Monday, March 27, 2006

*****ALERT*****


unfortunately I am currently busy coaching my children during the tournament season and blogging has to be put on the back burner for the time being.

Thursday, March 16, 2006

QQQQ - update


covered short position @ 41.40 for 0.50 point profit /// position flat.

$/Euro


initiated a short @ 1.2180 /// will add above 1.2240 --- 1st. target 1.2040 and if correct next level @ 1.1980.

QQQQ - update


sold short @ 41.90 /// technical set-up.

Dow Futures /YMM06

added to short position @ 11,330 and 11,351 /// average short @ 11,330.

sentiment

The release of the Beige Book sent Wall Street programs on buy mode lifting the S&P 500 to new highs. As I wrote last week that 1294 would mean a new breakout -
the lower end of my target was reached yesterday around 1315 for the S&P -- I did buy some portfolio insurance in the form of short Dow futures and I sold april A-T-M calls in some stocks that had a nice 3 day rally like IBM,AAPL. Due to option exercises etc... I expect that my market exposure will drop to around 60/65% net long by monday. As I have explained numerous times here before how to look at trading during option expiration week I will just say this that a correction towards 1300/1303 would be considered normal and quite constructive BUT I would be very careful in establishing new longs beyond 1320 which is my target/ starting point for reducing my equity exposure to below 30%. Again I have to empahasize that I do not see higher prices beyond April and therefore hope that up to this date my performance numbers are beyond +12% which is my min. annual target.

Wednesday, March 15, 2006

Dow Futures /YMM06


initiated a short position @ 11,290 /// will add every 20/30 points above.

Tuesday, March 14, 2006

Analyst expectations for GOOG

In recent months as shares of Google have declined to $340 from a high of $475 on January 11th, analysts covering the stock have held tight with their price targets. Currently, the average GOOG price target of the 25 analysts that issue them is $489 per share (this does not include the $2000/share recommendation from Caris & Co. on January 6th). If the stock continues to slide or remain in its current trading range of $335 -385 , it seems that these price targets will begin to fall, most likely causing more short-term declines in the stock. While readers already know that I am not a big promoter of analyst recommendations, investors should realize that stocks do move on the news, so they should be aware of the current divergence in GOOG.

sentiment


looking at todays performance tells me that we are in for a minor pull-back over the next couple of days until XXX - option expiration is behind us. If we continue to rally tomorrow morning I will establish some shorts with Dow Futures (YMM06) Look at the VIX chart (Volatility) - I guess I need not say a whole lot as the VIX has crashed and the SPY has soared. A picture is worth one thousand words in this case. Buyer beware as most of the time when the VIX gets to these levels, the SPY goes back down. In addition looking at the option strikes there is a lot of overhead resistance which I think we can leave behind us next week. For now I took profits on the long QQQQ position and not looking at the market the whole day actually helped me not to sell too soon this time.This adjustment reduces my equity exposure from 90% to 80%net long. For GOOG my strategy is to sell 1/2 of the position around 355.00 (for a 10.00 point profit) and let the other 1/2 run to maybe 375.00 but remember this is a volatile stock and my long position took first a 10.00 point hit before we seem to have turned around. GOOG is one of the few stocks next to AAPL where I do not use stops.

QQQQ - update

sold ETF @ 41.40 for 1.00 point profit /// position flat.

Monday, March 13, 2006

*****ALERT*****


unfortunately I will not be able to post very much this week since I am busy again coaching at a tournament.

Friday, March 10, 2006

sentiment



Bascically the market was not buying the bear story anymore today and I increased my equity exposure this morning to 90% net long. The data from Money Flow statistics shows that it is flowing into stocks and has been the result of a shift out of money markets, indicating that fund managers are reducing their cash percentages and getting long stocks, most likely rightly or wrongly in anticipation of the Fed being done. The weakness over the past week, then is likely the result of rethinking on when the Fed will be done.I remind that there's not been any new economic data in recent weeks that's indicated we're any more exposed to inflation risk than we have been for the past say six months. So the sudden shift toward a more negative sentiment seems to me to be off base and unwarranted, nothing more than the usual gyration from one irrationality to the next.The number of bearish comments from blog readers has increased recently paralleling the overreactive media's lack of independent thinking. As much as I always look on both sides of the argument and always find reasons to be bearish I have to conclude after todays action that everything is in place for another 200 point rally or squeeze or short covering or whatever you label it but this market had every reason and chance to sell-off in the last 4 weeks and we are still only a couple percentage points away from all-time highs . Again 1315/20 was my target last week and nothing has changed for nex tweek -- 1294.00 and above means another breakout for the S&P's (june). Reading some other good "contrary indicators" like" BillCara" and "The Kirk Report" again it shows how many "investors" are sitting on the sideline or keep drumming the bearish argument - without being short I might add !

QQQQ - update

initiated a buy @ 40.40 /// obvious chart support -- will keep position over the weekend.

S&P 500

Dow Futures / YMM06

covered short position @ 11,120 for 39 points profit /// position flat.

Economy


There has been a lot of talk in the last few days that the unexpected strength in the economy will prompt the need for additional interest rate hikes by the FRB. Hearing comments like these cause us to wonder what information some people are looking at.
The accompanying chart is what I term an economic indicator A/D line, where I tally up all the reports that are stronger than expected and subtract the weaker than expected reports. For example, if on a given day two reports come out stronger than expected and one comes out weaker than expected, the net for the day is "+1".
Since the start of the year, this indicator has been rolling over to the downside causing me to wonder how one can conclude that the economy is surprising to the upside.

Money Flows

always good to know where the money goes to...............

Dow Futures / YMM06

added to shorts @ 11,170 /// average short @ 11,159 .

QQQQ - update

sold position @ 40.74 for 0.35 point profit /// position flat.

Dow Futures /YMM06


sold short @ 11,140 /// will add above 11,160 --- technical set-up. (June contract now)

AAPL update

initiated a buy @ 62.75 /// plus short some 70P 3/06

NEM update

added to long position @ 46.75 /// average long @ 49.00.

YHOO

added to long position @ 29.80 /// average long position @ 32.20.

BIDU

added to long position @ 46.10 /// average long @ 49.65.

GOOG update

added to long position @ 336.00 /// average long @ 345.00.

QQQQ - update

added to long position @ 40.22 /// average long @ 40.39.

No surprises

The February employment data brought few surprises, and S&P futures suggest a near flat to higher open.
Payrolls were up a strong 243,000 in February. January was revised to a 170,000 gain from an originally reported 193,000 increase. The net change overall is slightly ahead of expectations of a 200,000 to 210,000 increase in payrolls. Hourly earnings were up 0.3%. This was as expected. It follows two 0.4% increases that had raised some inflation concerns and another 0.4% increase might have hit bonds and stocks. Higher wages create some cost-push inflationary pressures, but unit labor costs are fairly well contained due to underlying productivity growth. The 10-year note yield is steady this morning at 4.72%. The market may soon start to focus on the March 28 Fed meeting. Earnings warnings season is also approaching. I would expect the market to rally this morning and squeeze some weak shorts out but I am not so sure if we can sustain this early rally into the close --- still too much uncertainty out there to get this market out of the recent trading range but nothing has changed from my outlook outlined here earlier.

Patiently...............


Markets were waiting for nonfarm payrolls data to shape direction, with a strong figure likely to spark worries over how high U.S. interest rates will climb.Economists surveyed by MarketWatch are forecasting an average gain of 206,000 in payrolls and expect the unemployment rate to remain at 4.7%. Aside from the now typical range-bound chop the battle over the 50-day moving averages continued in the S&P and Nasdaq. Both crossed and closed below that important line. Still, they're both within their long-established trading ranges. What's more interesting to me is the continuing deterioration of former leading stocks (AAPL and GOOG, which closed under its 200 DMA for the first time) and new breakdowns of current leaders (OXPS, AMD). It almost like a slow motion, rotation crash taking place.

Thursday, March 09, 2006

QQQQ - update

initiated a long position @ 40.60 /// will add below 40.40.

Trading & Gambling


Often times when I tell people that I am a trader, they will say something like "Oh, that's gambling" implying that all gamblers ultimately lose money. So is trading gambling? The answer is an unequivocal Yes. But a more probing question should then be - " Who are the consistent winners in gambling?"
In gambling the consistent winners over the long term are the casinos. So is it possible in trading to operate like a casino and be a consistent winner? To understand how casinos win consistently, you first have to understand the concept of Expectancy which is defined as follows:
Expectancy = (Probability of a win X Actual Gain) minus (Probability of a loss X Actual Loss).
Let's take the game of Roulette where there are 36 numbers for you to bet on. If you bet $1 on any particular number and win, the casino will pay you $2. If you lose, you lose your $1. The variables are as follows:
Probability of a win = 1/36, Actual Gain = $2 (the casino pays you $2 if you win)Probability of a loss = 35/36 Actual Loss = $1 (you lose your $1 if you bet the wrong number)
Plug the numbers into the above formula for Expectancy and you get minus 0.92. This means in the game of roulette, the expectancy is "negative" to the gambler. If you play a game with negative expectancy you will eventually lose all your money. Another way to think of expectancy is whoever has positive expectancy in a game has the "edge". In the case of roulette, the casino has positive expectancy and has the "edge" over the gamblers. Ever wonder why casinos give gamblers free meals, free hotel rooms, and airtickets? Apart from attracting gamblers, they want gamblers to stay as long as possible because when gamblers play a game with negative expectancy, it's a mathematical certainty that they will "eventually" lose all their money if they play long enough. How else do you think Stanley Ho and Steve Wynn made their billions? So in trading, how do you structure yourself to think and act like a casino? The following are suggestions based on my own experience:
1. Every game in the casino has clearly defined rules on how it is played. So in trading, you must have clearly defined rules governing entry, stop loss, exit, and position sizing - a trading methodology. You simply do not make bets in trading based on your whims. And over many trades your trading methodology must have "positive" expectancy (there is a way to measure this).
2. You have to size your bets appropriately so that no series of losing trades will take you out of the game. The casino doesn't bet the house on a single bet. Rather it has enough working capital to weather the "inevitable" losing streak. The same in trading.
3. The casino take every single bet from gamblers and doesn't try to choose and pick its bets. While the casino may lose on individual bets but over many bets, the odds of positive expectancy plays out to the casino favor, i.e. they make a net overall profit. Likewise, in trading you have got to take every single trade signal of your trading methodology and not attempt to pick your trades (it simply cannot be done). Most losing traders spend their entire life trying to predict markets and avoid losses. I can tell you this simply cannot be done.
4. Be totally disciplined and consistent. The casino stick to the rules and doesn't change the way it plays the game irrespective of whether they just just have 10 winning bets in a row. In contrast, most traders start to get carried away when they have a series of winning trades. They start to bet bigger and deviate from their rules and they eventually blowout (think Long Term Capital Management). There are old traders and there are bold traders but there are very few old and bold traders.It takes 3-5 years (and sometimes longer) to acquire the above "basic" trading skills. During this period you make no money and frequently lose money. That's why 95% of people who attempt trading don't make it. But the payoff is well worth it for those with the determination to go through it.
So to sum it up, trading is gambling. But in trading, just like in gambling, you can be a consistent winner by being the house.

IBM

GOOG update


added to long position @ 347.00 ///

Three Bulls..................

sentiment

Gains in foreign markets are contributing positive bias as investors mull the trade gap, jobless claims, and the monster employment index. Notable premarket movers include CWTR, HANS, NHWK, SUNW, JNJ, CTIC, IMAX, JDSU, SFCC, MRVC, AVNX, INTX, SHRP, VSGN, BGO, HEB, NYX, & RAD. In preparation for tomorrow's jobs report, I suspect that the buy-the-dippers will set their stops at yesterday's lows and see how far they can push their luck. I plan to join them depending on what I see at the opening hour, although as usual, I'm planning to tip-toe carefully. My current equity exposure is net 60% long.