(Note: I meant for this to run yesterday, but it still fits after today’s action. Enjoy.)

Since August the markets have been jerked around. Violently. One of the more frustrating catalysts for traders has been the failed moves both below and above support. It’s clear in the indices as a whole, and even worse in single names across many sectors. I have prepared this very scientific chart to try and capture reactions at various points over the past 4 months (click for larger view):

I want to talk about the two moves that have been the most disappointing, at least to me.

The Failed Breakdown of October 3
Busting through a very tested bottom, this looked for all the world like the big flush out. Had it really accelerated that would have been THE event that set up a solid run later on in my opinion. Not sure if it was technical buying there or if the Ghosts of V-Shaped Recoveries came into play on intervention hopes but the reversal of the breach was sudden and clear.

The Failed Breakout of October 31
I had outlined my reasons for a move up in markets around mid October. It was working well. As the top of the trading range loomed all eyes were focused. The S&P pierced 1265 and things looked poised to base and move higher. That was an ephemeral (told you I would work it in to a post!) belief as again, the reversal back down was pronounced.

And here we are again.

The failed moves are what keep me from really deploying much capital. Trading sentiment now has shrunk time frames to hours or maybe a few days at most. Technicals are all the rage. Thursday into Friday promises to be a very volatile environment as the news will be flowing fast and furious. Unless the Euro powers get something done, all the forecasts for much of anything are not going to amount to much.

Have a good night.

I usually will do stock screening on a Sunday night to get set up for the week. I use the PPT and screens I built to look for ideas. I then discuss them with the Pelican Room in 12631. As I was screening it was becoming more and more clear that after the huge run over the past week, things needed to slow down. Various indicators (PPT Hybrid and others) were showing some caution was warranted. I went ahead with a full night of work anyway so that I would have some ideas should markets come in a bit.

Whenever I am looking to open positions I never want one thing: a gap up open. Gap ups distort pricing and can add a layer of noise to a pattern you may be looking at. Depending on your targets for a particular stock, a gap up can sometimes eat some or all of what you were looking to capture. Looking at my Twitter stream this morning I could see what was coming, a gap up open again.

I wait for the first half hour to pass when the market opens before I will get involved. When I took some time around 10am to look things over from my list, this was the first one I saw. CSOD (click charts for larger view):

CSOD came from a screen looking for buying accumulation. I liked the chart and was very interested. The stock opened up 15% or so and closed up 12% on the day. One day. Clearly there is something going on in this name and it’s run away before I could do anything. Gap blocked!

Last night in 12631 I highlighted a pattern I like to play when I see it. The stock TXI printed a monster wick on massive volume on December 11. When this happens many times price will migrate back to the limits of the wick (both up side and downside) so when I saw this one I knew I was going to be interested. TXI after today:

The stock closed up 6.4% just today! Gap Blocked! To be fair, if the wick play holds this name could run up to around $35-$36 so I am still interested in this one.

As if trading in this market did not demand the very best execution already, gap up openings make things that much harder. Over the course of the day the big morning gains were given back by the indices (though not these stocks) which added to frustrations all around.

Have a good night.

Back when I was 20 I had to have all four of my wisdom teeth out. I was always getting sore throats and they got infected, it was nasty. They put me under for the procedure so I don’t remember much, but the pain afterwards was terrible. The dentist prescribed the pain killer percocet for me and the day after I was glad to take one. It was great.

I had this piece of crap Hyundai Excel and the oil pan had been leaking. I had a new gasket ready so I figured I would change it. Two days after the dentist and armed with another percocet I went ahead with the job. There were about 12 bolts around the oil pan, it looked just like this one:

Two of the bolts were really stuck. I was giving it my all on the first one when it finally gave way. When it did my right hand smashed into the underside of the car, hard. It didn’t really hurt. I saw a bit of blood but I figured if it did not hurt, what’s the big deal? I just didn’t care really, due to the pills. Just no feeling at all. The second bolt gave way very quickly, it must have known how serious I was. The whole thing took about two hours and I was glad when it was not leaking after I changed the oil.

I went inside to wash up, my hands were a oily mess. As I was washing them I turned my right hand up and looked.

My middle knuckle of my right hand index finger was almost totally exposed.

I sort of had a panic attack. I will not gross you out with all the details, but lets say seeing your knuckle work under the skin is not recommended. I did the best I could to disinfect it and get the flap of skin to go back in place. I went to the doctor but he was not willing to stitch it up due to how much time had passed, and he was concerned about infection. He said to me if it got infected, it would be deep and would be “an issue”. I was terrified.

Long story short, it healed up well with no issues except a really bad scar. I also have never taken any pain killers of any sorts since then. Alcohol does not count!

The second time I almost lost a finger was not in the literal sense, but a trading sense. It happened last April.

I had been doing very well since the new year started when I began really trading shorter term again. Gains were good and things were going well. I got caught leaning very long when the Fukushima Disaster happened and that trimmed gains quite a bit. Later March and into April were not good times as my ideas and picks hit a cold streak. I was going on vacation the last week in April and I was in a state of not really caring. I had almost no positions and was re-thinking the whole thing.

All year I had been in and out of the stock KCG (Knight Capital Group). They had earnings coming up on April 20 and I had a gut feeling they were going to have good numbers after all the volatility of the spring. I was going to grab a usual sized spot the Monday before the 20th, but at that point even if my idea panned out (this was not chart based at all) what was the upside? I was in a state of ambivalence. To this day I cannot believe what I did.

I put 60% of my trading account in KCG before earnings.

And again, I was ambivalent. If it worked I would get ahead again. If it did not then I would take a break for a while after losing a finger on a trade. I did not even write about it (I mentioned a gamble way after) because I knew how stupid it was. Yes, your level headed, patient writer had a moment of crazy. It happens.

Long story short, KCG looked like it would collapse into earnings on Tuesday (yikes) but came out with a good report Wednesday and I cashed out for 6% gain. Not huge, but with that position size it was a big winner compared to usual 5%-8% part of account.

I went on vacation and I have been executing all my trades with the utmost discipline since that one trade. Looking at how the summer into fall went, maybe my lapse was a good thing because sticking to sound fundamental trading has saved my behind during the doldrums of credit crisis part 10 or which ever part we are on now.

I had not really thought about this again until I read this post by author BCLund:
Avoiding The Suicide Trade At All Costs
All three rules he went over brought the whole episode back into my mind. I won’t do that ever again.

Have a good night.

I am a fan of correlation. While I don’t think anything is ever correlated forever, there are times when it can be most useful. I will usually use the fancy word “proxy” both because it sounds better and it rhymes with “foxy”.  You know how I roll.

The doldrums of summer have been volatile. The ONN/OFF action can make you dizzy. Right now markets have easing from China, a fresh new (just like the old one)  Unlimited Dollar Funding Machine (tm), and economic numbers that don’t suck. Sentiment amongst market leaders has turned positive and, well it’s the end of the year.

I agree. My line in the sand for being constructive on longside of the market is S&P 500 above 1230. Seems 1240 became the new floor today. But there is another signal that makes me think a more aggressive move up in the indices is at hand.

Defensive sectors serve as a haven, but you have to find the right ones. Here is what I am looking at.

I highlighted as a long idea the stock RAI (Reynolds American Inc) a few times. Here is the chart:

 
After this weeks intervention, as strong as this chart is, it got me thinking. Are cigarettes a correlation to the risk on/risk off trade? Maybe.

Via Yahoo charts (yes I still Yahoo!; I like the look of the comparison charts) here is what the last 6 months looks like for RAI vs S&P 500:

And a 3 month:

Please notice that in August and every time after the space between RAI and the S&P has served as a great market timer. Note the late September gap and how it caught up. And again the huge gap of mid November that closed.

Topping pattern in a strong stock that is a proxy for the S&P, now converging. Keep an eye on this relationship. It’s worth watching.

Have a good night.