happen again. The "this time it's different" crowd will find out soon enough. The Bear is alive and well, lurking and prowling and ready to strike fiercely at any moment. So, learn to trade the downside action and be redeemed. But most of you will only be buyers and in that, you have no one to blame but yourself when the markets deliver your head to you on a silver platter. Pass the salt and pepper please.
The last trade I entered, on May 30, has turned out to be an almost perfect call. It happens sometimes. Cummins Inc. (CMI) did exactly (almost) what I said it would do. I was kind of surprised, but I feel I am entitled to make an excellent call once in a while. On Tuesday, June 5, CMI blasted higher and almost hit $102. My profit target was around $99 and so I sold the June 72.50 call option (CMIFV) for $27.40 ($2,740) with CMI trading at $100.15. This resulted in a profit of 11.00 ($1,100) per contract. RSI 5, at the time, was hitting above 95 on the scale (1-100) in the 60 minute charts, and I took my profit without thinking twice. The stock fell back, retested its high that same day, failed to take it out and proceeded to drop 10 points over the next 3 days. No new trades have been entered since then.
I have currently been re-reading a great book about trading called Reminiscences of a Stock Operator, by Edwin Lef'evre. This book dates back to 1923 and it considered to be the ultimate classic by many. It's fabled truisms bear wisdom as much today as it did 84 years ago. This book is a must read and a must re-read. There is much to gain by going through this book and paying attention to the story of trader Larry Livingstone, aka Jesse Livermore. This is proof deluxe that markets never change, and people's emotions never will either. If you get nothing else from this book, at least understand that survival in the markets is directly related to the amount of humility you possess. If you need further proof, then keep trading!
Of course, opinions are a penny a gross on Wall Street and what I have to say means little to the direction of the markets. But if you are parked in the bullish camp with the idea that markets only can rise, then you are in good company. Many are hunkered down in this camp with no idea of the destruction that could befall the markets. I believe the markets can have a gory sell off at any time. We are well overdue for a massive scalping of over-enthusiastic Bulls whose greatest feat is keeping their heads stuck in the sand. I am not trying to be anti-market, anti-economy or anti-America. I just love to see a two-way market with ups and downs. Believe it or not, there is often more and faster money to be made on the downside. Many weeks or even months of profits can be wiped out in a few days or in a week.
I think earnings and the overly-massive liquidity bubble worldwide is what is keeping this market going. The bubble will eventually explode and the carnage will not be pretty. And earnings are suspect to any serious scrutiny. As I may have stated before, prices are determined from earnings and PE ratios. The earnings can be misrepresented in any number of methods. The biggest being shares outstanding; as this directly affects earnings per share. Creative accounting is running rampant in corporate America as well as in the government. This is similar to the creative financing that has done in the housing market.
As stock prices rise, it becomes so easy to think that they will always keep rising. When is it ever enough? Wall Street pros love to see the public bid up prices as they chase nirvana in the form of more and more profits. It is only on paper or in book keeping form mind you, but nonetheless, traders and investors are setting themselves up for major disappointments. That is because the majority will hang on far too long as they become mesmerized by the magic of higher and higher prices. It happens all the time and it will happen again. The "this time it's different" crowd will find out soon enough. The Bear is alive and well, lurking and prowling and ready to strike fiercely at any moment. So, learn to trade the downside action and be redeemed. But most of you will only be buyers and in that, you have no one to blame but yourself when the markets deliver your head to you on a silver platter. Pass the salt and pepper please.
The last trade I entered, on May 30, has turned out to be an almost perfect call. It happens sometimes. Cummins Inc. (CMI) did exactly (almost) what I said it would do. I was kind of surprised, but I feel I am entitled to make an excellent call once in a while. On Tuesday, June 5, CMI blasted higher and almost hit $102. My profit target was around $99 and so I sold the June 72.50 call option (CMIFV) for $27.40 ($2,740) with CMI trading at $100.15. This resulted in a profit of 11.00 ($1,100) per contract. RSI 5, at the time, was hitting above 95 on the scale (1-100) in the 60 minute charts, and I took my profit without thinking twice. The stock fell back, retested its high that same day, failed to take it out and proceeded to drop 10 points over the next 3 days. No new trades have been entered since then.
I have currently been re-reading a great book about trading called Reminiscences of a Stock Operator, by Edwin Lef'evre. This book dates back to 1923 and it considered to be the ultimate classic by many. It's fabled truisms bear wisdom as much today as it did 84 years ago. This book is a must read and a must re-read. There is much to gain by going through this book and paying attention to the story of trader Larry Livingstone, aka Jesse Livermore. This is proof deluxe that markets never change, and people's emotions never will either. If you get nothing else from this book, at least understand that survival in the markets is directly related to the amount of humility you possess. If you need further proof, then keep trading!
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