Edge Trader

Trading thoughts of the day

2006-08-09T09:47:00.000-04:00

Looks as if Homebuilders have the potential for a downtrend day; I may enter short after the opening range sets and if there is any upwards retracement. My concern this morning is whether this open is a fake out oops open that ends up getting faded and we end up negative on the day.

A day like this is tough. With the preponderance of these gap up opens being traps, it is feels really risky to buy them. On the flip side, entering a short trade with almost all sectors gapping up makes you feel as if you are swimming upstream.

My expectations are low for the day - may stay flat or try one or two setups if something looks compelling.

In retrospect yesterdays trades would have been to go home short the homebuilders and long oil service, but things were too choppy to risk it.

Post Trade Wrap Up

2006-08-08T20:05:00.000-04:00

Closed a short trade and a put in homebuilders today (RYL was my put and LEN was my short). I went flat at around 11. I liked the trades but I was really worried about today's policy announcement.

This feels like the Fed's transition from Greenspan to Bernanke. The markets got all riled up due to the uncertainty of what would happen with a new chairman. Now I see us getting very nervous as a trading community about the Fed's next move. Wouldn't be surprised to see more of the wildly unpredictable volatility we've been seeing lately.

I may put my homie shorts back on tomorrow or stay flat depending on how the opening range sets. I have some long candidates in my watch list, but none are looking oversold and I've seen stocks whose charts look great all of a sudding suffer a strange and dramatic drive by sell-off.

S&P Looking Overbought

2006-07-26T21:42:00.000-04:00

on today's chart, however other the QQQQ's are not there as of yet.

Seems like SPY is edging ever so closer to the key technical level of 128, but will it really get there?

Should QQQQ again go overbought it will be time to switch to a short only strategy again. I am looking at 4 straight days of trading gains, which is the best I've done since the first week of July. From a contrarian standpoint, I am probably damning my results tomorrow by saying this...

Market perspective

2006-06-29T15:44:00.000-04:00

I am thinking that if this rally can survive to Monday's close, we may be in for a breather. In the lull between earnings seasons, the focus shifted to the Fed, which any trader can tell you has not been good for the market. Now that earnings season is getting ready to begin again, perhaps eyes will be elsewhere. Of course if earnings and guidance dissapoint, we could be looking at just another catalyst for more bear days.

Trading Diary

2006-06-29T15:17:00.000-04:00

was turned off today. This was too crucial a trading day to have any interruptions, although I did leave from 1 to 2pm to get some fresh air (and make sure I didn't do anything stupid). Went 40% long yesterday and held positions overnight. I am now 100% long after some frenetic buys from 2:15 to 2:45. My long holdings include BHI, CELG, IIIN, and PWEI.

I am now trying to decide whether to sell flat or continue into tomorrow. My gut tells me that the fund jocks will hold the line at all costs to preserve their quarter tomorrow. On the flip side, my wife just called to tell me "guess what the stock market is up today, honey", which usually is an indicator I should sell (ok I am paraphrasing her a little for comedic license).

As long as Ben doesn't have a dinner date with Maria Bartiromo tonight I think the market will hold until tomorrow's open at least.

Checking back

2006-06-23T10:11:00.000-04:00

to the Level II and I see the sellers are overwhelming the buyers in BBBY so I took half off the table at $34.51. (.09c ps loss pluss commish). The stop remains on the the other half but I may cut bait on that one at any moment.

BBBY didn't gap up on the open today

2006-06-23T10:01:00.000-04:00

I tried to exit on the open but couldn't get execution at a favorable price. I let the opening range set in on BBBY and I am seeing lots of buying support at the 34.50 level, but it can't seem to make it past that level. If it breaks past support or resistance, this could move substantially, just don't want to get caught on the wrong side. My stop is set very close to that 34.50 level.

My NCC short is continuing to work nicely. In retrospect I should have added to the position on the uptick Wednesday, but there are a lot of things I can say I should have done in retrospect.

I priced puts as a way to add to the position, but the volatility premium is a bit too high for my tastes right here. Of course I don't like to buy puts in a downticking market, since that premium gets exaggerated so I will keep my eye on it.

Also considering some puts/short positions on selected metals stocks.

5 round trips

2006-06-22T16:01:00.000-04:00

today netted me more in terms of worry than it did in dollars. I would have been better off going to the golf course. I bought the overnight gap down setup in BBBY. I noticed a lot of buying interest in the last 3 minutes of trading. Let's hope I was right.

NCC Short

2006-06-22T15:48:00.000-04:00

is still motoring along. I will need to close it in advance of any fedwatch data because that seems like the only catalyst that will bounce it against me at this point.

Frenetic day of trading

2006-06-22T15:41:00.000-04:00

with 5 round trips today. Closed my short of FCX and JOYG. I went long JOYG and just went flat for a slight profit (we're talking lunch money). FCX I re-shorted and am waiting to close out the position, hoping for a slide into the toilet close.

I am looking at a gap down trade to buy at the close right now.

Expanded short

2006-06-22T11:07:00.000-04:00

position by shorting JOYG. Now portfolio is roughly 43% short.

Went short

2006-06-22T10:20:00.000-04:00

FCX again a few moments ago. The trade is in the black right now, but I'll have to watch this one closely, since it is volatile.

Just returned

2006-06-21T14:49:00.000-04:00

to the trading terminal from a business meeting all day today. And of course these things happen at the absolute most inconvenient moments, causing me to miss a +140 tick on the dow.

My post last night should have been a contrarian indicator that should have made me buy the open, but I knew I wasn't going to be able to monitor positions today, so I didn't dive in.

My focus is what to do now? My initial thought is to fade this rally by going short, but I don't want to jump the gun yet.

Perfect Storm / AKA fat tail city

2006-06-20T22:20:00.000-04:00

"The markets sold off this afteroon because of inflation concerns"

"The market appears to be concerned that the Fed may need to raise rates at the next policy meeting"

"Traders are jittery due to concerns about economic growth"

Heard any of these excuses for the market we are in?

It's almost comical how the talking heads on CNBC and Bloomberg will spout these things as their explanation for why the markets are down.

So here's mine:

We hit the confluence of several very unfortunate situations at the same time:

Demise of the yen - carry trade has sucked money out of the markets worldwide
The fed unfortunately decided to prop the economy with low interest rates, creating a mess called a housing bubble, which they now have to slowly pop (and don't believe the hype about inflation - that has nothing to do with it)
Knuckle head momentum chasing hedge fund traders pushed materials stocks too far too fast
Ben Bernanke's "Transparency" policy has left traders to their own neuroses and worst case scenarios at precisely the wrong time

So now that all these things have happened, we have a selloff that is building on itself thanks to the daily blow up of small and large traders. Traders are much "smarter" and more hedged right now, which only seems to mean the death is slower, more gradual and from more directions than in previous years.

But don't worry:

"Equities are at some of their lowest valuations in years"

"We consider ___ to be very attractive right here"

"The markets are poised for a bounce"

No agenda here, I'll trade in whatever direction the market is going. But I needed to get that off my chest.

Covered FCX

2006-06-20T15:54:00.000-04:00

a moment ago for +1.6%. I thought briefly about taking half the position home with me, but things are too unpredictable in this market, so I will go home flat. BTW also got stopped out of the remainder of my BHI/RIG trade earlier this afternoon.

Shorted

2006-06-20T12:39:00.000-04:00

FCX just before lunch, and I just got back to see the trade is in the black. (No, I don't take one of those 2 hour "trader lunches") I purposely left the terminal for a while - it was difficult to pull the trigger on that one and it is probably best I am typing now instead of looking at the quote screen. I won't hold this trade overnight. This market is too cruel and difficult to take chances with your capital.

Yesterday's action

2006-06-20T10:11:00.000-04:00

had a pretty horriffic end, with the -100 Dow for a while. My BHI/RIG trade was scaled down as I sold around 2:15 down to about 50% of my original position size in both. At the gap up open in both of these I scaled down to 10% of my original position size. At this position size it's probably silly to even bother keeping the trade open, but I still think we get a pop in that sector today, so I guess this is the result of my internal battle for risk control versus trading instincts.

NCC is moving against my short position this mroning, but you really expect a stocks to roll over in the afternoon, so how it trades around 1 or 2 pm will be the tell whether to cut bait on it or hold the line.

Probably no action in the portfolio from this point to lunchtime unless a stop gets hit or the market shows signs of a reversal (which seems unlikely).

I think we go lower in RIG and BHI in

2006-06-19T11:54:00.000-04:00

the next few minutes. I will probably buy my other piece in BHI to balance out individual stock risk. Really should probably just buy OIH as a trade vehicle, but I find I get better execution on individual stocks, of course what's a few seconds?

As I was typing

2006-06-19T11:45:00.000-04:00

the last post - RIG retraced in a manner consistent with the locals running some stops. I still will wait to expand my position until 12pm...

RIG

2006-06-19T11:43:00.000-04:00

My entry looks a little premature... Either the specialists are running the stops right now (seems like the most likely scenario) or this is poised for a down day. I'll know whether I am punting on this trade in the next 10 minutes or so.

Buing some of RIG to open an intrady trade

2006-06-19T11:36:00.000-04:00

I added 12% of equity in RIG - will buy another piece around 12 if everything looks good.

A fakeout open

2006-06-19T11:14:00.000-04:00

that probably successfully tempted some traders to buy. I wouldn't have, but we will never really know since a technical issue with my equipment kept me from doing anything. I have a battery powered backup system, but I saw enough of the action this morning to know not to bother killing myself. I am up and running just fine now, and pondering where to go.

My NCC short is perplexing in the way it refuses to move - read an analyst piece in Barrons that reduced the price target to $32 on it, but we are still hovering around $36. Do I trust it or was it one of those "downgrades" that helps a firm get out from under a NCC short position just before the upward trend resumes? I think the fundamentals are in my favor, but I'd rather be wrong on the fundamentals and right on the trade than the reverse.

Not seeing much in the long department; I may revisit an intraday long setup during trader lunch hour if anything presents itself.

Getting shorter

2006-06-16T12:02:00.000-04:00

Added to my short position in NCC and sold more long stocks. I am down to 25% long, and now I'm 10% short. It's a tough market right now to trade, and I am having a tough time thinking that anything but cash is best, since although I think the path of least resistance is down, another big rally is not at all unthinkable.

Sold out

2006-06-16T10:16:00.000-04:00

of some long positions - down to 35% long right now. Initiated short position in NCC at 8% of equity. May add to this as the day goes on...

We gapped

2006-06-16T09:46:00.000-04:00

down and equities are moving to fill that gap right now. So far the tentative plan is watch to see if yesterday's close becomes a point of resistance for AAPL, and trail stop the positions from yesterday to allow this market the chance to continue to rally (although I am not expecting it).

I am eyeing a short in NCC, but would like to see the opening range set in first before jumping the gun.

When the Fed Speaks

2006-06-16T08:46:00.000-04:00

keep a close hand on your wallet. This morning seems to be further proof of that, since the market may open down and not coincidentally some hawkish remarks about the nation's inflation indicators were made yesterday. Seems nothing more than noise to me, since any economist with a pulse knows our inflation indicators understate true inflation, but I guess they need to headline something on CNBC.

I am still thinking the overall bias for the morning will be up for reasons stated yesterday, but who knows? I can't have a moment's hesitation in riding right back to cash.

All this excitement

2006-06-15T16:16:00.000-04:00

and I honestly forgot about that potential NCC short. Should the market roll over tomorrow, this rally provides an excellent set-up for that trade.

What a wild

2006-06-15T15:49:00.000-04:00

trading day today was - I opened the day in cash, made a brief attempt at fading the open in FCX, closed that position, then did a complete 180 to finish the day about 60% long, and up substantially.

I am taking all my long positions home tonight. With all the short killing that went on today, I think momentum continues at least into the open tomorrow, although where it goes from there is anyone's guess.

My thought is that we se a continued rally in the am and a weak close tomorrow. First off, some traders were undoubtedly caught heavily short and off guard by the force of this rally. More importantly however, is that options expiration is tomorrow, and the put sellers will drag this market up kicking and screaming to reduce the price tag of settlement tomorrow. Earlier this week, the value of unexercised SPY puts was in monster territory.

Of course all this guessing means nothing; my main focus will be on price action tomorrow, and I can foresee returning to cash again either tomorrow or Monday; I wouldn't be surprised in the least if the market pops a vicious whipsaw in our direction soon.

AAPL immediately in the black

2006-06-15T11:17:00.000-04:00

and CELG vacilatting - up momentarily, then the bid book gets swept by a larger sell order, bringing bid down momentarily.

Bought CELG

2006-06-15T11:12:00.000-04:00

just a moment ago. And AAPL - combined long of 26% now. Hopefully my timing is not off. Generally I would wait until 12:00 pm to go long intraday. Depending on conditions I may go 50% long later today.

Covered

2006-06-15T11:07:00.000-04:00

my FCX position - either today is not the day or my timing is off... A very small loss -.8% on 8% of portfolio.

The rally du jour

2006-06-15T10:31:00.000-04:00

may break through or it may falter like many of the past few weeks. I opened a small short position in FCX this morning (8% of equity). If it breaks above the opening range I will cover and go long (in other sectors). If it slides below I will add to my position.

Ready to roll over?

2006-06-14T20:59:00.000-04:00

One of the few

2006-06-14T20:53:00.000-04:00

charts I've seen that still appears to have a relatively bullish trend intact despite all the selling going on.

Inactive

2006-06-14T19:09:00.000-04:00

today - the gap up after the CPI numbers just wasn't to my liking for a buy. I thought seriously yesterday afternoon about buying in force, but the risk/reward just didn't seem good. We had mild numbers, which resulted in a "modest" retracement, but I was thinking of the other side; had we had a really high CPI figure we could easily have slipped into oblivion again. The more I watch the tape, the more it seems that being long stocks is fighting against the current of the market.

Energy seemed to be the big winner with 2-3% gains on the day. I thought about shorting this uptick, but with options expiration and a possible short term retracement rally in the works, going short from a risk standpoint right now only seems to be doable on intraday trades.

Whew

2006-06-13T13:32:00.000-04:00

Glad I didn't buy that sucker setup in oil today.

Thought briefly

2006-06-13T12:51:00.000-04:00

about getting long here in the oil sector. But it is margin call time, so I think after yesterday's horror show I will wait until 2 pm before making any decisions.

Failed open?

2006-06-13T10:20:00.000-04:00

Looks like another failed rally open for the markets today. I don't really feel the setup is there to go short, however - in retrospect that ship sailed yesterday. Today the duration of the position would only be intraday due to the need to go flat prior to tomorrow's closely watched CPI numbers.

On the flip side I definitely think we are doomed for another late day slide again as traders remain overly cautious going into tomorrow's big number.

Horrific

2006-06-12T19:01:00.000-04:00

trading action today. The open traded sideways until about 1 pm at which point everything decided to go into the collective toilet. The timing of the major breakdowns in all the markets (just after 1pm) smacks of margin call induced forced selling. I for one cut my stake down to about 7% long in the ill-timed IFO trade about 3:20. In a normal market environment, I would expect to see it gap up tomorrow, but this isn't a normal trading environment, so I decided to cut my bet size.

S & P

2006-06-12T11:18:00.000-04:00

Holding the opening range for now (although if there is a downside breakout it would most likely occur in the next 40 minutes). Nasdaq 100 seems to have broken to the downside (although only slightly). In March I might have considered buying QQQQ's here for a long trade as a failed downside breakout with a stop in the 38.70 area, but I just don't think this market has enough legs to sustain much upside today.

I did buy IFO, which caught my eye due to the drubbing it has taken at the open today. I noticed some institutional sized bids coming in for it in the 17.85 level, so my portfolio is long 12% currently. I may buy another chunk around 12 depending on how the chart acts.

Teetering

2006-06-09T14:49:00.000-04:00

but not yet falling off the edge yet. Seems like closing out flat this weekend involves a bunch of short covering, which if I had to guess is the reason the market continues to levitate around par for the day. Once all the traders are flat and on the way to the beach, I wouldn't be surprised to see a last 30 minute slide into a -50 Dow close, but anything can happen with the way the market has been going lately.

Failed Rally,

2006-06-09T12:40:00.000-04:00

or Wall Street on the way to the Hamptons? I'm not sure which. I was just going over my options. It seems downright dangerous to get longer now. I have thinned my long positions already earlier. I have a core of long positions on protected by stops, but am only roughly 20% long at this moment (80% cash). I am bearish on the market for the remainder of the day, but with everything wallowing inside the opening range, it seems too risky to initiate a short position here. So I instead will do something productive and go out and enjoy the beautiful weather. I will check the markets with my mobile device - I plan to go into the 2:00 hour less than 10% long. If the market really tanks I may consider a buy at close sell at open trade, but that too isn't seeming real optimal given the weekend headline risk.

Legs?

2006-06-09T11:04:00.000-04:00

So far no legs to this "reversal". My guess is we finish down - this seems to be a trader dominated market right now. If I'm reluctant to hold overnight positions, everyone else probably is too.

Mining stocks yields?

2006-06-08T22:15:00.000-04:00

Current dividend yield for PCU = 13%. Current dividend yield of FCX=6%. This caught my eye today. Of course, with the decline in underlying commodity prices, I'm sure the market would discount the possibility that profits and hence dividends drop in the future, but this is looking really interesting to me right now. Of course these stocks could well continue to get hammered for weeks - just because something makes sense doesn't make it happen...

Failed breakdown?

2006-06-08T22:04:00.000-04:00

Here is one of the stocks I was long earlier today, with as much as 17% of equity in this position today. Still clearly a bearish chart, but in the short term, AAPL failed to break out below support, which means it may test the other side prior to breaking down again. Near the close, I closed part of the position, leaving my portfolio 8% long AAPL. I think it opens up tomorrow, but where it goes from there is anyone's guess in this market.

Confounded

2006-06-08T21:57:00.000-04:00

I am still confounded by this market, and have been for quite a while. The main step I have implemented is to reduce my position sizing considerably. Yesterday I lost money betting for a retracement that reversed in an ugly way. Today, I played the market much better, selling it during the opening and buying around 11:30 to catch what either is a serious bounce or just another fake out move. I did press my bet with as much as 55% long as of around 1pm, but reduced prior to the close to around 30% long at the close. I think that closing on the highs will at least signify an up open tomorrow, but I wouldn't be surprised in the least to see a close on the lows as traders go into the weekend flat.

Strategy change

2006-05-24T11:11:00.000-04:00

I'm looking at 2 strategies right now - day trading in the money put options with an entry around 1-1:30 pm on intraday highflyers near their session high, and an exit around 3:30-3:45. The other is a buy the close and sell the open for stocks seeing a blistering exit by traders at the end of the day. Hope your day is going well.

Cash

2006-05-23T22:43:00.000-04:00

Cash is king right now for me. Haven't posted for a while. I went through a superstitious phase where whenever I didn't post I had a profitable day, hence no posts. Well, I am back to cash today once again, after riding this downdraft in cash. So nothing is preventing me from posting. I wish I could say I cashed out earlier than I did, but it was soon enough that I limited the damage done. I bought the market on Monday afternoon and re-sold it again today. For the 2nd straight day, my portfolio is worth more than it was the day before, and that is saying something considering I haven't shorted a share yet this month.

I am not a fan of leverage (which limits both my returns and my downdrafts). So I most likely won'tbe shorting regularly, but the market tone appears to have changed, and as such strategies need to change with it.

Breadth

2006-04-21T15:38:00.000-04:00

Bears are chewing up the market in the final minutes, and breadth looks pretty bad. Which is a signal I might want to think about taking some stocks home for the weekend!

Nice Intraday Action - or Homage to Mark Fisher

2006-04-20T20:16:00.000-04:00

Had a few intraday trades - this was one of them. This buy the dip setup was a perfect failed "A" down setup. I missed a nice exit point at lunchtime as I frantically tried to drop my sub to bump up my stop, but in the end I closed out profitably near the close. The 2 keys for this is that the stock failed to dip below the bottom of the opening range, and the heavy institutional sell orders showing up in level 2 as funds dumped due to an earnings dissapointment. My entry was near the tail end of the selling volume. The chart might make you think I should have doubled down around 11:15, but I won't work with a double position size on a stock the street is angry with.

Where have I been?

2006-04-19T00:07:00.000-04:00

My loyal readers have been wondering I am sure. Unlike many blogs, mine is just a a blog, not a for profit commercial enterprise.

Truth is I am somewhat of a superstitious trader. I didn't blog for 2 days in mid March. It turns out that those 2 days were my best trading days in the past 12 months, with some truly stellar gains. Being the superstitious sort, I resolved not to blog until I had a down day. Fortunately for me, but unfortunately for the rest of cyberspace, I did not have a down day until yesterday. My March finished at +10.3 %, well in excess of any expectations I had, and my April is looking pretty nice too (although today was not as kind to me as it was many traders: +.1%). I'm sorry if you were missing my "wise" words. Out of guilt today, I figured I would go on and make this post for my readers in an attempt to explain my absence. Since anyone reading this is profit motivated, I am sure you will understand. If you told me I'd have the kind of month I had there are a lot of crazier things that I would have done than stop blogging.

IIIN

2006-03-14T12:24:00.000-05:00

Insteel industries is a very strange security. This type of accumulation has got to be unsustainable. Every day it seems as if it should break down due to the steepness of its advance. But, trying to short it would have looked sensible any day for the past 2 weeks. The funny thing is that the effect of doing so would be like trying to step in front of Amtrak's ACELA train and get it to stop.

Something is going on with this stock. I am not sure what. Accumulation by a mutual fund, hedge fund, etc. or possibly a quiet buyout by a private equity firm? Or just trader mania? No SEC filings to indicate someone has bought 10%. With only a 10 million float, that wouldn't be hard to do.

Regardless of the why's, the action seems to be to continue to enjoy the upwards rise, and modify stops on a daily basis.

A true technician would be concerned with the steepness of the advance, but simple charting is missing the key to this stock; the low float. Trend charts look different based on volume of shares traded. If someone bought 5% of Apple computer today, it would go up. That has been happening approximately 8 out of the past 10 days in IIIN.

RECAP

2006-03-08T16:20:00.000-05:00

How to begin? A meeting kept me away from the trading screen until 11:00. When I opened, I nearly hurled my breakfast (waffles - would have been pretty ugly) thanks to the red I was seeing everywhere.

The one bright spot which in my opinion turned the day around was the trade I turned in NYX today. The heavy public interest and sales restrictions on the float contributed to a big time up day for NYX. In terms of valuation, all kinds of pundits were going crazy. I can visualize several downgrades occurring tonight, and probably a negative piece on Mad Money as well. Maybe I'm wrong about that, but no sense taking a chance - it was money lying on the floor and I just went over and picked it up. My close was +7% from my entry midday, with various partial exits. NYX closed strong until the last 10 minutes of trading which is when I sold my last NYX share.

The markets managed a nice closing snap-back rally, so all that nausea was for nothing. Of course a bad number on Friday could bring back visions of those waffles again, but that's another story.

Panic or opportunity

2006-03-07T23:40:00.000-05:00

That's what makes investing difficult. I think I'm going to choose to sleep a little fitfully tonight. Maybe I'll spend the first few hours worrying that I'm too invested in this market (cash might be good... ). The next few hours I might spend wondering whether I should be 100% in to capitalize on yet another bear-provided opportunity. I hear people talking about bond yields, shakeups in equities and all kinds of generally fear producing things.

Listening to a bunch of traders talk about the upcoming doomsday thanks to the demise of the yen carry trade, non farms payrolls, or bond yields or some other indicator has got me nervous. But I could wake up to a fine open tomorrow and this little post will be long forgotten.

A Discovery Being Digested

2006-03-07T15:38:00.000-05:00

This stock caught my eye and I think I found a really interesting trading story. Whenever I look at a stock, I try to digest it from 3 angles: technical, fundamental, and what I call the trading situation.

At first glance, the technical analysis of this graph clearly identifies a stock in a huge uptrend, probably an unsustainable one at that. Today's trading it was down roughly 3%, which is either a nice entry point or prelude to disaster. I could lie to you and tell you that I knew which one, but I don't. The striking thing about it is how unnatural this rapid rise looks - normally stocks don't behave in this manner. On the volume side, we see a stock that had very, very little volume in the 4th quarter last year go to a stock that is trading almost 1/2 a million shares a day.

My earlier post about the fundamentals of this company seem to crystalize it, from a numbers standpont we have a small, well run company with earnings growth and little debt. This past quarter, they used the strong cash flow to pay down debt. This seems a little strange, since a small growing company would probably best be served investing cash flow into new plants, equipment, employees, etc. to grow future earnings.

The trading situation of this stock is a little more interesting. Fidelity is about a 10% owner of IIIN (or was as of 12/31). This stock was clearly off the trading radar until this past month. Even now little is known about it. It doesn't do press releases. If you look at the tight trading range each day and the steady daily increase in price, it looks as if someone (probably an institution) is quietly buying this stock up. More interesting is the extremely low float - 10M shares, which means for the last week or so, 3-5% of the float has been trading each day.

I could come up with a justification for shorting this on technical grounds. I also happen to think that this stock is still pretty cheap with a forward PE of 9. Another part of me thinks that a potential reason for the buy down of debt might have been to clean up the books as a prelude to marketing the company as a takeover target. Alternatively, our takeover could already be quietly in process right now from either a bigger player in the industry or a private equity firm.

I visited the dregs (translation: message boards) and heard an interesting rumor that brokers can't find IIIN shares to short. This would seem to gybe with a potential takeover since a private equity firm would probably not allow its shares to be sold short, but in reality I trust the people that dwell in those pits less than I would a trust a kleptomainiac in a room full of baubles.

No recommendations, other than to check this out for yourself. I welcome comments if anyone has them.

IIIN Insteel Products

2006-03-07T09:43:00.000-05:00

Insteel has been blasting off in the past 30 days. This is an intreesting stock - the fundamentals look very good - this appears to be a well run company, with good financials and nearly no debt. They make steel reinforced concrete products. They gapped up in early February and have moved up 20 points since that day.

With the steepness of the increase one could be concerned that this might collapse. On the other hand, it could also start to make its way into the mainstream a little more....

It's hard not to think about this as a momentum play right now.

An interesting day to open a new week

2006-03-06T23:52:00.000-05:00

What an interesting day to start out this week. Interesting as long as you weren't long US equities, that is. Pre open looked relatively positive, but things went down hill from there, prompting some nice waterfall action around 1:30 pm. This chart is the 5 minute bars in SPY - Notice the abrupt spike in volume as the market starts unloading everything in sight.

Just when you thought it was time to breathe and maybe buy, you would gotten skewered by the falling knife. Equities managed a somewhat steadier march to close from there, but this was pretty ugly action for the bulls. True to form, I tried to make the best of it and entered a long position near the close. If you've ever read here before, you know I consider -100 dow a big time signal to buy at the close, and we got pretty close to that for a while.

My convictions aren't strong about where this market is going next, but that is not my bag. I never know where the overall market is going next, and I would humbly submit that those who say they do are probably just fooling themselves. Regardless, I wouldn't be surprised to see some bounce back at the open tomorrow.

COGT

2006-03-02T10:49:00.000-05:00

Here comes the covering rally I expected in COGT. I've backed up my positions with stops and will wait to see how high it goes. It was a bit harrowing earlier in the day as it chose to drop first before rallying, but that isn't unusual.

The set up works like this - a stock gaps down on heavy volume. There is no retracement later in the day from its opening range bottom. Translation: the market makers were forced to buy stock yesterday in the face of the sell off. The price was flat yesterday, so the MM's couldn't thin out their inventory at a profit at all. Naturally they'll want to prop this up today so they can sell out of their temporarily heavy long position. On the flip side, the heavy short interest as of 2/15 in the stock turned out to be dead on right. It will be natural for them (them being hedge funds) to buy to cover today to lock in a portion of their profits before seeing where this goes next. There's a lot of mutual fund and institutional money in COGT , so there is the risk that an analyst at one of the big firms (who coincidentally runs a mutual fund that holds the stock or has the institution as a a client) issues an "upgrade" based on valuation, sending the stock higher.

To sum it up, in this not too unusual scenario, hedge funds make money, the market makers make money, savvy traders make money, and the poor buy and hold and mutual fund investors get screwed. Probably not fair, but everyone has a choice, and I choose to be on the side making money.

COGT

2006-03-01T23:10:00.000-05:00

Bought COGT at the close for an overnight swing trade. I hope to sell my shares tomorrow morning to a covering short for a little profit.

Trades this morning

2006-03-01T09:55:00.000-05:00

Yesterday during the regular trading session, I opened trades in DRIV, VPHM, and AFFX. This morning I closed AFFX for a break even waste. I closed DRIV for a small profit (roughly +.8%) - I may buy this one back later depending on the tape. VPHM - I closed half in the first few minutes of trading and have backed the rest up with a stop.

After hours yesterday, I bought ADSK. It seems the market is rewarding those companies who deliver good numbers and upbeat guidance; the psychology is that the market is pricing in dissapointment in tech earnings. So I felt it a relatively safe bet entering after hours at 38.40. I am still holding ADSK as it makes its run towards 41 this morning.

Digital River

2006-02-28T22:03:00.000-05:00

Used the weakness on the day today to make an entry to DRIV. We'll see how it works out in the next few days.

FLOW

2006-02-28T22:01:00.000-05:00

Action in FLOW continued to be strong today; I am very interested, but have not yet stepped in. Especially encouraging was the strength today in the face of the US equities sell-off.

Bellwether GOOGle

2006-02-28T13:39:00.000-05:00

Is GOOGle a bellwether for the market? In a sense, yes, since a relatively mild warning from the CFO on future growth (reminder: CFO's are sometimes cautious people don't like to over-promise - this is the type of CFO I'd want working for my company) has sent the market tumbling. It may not close this way but I saw a -100 Dow earlier. The other sense of a bellwether (the performance if this stock dictates future direction of US equities) I don't buy for GOOGle. I don't really feel the overall performance of GOOGle is any way tied to the overall strength of the US economy; GOOG makes money (and lots of it) in the shadowy world of internet advertising. I would venture to say that the average investor does not understand how they make their money, and how they will grow their business. I am not smart enough to, and that is why I don't own Google. There are plenty of sectors in the economy which are completely unaffected by how much advertising growth the execs at Google are willing to stick their necks out and say they foresee.

So as a trader with a very large cash position entering the day today, I've used this wonderful market-given opportunity (politically correct for panic) to go shopping. I'm now close to fully invested. I may cash out of some positions before the close, rotate into others, or leave some cash to sleep with tonight, but a -100 Dow in my book must be treated as an opportunity any day that I am lucky enough to have ready cash and see one on the ticker. Hope the day is treating everyone else as good as it is treating me today.

Developing watchlist for the week

2006-02-28T00:02:00.000-05:00

tonight. Ran through a few of my usual sources and came up with these stocks and 5 or 6 others to add to my watchlist for the week. I am liking the looks of these for one reason or another as noted in my posts. Don't own any of these yet, but I may buy one or more over the next few days.

FLOW

2006-02-28T00:00:00.000-05:00

Flag developing; volume trend over next few days will be key.

LLL - L-3

2006-02-27T23:56:00.000-05:00

Ascending triangle with breakout yesterday; also a breakout from 6 month peak.

Digitas DTAS

2006-02-27T23:54:00.000-05:00

Nice looking ascending triangle?

DRIV - Digital River

2006-02-27T23:52:00.000-05:00

A nice looking party to join?

BEAS

2006-02-27T23:49:00.000-05:00

A breakout to new highs - a stock brought down in mid February by the market's doldrums that could be ready to run?

Strong Open

2006-02-27T10:46:00.000-05:00

Equities posted a pretty strong open this morning. I am a little cautious about getting my feet wet first day back from vacation.

Here's a chart of a stock I was following before vacation

PEIX, which seems to be developing into a nice pattern. Of concern is the dropoff in volume, so it will be worth watching for that reason.

Back

2006-02-26T22:16:00.000-05:00

Returned from vacation yesterday and I'm looking forward to an exciting week in the market.

AAPL Max Pain

2006-02-16T13:31:00.000-05:00

Here is a link to the AAPL current max pain point. As I stated in my post last week, AAPL has moved to its Max Pain point. At the time I posted earlier, that was 72.50, since then max pain on the open options interest has changed to roughly $70. It often pays to align your trades with the market makers!

Ben Bernanke

2006-02-15T09:16:00.000-05:00

Took the day off yesterday (blogging, not trading). Today I am pretty much on the sidelines waiting for Ben Bernanke's comments at 2 pm. I won't be trading today until after 2 pm, and even then probably not. I do have some long positions in place that I will leave for now, but I am pretty much sitting tight until the smoke clears. And I am sure I won't be alone.

Is today the day?

2006-02-13T13:44:00.000-05:00

I think not. I have been watching AAPL like a hawk waiting for the day it makes its run out of the basement. After the strength near the close on Friday (I closed profitable momentum trade that afternoon) - I thought we might run up today.

But my caution appears to be the right move; it's rolled back down to the low 65's. Fading the open is a play that would have worked in AAPL 5 out of the past 6 days, which is food for thought for tomorrow.

But the gyrations are a little scary for me - the most likely outcome is just handing the market maker your predetermined stop loss (whether you are long or short) thanks to the severe intraday volatility. I like my money too much to hand it over like that, so I will only open trades in that stock under the best of circumstances (Friday was just too easy to resist).

Pacific Ethanol - PEIX Chart of interest

2006-02-13T13:33:00.000-05:00

This stock showed up on my review of Barrons two weeks ago; making a breakout today over a mention in CBSMarketwatch (I think). Now this is a highly speculative play; read here. The gist of this stock is the positive technical indicators and the possibility that ethanol continues to be a "story" that institutional money wants to give a chance. This stock won't be profitable for a long while, but you might see a number of funds wanting to buy a piece of it on speculation, and the price momentum increasing because of it. I got in with a small speculative piece in the high 16's. And I mean small, since I almost never buy stocks with no current earnings.

From a technical standpoint, I've been focusing lately on patterns like this that held their earnings pennant nicely through the recent ugliness in the markets. SBUX was another play like this for me; today it rolled down to support, but the earnings flag still seems to be intact. The key reaction will be tomorrow in that stock.

Closed 2 quick plays

2006-02-09T10:43:00.000-05:00

In VPHM and CRDN a few minutes ago. I think I'll ride in cash until lunchtime to see where this market goes...

Premarket

2006-02-09T09:18:00.000-05:00

I'm sorting through the rubble for some values this morning. I'm not feeling a ton of confidence yet that the market isn't going to whipsaw down again after the opening...

Day Trading

2006-02-08T13:54:00.000-05:00

in this market is difficult; sector selection from the available plays coming up on my screens seems to be key. Tech is one sector I am staying away from right now (apart from my interest in it). I am doing well with an intraday play in BOOM right now, and am just starting to work on researching some potential swing plays, possibly in the energy sector which got pounded lower between yesterday and today...

Starbucks Chart

2006-02-08T09:26:00.000-05:00

To contrast; here's another stock with a more healthy looking earnings flag, showing progressively higher lows in the midst of an ugly trading market the past few days.

PEIX Follow up

2006-02-08T09:13:00.000-05:00

Volume was way down yesterday, but the downside breakout from the triangle formation isn't positive from a technical standpoint. Wouldn't be surprised to see this one break lower today.

This will be on my watchlist today.

Knife Cathcher's Hell 2

2006-02-08T00:23:00.000-05:00

My post yesterday about AAPL generated some interest so I thought I'd post today's observations. AAPL did start out with a nice upwards move which abruptly reversed itself around 11 am. I was watching my screen and didn't see an up bar for over an hour.

The positive is that one could have made a few bucks today by fading the open and covering. But today's action was much more reassurring than yesterday's with some support seeming to take hold at 67. The action in the afternoon of today's session was miserable and it seems to be a positive to me that AAPL held in the black to the close.

I took some heat for my factual error in the last post; yes, options expiration is next Friday, not this Friday as I originally had stated (I've got a vacation coming up and as a result my sense of time is a little messed up this month - I'm not perfect). But to me the gist seems intact; max pain is still just above 72 and there are only 9 trading days left until then. The big volume was still in the Feb 06 70 calls (which traded down .25 today). I'm not saying we'll see 72 by next Friday, but in general, I like the idea of aligning my trades with the best interests of the market makers. That being said, gaming max pain doesn't always work, and I don't think the action in AAPL can be attributed to market maker manipulation, it's just one thing to think about. In reality, I think this and several other negative things hit at the same time. It seems clear that one or more funds is unraveling a very large position.

Regardless, I can say pretty confidently that AAPL is a dangerous place right now for shorts or longs until the tape shows a new trend developing...

AAPL Day 2

2006-02-07T10:16:00.000-05:00

AAPL makes a nice run up this am; the question is whether it is sustainable or not. Peak price was about 69.30; it's rolled back quite a bit on a steady downward track since then. I still think about the strong market motivation to move towards max pain, but traders are definitely panicking again.

Looking at the intraday chart, the market makers are angry in this stock, refusing to let the momentum players keep their stops in place.

Some support is showing now around the 68 level.

Knife Catcher's Hell

2006-02-06T21:35:00.000-05:00

The trading story of the day was clearly in AAPL today. Knife catching was a highly unprofitable business today in this stock. Shorting on the other hand, was quite nice. This is an ugly looking security right now. The uptick around 3:30 might be confused with support; in reality it is pretty much just the shorts covering prior to close so they can sleep easy.

This is the chart of a complete selling crescendo in a momo stock. Probably lots of sector rotation out to materials and energy going on right now. I am also sure, judging by the volume, that the algorithmic traders were running full tilt today, and there was a lot of money made there.

The individual buy the dippers contributed an awful lot of money as the market makers hunted down stops like crazy.

The biggest thing on my mind with AAPL is the fact that options max pain is in the low 70's. I wouldn't be surprised to see a big time bounce in this stock in time for Friday's session (options expiration). Here's why:

Now suppose I was a market maker with unlimited resources and a lot of put options in my pocket? What would I do a few days before opts ex? Take the stock down big time, sell my puts for a BIG BIG profit (for example the most heavily traded put in the Feb-06 chain was the 65 put, up 237% today). Then use profits to buy Feb-06 in the money calls at a deep discount (most heavily traded Feb-06 call was the 70 call which traded down 61%). Then let the market rise to the max pain price to limit options payouts. Now the holes in this discussion are NOBODY has the resources to do what happened today; the best you as a market maker can do is hope to trigger something. The other hole is that if I were the market maker in this scenario, I'd be buying the ITM calls such as the 62.50 and 65, not the 70 calls. But the surprising thing is that the 70 calls traded for a full $1.35, which seems to suggest the options market expects a jump in AAPL (67.30+1.35=68.65). One would expect these options to be virtually worthless with the stock nearly 3 points off the strike price 4 days prior to expiration.

Today it appears that AAPL was the battleground for players who trade on a whole different level than the average individual investor. But it is a good case study to think about the various things affecting stock trading in a security you might have bought and sold today.

Interesting article on Alogrithmic Trading

2006-02-06T11:44:00.000-05:00

here. In my opinion, the best traders understand algo trading and are able to exploit its strategies. Of course it is difficult to understand since there is little public information regarding so called "black boxes". The game changes every day...

I'm watching the order flow of AAPL today and those algos are running in overdrive today.

Pacific Ethanol

2006-02-05T22:44:00.000-05:00

A bull pennant forming in PEIX, a California based ethanol producer. The event driving the flag's development was Bush's comments in the State of the Union address seeking regarding ethanol fuels.

A review of SEC documents reveals what appears to be a highly speculative play; future growth of this company seems to rely on a complicated plan involving debt and equity capital to build ethanol plants. I generally don't trade in companies with no earnings (a hold back to my tech bubble crash experiences). But an interesting case of Technical Analysis, which signals a buy here, and Fundamental, which signals extreme caution. The one bright spot is the progressively higher lows seen despite a soft trading week.

Valero

2006-02-05T22:37:00.000-05:00

Added VLO to my portfolio near the close Friday.

Buying energy during pullbacks is a play that was profitable last spring/summer. Looking at the chart, buying during a big pullback has proved to be profitable and Friday's candlestick is a doji. I am not a big candlestick-er, but this type of energy swing play has worked well in the past. Energy and materials are in favor in the sector rotation right now, which generally helps.

Opening Bell

2006-02-03T09:37:00.000-05:00

looking ugly this morning thanks to Amazon's dissapointing Q4....

PWEI: Chart of interest

2006-02-03T00:16:00.000-05:00

Starbucks - SBUX closed out

2006-02-02T23:48:00.000-05:00

I find myself playing exits very defensively these days. I closed SBUX today. I entered the position on the -200 Dow day. On a swing play, I generally set a tight stop on a portion of a position and a looser stop on the remainder. This prevents me from being fully taken out of a position on a temporary downswing. Note of course, that generally this is a mental stop, since I prefer not to display this info to market makers. I typically only use stop orders in rapidly rising markets or if I need to be away from my trading terminal.

SBUX may have a continued bull run here, depending on how the earnings flag develops. But I really don't trust this market, so I'd rather leave a small gain on the table by selling. I can always re-buy later if need be, when the post earnings trend more clearly establishes itself. I would expect an inflow of money here since SBUX has been one of the bright spots in an otherwise dissapointing earnings season.

Netflix Chart

2006-02-02T14:03:00.000-05:00

I mentioned in an earlier post that I was contemplating going long NFLX again. It seems a bit too early, but I am interested again at these prices. Should the support level of 26 hold it might be a worthy trade. Unfortunately, the upside appears to be limited to 4 points with no foreseeable events or news to serve as a catalyst to spark any breakthrough above 30. Still, even 2 points for a swing trade on a purchase in the 26's is a nice return.

DRIV- Digital River

2006-02-02T10:14:00.000-05:00

Closed out my position in DRIV for a quick momentum trade. Nothing dramatic; roughly 1% return. I was an owner of DRIV for about 23 minutes today. The tape tells the tale; it looks as if the majority of shorts were able to trade out of the position prior to today. Those that were left either had covered this morning (accounting for the brief run-up) or are capitalized well enough that they can hold tight. As I mentioned in my prior post, shorting this one at the peak of the opening range would have been a nice play that could be covered sometime between now and lunchtime (to beat out the 1pm margin calls). I personally shy away from using leverage, so I left that idea on the table.

DRIV - Digital River

2006-02-01T23:37:00.000-05:00

My scan of blogs turned up this particular stock, which announced better than expected earnings and positive guidance. The Bull Trader was the one who clued me in; he was not the originator of this info either; track his site to the source.

I wouldn't ordinarily write about something covered elsewhere, but this is a pretty interesting story, mainly due to the low float and high short interest. Short interest data is reported mid month. Turns out as of 1/10 the short interest was 7+ million shares on a 34 million float.

Looking in depth at the chart, you see pretty low trading volume in the timeframe between 1/10 and today. There's no guarantee of a short squeeze here (very, very good traders could have gotten out from under that position by now). A few interesting items of note here: 1) Price declines from 1/19 to 1/24, which would be virtually impossible if someone was buying like mad to get out from under a large short position, so probably no covering occurred here 2) Big spike in volume today seems to indicate a rush to cover at least a portion of that 7 million. Most of that volume came after 1:30pm.

The big question is how much is still out there and who's holding it.

The time to short might be at the peak if and when a squeeze does occur tomorrow. But I'll be watching the pre-market volume on this one as well. I turned a few nice trades in NFLX on a short squeeze recently; it would be great to start February with another one.

Weekly Results

2006-01-28T23:25:00.000-05:00

Took Thursday and Friday off posting - was on a business trip. My portfolio results for the week were dissapointing - I earned +1.3% vs. the S&P's +1.8%. Next week I hope to again outperform.

NFLX Short Squeeze

2006-01-25T09:49:00.000-05:00

I am monitoring a short squeeze in process in NFLX this morning happily as I sell into it. NFLX is a security that is prone to short squeezes on good earnings news (check the history) thanks to the small float. I also think there are still many fund managers who are still bruised from its drop in '04 when many growth and hedge funds held this stock and were burned on it when it dropped precipitously from the 40's to 20. As a result, I think there are a lot more hedge funds shorting this stock prior to earnings than there should be. Today I set up a set of laddered stops to allow me to capture the highest possible return. Some have been taken out already and others are still in play. On the fundamental side, I am long NFLX and plan to buy it back when it inevitably settles down again, but for now I am happy counting my cash.

Looking at the chart, the volume appears to be petering out a bit now, so off I go to recheck my stops. Have a great trading day!

Patience, Patience

2006-01-24T19:46:00.000-05:00

The positions I opened during Friday's selloff really started to show green in my portfolio today. I sold some positions but had to restrain myself to continue to hold the remainder. A -200 Dow day can make your quarter if your buy timing is right. So I will continue to hold positions to allow them to do just that.

VCLK - Value Click

2006-01-23T17:16:00.000-05:00

A true technician might be concerned with the puncturing of the 50DMA on this chart. I still see an uptrend. I also see a stock that has a corrollary relationship with GOOG that didn't rally today. I bought at the close for a swing trade that I plan to close by Friday.

Technical action in the market

2006-01-22T22:56:00.000-05:00

Reading Cbsmarketwatch.com for Asia news and came across this article. Very interesting discussion of the technical situation of the market after Friday's close. Now I have to be honest, I really discount the DJ as an indicator, which is where most of the gloom and doom centers on. GM has really played havoc with that. I wish DJ would just drop them from the index; we'd all be a lot wealthier thanks to the better market perception had this change been made 6 months ago.

The S&P is my indicator of choice, and this is the portion of the article I focused on. I think we are in for another choppy week next week, but there may be some room to work with until the bell on Monday. As for my survival through that mini crash, I seemed to manuver surprisingly well; having gained 1.1% from 1/18 to 1/20 vs. the S&P's decline of 1.3%. Had I relied on emotions alone (rather than numbers) I'd be contemplating the cannon ball off the Tappan Zee Bridge rather than writing this post.

Shopping time

2006-01-20T15:50:00.000-05:00

Posting a lot today. The last 10 minutes of trading today will be kind of like those supermarket game shows where they load up their cart with anything they can. With things this cheap and this bad of a down day, I can't help but do a little bargain hunting. My daytrade today was stopped out for a nominal loss, but oh boy things are looking sweet out there.

Looking cheap

2006-01-20T14:07:00.000-05:00

There are a lot of stocks looking cheap in this afternoons sell-off. The high volatility we've seen is a concern; it seems to signal some indecisiveness in the market. I wouldn't be suprised to see the market make a big move soon (either way). The coast looks relatively clear with a lean earnings slate for Monday, so I make take some stocks home with me for the weekend.

By the way

2006-01-20T13:41:00.000-05:00

I just put on a couple of intraday positions about a half hour before writing this last post and my last two TICKs have been in the mid 400's up. Hopefully this momentum will continue into the afternoon...