I took a hit on SPX longs today...

Title of post says it all. I went short puts yesterday and closed out the trade today for a loss of around -$700. I had the put spread at 1025/1075 but market sank is continues to do so today. Out of emotions for wanting revenge on the market I immediately flip sides and went long NDX September puts. As of now I am at a lost on the NDX position due to my aggressive purchase price, but will be happy to hold through it in the next few sessions.

Reasons for shorting:

1) the $NAMO index is not yet bottomed to previous lows. -60 is what I am looking for, until oversold condition reemerges, and probably within the next two/three trading sessions.

2) Sentiment is negative, and with good data out today and stocks still did not rally leads one to think market is headed lower.

3) The ADP employment data will come out tomorrow. Everyone expects a terrible number, and Friday is big job's number.

I anticipate a fight around SPX between 1040 and 1060 but soon 1040 will fail. I give it a week, therefore I am long NDX September puts.

Market bottom maybe in for now...

Market fluctuated in first 30 minutes of trading. INTC lower 3rd Quarter expectations and Ben Bernanke spoke at 10am. All the pessimism seems to be priced in for the day. The market is up presently but not by much, SPX about +4 and Nasdaq about +5. There is something to take a note upon with respect to TLT.It looks that TLT is fighting a support that held two days ago. Yet it has not made a higher high in the previous two sessions while the market has been very much stuck in a range. A crack in TLT around 106.75 support will be a indication for markets to go higher.

Also to note the 1040 on the SPX was defended today and therefore a bottom may have been in place for intraday. With all the negative news out and the market is still up, it gives me the support to go long the market today.

Disclosure: Short a couple of 105 SPY weekly puts.

No supports?

The 1050 on the SPX was breached this morning after the horrible housing data, but came off the lows. No real reason to buy though do to no real good news. There is a saying that when people are fearful, I should be very greedy and buy and when people are greedy, I should sell. The bond market is soaring with 2 and 10 year yields continue to fall. Marco economic data are horrible.
As for predicting the market. We are in a downtrend and will continue until the MACD and RSI downward slope is subdued. This will probably not happen due to poor outlook with GDP and unemployment data. I look forward to making money on the down side with expectation of the SPX to reach 1020 and NDX to 1750.

SPX levels

So market opened down and for the entire day the market stayed in the red except the Nasdaq got barely in the green. Interesting the low for the SPX today came in at 1063. It clearly is not a solid support so I am positioning to short the index. The SPX ended at slightly above 1071, and I hope Monday will go up.
As always looking at at a fix range for the SPX between 1060 and 1100. Presently it is at the lower range so a bounce maybe imminent. If 1089 can not be breach, where the 50ma is, then a short is in order. Both the 50ma and the 200ma is flatting, and have become resistance.

I want to add a twist onto my analysis with past prices as some traders say there is history with prices. I wanted to note that the first day of trading in August the market was up pretty significantly. From the great folks at Bespoke Investments a chart record of performance in the SPX after a rally on the first day of August trading and for the rest of the month of August is shown below.

http://www.bespokeinvest.com/thinkbig/2010/8/2/best-starts-to-august.html


Only in 67 and 85 did the SPX end the month in the red. Presently the SPX is around -2.7% from its high of August 2. We have 7 trade sessions left in the month. Recent marco economic data has been mostly negative, however technical data is on the sides of the bulls. I will wait until Monday to see how the market plays out.

Day Trading

Timing a day trade is very crucial. For the past two weeks I have missed to big drops in the indices and I just cannot get over it. Knowing how fragile the market is right now I came really close to scoring big but due to bad timing in trades I missed out on most of the downward drops. On August 10 I was unable to participate on the short side of the SPX due to going all in on a PCLN short. I made a decent profit and will leave it at that. Just two days ago I went short the NDX via purchase of put spreads but sold them on the same day of purchase because I did not want to lose a four figure profit. Of course if I had held them all to the end of today I would have raked in 7 times the four figure profit I took. Man it almost hurts as much as losing money in a trade.

My touch on the markets' moves are getting better. However I should be very cautious now considering I have been unscaved the past two weeks. I guess preseving capital is much better than winning big in the market. Although if the market is ready for a third drop in the next week I hope I will be in it shorting.

From stocktwits commentors and my own technical analysis the market seems to be ready to fall again. The sentiment on Wall Street seems to be very pessemistic which is why I do not want to just go short the market. Yet if I have to put a number in I would expect the SPX to drop to 1060 before a bounce. I hope tomorrow we have an up day so I can plan on shorting it but if we hit 1060 first I have missed the next big drop. 1050 and 1020 are other support lines but I need to do a little more research before diving in with shorts. Pun intended.

To help myself become a better day trader I have linked a stocktwitter by the name of blackmart. I have been reading through blackmarkt's blog and found his entries on day trading very insightful. He lists all his trades at the end of the day and shows his gains and losses. Furthermore he talks about the periods of trading during the day that I think every type of trader should read. It talks about the 9:30 to 4:00 period of day trading.

http://blackmarkt.blogspot.com/2010/03/daytrading-time-zones.html

Short PCLN...

After reading my last Friday's post I realize how far off I was in predicting the market. The SPX is at 1096 as I write this. Yet I am betting the index will not hit 1100 by the end of tomorrow. Crossing my fingers.

Also today I took on an early short vertical spread of PCLN. I sold a Aug 310/320 spread around the open and that was when PCLN went up, way up! It reached over $309 around noon. Yet as time progressed the stock begins dropping and is now below $298. I should be more patient with the price movement but I am comfortable for the option to expire at the end of Friday.

My reasons for believing that the stock would have trouble hitting through $310 are as follows:

1) Sentiment for the day seemed more neutral than directional. Since yesterday's big rally the market I assume would more likely consolidate then to move up again. This would be a bullish sign for the market overall. Hence I assume PCLN would not go up by much for then next 2 trading sessions.


2) The PCLN 50MA crossed over the 200MA. Being contrarian I saw it as bearish and expected more likely that PCLN will stall out.

3) The MACD has been neutral to slightly lower after 2 weeks but prices has moved up at least 20 points since. A sign of over priced in stock value.

Today I feel I got lucky with PCLN's outcome but wished I held my cash a little longer before go short. If I had held from short for about 3hours I would have doubled my unrealized profit today. Then again at noon time the market did not seem to be a good time to go short.

Almost time to go all in...

This past week I missed on a great opportunity to buy puts in SPX weekly. Yet I still manage a profit for the overall week with a short on PCLN. From all the frustration I have been through with the market I am happy with any type of profit. Now to my anticipation of what to look ahead in the markets.

The "flight to safety" has intensify the past week and the first chart shows how bullish the dollar is. As of Friday the sentiment in Europe's ability to pay its debts is again in doubt the dollar is strengthening against the Euro. It is interesting to note that since early July the dollar index UUP has been declining until last week while the SPX 500 index has been stuck in a range since the UUP decline. I would have though with a weaker dollar the equity market would increase, but that is not the case here. I sign that there is weakest in the SPX.


Next chart is the volatility index. There are many very good blogs out there that can go further into the good and bad of volatility indices, but the reason I wanted to post the VIX is because it is becoming very bullish. As shown in chart below the VIX was able to use the 200MA as support at around 23 and it just made contact with the 50MA resistance around 26.7 last Thursday. The sentiment from traders have been more pessimistic than previous weeks. Rightful so to be pessimistic at this point due to the fundametals both on a mirco and marco stand point being negative relative to investors' expectations. For instance Cisco profit estimates for future quarters were lower than expected. First time unemployment claims are going up again and ISM data has been dropping in recent months. The mood on wall street is more uncertain, which can very well lead to VIX spikes. With greater volatility there is better chance for market to move in significant direction, and presently after this week it seems the market wants to move down.


The bond market is just amazing! Yields are at there lowest since pre-Lehman collapse. The yields seem to only want to go down even more and the bond market illustrates that. For instance TLT is rising and it just broke the 102 resistance today. With a flight to safety mentality around the market TLT if can hold above 102 it can go up further. With money going into bonds it would mean then that equity market will have a void. That is another reason to consider why I think the overall equity market will go down further very soon.

The final chart of this post shows how SPX for the week fail to break through 1130 and fail to hold support at 1100. 1100 was just cut through like butter even though there were over 100,000+ calls/puts at that level. I would have assumed that buyers would have at least try to defend the 1100 instead of letting it fail so quickly. This goes to show that SPX is weak at the moment.

I have read through a lot of blogs past few hours and many are anticipating of a quick bounce before further drop in the overall markets. Any bounce here could be significant so rather than playing the short side I will wait for confirmation. My confirmation will come by the end of Monday where if the market stays flat or positive I will sit out, while if it ends in negative territory I would sell vertical OTM calls of the SPX. My values would probably be at 1100. I think there will be a bounce to 1100 but fail to get above it.

Betting the odds...

I went through a SPX daily scan and anticipated today to be a favorable day for SPX to go down. Why? Take note of the 12 orange circles I marked. Since mid February of '10 where there was a red candle with a very small red bar, the following day was a down day 7 out of 12 occurances. What is interesting is that within the 12 occurances all except two the following day had a significant move either upward or downward. More often than not since May it has been a downward move. Of course the day is not over yet, but with Beige book out and no other major news I would consider today the 12 occurance. Odds favor a big red candle finish for the day. However MACD is trending up, and therefore I think the market overall is still on an upward trend. Not sure if I would bet tomorrow being another down day.

Market Indices Overview

Today at 2pm the market indices are slightly in the red except for the Dow which is hovering with about +20. I put in the three major indices: SPX, NDX, DJX as shown above to illustrate what I think is manipulation in the markets.

At 10am the Consumer Confidence Report came out at 50.4 which was below consensus. However with in a minute of the report the market jump on all three indices by more than 0.5%. Although I will add that also at 10am the State Street Investor Confidence Report (SSIC) came out, and that came in at 96. So maybe investors were buying because of the SSIC number. I do not buy that story though. As the day is progressing the market is slowly lower since the 10am sharp price jump.

Why I am such a horrible trader...

I am writing this entry to remind myself why the market has again got the best of me. Clearly after three years of trading I have yet to learn the most fundamental rules I have bestowed upon myself.

Rules:

1) Always set a stop. If I am profiting in a trade I must set a trailing stop. Whether it be a mindset stop or an actual price stop set in my brokerage account I must fully obey by it once I enter a trade. A mindset stop must be executed when price hits level. In short I must know when to get out of a trade before I get in.

2) Do not fight the tape. I can not go against the market if there is a trend. The trend is my friend only if I follow it. Repeat, the trend is your friend only if you follow it period.

3) Never use margins. Any leverage will only amplify my risk of losses. I will only lose the amount that I can afford to lose. (Probably every penny I have, but nothing beyond that.) Any further losses would entitle me to a death sentence. Why a death sentence? Without any capital I can not trade in the market, if I lose beyond the amount that I started with, then I can not make back any of the money I borrow and lost. What else can I do? Do not even set myself in that predicament period.

So the following graph and story is my lesson to myself. (Note I have repeated this to many times to count.)

Two Mondays ago I opened a short on 1100/1105 Calls spreads on the SPX that was set to expire in February '10. At that time the trend was sloping down, however I jumped into the trade too soon. Too soon because the SPX was able to go beyond the 1100 only one day after I made my trade. Hence I was losing in my trade significantly with the SPX peaking around 1105.

My first mistake was not stopping out of the trade when it was going against me. When I first entered the trade the SPX was around 1085, but I did not set a stop. The index shot all the way to 1105 on the following Tuesday with me having an unrealized lose somewhere around $3000.

My main reason for entering the trade was because I saw the 50 MA line trending down and the index broke the upward trend that began in March '09. With the trend turning in my favor by February 8 I was up over $4000. In a matter of four trading days the trade I made fluctuated over a $7000 span.

I should have exited the trade the following week as the trend began to turn upward. Unforgiving the market was I still stubbornly held my position. As the market turned upward gradually I was up about $2500 before entering the third week of February. My final exit point to still make a profit in the trade came around morning of Monday, February 15. My stubbornness and greed got the best of me and I stood with my trade. By the end of Thursday I concede with the largest lost I have this year to date. There is no reason I should have held the trade for this long.

I simply just could not get myself to admit to my mistakes. I wanted to win so badly and had the chance to exit with a profit. Clearly my greed and unwillingness to admit defeat were the cause of my demise. Is there nothing I can do to stop this from happening again? Yes there is, put in a g*d d*mn stop on my trades.

Why can't I get myself to do so is for one reason. I feel option spread prices are always fluctuating and usually it is never in a daily trader's favor. Market makers have the final say and can manipulate the prices to their favor. That type of manipulation does exist but I can not let that blind me from taking such a significant lost. It is my fault for holding out to the bitter end. I can not blame anyone but myself on that trade period. Yet somehow I had the decency to get out of the trade? But why so late?

My greed in trying to retain the unrealized profit was what set me back from exiting the trade. My complacency blinded me from thinking logically. The trend in the market was clearly up and I could have exited the trade Tuesday or Wednesday before the expiration day without significant loses, but I did not. I only conceded when I was totally demoralized.

My losing trade pales in comparison to what happened today in Austin, TX. Joseph Stack's actions today were totally inappropriate but if the suicide note is for real, I have total sympathy toward Jack. I to am unemployed and struggling to scrape by. Life is not as straight forward as I had hoped, but I live another day to do my best. Hurting others because I am going through a struggle is not right nor is it ethically moral.

Update: Talk about being very unlucky. The SPX Feb contracts do not expire until Friday Morning. They stop trading after Thursday, the day I exited my trade. At the end of the trade session the Treasury increases the interest rates and the market starts tanking. The SPX is below the 1100 point again. Just my luck, I lost any profit from the trade and on top of it lost $8600 in capital. Can it get any worse?

Weekly Review of the SPX

I just played around with moving averages today and spotted some interesting concerning support and resistance levels of the SPX. From the graph above I simple set the chart to weekly prices with a 20 and 50 SMA. While I used a 200 EMA for the longer trend in order to have recent closing prices effect the 200 MA value. It is clear the 20 MA line was broken in January '10 where the index was unable to hold above 1140. As half of February has passed the 50 DMA line has also been broken. As of last Friday the SPX closed below the 50 DMA, which has now become a resistance level, around 1078. The next MA support would be around 990 which is the 200 MA line. That is a way for the index to go and anything is possible. Furthermore the MACD has begun a very noticeable decline relative to the start of this rally since March of '09.

With the 20 DMA still in slight decline and the 50 DMA flatting it seems the index is in neutral territory. In April of '09 a similar declining 20 DMA and flatting 50 DMA also occurred as shown in the graph above. On the sides of the bulls it seems the market is posed to replicate the April '09 movement just by comparing the 20 and 50 MAs. Can the bulls continue this rally that began in March of '09?

Feb 05 Intraday SPX

After reading from a variety of stock traders' blogs and stocktwitters I decided to record today's $TICK symbol data. A value that many traders discussed about the tick, so called extreme levels on the $TICK were at +/-1000. At +1000 institutions with large quantities of cash would be purchasing equities, and vise verse -1000 institutions are heavy salers of equities. Below is the SPX 1min chart and $TICK 1min chart.
Throughout the day from initial open up until about 11:30am the market was fairly neutral. However around that time the $TICK was substantially in the negative. Between that time interval the $TICK had hit -1000 three times as marked as gray circles. As the day progressed there were more -1000 hits. Of course the overall market caved in on itself. Yet if I had identified that the $TICK was so ominously negative, before 11:30am I could have had a huge advantage in a risk/reward short index position. Note the $TICK never even hit 1000 as the day progressed, and with a negative trending day it is hard to believe that there will be any hits above 1000 for the rest of today's session.

As I write this post, just around 2:46pm there is another hit at -1000 but the SPX has gain about 5+ points from its days low. Seeing how negative the $TICK is today, I am predicting the SPX will have to test today's low, 1044, again.

Update: Novice trader I still am. Boy am I glad I did not short anything today, yikes. Market actually ended up today.

How Might Friday's Employment #'s Affect the Market?

With nothing better to do I decided to collect some data on www.BLS.gov on every January employment number for the past nine years. I compared the data with the three major indexes intraday closings and how they fared after the job numbers were announced in each year respectively. The chart is below.


To me the data seems pointless in predicting what will happen tomorrow in the overall markets. I only consider jobs #s affecting the market but there had to be other news factored in as to why the markets responded the way they did. For instance in '09 the job numbers looked awful but the indexes gains in the day session was by far the biggest in any day after the January employment #s came in. In the other direction '01 and '03 had terrific numbers but market got hammered. Maybe future expectations or market sentiments or technicals in the market had to do with gains and losses. So in conclusion I do not know if tomorrow's numbers will effect the markets or if it does effect, how much. Maybe you do?

Update: I took indexes numbers from Google Finance and think they maybe off. (For instance I just noticed in the chart for 2001 the Nasdaq dropped over 122? Maybe its the real deal but again I only took data from what was available to me.)

Trend Failure....

First off my apologies for the poor picture. I think it has something to do with my computer's screen resolution, which I will try to resolve before future posts.

What a devastating week for me. It can not get worst. The chart above illustrates that even if a trend is identified the market can still go the other way. Case in point. On Monday July 13, 09 I sold iron condors at 915/920calls & 825/830puts for about $0.60 excluding commissions. (I have been selling calls since march and been profiting from 10% to 35% weekly, however I was putting in 90% to 100% of my capital to achieve such profits. I consider this trading style being very aggressive and just down right crazy. Yet I give it my all to reading charts daily in knowing fully what odds I have of failing.) Anticipating on a bigger fall and wanting out of the money options expire worthless I went with the lower puts. Boy was that a huge mistake. The end result today is that the SPX ended above 915 therefore I lose all my capital in the trade. I did not do the exact calculation, but from the amount of options I traded the total loss comes close to $-34,120 not my biggest one sum lost experienced but largest of this year. I am worst of than I started at the beginning of the year. I will log in my mistakes in hopes others and myself can learn from them.

What happened?

Over the previous weekend I had the SPX chart reviewed upon the monthly, weekly, and daily trends. All trends expected a downward for the coming week. There was a head and shoulder pattern as shown on the chart below:

Not anticipating a significant up movement for the week I had the Fibonacci retracement line around $878.91 to $927.28. Anticipating the head and shoulder pattern would result in a right shoulder I went and shorted $915 calls. The 23.6% retracement was right around that value and not think the start of 2nd quarter earning season could be this optimistic the SPX shot upward for the next four days. The market as of 3:45pm EST of 07-16-09 has the SPX stand at 943.08! In less than four sessions the SPX index moved up 64+ points or +7.2%. (Note to self earning season is dangerous for indexes to swing up or down. Very dangerous.)

Mistakes:

1) The risk I put myself to gain 10% was not worth it. Understand if I had the patience and waited out this week I may have executed a lot better trades. I need to build patience, because sometimes the best trades are the ones I never make. This one should have been one.

2) I never done an iron condor trade until now, so this is my first trading the option spread and not knowing full well of its power I got slaughtered. Hey at least I am still breathing and alive. Yet barely. In any case I should have practice the spread before I went in it for real. Now that I have played it I will always remember this trade.

3) Following trends is good when it comes to trading but never put all your eggs in one basket. Again the risk to reward ratio was horrible in the method I choose to trade. Yet I should have know it wasn't a good week to sell calls. Earning season can be so unpredictable. Then again the market is always unpredictable.

4) I could not cope with this lose and stayed home isolating myself. If I had known how much I really could lose in this trade I would not have made the trade. Odds were in my favor at the beginning of the week, but it wasn't when it counted the most. I should not let this get to me, but learn from it. Yet a lot of money just gone out of my account again. I simply can not win. This type of mentality has destroyed my mind & body, and has created so many distractions. I clearly need to get my mind straight before I play again. Its just too much.

Really Not Organized...

After reading my old posts I realize how disoriented I am. The stock market sucks. Makes life difficult and confusing. I wish I did not lose so much in '08. Now I have to make significant ground. Anyways what I mean to write is to hopefully, before the end of the month post an excel spreadsheet of my progress. I clearly have failed to do that, and there is no excuse.

Now to get myself even more confused I want to document an interesting discovery for the SPX weekly options. (Take note that there options that expire on a weekly bases. CBOE- Chicago Board Options Exchange had provided certain options to expire either at the end of a Thursday or Friday of a trading week.) I love these options because I am winning. I feel I am better when I make a weekly trade then a monthly or daily. Its not to say I would not lose more or win more. It is just my preference. In any case if your curious CBOE's link about weekly options:
http://www.cboe.com/micro/weeklys/introduction.aspx

1. SPX (Settlement on a Friday Morning.)
2. XSP (Mini-SPX, Settlement on a Friday Morning.)
3. OEX (100 of SPX Components on a 1/10th size, Settlement on the end of a Friday trading day.)
4. XEO ((European 100 of SPX Components on a 1/10th size, Settlement on the end of a Friday trading day.)

A word of caution these options except for XEO, are cash settlements. That means on settlement day there is no ownership in the stock when you hold one of these expired options. Instead you either pay the difference or recieve the difference in price between your option and the strike price. For instance if you purchased an OEX call option at 400 and at Firday's settlement the strike price of OEX was 440, you actually get $40*100 minus the premium for purchasing the option. There is no stock purchase and vise-versa if you sold a call, or also known as naked short a call or covered call, at 400 you would automatically be required to pay $40*100=4000 and minus the premium you got for selling the call. The "100" simply comes from the fact the the option is actually worth a multiple of $100. Hey I did not make the rules.

There is a subtle difference in XEO versus OEX. You can settle OEX at any time before or at the end of the OEX option expire date. XEO on the other hand can only be settled on settlement date. I only see this difference as a drawback to trading the XEO options but then again there maybe a scenerio where XEO would be better than OEX.

I babble long enough and still haven't posted my discovery on the SPX. For the week of June4 options on SPX as of Friday, June 19th's closing price the picture below are the vertical options.

Notice the 900/925 put options have a mark of $8.40 when the intrinsic value=present value is only at $3.77. There is a big volume of 144 put contracts traded versus 22 call contracts on the 900/925 spread. The put spread has over 200% difference between the instrinsic and mark value and on top of that the instrinsic value of the call spread is a little over 25%! Either someone or the market is telling us this upcoming week is a down week. I am playing on that and will trade through OEX instead because the contracts do not have such a spread between the intrinsic and present values relative to the quantity of contracts traded so far.