The markets are trading to the downside today. Do I think this is the beginning of some serious downside action? No, not really. Not yet anyway. There is probably too much sort action to get a good downside sell-off going. Too many are expecting it to happen. But, one of these times it will happen and catch many Bulls with their tails between their legs. I still think a good sell-off is in the making at some point this year. Maybe in September.
I made a trade in RTI International Metal (RTI) recently. I bought the July 70 calls on 7-13 for $12.60. RTI was trading at 82.40 at the time. I used a rather loose 2 point stop because this stock has been rebounding nicely. Today I closed the position at $16.20 for a week long gain of $3.60 per contract ($360). Today the stock went right up to the target area just above $86 even with the market selling down quite strongly. I had to close the position because the option expires today. It turned out to be a good trade with limited downside pressure.
For the most part, I have been expecting the Bulls to cave in and the bears to have their way for a few months. Instead, I have been drastically wrong in this idea. Oh well, it doesn't matter as I am able to keep making individual trades and realize good profits. Guessing what the overall market might do is kind of a fools game. Their is too much to chance and any event can send the market moving in one direction or another. You have to remember that 90% of the players are just playing follow the leader and have little clue for themselves about what might happen. In other words, they have to listen to the "experts" before they can form their own opinions which of course are based on 90% of what the latest expert has said. Few traders actually think for themselves or go against the grain. No wonder why well over 80% fail in time. Do I think a 20% return is good for a trading year? NO WAY! Let's try for a 200% gain every year. When you think for yourself and follow your own plans, that is a very realistic goal.
UPDATE ON TRADING RESULTS SINCE MARCH
Thus far, in about 4 months of trading, I have realized a net gain of 69.30 points. That means a profit of just over $6,900 per contract traded. Or, an average of over 17 points per month. This is perfect for what my goal has been. Trading 20 contracts a month would result in gains of about $34,000 per month thereabouts. I suppose I can live with that. Of course, every month will not be so good. Considering some of the mistakes I have made and sometimes trading against the prevailing winds, I have done extremely well. It is not so important as to how many trades have been winners and how many have been losers or even what the percentage of gains as it is to sticking to the trading plan and limiting losses. That is the prerequisite for true success.
Friday, July 20, 2007
Thursday, July 12, 2007
Full Speed Ahead
To make money in the markets, you only need to be on the right side of the money flow. Apparently, that direction is up, as demonstrated by today's huge gains. It looks like 1999 all over again where everything is great and not a care in the world for anxious Bulls. What I can't figure out is that on average markets go up over long periods of time and since the vast majority buy stocks, why aren't more investors/traders rich? If all you have to do is buy stocks and hold on for magnificent profits, there should be many more millionaires. Instead of the majority consistently losing money, the majority should be filthy rich by now. Hmmm. Something doesn't jive here.
I closed the Potash (POT) position on July 11th for a loss of $1.70 ($170) per contract. The July 65 call option (PVZGM) was sold for $14.50. POT failed to regain momentum and dipped lower. Better to be safe and even today it is struggling to move higher by more than a point. Then I purchased a call option on Mastercard Inc. (MA) for $13.20. It was the July 145 call, symbol MALGI. MA was trading at $157.50 and near support after a pullback from its recent highs around $169. Today, I sold the position for $17.40 ($1,740) which resulted in a gain of $4.20 per option. The stock has traded higher, well above $165, which was my original target. I sold this one a bit too soon when MA was trading at $162.40. Again, it would be prudent to sell half or 2/3 of your position to lock in a gain and let the remainder ride the rapids. Over these last two trades, I have netted $2.50 points of profit. By doing that four or five times a month, you can make $100,000 trading 10-12 contracts over the course of a year. It is key to keep losses small.
A miracle has occurred in the ICE trade. I have held this one for 3 weeks and despite losing a good chuck of it's value, the July 145 call option (ICEGY) has smartly rebounded in lock-step with the stock. I sold the position earlier for $25.80. ICE was trading at $170.90 at the time. It is trading in new all time high territory. I gained $10.50 per contract on this trade and that after the option traded as low as $6.00. I previously discussed this trade and how this was not the way to make a good trade. I got lucky because there were circumstances surrounding ICE related to the buyout of BOT. Next time, I might not be so lucky and the stock continues to move against my position. That is exactly how so many lose their shirts and trading capital. Over time, these kinds of trades will catch up to every trader. That is why a stop-loss point needs to be determined before entering the trade. And it does no good unless you honor that point of risk control.
I have no open positions. I am not going to chase the market higher. At least not yet. I am looking at buying a call option on Air Products (APD ) and maybe Cummins (CMI). With the S&P 500 nearing its all time highs, I will wait to see what happens. Forget the Dow. This is only made up of 30 stocks and is easily manipulated by the big boys to paint a better picture that entices the public to get giddy about buying stocks. The Dow is the most meaningless index in the world. And of course, most non-professional traders/investors hang on its every point move. The S & P is far more meaningful as a measure of market action. The NASDAQ is the trading heaven for the non-professional; look back to the 1990's and 2000. I rest my case.
I closed the Potash (POT) position on July 11th for a loss of $1.70 ($170) per contract. The July 65 call option (PVZGM) was sold for $14.50. POT failed to regain momentum and dipped lower. Better to be safe and even today it is struggling to move higher by more than a point. Then I purchased a call option on Mastercard Inc. (MA) for $13.20. It was the July 145 call, symbol MALGI. MA was trading at $157.50 and near support after a pullback from its recent highs around $169. Today, I sold the position for $17.40 ($1,740) which resulted in a gain of $4.20 per option. The stock has traded higher, well above $165, which was my original target. I sold this one a bit too soon when MA was trading at $162.40. Again, it would be prudent to sell half or 2/3 of your position to lock in a gain and let the remainder ride the rapids. Over these last two trades, I have netted $2.50 points of profit. By doing that four or five times a month, you can make $100,000 trading 10-12 contracts over the course of a year. It is key to keep losses small.
A miracle has occurred in the ICE trade. I have held this one for 3 weeks and despite losing a good chuck of it's value, the July 145 call option (ICEGY) has smartly rebounded in lock-step with the stock. I sold the position earlier for $25.80. ICE was trading at $170.90 at the time. It is trading in new all time high territory. I gained $10.50 per contract on this trade and that after the option traded as low as $6.00. I previously discussed this trade and how this was not the way to make a good trade. I got lucky because there were circumstances surrounding ICE related to the buyout of BOT. Next time, I might not be so lucky and the stock continues to move against my position. That is exactly how so many lose their shirts and trading capital. Over time, these kinds of trades will catch up to every trader. That is why a stop-loss point needs to be determined before entering the trade. And it does no good unless you honor that point of risk control.
I have no open positions. I am not going to chase the market higher. At least not yet. I am looking at buying a call option on Air Products (APD ) and maybe Cummins (CMI). With the S&P 500 nearing its all time highs, I will wait to see what happens. Forget the Dow. This is only made up of 30 stocks and is easily manipulated by the big boys to paint a better picture that entices the public to get giddy about buying stocks. The Dow is the most meaningless index in the world. And of course, most non-professional traders/investors hang on its every point move. The S & P is far more meaningful as a measure of market action. The NASDAQ is the trading heaven for the non-professional; look back to the 1990's and 2000. I rest my case.
Monday, July 9, 2007
Grinding Higher...Be Prepared
The S & P 500 is now only about 20 points from setting an all time high above 1550. This will be a key benchmark going forward. Especially with second quarter earnings now coming into focus, starting this week. I am still favoring the downside verses a blast off to new continuous highs. But, this of course, can not be ruled out. The Bulls just might be crazy enough to keep buying and let the market professionals suck in their hard earned dollars. Greed will lead to the downfall. It always does. This will never change.
Can I believe it? Intercontinental exchange (ICE) has rallied all the way back up to near break even. With the vote today concerning the takeover of The Board Of Trade (BOT), anything could happen with CME and ICE. Of course, this is not the way to trade yourself to financial freedom. The loss on this trade should have been cut short and then possibly re-entered at lower levels. I would now have a great gain to show for my efforts. This is exactly why you need to have a specific plan and follow it directly, one day at a time. All the while being open to doing things you are not accustomed to regularly doing. That is; reversing positions when wrong. Such as taking a small loss and then re-entering at a lower price when it appears the odds of a smart turnaround at very great.
The NYX position was sold on July 6th at $15.80 ($1,580). This resulted in a nice $2.00 ($200) profit on this trade per contract. NYX had rallied up to resistance at around $76.00. Today, it is trading near that price and could break lose to move higher. But it is still in a confirmed downtrend, so I will wait for some confirmation of a major reversal. Also on Friday, I bough the July 125 put option on Foster Wheeler (FWLT) thinking that it might be ready for a quick reversal that would be good for a few points. Wrong! It did trade down a bit, but quickly reversed to make new all-time highs. I had entered the position (UFBSW) at $13.00 and set a stop of $114 on the stock price. I raised my stop as FWLT began to move in my direction and had to sell when it reversed hard to the upside. I sold it for $12.00 and this resulted in a $1.00 loss. This also resulted in being a day trade, as well as a trade against the prevailing trend. If this stock was to break out to the upside further, without a close stop, it could result in runaway losses. That is what can happen when stops are not used and you trade against the major trend.
I entered another new trade this morning. This one is a trade with the trend. I have purchased some call options on Potash Co. (POT) for $16.20 ($1,620) per contract. POT was trading at $81.00 and near all-time highs. If the market continues to move higher, this one should make newer highs. I have set a stop of $79.50 (approx) to keep losses small. The upside target will be in the $83-85 area. The symbol for the July 65 call is PVZGM and it expires in two weeks. So far, the market has reversed and I am under water on this one.
Why is is important to trade with the trend in the majority of cases? Look at two recent strong stocks. Research in Motion (RIMM) and First Solar (FSLR). Both of these stocks have exploded to the upside and would have been great stocks to be trading. Going against the trend, despite meteoric rises already, would have been suicide. You cannot reasonably predict with any constant certainty how far a stock may go up or when its upward swing will definitely end. Chasing highs with more buying or trying to call tops is a high risk game. The same with calling bottoms, because it is so hard to tell how low is lowest.
As far as getting ready for the S & P 500 to challenge its all time highs, I am saying be prepared for the possibility of a major reversal and some truly serious downside action. The move to new highs in the S & P will certainly get the juices flowing for a major bull market into the forever as Bulls will be doing the happy dance with no thought of anything but more gains to come. GREED to the max. It will be the perfect time for Mister Market to deflate those bullish expectations and lay waste to the Bull's greedy plans. Just be aware of this possibility. Nothing is certain but uncertainty.
Can I believe it? Intercontinental exchange (ICE) has rallied all the way back up to near break even. With the vote today concerning the takeover of The Board Of Trade (BOT), anything could happen with CME and ICE. Of course, this is not the way to trade yourself to financial freedom. The loss on this trade should have been cut short and then possibly re-entered at lower levels. I would now have a great gain to show for my efforts. This is exactly why you need to have a specific plan and follow it directly, one day at a time. All the while being open to doing things you are not accustomed to regularly doing. That is; reversing positions when wrong. Such as taking a small loss and then re-entering at a lower price when it appears the odds of a smart turnaround at very great.
The NYX position was sold on July 6th at $15.80 ($1,580). This resulted in a nice $2.00 ($200) profit on this trade per contract. NYX had rallied up to resistance at around $76.00. Today, it is trading near that price and could break lose to move higher. But it is still in a confirmed downtrend, so I will wait for some confirmation of a major reversal. Also on Friday, I bough the July 125 put option on Foster Wheeler (FWLT) thinking that it might be ready for a quick reversal that would be good for a few points. Wrong! It did trade down a bit, but quickly reversed to make new all-time highs. I had entered the position (UFBSW) at $13.00 and set a stop of $114 on the stock price. I raised my stop as FWLT began to move in my direction and had to sell when it reversed hard to the upside. I sold it for $12.00 and this resulted in a $1.00 loss. This also resulted in being a day trade, as well as a trade against the prevailing trend. If this stock was to break out to the upside further, without a close stop, it could result in runaway losses. That is what can happen when stops are not used and you trade against the major trend.
I entered another new trade this morning. This one is a trade with the trend. I have purchased some call options on Potash Co. (POT) for $16.20 ($1,620) per contract. POT was trading at $81.00 and near all-time highs. If the market continues to move higher, this one should make newer highs. I have set a stop of $79.50 (approx) to keep losses small. The upside target will be in the $83-85 area. The symbol for the July 65 call is PVZGM and it expires in two weeks. So far, the market has reversed and I am under water on this one.
Why is is important to trade with the trend in the majority of cases? Look at two recent strong stocks. Research in Motion (RIMM) and First Solar (FSLR). Both of these stocks have exploded to the upside and would have been great stocks to be trading. Going against the trend, despite meteoric rises already, would have been suicide. You cannot reasonably predict with any constant certainty how far a stock may go up or when its upward swing will definitely end. Chasing highs with more buying or trying to call tops is a high risk game. The same with calling bottoms, because it is so hard to tell how low is lowest.
As far as getting ready for the S & P 500 to challenge its all time highs, I am saying be prepared for the possibility of a major reversal and some truly serious downside action. The move to new highs in the S & P will certainly get the juices flowing for a major bull market into the forever as Bulls will be doing the happy dance with no thought of anything but more gains to come. GREED to the max. It will be the perfect time for Mister Market to deflate those bullish expectations and lay waste to the Bull's greedy plans. Just be aware of this possibility. Nothing is certain but uncertainty.
Thursday, July 5, 2007
New Highs Coming?
It appears as if the market is not ready to capitulate and sell off. It is very possible we will see new highs in the S & P 500 before long. That would mean prices trading above the 1550 area. This is at the trading highs way back from 2000. This could present a spectacular opportunity since a major double top could be forming or a huge upside breakout could erupt. I think the downside case is more plausible. But Bulls can be very stubborn before giving in; as they seem to like to chase new highs without a second thought of a reversal or major sell-off and the resulting loss of capital. It will be interesting. The current support area is around 1490.
I am still holding onto the position in ICE. And it is very much under water. A little over two weeks remain until expiration. I will give this one another few days to regain some upside momentum. The mistake has already been made and the position held much too long. This is the perfect example of how stops or risk limits need to be adhered to at all times. You can break your rules once in a while and you never know when that one time will break your account and shake up your otherwise sane psychology.
Two new positions were bought and sold during the last week. I bought the July 155 put option on Bear Stearns Co. (BSC) for $13.00 on June 28th. It was sold the next day for $16.50 ($1,650) which resulted in a nice gain of 3.50 points or $350 per contract. Also on June 28th, I bought a put option on Transocean Inc. (RIG) thinking it might be making a double top. The July 120 put was bought at $13.80 and sold on July 3rd at $12.20 ($1,220) and this resulted in a loss of 1.60 or $160 per contract. RIG has been trying to trade higher and is meeting resistance around the $108-109 level. No use risking a breakout with the stock still in an uptrend.
Today, I bought a call option on NYSE Euronext Inc (NYX) for $13.80. This was the July 60 call. NYX was trading at $73.50. The stop will be $72.00 and the profit target in the $76-77 area. This stock has been in a ferocious downtrend and this is a counter-trend trade. It currently is trading with a profit and appears to have some more upside.
I am still holding onto the position in ICE. And it is very much under water. A little over two weeks remain until expiration. I will give this one another few days to regain some upside momentum. The mistake has already been made and the position held much too long. This is the perfect example of how stops or risk limits need to be adhered to at all times. You can break your rules once in a while and you never know when that one time will break your account and shake up your otherwise sane psychology.
Two new positions were bought and sold during the last week. I bought the July 155 put option on Bear Stearns Co. (BSC) for $13.00 on June 28th. It was sold the next day for $16.50 ($1,650) which resulted in a nice gain of 3.50 points or $350 per contract. Also on June 28th, I bought a put option on Transocean Inc. (RIG) thinking it might be making a double top. The July 120 put was bought at $13.80 and sold on July 3rd at $12.20 ($1,220) and this resulted in a loss of 1.60 or $160 per contract. RIG has been trying to trade higher and is meeting resistance around the $108-109 level. No use risking a breakout with the stock still in an uptrend.
Today, I bought a call option on NYSE Euronext Inc (NYX) for $13.80. This was the July 60 call. NYX was trading at $73.50. The stop will be $72.00 and the profit target in the $76-77 area. This stock has been in a ferocious downtrend and this is a counter-trend trade. It currently is trading with a profit and appears to have some more upside.
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