EDGE TRADER

Tuesday, October 25, 2005

Futures pointing lower


Once again, futures are pointing lower to erase some of the Bernanke gains yesterday. I am feeling boring but am still sitting on a pile of cash.

The SPY chart isn't looking inviting at the moment. I really need to see a nice upwards move to develop before I consider jumping back in.

Thursday, October 20, 2005

Still Parked...


This blog is getting boring, but no one ever got hurt holding cash. The market worked its way further towards the abyss. I do believe at some point this will get overdone, but I am not going to jump in until it is over. Trading ideas at this point focus on avoiding all holdings intraday. The only plays that interest me right now are gap downs with an entry within a few minutes of market close and a sale within 15 minutes of the market open. Entry days for this trade only would occur on overall down days for the market. So there were plenty to consider today. If I was into shorting I would have lots to write about, but alas, I am not.

A huge bellwether for the market tomorrow will be SLB's earnings report. This will either hammer the nail in the coffin of the energy sector, or show the market how silly it's been for selling off energy stocks over the past month. I personally believe that it is the latter, but what it all boils down to is guidance. Since I am a trader not a gambler I will wait to see if any inefficiencies crop up out of this event. That's about the only thing that will make me pounce.

Wednesday, October 19, 2005

Energy Action

The CHK 5 day chart shows the kind of energy action I've been keeping my eye on lately, involving a buy in late morning, and exit prior to close of trading. I would have made a profit 2 days, with one breakeven (Monday), one ritual decapitation by the NYSE floor denizens (yesterday), and today I would either have made great money or gotten stopped out depending on how good my timing was.

It does show there is money to be made out there, though. I am of course just jawboning since my money was not there to back this up... I am still a little timid to play NYSE positions in this market. Others in the energy sector have similar charts, although this one was my favorite of the stocks in that sector I follow.

Parked

Still parked through this action. I'm just not good enough to tell which direction this market is going. I have noticed a repeating pattern where energy stocks get slammed, bottom out midday and rally in the afternoon, but the energy complex all trades on the floor of the NYSE, and in a market with a downwards bias it is extremely dangerous to throw any type of momentum trade out there with a stop loss on... It would be easier to just write the specialists a check and go play monopoly instead.

I am waiting to see where we go next before I pick anything else up.

Saturday, October 15, 2005

JDSU

Just read a really interesting post in Inventing Money about JDSU's 10K filed after the bell on Friday. Read it here.

Safe



I hit the matresses again yesterday. Thanks to the exuberance yesterday, I was able to make a nice clean safe (and profitable) exit to cash. I am about 96% cash right now. My thinking is I'd rather cash out on a strong day than sell into weakness.

As encouraging as the bull action was yesterday, I am playing it safe and will take the plungen only once the water looks fine.

Friday, October 14, 2005

Chart of interest SNDK

SNDK is still looking strong here...

Too bad I was a nervous nelly and allowed myself to be stopped out.

The one that got away?

My mind was consumed earlier in the week with a Delphi trade, but I didn't act.

1) Low capital risk - it's not exactly trading at a high multiple
2) UAW is difficult and demanding, but backed against a corner, they are likely to approve the concessions that management needs.
3) Back testing purchases on corporate BK's generally yields a winning trade.

But to paper trade it and do it are two different things. Today's bounce may be all we see from this one. The fear of buying a co that just went BK is probably the reason it tends to be a solid trade. My mind knew it would be good, but my body refused to react to a stock trading under .50 (this is not the domain I live in, unlike others).

Opening bell

Looks like the market liked the CPI numbers today. The bulls appear to have been waiting for any signal to stampede. I am not sure how long this will last, however so I am not taking any chances. Oil looks as if it may drop mid-day again. Thanks to the volatility in the crude markets there seems to be plenty of 2 point shorts and 1 point longs in the energy sector every day. My timing has been bad, so I haven't had success, but I may try that out today if conditions look good.

I completed SNDK for +1.31%. These are better results for an overnight trade. The market may push this one higher today or it may give these gains back. On a trade like this in a market with an overall downward bias, I have to set a tight stop and it got taken out just now.

SNDK

I noticed something yesterday with my SNDK trade... AAPL surged and SNDK stayed flat. In a market that brought AAPL up substantially, its inter-related supplier didn't react. The technical aspects were still there, so I bought in again in the after hours session for 47.80. I would have bought in the regular trading session, but my equipment had one of those oh-so-special moments in the last hour of trading.

Thursday, October 13, 2005

Post Closing


I saw some strength out there in tech today, and AAPL was especially encouraging. I am a little concerned about tomorrow's tape already with CPI and Michigan consumer sentiment numbers floating out there. I don't want to be holding stocks overnight when there is an economic announcement before the open.

The energy sector was one I was thinking about getting involved in, as stocks got incredibly cheap midday before retracing about half their big losses. Had they held down I would now be the happy owner of a chunk of the energy sector. I am a little shy about calling intraday bottoms in this market, so I have begun avoiding trading intraday. We'll see tomorrow if that was the right move.

Results

AEOS -.3%
SNDK +.8%
STLD -.4%

So again a breakeven morning. The results were dampened by the overall market's downwards bias due to the negative trade figures announced this AM. But this is a relatively simple way to play - if the cards go against you, in all likelihood, these are the results you turn in. If not they can be surprisingly positive.

So I will ride in cash until about 11am and re-evaluate then.

Pre-open

Looks as if the market is going to open mixed to slightly down in advance of the crude oil inventories report. SNDK appears poised to gap up substantially. AEOS is going to open about unchanged and STLD may open down a few cents.

Wednesday, October 12, 2005

AEOS


Here's a look at what attracted me to AEOS. We've got a clean gap down with minimal retracement to close the gap. In a very weak trading day, the stock is showing support around the 22.55 level. Based on the lack of market crashing earnings estimates coming out tomorrow, the likelihood of a stronger market for at least an hour or so tomorrow is pretty good. So the way I analyze this chart is I have a likely downside of about .20 from my entry point (22.76) and an upside of as much as half the gap (just experience talking, not TA), which in this case is +1 point.

This is a relatively good percentage trade for me in a bearish market market environment, provided, I stick to certain criteria to select the stocks. Usually this is because there are happy shorts out there who still haven't covered, and more importantly, in all likelihood the market makers were forced to buy stock that they want to unload the next day for a profit. I will just sneak my sell orders in along with theirs.

Gap Down Candidates


Gap down & slam candidates are aplenty today. Some on my radar include: SNDK, BOOM, WEBX, STLD, and AEOS. I settled on AEOS, STLD, and SNDK. I'll sell these at the open and ride intraday in cash tomorrow. It is much safer in this type of market!

Results

The downward focus of the market today dragged down my results; completed ELOS for +.4% and CELG -.14%. These are worst case scenario results in a market with a strong downwards bias, and I followed my trading rules to the letter on them. I may open one trade intraday if a setup presents itself. AAPL looks attractive today thanks to the drubbing it's gotten, but I will steer clear until the "One more thing" meeting today at 1pm eastern.

Pre-open

Futures point down thanks to AAPL & AMD's "dissapointing" numbers, continuing the overall bearish tone of the market.

Tuesday, October 11, 2005

Dodged AAPL bullet

A follow up on my earlier AAPL post. The stock rallied today rather than pulling back. As a result I didn't see the risk premium I was hoping for to trade into the stock. This is shaping up to be an interesting story with a huge gap down that will be followed by AAPL's secret meeting tomorrow, which will in all likelihood move the stock big once again. I will sit the sidelines. This is too much whipsawing for my tastes.

Change of focus

I plan to change my trading focus a little, weighting my trading focus to trading gap downs and slams overnight (at least for the rest of the week), and minimize my intraday trades to only the best of setups. Earlier in the year when the market had a more bearish tone, this was a successful strategy.

Thanks to the volatility lately, my stops are getting taken out, ruining the exits to what would otherwise be successful trades; thus enriching other traders and the market makers (which isn't really my goal in life).

In the last 5 minutes of the trading day I took on ELOS and CELG, both of which I will sell or ride with a tight stop depending on whether there is a gap down or gap up. Another on my radar was HELE, but since there was a partial retracement intraday, I chose to leave that one alone.

In Cash

I find myself mostly in cash this morning, missing a nice gap up for the market. But, I wasn't into rolling the dice yesterday, which is what it would have been. I don't trust the action out there this week. The bears are waiting behind the bushes to pounce on us at any moment. But I will try to profit from this mini up-move if I can.

Monday, October 10, 2005

Apple

The most interesting dilemma facing me right now is how to handle the upcoming market making news on AAPL. I sold off my holdings today, expecting a roll back in price tomorrow as the street gets nervous about the upcoming earnings announcement and Wednesday "secret meeting", where Apple will supposedly unveil its video iPod. AAPL seems to blow past estimates on a quarter for quarter basis. Where the stock is right now, it seems as if bad news is already priced in to the stock, setting it up for either a relief rally once the bad news is released, or a wonderful shot up if the news is fantastic. The expected announcement of the video iPod presents another risk, since if anything else is unveiled, the market will be angry!

My working plan at the moment was to sell off all holdings today, and let the stock roll back a half point or so tomorrow, and do my best to purchase a small stake at the bottom.

My plan sounds very much like a predictor-type move, which is not usually where I want to be, but I have two things working in my favor. 1) I have held AAPL through the last 4 earnings announcements and have been rewarded financially each time. In trading I like to continue to do what works. 2) Thanks to the rise in shareholder class-action suits, large well run companies seem to be issuing conservative guidance that is often beaten. Witness AA's announcement after hours today. They saw the street forecasting .44, revised downwards to .29 to .32, then turned in a .33 number (including the unexpected effect of Katrina). Clearly they were managing their earnings forecasts, and I expect AAPL to do the same.

Friday, October 07, 2005

Retraced?

The market held a rally today, rewarding those who bought the decline yesterday. Five straight bear sessions would have been a significant event and the bears, pleased with their results decided to pack it in for a long weekend. There are lots of potential catalysts for another down week such as this, so caution will continue to be key this month. At least there is a little sea room between now and the next Fed announcement.


I had purchased NFLX and AAPL at the close yesterday, having been previously stopped out of AAPL. They were two stocks that showed some resistance to the decline, and therefore probably a relatively safe bet for today's bounce. Unfortunately, AAPL was downgraded due to valuation by some hare-brained analyst who apparently was cat napping for the last 4 sessions. Luckily the stock did not gap down, so I was able to make a comfy exit at the open, wait until the stock bottomed and pounced around lunchtime. Sorry, I don't believe that this stock is done, and will hold this until it stops going up.

NFLX made an incredibly nice move in the morning thanks to buying interest and covering shorts. I stopped out with nearly a two point move, and rebought around 11:45am, hoping for it to test its early morning highs. The float is relatively small and short interest is relatively high. These facts that make it easier to earn money if you are an opportunistic swing trader.

I also bought CELG (another high trading volume stock), but was stopped out early and thus missed the move up.

Thursday, October 06, 2005

Ugliness III

I've focused on trying to find some positives in the tape today. This is one of the few things I could find. It appears as if the S&P could bounce off it's 2 year trendline, but there is still a little room for decline. We will find out over the next few days. As a trader I would expect some type of mini retracement tomorrow, at least in the morning, as shorts cover before the weekend. Overall it is really hard not to be bearish on the market after a 3 day move like this in a rising interest rate environment. It really hinges on how the hedgies choose to make their 4th quarter, by buying the decline or shorting the market. The first few earnings revisions will dictate the path of least resistance for them. Anything between now and then will be REALLY volatile.

Ugly day yesterday


Yesterday was too ugly to even post about.
Suffice to say that even with my attempts to limit the bleeding, I still rolled my portfolio value back to its value on 9/6. This morning I am focused on capital preservation, but also trying to see if the market will give the longs a breather with some carefully selected trades in stocks I am familiar with that are showing strentgth this morning. Things are too cheap right now not to give it a try. The stops will be tight today!

Tuesday, October 04, 2005

Spotlight for tomorrow



I am expecting a volatile opening tomorrow, especially in energy stocks, as the crude inventories report is released at 10:30. It's probably unlikely to hope that non-energy stocks can open significantly higher unless that figure shows better than forecast inventories. But that opens the opportunity for an intraday trade or two depending on what happens.

Chain restaurant stocks are also likely to be volatile as YUM and Ruby Tuesdays report after the bell. WEN and EAT are on my radar in this sector, but this sector is out of favor right now.

Hangover sets in


We all suffered a money manager induced hangover today, as the funds that jacked up the market on Friday and yesterday sold off today to rotate into other opportunities. Crude oil helped push the market off the cliff by bouncing off support in the early afternoon.

As I mentioned in my earlier post, things could change at any moment...

I suffered some damage but only of the minor flesh wound variety. What will be key is what happens tomorrow!

Monday, October 03, 2005

Riding


Not much to do today other than ride my winners which are going up today. ECA, CHK, AAPL, NFLX, GLBL.

In the past I have made the mistake of selling prior to the next boost, so I am just entering stops and enjoying.

Of course the market can take me out anytime it wants, we will see what happens next.

Sunday, October 02, 2005

S&P



Looks like S&P may be heading towards another test of the resistance level again soon. The real tester will be surrounding the next Fed meeting, in all likelihood.

Month end data

My month end return (before taxes - all realized capital gains were short term gains) was +4.34%. For the same time period, the S&P finished +0.7%. This was my second best month this year. My strategy has had to adapt - this market has not set me up with the overnight opportunities I had in May and June. For the most part, my positive trades in September were intermediate term swing positions, lasting 3-10 days.

For October, I will again go to cash in advance of the Fed meeting, and if there are any late season hurricanes threatening the Gulf (the coast appears to be clear for now). I am looking to once again meet or exceed 3% for the month, and will treat myself to something if I end up 6% or better. I will also need to focus on taking profits in some of the long positions in my portfolio and rebalancing my sector weighting if necessary.