The market rallied after Fed policy statement last Wed, but spent most time consolidating on Thurs and Fri. All 3 major indices have cleared the 50 MA and the SPX has also cleared the 62% Fib retracement (from swing high in Feb to swing low in early Mar). However, the DOW and Nasdaq are consolidating right below their 62% Fib retracement. Will this bull run have another leg higher after pausing or the bears will come back if DOW and Nasdaq can't clear the 62% Fib hurdle?
Here's the notable economic news and earnings release for the week ahead:
Mon: New Home Sales Notable earnings: TIF
Tue:Consumer Confidence Notable earnings: GME, LEN
Wed: Durable Orders Notable earnings: PAYX
Thurs: GDP Notable earnings: KMX, COGN Fri: Personal Income & Spending Notable earnings: GPN
This is a 5min chart of OEX. Yesterday was a trending market all day. I noticed there were so many technical analysis supporting the day's action with pockets of opportunity to trade that I wanted to highlight it here. Other than looking at trading patterns, the point I want to drive home is also NOT to chase a stock if you've missed the boat, wait for the next opportunity to surface, they are plenty!
Before I start, I must admit the chart is kind of messy. The orange lines are the weekly pivots which I draw in at the start of each new trading week. I do this for SPX as well because I like to day trade OEX options, but the SPX tends to lead action in the market before OEX. The white line is a resistance from previous day high. The rest of the lines are the daily pivot points that are auto-plotted by quotetracker.
(a) Previous day high acted as a resistance during the early part of trading. However, it was developing a higher low and forming a ascending triangle. The 1st opportunity to enter for the day would have been a break of this resistance, with about 2 point potential to next level of resistance at R1.
(b)OEX took off and then pulled back near R1. It then formed a U-shape like base. Not a perfect base because of the bearish engulfing candle, but the next candle, a bullish engulfing one together with support from MA below restore confidence. The next entry opportunity came when OEX broke R1 to the upside.
In fact you also see another U-shape base forming around 12.30-1.10pm ET. However, it failed to break the high formed at 12.30pm, which is also a weekly pivot point (orange line). A double top formation (not highlighted in chart) presented itself. OEX retraced back to R1, which is also near the 62% Fib retracement of the session high to session low. I didn't draw this because the chart already looks very messy!
(c)OEX tested R1 twice and a hammer (the 2.40pm bar with a long lower tail) candle shows that sellers are shaken off. But to be sure of double bottom formation, a safer entry would be around 643.7, when it cleared the 'hump' of the double bottom. It then went on to test the weekly pivot point again before closing $0.3 below it.
Still remember Nick Leeson, the rogue trader who single-handedly brought down Barings Bank with losses amounting to £1.4 billion? Well, he or rather his trading jacket is back in the limelight. His trading jacket reportedly fetched "five-figure" bids and counting, in an auction that started on Sunday.
Leeson, who is now free to trade on his own account has said he may return to full-time trading in Ireland. He told Bloomberg earlier this year: "You wouldn't believe how many people have asked me to manage their money." lol! Unbelievable, really.
Publicity aside, I have to say that I somewhat admire his courage to live on despite going to jail, divorced from his wife, deep in debt and battling cancer. Perhaps all these are his retribution for bad karma, but he pulled through and is now leading a new life.
I remembered one of the questions I ask myself when I first started options trading was: What makes a stock optionable? For those who are new to options trading or even those who have been trading for sometime but don't have the answer to this question, here's 4 criteria companies must meet to have their stocks traded on options exchanges:
1) The stock must be listed on the NYSE, AMEX or Nasdaq.
2) The closing price must have a minimum per share price for a majority of trading days during the three prior calendar months.
3) The company must have >= 7M publicly held shares.
4) The company must have >= 2,000 shareholders.
Also, because of the second condition listed above, a company that has just launched its IPO needs to wait at least 3 months for its options to be traded (if it also meets all the above criteria)
As a continuation from part 1, I've shown another type of stock charts to avoid here. What do you see they have in common?
UVN is what I would call a "turtle" stock. Yes, it has a nice uptrend, but if you observe carefully, you will realise that this stock only made a minute move of $1.8 in 6 months! Is that exciting or what? Stock investors with long term view may buy such stocks, but not for option traders where delta and time value are key components in determining your option value. Swing traders alike will avoid such stocks as well. If this stock only make a move of $1.8 in 6 months, how much do you think it can move in a matter of a few days? You do the maths.
CCE is "stuck in the mud" type of stocks. It's been trading in a range of $21.2 to $19.8 during the last 6 months. Such stocks are not worth my time. Stay away from them.
Well, actually not really random as the links below come from blogs that I read on a regular basis. I'm highlighting a few of their posts here because they are too good to be missed!
1) TraderFeed -Two Deadly Sins In Trading: The highly respected Dr Brett talks about 4 positive aspects of a trade example and also 2 deadly mistakes in trading. He sums it up nicely with this:
"Going with the overall trend, waiting for the right opportunity, letting markets show they're strengthening or weakening before you make your move, keeping stop losses close relative to potential reward, taking profits aggressively when you get an extreme move your way, trading large enough to make an acceptable income from one good trade per day"
This is the essence of trading and I can't agree more with him. In short:
-Trade with the trend: Many of my losers are usually against the trend, be it day or swing trading. Trading WITH the trend simply increase your set-up probability
-Be Patient: Patience is not my virtue, lol, but my trading experience has taught me that it PAYS to be patient with your set-up. Stay on the sidelines if there's no good trade and WAIT for CONFIRMATION before entry
-Manage Risk: Keep your losses small to preserve as much capital as possible to stay in the game long enough for you to master your trading skills. By doing so, you are buying time from the market to learn from the market.
While I understand where he is coming from on his last point on trading large enough to make an acceptable income, one has to be sure that taking a larger trade is still within your risk parameters. Never forget that!
-Aggressive profit-take in big moves: If you are a reader of Wall Street Warrior, you will know that he always partial profit take when there are 3 strong consecutive expansive price bars and re-adjust his stop loss to the mid point of the previous strong bar.
As part of CNBC's Million Dollar Challenge, Dr Brett will be appearing on a special program Friday evening between 7 and 8 PM EST that will deal with trader/investor psychology. He is soliciting trading related questions and will pass them along for inclusion in the show. So here's your chance to take your questions on air! Be quick though as he will be appearing this Friday if I'm not wrong.
2)Trader Jamie (aka Wall Street Warrior) Jamie has a classic post on trading opening gaps using dummy setup. He talks about the characteristics of such trading pattern (e.g Fib Ext, base, volume, 5 EMA etc). He is a very skilled day trade and I have learnt alot from him on day trading. Be sure to save this post in your library.
I talked abt optionsXpress's Trading Pattern sometime back. Recently, OX has enhanced their system, making the trading process more seamless. New features like the roll-over function allow you to view intra-day chart, real-time quote book for specific option and even the intrinsic/time value with much ease. Great work!
After a roller-coaster 2 weeks with the market retracing about 38%(Fib) of its losses (from the high prior to meltdown to low on 5 Mar), are we really back in shape or this is bull trap set-up? I'm more inclined to the latter as the bounce last week has been on declining volume. Either case, tread the market carefully in the short term. Check out MY DEL.ICIO.US on the left column for more discussion on this topic.
The week ahead has some key economic data release and also earnings announcement from a few leading investment house.
Especially for traders not residing in U.S., do take note of day light savings kicking in this Sunday, 11 Mar. Starting in 2007, daylight saving time will be observed from the second Sunday in March to the first Sunday in November.
For traders in Singapore, this means that market will open 1 hour earlier at 9.30pm local time. I always have mixed feelings when market starts earlier. The plus side is I will get to rest earlier; but on the other hand, it also means less time for my hubby or dinner date as I usually start preparing for market start at least 1 hour BMO.
8 Mar every year is International Women's Day (IWD). According to Wikipedia, it's a major day of global celebration for the economic, political and social achievements of women. Read here to learn more about history of IWD. Coincidentally, today is also my mum's birthday. Happy birthday! :)
What do these music notes have in common with the 2 charts below? Make a guess?
For those who have learnt classical music, you will recognise that the music notes above are staccatos. It is a style of playing notes in a detached, separated, distinct manner. See the similarities with the charts now? The 2 charts have gaps all over the place and have candlesticks that are detached from the overall chart, just like how a staccato is played!
I am always reminded of staccatos whenever I see these charts. And these are charts which I do not use for swing trading or holding overnight positions. Avoid them at all costs! They are extremely volatile and there's no telling which way they could gap. Coincidentally, these 2 companies are also in the very sectors that I don't enter for swing trading. BHP- in resource sector and NVS - in drug manufacturing sector. In fact, I avoid all energy and commodities sectors as well as pharma and biotech for swing trading. But day trading them is not a problem.
Here's 5 stocks highlighted by MSN Money with the most significant insider buying during the meltdown. Here's a look at their charts. Not all are optionable though. As usual, pls do your own due diligence.
We are all familar with this stock. It has been a giant that is lagging behind its peers in terms of stock price movement.
A real estate development company. Nice stairs-stepped chart, too bad not optionable and rather light on trading volume.
An information services company. Beautiful chart! Paper traded this company not long ago and loved it!
A biotech firm whose stock price has been trading in a range of $5-$6.5 since this year. Optionable, but volume is less than 500k.
This is a REIT. Nice upward trending stock until the meltdown. Not optionable.
Thanks to Trader Mike, I came across a relatively new blog: Afraid to Trade.com by Corey. I've read the blog, found it educational and I like it. Just in case you wonder how the interesting blog name came about, the answer is in here: "My goal is to create a community dedicated to reaching out to those who have been burned by the market or are anxious about risking their money to make money in the stock, options, or futures markets. Together, we can share and learn how to overcome those nagging fears that keep us from achieving our highest potential."
Ok, just kidding on the title, but the post below IS serious. I have been thinking long and hard as to whether there was any oversight on my part on the episode with IB below. I could think of none, except that maybe I could have closed the position on Wed on the slight rebound. But the index was still a few points away from my defence line and I've set my defence line quite a safe distance away from the sold strike. So I didn't want to change my trading plan, although I was prepared that the CMO maybe triggered in the next few days in view of the market instability in terms of market direction. Having the CMO triggered was one thing, and having it not being able to trigger when it SHOULD is another issue. Ok, I know, here comes my rambling again. Let's digress and take a look at some interesting posts here:
I was screwed by IB big time and I'm seeking a good explanation from IB on their system error and slow investigation response. Otherwise, I'm seeking financial compensation from them.
I had some bull put spreads on the index and as always with any of my overnite positions, I practice good risk management by attaching either bracket orders or in this case a conditional market order (CMO)to buy back my sold leg if it threatens my defence line. As everyone already knew, the market collapsed on Tue and it went way beyond my defence line. I don't think anyone has seen this coming. I mean, yeah I expected some sort of correction, over days or even weeks, but not a market collapse in a SINGLE session! Anyway, I digress. Due to the time zone difference here in Singapore, I woke up on Wed morning shocked to see such drastic action. And more shocked to realise that my CMO was not triggered!!! I still have the trades in my account but the pending order of the CMO had mysteriously disappeared!
I talked to IB via IB chat and was informed that the the error message was: "your order is not accepted, margin deficit would increase". IMO, this is not possible because if I did not have sufficient funds in the first place, IB would not have allowed me to open credit spreads position. I challenged the IB rep and he too was clueless and forwarded this issue to the IB technicians. Despite my pressing for a response time for this issue, IB repeatedly say that they can't tell when they can update me on the status of this issue. However, the rep said that I can place a new conditional market order now. And I went on to do just that. Because of the slight rebound on Wed, my defence line was still intact. However, I was still very concerned and it was important for me to know what happened on Tue. What if it happens again? I'm really disappointed at the sloppiness in which IB treated such time-sensitive trade issues.
On Thurs, the market opened very weak and my defence line was triggered. Luckily, I was watching it. The CMO didn't get triggered and the same error msg which IB rep told me flashed on my screen. And the market was sliding like a flood gate just opened. In the end, I had no choice but to close the whole bull put spread position, as opposed to my initial plan to only buy back the sold leg and let the bought leg profit under such circumstances. However, because of the delay in executing the closing of position (yes, its probably a matter of seconds or minutes), the loss I incurred was greater than planned had the CMO got triggered.
I have written a formal complain to IB and also seeking financial compensation from them if the explanation is not satisfactory. Their system failed me on Tue and once again on Thurs. I have made 3 contacts with them prior to Thurs BMO, and they are taking sooo long to come back to me on this issue. And as I'm writing now, they have acknowledged my formal complain, but they are STILL investigating. Unbelievable! If the IB rep that I talked to was sure that my problem was indeed due to margin, I would have gladly closed up the position on Wed. But as I said earlier, I seriously doubt so. And contrary to what the IB rep had advised me, if I had known that the CMO is still not working (at least for me), I would have also closed up my position.
Have anyone encountered such situations with IB or other online brokers? I know seeking financial compensation from IB will be quite a tough fight. I would like to hear from you. Meanwhile, I need to hear a proper answer from IB.