Day Trade Analysis for 6-7-06

I just wanted to follow up on the day trade set ups I created yesterday. Most, if not all, went according to plan. Enjoy the analysis, I’m off to Star Bucks:

[SET UP #1]
“Elan (ELN) – the stock is losing volatility, which makes the risk lower. Follow the direction of the stock, since it should be consistent.”

Comment: This was the easiest day trade to make. Whenever a change of direction is confirmed a buy anywhere on the trend was a winner. Let’s say you entered at $15.40 and exited at $16.00 on the long, that’s a 3.89% gain.

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[SET UP #2]

“Home Solutions (HOM) – I traded this all day Tuesday on rumors of the company performing bad business practices. Tomorrow be prepared for a huge spike due to Tuesday’s panic selling. You can trade this either way, but I suggest not holding this one overnight.”

Comment: This is a 5-day chart. Notice how the market “overreacted” on June 6. I made money off the overreaction, but never took advantage of the next day bounce. A late entry point would still give you at least 10% gain.

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[SET UP #3]

“Gold Corp (GG) – pay attention to the trend of the commodity prices and trade accordingly. I suspect GG and all other gold stocks to open up in the red, but any reversal in the commodity price, and you can go long. If gold opens below $630 expect gold stocks to have a continued sell off and short GG for 2%. “

Amazing isn’t it. Gold stocks, especially GG, follow the commodity price. Point (A) was the reaction to Gold falling overseas. Point (B) is a rally in America, but at (C) the rally ended and many investors in the stocks exited not wanting to hold it overnight. GG was a good long candidate during the miniature gold rally.

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[SET UP #4]
“Peru Copper (CUP)- this company deserves much attention after what I saw happened in the final few minutes on Tuesday. This stock just took off. Something is going on. Play this either way- long, short.”

Comment: Once again, the “fastest Cop in town“, Peru Copper, had big moves during the day. Watch this stock tomorrow since trading was halted at 3pm. News of an important mine is coming up. Stock will once again move very fast.

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[SET UP #5]

“Empire Resources (ERS)- is begging for a bounce. Watch this stock every morning until that bounce occurs. Where is the bottom for this stock?!”

COMMENT: The bounce certainly did come, but you had to be a good day trader to exit the trade when it returned below $17.00. Investors are still waiting for a confirmed reversal, so there should be more of these spikes in the next few days. Also, any sudden reversal in the indexes will dictate the direction of this stock… for example, what happened today!

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Tomorrow I’ll be peeking at the market, but mostly I’ll be studying more accounting stuff.

• Elan (ELN) – the stock is losing volatility, which makes the risk lower. Follow the direction of the stock, since it should be consistent.
• Home Solutions (HOM) – I traded this all day Tuesday on rumors of the company performing bad business practices. Tomorrow be prepared for a huge spike due to Tuesday’s panic selling. You can trade this either way, but I suggest not holding this one overnight.
• Gold Corp (GG) – pay attention to the trend of the commodity prices and trade accordingly. I suspect GG and all other gold stocks to open up in the red, but any reversal in the commodity price, and you can go long. If gold opens below $630 expect gold stocks to have a continued sell off and short GG for 2%.
• Pay particular attention to AUY Yamana Gold (AUY) since Cramer pumped this up Tuesday. I don’t think Cramer was expecting a drop of gold below $630 a few hours later, so this thing can fall. Get ready to short.
• Peru Copper (CUP)– this company deserves much attention after what I saw happened in the final few minutes on Tuesday. This stock just took off. Something is going on. Play this either way- long, short.
• Empire Resources (ERS)– is begging for a bounce. Watch this stock every morning until that bounce occurs. Where is the bottom for this stock?!

Priority Day Trade

1. Short AUY- setup: Gold hangs around $625. Market loses interest in stock.

2. Long HOM- setup: buy orders catch up to sell orders

3. Short CUP- setup: on any weakness. But be careful for strong reversal.

4. Long ELN- setup: shorts are beginning to cover. Longs will take over.

5. Long ERS- setup: a trend up in first two hours confirming big bounce.

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Well, the night is winding down here in Hawaii, and nothing really happened on this 6-6-6 day. I’ve met some people who feared this day thinking we’d get some kind of terrorist attack. I was thinking though, perhaps maybe there are a lot of superstitious investors out there, and maybe that played some kind of role in today’s drop. I was reading a Home Solutions (HOM) message board and one guy said he was selling his shares at $6.66.

Anyway, I posted the chart of my unfortunate exprience shorting HOM on my other site where I keep notes of trades. I feel cheated that AMEX halted trading for HOM while other investors were able to continue. That technical difficulty cost me over a grand.

[Market Outlook]

Has anyone noticed where the Dow is at the moment? It’s right above the $11,000 psychological mark. Actually, throughout the day the Dow dropped 50 points below there, but then it finished strong to close just above the line. Now we are at the lowest point since March. The way I see things (and hopefully this is true) is that Bernanke is preparing us for a “soft landing.” A few 100+ point drops in the Dow, for example, is better than an abrupt 500 point drop in a day- mahem! Bernanke’s announcement on Monday most likely is a preview of the big meeting at the end of this month. Maybe then by June 28, when the news comes in, the drop in all the major indexes will be priced in. For now, a possible hedge throughout this month would be to buy puts in the index ETFs (SPY, DIA, QQQQ), for example, my paper-trade puts in SPY is up 50% in two days and has effectively balanced the losses on my “paper” equity trades. Whenever I hedge with puts, I usually count the entire hedge as a loss… it’s a hedge, not an investment!

Anyway, tomorrow I expect the Dow to at least penetrate triple digit gain… we deserve it, but these self-proclaimed rebounds are becoming difficult to time. But here’s my case for a bullish Wednesday:

• Gold has fallen to $620s- this is tricky because usually falling commodities means bad market. But there are so many nervous longs waiting for a giant correction in commodities… therefore, a little shakeout here and there is a “good thing.” But then again, a lot of people fail to read between the lines.
• The S&P and the Russell 2000 both holding steady above MA200, and after today, they are quite near the MA200, making it a very popular entry point for investors.
• Crude Inventories will be announced tomorrow, and as usual, the headlines will read: “Oil inventories okay, but investors worry about hurricane season” blah.
• Consumer Credit report comes in at the end of the day (3pm), so I wouldn’t worry about a sell off until after lunch.

So, my case for a good day is not actually the best. Ultimately, it depends on whether the overall market feels we are in an oversold zone, and whether they have the ammo to take another shot.

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Today was one crazy day, at least for me. I was a victim of being a “small investor”… I’ll explain later how I watched gains of $1330 turn into a loss of $152 (man, that’s a $1482.00 swing! Ouch!) in a matter of minutes. Still, good thing I managed to put on my bear suit. I managed to have a good day shorting Elan (ELN), The9 (NCTY), and Home Solutions (HOM). I think I’m done for the week.

Anyway, before the bell I issued alerts that S&P, Dow, and Naz futures were up signalling a potential rebound off yesterday’s 199 drop, but the prices were cut in half giving me a clue that the market would continue its sell off as I originally expected at yesterday’s close (ie, Dow futures was up $22.00, but then dropped to $9.00 minutes before the bell). The Dow sank as much as $100 today, on no big news, but just to follow yesterday’s sell-off. Then at the end of the day a lot of bargain hunters hopped aboard- I too was tempted to pick up shares in ZOLT or BOOM since the past two days have discounted these two hot companies. But, I never pulled the trigger.

Why did I feel the market would be an overall ugly today? I feel the buy-the-dippers are running out of firepower, and more articles on how hedge-funds in trouble are popping up back up my sentiment. Finally, Cramer brought out a good point in his show Monday explaining that the market is down because there is a disparity between buyers and sellers- so many sellers, and everyone else are on the sidelines until the water clears. That’s simply the laws of supply-and-demand Jim! When no one is there to buy, the desperate seller keeps lowering the ask price… that’s the way I see it.

Daily Market/Stock Watch

• Titanium Metals (TIE)- this was the best performing stock on a bad day. TIE actually went contrary to my TIE::DOW model. Signs of strength.
• Peru Copper (CUP)- stock collapsed down to $5.50, but check out what happened at the end of the day!

[Diary-of-a-Day-Trader] Small Investor’s Finish Last
I made the best “short” in my short shorting history (say that 3x fast), when I picked up shares of Home Solution (HOM) on its downward spiral. I’ve noted about a week ago that HOM was showing short-term weakness since I caught on to the massive insider selling. Then the bomb dropped when the good guys at StockLemon.com gave an excellent report on Home Solutions and really bashed the company- even I was convinced they were scammers. My trade was bold as I shorted the stock at $6.36. A few minutes later the stock TANKED to $4.70 and I hit the sell trigger as fast as I could… BUT….

… my order would not fill! Usually, it fills in within seconds, but minutes kept going by, and the stock was rebounding. I frantically called up my broker, and he called up the trade table and they said that AMEX Primary Exchange has halted HOM. WHAT?!!!!

Notice though the stock was still going up because other exchanges were still trading the stock. I asked my broker why can’t I trade while everyone else is trading/eating up my profits. He said that the AMEX Primary is for “retail investors”, aka, the small investor like me, while the other guys can continue to trade:

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[Alert]

• [NEW] Infosonics (IFO) undergoing a major sell off in past 5 minutes!! Now down $10 in two days. Looking for an intraday reversal, but selling is still continuing
• [NEW] OpenTV (OPTV) is up big at the open on new deal, now trading at new high.
• Elan (ELN) has a 4:1 sell to buy ratio following a not so impressive conference call. Selling continues.
• Titanium Metals (TIE) – following the Dow, but is now oversold according to my 4:1 ratio model.
• Peru Copper (CUP) – is falling hard! Already down 6%- 8% from yesterday’s close.
• Ryan Air (RYAAY) is flat. No real direction, so it’s off my watch list for today.

I’ll post a midday update.

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The US Futures and Markets indicators (S&P, Nasdaq, and Dow) are all up, just in time for a turnaround-Tuesday. Let’s see if it will stay green after 10 am and fuel a reversal. If so, get ready to pile up on TIE.

Gold (-10.00) is struggling in Europe exchange, but not moving sharply in any direction

Also, RyanAir had a good quarter, but was negative in their guidance- find the direction and stick with it for the entire day.

Elan (ELN) has a lot of good things happening for it, but the conference call will be the trump card (there are two other ways to play Tysabri- Good news = good news: Biogen Idec BIIB shares profits 50/50 with Elan; good news = bad news: Teva Pharmaceuticals TEVA makes a generic MS drug).

Copper not performing well in London exchange, and fears of a slide in metal prices emerge. This makes shorting Peru Copper (CUP) on any sign of momentum cooling off a very good play, as CUP has been the only copper stock moving contrary to the commodity price for the past few days.

Priority Day Trade

1. Short CUP (set up: weakness in stock)
2. Long TIE (set up: reversal in Dow followed by a strong uptrend)
3. Long ELN (set up: market reacts postively to CC, pre-market up)
4. Short ELN (set up: market reacts negatively to CC)
5. Long DYN (set up: buying continues)
6. Short DYN (set up: consolidating at $5.90 and fails before 10 am, or crosses below $5.70)
7. Short RYAA (set up: sell off)

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