Welcome to Memento Trading

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MARKET WRAP UP 10/20/10

The film Memento (2000) centers around a man who suffers short-term memory loss, and must wake up every morning more or less starting from scratch in his quest to uncover the identity of the man who he thinks murdered his wife. With the stock market selling off aggressively yesterday, followed by today’s equally powerful move higher, one has to wonder whether Mr. Market is facing a similar predicament to Guy Pearce’s character in the film. Indeed, the past two days of market action have not been momentum trading at all, but rather “Memento trading” (or “memo,” for short), with yesterday’s concerns being thrown to the wind along with caution today.

Although it may not be very sexy, I believe that it was equally correct for swing traders to adopt a more neutral stance yesterday as it was to maintain it today. I continue to hold many bullish bets that I believe are sound setups, but I am more apt to now take a pass on upping my long exposure. Despite the S&P 500 closing up 1.05% to 1178, I will wait for the S&P and Nasdaq Composite Index, as their updated daily charts illustrate below, to recapture their respective support trendlines before allocating capital to the long side without reserve.

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I am still on the neutral team here until the picture clears up in the next few days. A big down day yesterday, a big up day today. Something has got to give.

At this rate, I am drinking enough espresso to bide my time that I will soon have the appearance of Steve Buscemi after a three-day crystal meth binge.

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The S&P 500 is impressive in holding above yesterday’s highs. I took out the full $SDS position yesterday as a short-term insurance policy, and so far I have paid a nice little premium for holding it. Just now, I sold 1/2 of my position, and will likely sell out of the rest by the closing bell, should this rebound stick.

All trades are timestamped inside The PPT.

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TOTAL PORTFOLIO:

EQUITIES/ETF’s: 48%

• LONG: 44% ($ATPG $DDS $HMIN $MSTR $RGS $SHLD $WPRT)
• SHORT: 4% (Long $SDS)

CASH: 52%

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Thank you for the feedback regarding my 12631 post last evening. Ragin Cajun and I welcome all comments and questions about the premium service we will launch inside The PPT on November 12.

Turning to the market, the swings over the past two days have been enough to push some of the more emotional traders over the edge. I have found that the best strategy in these kinds of situations is to have a definitive plan, and here is mine. As you know, I adopted a more neutral stance on the market during yesterday’s sell-off, while many others were declaring a major top. I have plenty of long exposure, but took out a small insurance policy in the form of $SDS (ultrashort the S&P 500).

Despite how potent today’s snapback rally seems, the updated and annotated daily chart of the S&P, seen below, illustrates that the prior support trendline has not been recaptured. My plan is to hold on to my hedge until the bulls can negate yesterday’s sell-off, by way of reentering the steep uptrend line since September. If that happens, I will quickly sell out of $SDS, and return to being bullish on both short and intermediate term timeframes.

Should today’s rally fizzle out, I would grow more cautious if the bears could breach the rising 20 day moving average, currently sloping up at 1158. The bears are looking for that prior support trendline to now turn into current resistance.

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A Brief History of Chess

Roughly eighteen months ago, I randomly did a google search for “financial blogs,” and iBankCoin.com popped up. I clicked on the link, and as soon as I started perusing I knew that I would become a regular reader. The Fly and many other tabbed bloggers easily fulfilled what I would later learn to be the dual mandate for traders/writers on this site—Be right about the markets, and entertain. For a long time, I was a lurker, refusing to write in the Peanut Gallery or so much as write a comment. Reading iBC day in and day out certainly made me a better trader, but I knew deep down inside that I was not pushing myself as hard as I should have, despite being profitable.

Just over a year ago, I made up my mind that I wanted to be the absolute best trader that I could be, and I decided to try out The PPT with a membership. I can honestly tell you that I subsequently improved as a trader exponentially, due to the most comprehensive and breathtaking proprietary algorithm available to the public. The PPT allowed me to use my time more efficently and effectively when putting in my daily work on the markets. Moreover, the possibilities for scanning stocks were endless. At my fingertips, literally, I had the ability in less than one second to see which stocks were heavily owned by Goldman Sachs, had a huge short position, were oversold by the algorithm’s historical standard, and had recently improved technically, just to give you an example.

12631 is Born

“Anytime you stop striving to get better, you are bound to get worse.”

It is in that spirit, of pushing oneself to be as rigorous as possible, that The Fly has had the vision to allow RaginCajun and myself to pursue an affiliated service with The PPT, in the form of “12631.” 12631 will be available only to new and existing members of The PPT, because we are seeking to build on the success of the product. The idea is to extrapolate on the algorithm’s mathematical precision to isolate the very best individual trading ideas. RaginCajun and I have worked diligently both here on iBC, and inside The PPT, to provide timely market commentary and actionable trading ideas. Providing daily real time analysis and time-stamped trades on a website which receives well over 1.1 million page views each month is not for the faint of heart. I am proud to work with him, and we believe that our supreme work ethic and market knowledge will set us apart from other premium services.

In 12631, Ragin and I will offer a winning atmosphere for both novice and veteran traders. We will have intraday, daily, and weekly watchlists with the very best trading ideas. We will also supply a constant stream of charts, educational videos, and blogs. In addition, we will take what we deem to be the most relevant searches conducted by The PPT algorithm, based on whatever the current market conditions are, and we will probe them further through the lens of two experienced, profitable traders.

Both Ragin and I will continue to blog on iBC, although we will save the majority of our individual ideas for 12631. We are grateful for our strong reader base, and we look forward to working with many familiar readers inside 12631, as well as many “lurkers,” just like I was over a year ago, who are looking to push themselves to become a better trader than they ever thought possible.

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MARKET WRAP UP 10/19/10

A confluence of several factors gave the bears an excuse for a much-anticipated sell-off today, after last evening’s post-earnings carnage. Breadth was as negative as we have seen in at least several weeks, and heavy selling indicated distribution in many areas of the market. With the S&P 500 closing down 1.59% to 1165, an abundance of rising 20 day moving averages are either currently being tested, or are on the verge of being so across the leading indices, sectors, and issues. Moving averages are useful not for automatically buying or selling a stock, but rather as reference points to gauge just how strong a trend of countertrend truly is.

Despite how bearish today looked and felt, the uptrend that began in equities in early September probably did not magically disappear in one trading session. Given how potent the trend higher has been, the dip-buyers will not go so quietly into the night even if we are, indeed, topping out here. As a swing trader seeking to profit from riding the prevailing trend, I am looking for the bulls to make their first stand in the 1150-1160 range. Today, the S&P made an intraday low of 1159, before closing several points higher. With the rising 20 day moving average at 1156, I expect that reference point to illuminate just how much underlying strength this uptrend really has.

In after-hours trading tonight, I see that $CREE and $ISRG are getting whacked in a similar “sell the news” reaction that we saw last evening in high momentum names that had seen extended runs into earnings. While those two names did not see the kind of moves into earnings that $AAPL, $VMW, and $IBM did, their selling is indicative of Mr. Market’s current mood. At the very least, he is looking to punish the latecomers to the long trade who pushed their luck into various earnings reports. Another day or two of selling should not only humble those traders who got ahead of themselves, but incidentally will also reward those market players with the discipline to wait for better entry points before becoming aggressive again.

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