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Archive for January, 2011

Trade Review: $CT_F via $BAL

Posted by Dino on January 30, 2011

So last week I pointed out that I had been keeping an eye on Cotton futures and expected them extend their gains into all-time highs and wanted to play it via the Cotton ETF BAL.

This is one of the more planned out trades I had undertaken and fortunately for me, it worked out very well nearly exactly as I had expected it to…..after I had changed my target and stops once I had already entered it and switched to plan B.  That would be my biggest failure of this trade.   Changing my plans after entry, though ultimately proving profitable, could have been disastrous.

Initially I wanted to play the cup and handle formation with a lofty target of just over 200 but after seeing how BAL traded on January 25 I decided it was not a traded I cared to stay in too long right now.  Cotton had been trading at near all time highs and actually finished up on the day but BAL finished down.  I wasn’t too fond of the way this played out so I switched to plan B.

Another set up I like is when all time highs are hit, a pull back and then consolidation followed by another push to all time highs.  I established a target of the 161.8% retracement from the all time highs to the consolidation lows. This worked out to be target of $172.45 with a stop at the 61.8% retracement near $150.

Exited with a 9% profit and good learning experience.  Win/Win.

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Long Cotton via Cotton ETN $CT_F $BAL

Posted by Dino on January 23, 2011

For the past 6 months or so I’ve been keeping a closer eye on commodity futures, primarily Ag contracts such as corn and wheat but also cotton, soy, cotton, sugar and coffee.  Cotton caught my eye last week as it looks like it’s setting up in a very familiar technical pattern.

Cotton futures rallied to all time highs in early November before a significant pull back and a retest of those highs in late December.  This pullback and retest set up the cup and the handle was established at  a 38.2% retracement and now a third test of all time highs.  I’m really liking this setup and wanted to get a piece of it but unfortunately I don’t have a futures account.  The only way I could do this is through the cotton ETN BAL.  Though not a perfect mirror of cotton futures you can get the majority of the movement of the underlying.

A couple  of major hurdles to get over is the lack of liquidity and extreme volatility in BAL.  3 month average volume is about 70k shares per day and with so few shares it can be difficult to get out at the price you may want.  With all of these factors in play I’ve kept my share size quite small and set a fairly loose stop of about 70.   A price target for cup and handle can usually be estimated by adding the height if the cup to the neckline level.  That gives us a target of 203 for the futures and if that’s what develops, so be it.  That’s not going to be my initial target so I’m going to peel off a portion around 90 and let the rest run to the $200 C&H price target for the cotton futures and close the remaining portion.

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Urgent: Think or Swim Database Maintenance (via Read the Prospectus)

Posted by Dino on January 20, 2011

Great idea. For all of those who use Thinkorswim.

Think or Swim tells me that they will be doing database management this weekend (1/22/11-1/23/11). Because of that, it is advisable to back up your thinkscripts locally on your computer. Just highlight them all in the list and click export and save them to some folder on your computer. Everything should be fine, but they recommend this action just to be safe. … Read More

via Read the Prospectus

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$IGOI – Broken but Not Beyond Repair $AAPL $TXN

Posted by Dino on January 18, 2011

IGOI has been damaged.  The sell off that began last Friday afternoon has taken its toll on the stock and had, at one point, fallen over 28% from its high of $5.19 on very significant volume.  The question is why did it fall so much and so fast?  There was no new from iGo that could possibly lead to such a sell off.  No earnings releases or warnings were announced.  As far as we know iGo still has all of the patents they’ve acquired, Apple (AAPL) has still certified iGo chargers for use with their products and iGo is still working with Texas Instruments (TXN) on an integrated circuit.  The only thing we know is that some with large positions had sold out and were taking profits off the table after such a big run.  Nothing that most people are aware of changed fundamentally with iGo.  With that being said, no matter what the reason is the chart is now broken.  Anyone trading off of technicals would be wary of going anywhere near this stock for a while.

Even though the damage is severe it is not permanent and through time it can be repaired.  On the weekly chart IGOI is still in a strong uptrend and continues to make higher highs and higher lows in the process.  I would ideally like to see IGOI consolidate above $4 for the next month or two.  They haven’t  released their Q4 earnings release date but judging from past years releases we should expect it sometime around the middle of February to the beginning of March.  A period of consolidation is needed to repair this damage and once we hear from management we can then get a better understanding of the direction of the company.  I am still long 4/5 of my original position at an average price of $1.62 and expect to hold this until earnings.

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Billy Walters can Master the Sport Gambling World but Not Wall Street? $$

Posted by Dino on January 17, 2011

On Sunday night 60 minutes ran a piece on Billy Walters. Click here to check out the video. If you’re not familiar with his work then you’re probably not much into sports betting. According to this piece he’s the “Great White Shark” of the betting world and can even change the odds based on his own bets. He’s made hundreds of millions from betting and thinks nothing of betting $5,000 PER HOLE on a round of golf with his friends. After listening to the story its apparent that quite adept at analyzing each and every single aspect of the games, it’s players and even the weather.

Walters has also built a brain trust of consultants, most of them mathematicians and experts on everything from weather conditions to player injuries. He told us they act like analysts for a hedge fund manager.

“So, information is key. I mean, it sounds like you track every single detail that could possibly affect the outcomes of these games and these teams,” Logan remarked.

“Yes. It gets presented to me. I evaluate it. And I determine what I’m going to do,” Walters said.

He is obviously aware that he has personal responsibility for his wagering.   According to Dr. Van K. Tharp that’s A Trait of Top Traders/Investors. He seems to have a number of these traits.

“How much money did you just bet?” Logan asked.

“Let’s see, 225, 325, 525, 550, 750, 900, 11- 1230, 1270, 1370 – it’s a million, 370,000, plus 10 percent. That’s how much I risk,” he replied after a quick glance at a sheet of figures.

“Average Sunday morning of football?” Logan asked.

“Yeah, and again, who knows? I would say that before the day’s over, I’ll probably end up with, I don’t know, maybe $2 million at risk,” he replied.

He’s aware of his risks and one would assume that he manages his risks very well.  You can’t get to his level of wagering and accumulate as much wealth as he has without it.  With all the skills that this man has that seem to fit in so with what could be considered traits of a great trader/investor, he’s gotten smacked around on Wall Street.

“I’ve been swindled out of quite a bit quite a bit of money on the stock market. And I bought a lot of Enron stock once. And I got swindled. I bought a lotta WorldCom stock, got swindled. I bought a lotta Tyco stock. I got swindled,” he told Logan.

His disdain for Wall Street is one of the reasons Walters decided to talk to “60 Minutes” – a chance he says to make the point that the gambling world is not as shady as most people think.

“I ran into a lotta bad guys, a lotta thieves. I mean, they’d steal the Lord’s Supper. But I can tell ya, percentage-wise, I ran into many more with suits and ties on than I have with the gamblers,” he told Logan.

“So you would say that the hustler from Vegas got hustled by Wall Street?” Logan asked.

“There’s no doubt about it,” Walters replied.

He calls it swindled.  Was he?  I don’t know.   I would call Bernie Madoff a swindler.  He out right lied to people, falsified statements and stole their money.  Maybe Billy ran into that same type of guy….3 different times.  Who knows?  Unless we know the who, what, when and where of his investment decisions we will can only speculate….but seeing as how that’s what we do let us continue.

With all of his skills that seemingly line up so well with the trading/investing world he should have at least done reasonably well.  Personal responsibility and knowing the risks and variables were paramount to his success as in the betting world.   Maybe Billy transferred none of his skills to his investing and simply handed over his money to someone who told him they knew what they were doing.  I doubt it.  He doesn’t appear to be an ignorant guy though and doesn’t appear to be gullible.

Bottom line is that no matter how well you appear to be fit for trading, it’s not easy.  No matter who you are it takes time to learn the skills to be a successful investor/trader.  No matter how smart you seem to be you have to study the market, understand how it works and have the ability to apply that knowledge in order to profit from it.   The good thing is that if you have the determination, patience and discipline you can at least be a decent trader.  The only question is will you put in the effort?

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Seth Rogan as an Action Hero?

Posted by Dino on January 15, 2011

I haven’t looked too deeply into this movie but my initial reaction is….Seth Rogan as an action hero? Not necessarily easy for me to readily accept. First thoughts are laid back pot smoker but that’s just me. If he can pull it off he’s a more versatile actor than I thought.

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“Sell Down to the Sleeping Point” $IGOI

Posted by Dino on January 14, 2011

One of the books that is on most traders top 10….no, probably at least top 5….hell, maybe most traders #1 book ever written on trading is “Reminiscences of a Stock Operator” by Edwin Lefevre.  It is reported that it is the biography “loosely based” on Jesse Livermore.  “The Boy Plunger” (as he was nicknamed by the bucket shop owners) would make a name for himself as being one of the best Traders on Wall Street. Making millions and then losing it all several times was the reputation he left. While trading he had seen it all. “….there is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market to-day has happened before and will happen again.” he quipped. That book is chock full of classic quotes like this. If you have the means I highly suggest reading it. It’s the first book that really made me begin to think about my trading. The book didn’t give any specific trading methods or signals. It didn’t try to teach me details about how the Feds Monetary Policy affects global markets. It simply laid out keen observations about one mans experience in the art of speculation. Today was a day that a very important passage came to my mind.

A loss never bothers me after I take it.  I forget it Overnight. But being wrong not taking the loss that is what does the damage to the pocketbook and to the soul. You remember Dickson G. Watts’ story about the man who was so nervous that a friend asked him what was the matter.

“I can’t sleep,” answered the nervous one.

“Why not?” asked the friend.

“I am carrying so much cotton that I can’t sleep thinking about it.  It is wearing me out.  What can I do?”

“Sell down to the sleeping point,” answered the friend.

Today one of my larger positions, IGOI, started out fairly well.  Nothing too unusual was happening.  Traded up to $5.14 and then pulled back down to around 5.   No big deal.  I had been hoping that it would consolidate around 5 for a month or two before making its next move anyway.  Between 11 & 11:30 am the selling pressure picked up.  At 11:49 @toddsullivan tweeted “Subs: Selling some” and I immediately knew what he was selling.   At the time  I didn’t think that his trimming down his position would have that much affect on the share price.  IGOI was at 4.82 at the time of his tweet and within a couple of minutes it was back up to $4.93.  Between 11:35 am and his tweet at 11:49 over 93,000 shares had traded.  At the time I guessed that he had unloaded some and that the market was able to absorb it fairly well.  Looking back at it now I think I was mistaken in thinking that most of the selling had subsided.  I didn’t take into account his subscribers who apparently had not gotten the message all at once and were planning out a timed distribution but rather a “sell it when you get the message” event took place.  The selling intensified, stops were being hit and people hit the exits as quickly as they could.  When dealing with equities that aren’t incredibly liquid, an event like this can get a bit crazy.  IGOI rose very quickly and fell even faster.  That’s the way it is.  You have to know this when you enter trades such as this.  You have to be nimble and know when and how you plan to get out-of-the-way of the falling knife.

IGOI had hit a low of $4.12 early in the afternoon after more stops had been taken out.  It bounced back bit but eventually came back down to the $4.15 area.  That’s when I started thinking about my sleeping level.  While this was a decent hit it wasn’t anywhere near a death-blow so for that I am grateful but….what was my sleeping level?  If I held on to this many shares over night not knowing if the selling would continue Tuesday morning would I be able to sleep well?  Would I be tossing and turning thinking about it?   After taking all these things into consideration I decided to part ways with about 1/5 of my position.  Using first in/first out principles I gained $2.69/share from $1.46.  That’s roughly 184% gain and I’ll take that any day.  Plus….I’ll sleep like a baby tonight with what I have remaining.

Please don’t misunderstand me though.  I in no way begrudge Todd for letting go of his shares and informing his subscribers.  Everyone is free to come and go if and when they please.  I’m the only one responsible for my trading.  In the end I decide whether or not I’m in or out and what my profits and losses are.  And I’ll be more than happy to claim 184% profit as my doing!

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Further Thoughts on $EDZ Hedge $SPY $EEM

Posted by Dino on January 14, 2011

So yesterday I put on a hedge to my current longs via the EDZ 3x Emerging Bear ETF and I wanted to put down some more thoughts on that decision.

The chart to the left shows a comparison of the EEM vs. the SPY.  EEM is the MSCI Emerging Markets index ETF and the SPY is obviously the S&P 500 ETF.  My EDZ hedge is the 3x inverse of the EEM so it’s my downside play to the Emerging market index.  The last somewhat significant pause to this rally was in November where new 2 year highs were established and then a month long consolidation ensued.  EEM also put in a new high and consolidated along with the S&P.  The divergence came when the SPY continued on to take out those November highs and make new ones where as EEM was never able to breach that high and has since appeared to be the weaker index.  When looking to make a profit on a reversal or correction, it makes sense to pick on the weakest since that is more likely to lead the run down.

 

 

 

 

One of the things that I have noticed about the EEM is that it is forming a longer-term wedge and has stuck to the trend lines quite well.  The most conservative tactic would probably be a play back down to the rising trendline, sell EDZ for my profit the hedge and let the wedge play out.  If it does break up out of the wedge it could be a runner but it could also bread down out of the wedge and have a pretty decent drop back down to support around $44-45.

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Long $EDZ at 19.95 as a Hedge – via @upsidetrader

Posted by Dino on January 13, 2011

EDZ is the Direxion Emerging Markets Bear 3x ETF.  If you’re not familiar with inverse ETFs, here’s a quick summary.  The fund seeks daily investment results, before fees and expenses, of 300%  the inverse (or opposite) of the price performance of the MSCI Emerging Markets Index.  Simply put, if the MSCI Emerging Market Index goes down, EDZ goes up approximately 300% of that.    Hence the term leveraged.  It’s not a perfect tracking instrument, hardly anything is when it comes to inverse or tracking ETFs but it’s roughly correct.

I’m not putting this on necessarily as a directional play but more of a hedge.  We’ve had a significant run without a decent pull back and I’ve had some nice gains.  Seems to me like we’re running a bit out of steam here and we may have a pull back in the next day or two.  I’ve put on only about a half position so that if we do pull back I’m slightly hedged on my longs.

If we do pull back the hit to my losses shouldn’t be too severe.  They should be off-set by EDZ advances.  If I’m wrong and we continue onward and upward then my reduced position sizing means I won’t be out a bunch of money on the trade.

Lets see how this works out for me.

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Experience is Still the Best Teacher $FCX $BIDU $GS $STUDY

Posted by Dino on January 12, 2011

My wife an I were discussing some of the holdings in my portfolio a week or two ago (yes, we actually talk about things like that…strange…I know) and she asked what I was going to do with FCX.  I quickly answered “Unless it drops like rock in the next few weeks I’ll probably hold on to it.  It’s going ex-dividend on the 12th and has a 2:1 split in February.  Never held through a split before so I want to see what that’s all about.”  (It’s true, I’ve never held through a split.  Always closed out before or bought after but never held.)  She cocked her head to the side and looked at me quizzically.  Seemed like she had a little difficulty understanding my reasoning.  “What it’s like?  You wake up the next morning and you have twice the shares at half the price the next morning. What do you mean what it’s like?”

I tried to explain my thoughts to her that I wanted to learn from this but I’m not sure how successful I really was in conveying my goals.  You can learn from charts what the stock trades like but that’s simply a visual representation.  Taking a look at BIDU when it split 10:1 last May you can see it surged into the split then sold off for several days after.  Easy to see right?  It goes up….then comes down.  I bet it was a slightly different experience for those holding onto positions into and through the split.  They had their emotional experience and probably learned a bit more about splits and they can take those lessons with them to their next trade and hopefully they can benefit from riding the BIDU split.

Just a week or so prior to that I had been long some calls in about 3 or 4 different positions.  Couldn’t tell you what they were but that’s not really the point.  On May 6, 2010 I was at work in our lab that afternoon knowing that it was a pretty decent sell-off in the market.  I put my hard stops in just in case and proceeded to go about my work day.  Came back to see my screen full of red…..I looked at the intra-day index charts and thought something was broken at Thinkorswim.  “What the hell is going on?!?!?!” I though to myself.  Checked the news to see what national tragedy struck us but fortunately the largest intra-day drop in the history of the markets was only due to (insert your favorite explanation/reason here).   Since I was only long call options I hardly lost any money that day and quickly learned what affect volatility spikes can have on option premiums.

On April 16, 2010 I was long Goldman Sachs calls and sitting on a very healthy profit.  Set my stops and went on about my work day.  While working at my computer my trade alarms went off.  Knowing I had set them fairly loosely I was a bit surprise….but not as surprised as I was at seeing GS imploding.  I quickly learned it’s great to have stops in place when the SEC announces lawsuits.  I still walked away with a decent profit.

You can’t truly know what it’s like to go through something until you actually live it.  Most of these experiences were out of my control but the best that one can do is taking the things that happen and learn from them.  Take those lessons with you to the next trade and hopefully you will either profit from it or protect capital……as that it our main goal.

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