Time For Reflection

Today’s market was a good example of how sensitive the street is. When news came out that durable goods were down, the market shot up (“bad news is good news” = durable goods down, inflation down). Then at around noon time when news about higher home sales arrived (“good news is bad news”), the market fell back to the red, once again, on inflation worries. For these reasons I went back to cash at the close because tomorrow we get bigger news on GDP. I am certainly not ready for this kind of volatility.

I did spend half of the trading day watching TIE, since I did a gorrila day trade on it (short). I timed my entry point to the tee, but at the end of the day the market rallied, so once again I watched my profits rise, then fall, and actually closed the trade with a loss (TIE is not a stock I feel comfortable with holding over night right now). Pigs get slaughtered.

Anyway, that long trip to the red zone got me analyzing my trades for the past week- frankly, it’s been horrible! So far for the month of May my winners to losers ratio is 5:10, or 67% losers. Now that actually sounds a little normal, “1 out of every 3 trades are winners”, however that strategy only works if that winner is large enough to offset the losers (ie, ride your winners, cut your losses). Therefore it’s a huge problem for me because most of my losers are significantly large! I do have many stop-losses to blame. Also, that strategy works better for swing trading, not day trading. Well, I’ve certainly gone off track, especially these past two weeks. The only consolation I can find is that these past two weeks have been very difficult to trade for everyone, and I guess it could have been much worse.

But there’s no time to make excuses on the street. Just learn. With that in mind, I will be posting an analysis of trades I made (good or bad) about 2 weeks after the trade so I can see what I did right, wrong, and find out what I can do better.

Actually, Wallstreet is one up on me.

Finally, I’d like to see a better ratio (ie, smaller gains at less risk) in my trades. Maybe something like 2:5 (40% winners). So far, I think if I were just a little more patient in holding the stock I could have done much better.

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I just finished outlining potential day trades for tomorrow (5/24/06), you can check them out at [Intuitive] Swingtrades. There’s a ton of volatility going on throughout the market, so keep an eye on the index, oil prices, commodity prices, and the Asian markets. Most of my trades include “pull-backs” on today’s winners just in case the “self-proclaimed reversal” falls apart; I’m also looking to trade those bird-flu stocks if the momentum keeps up. Remember, Monday is a holiday so expect Wednesday and Thursday to have a lot of trading. I’ll be on AOL Instant Messnger (“r0i0k7”) tomorrow morning if you want to chat.

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Guess what, I woke up 7:00 AM so I missed majority of the fun! I’m particularly mad in not buying China Finance Online (JRJC) long- that was the best low risk/ high return trade in my set up. I also missed the ethanol (ANDE, PEIX) and speciality metal bounce (TIE, ATI, RTI). As I noted earlier, these stocks are “market sensitive”, so when the Dow shot up 70 points, these stocks led the pack together with the metal commodities. Finally, I attempted to do a pull-back short on Ballard Power Systems (BLDP) but there were no more shares to short available! I guess that’s a problem when you go with a “small” online broker like Scottrade. It would have been a good 1 hour trade.

There was just one problem with the market- too much fear. The Dow and Naz were well on its way to 2% gains, but in the final two hours of trading, the rats jumped off the boat when news of rising oil surfaced. Other gains that were noticeably wiped away were in the metal commodity related stocks. The commodities were up “on speculation that the run is not over”, but there wasn’t enough strong evidence to keep the momentum up. At least gold is back to $670, and copper staged a major comeback (about 11%).

Well, I missed the rare and beautiful day trading setups, so I ended up just doing an overnight short in PEIX (perhaps it went up too high), and STP (which showed a lot of weakness in the final hour). I tell you, it’s tough to sleep early in my house; plus my room is being occupied so I’m away from my usual station. I think the hardest part about day trading is realizing that you missed a day with huge opportunity. One final note- the Dow is closing in on 11,000… a very strong pyschological spot.

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My latest setups for trading is now posted at [Intuitive] SwingTrades. It’s built on the assumption that the market opens green and moves up strong. But just in case, I still have short setups, mainly the ethanol stocks. Well, get some some rest, charge the iPod, and chill the xTra-sharp. I’ll be trading (or just watching) at about 3:30 am (ha! maybe 5 am), but if you’d like to join me I’ll be on AOL Instant Messenger. My screen name is “r0i0k7”, that’s r-zero-i-zero-k-seven.

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You can tell a lot about the week just by watching what happens Monday. The chance of a bounce seems to be much better this week- metal commodities fell in Asia, but made a come back in the U.S.; there’s not much economic data to be released to set off more inflation scares, well, except for GDP announcement (on Thursday), but I think the 200+ point drop in Dow has already priced in most of the fears (then again, I don’t know how GDP affects inflation… learning about GDP was so boring in econ class); oil is down; and we’re in heavy short term oversold territory. With that in mind I have a stock screen of stocks with 10-day highs. This screen is by Kirk, a professional trader I email with time to time. Anyway, I’m sitting mostly on cash since I plan to do some gorilla day trading tomorrow… if everything lines up, and just in case we see a bounce!

U.S. GDP Trend

Radar

• Pacific Ethanol (PEIX)- down another 13.53% today, hitting my target of $25. Too bad I covered on Friday. Idiot. Anyway, it’s hard to tell where this stock will go from here. I do think it’s more fairly valued, but if the market turns up, so will this. The June $30.00 calls are so expensive, it’s as if everyone expects this stock to return there in the next few days.

• Titanium Metals (TIE)- the group’s “favorite” stock. I’ve decided to leave this stock to the pros. I did a quick back of the napkin comparison with the other specialty metals (ATI and RTI), and TIE is actually the most expensive of the bunch, trading at 34x earnings, while RTI trades at 32x and ATI trades at 15x earnings (Google trades at 65x earnings). If you noticed this group had a significant sell-off today, all down an average of 7%. If you trade TIE, keep your eye on $31.00… that’s your support.
  
• Metal commodities- whoa, I had to cover my short on silver, since silver actually crossed over into the green today and performed better than gold. With that said, I’m back to neutral on these metal stocks… just in case we do see a bounce much earlier than expected.

10-day high stock screen
(stocks showing strength through a bearish week, by Kirk; click [HERE] for quotes)

I narrowed the list down to my favorite 6 :

1. Comtech Telecom (CMTL)- in a breakout; day tradeable
2. FTD Group (FTD)- bullish stair pattern
3. Perrigo Co (PRGO)- very bullish chart
4. Agilysis (AGYS)- looks like a favorable sector; daytradeable
5. Merit Medical (MMSI)- in another good sector
6. Medifast (MED)- probably my favorite of the group; volume has been picking up… like cRaZy!

Keep an eye on the entire screen, and stick with the ones with continued strength. I’ll post exit points on my picks later on the other site.

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Okay, one last post for tonight, since I thought this was pretty significant. I think we’re slightly ahead of the market here. We have insider buying for Timet (TIE), and insider selling for Pacific Ethanol (PEIX).

Titanium Metals (TIE)
This one’s from Gary. Harold Simmons, aka “Timet”, bought a HUGE amount of shares of TIE on Thursday May 18, $6.8 million worth! The next day, the stock shot up as much as 15%! You can check the SEC filing [here]. The last time Harold bought shares the stock rose another 20%. A possible correlation? Anyway, he now has well over $40 million worth of stock in TIE. This guy really believes in the company, and if you invest in TIE, this kind of stuff makes you feel better about your holdings. I’m sure Harold’s trade will hit the news sometime soon.

Pacific Ethanol (PEIX)
If you check out Form 4 Oracle, there has been heavy insider selling of PEIX. Okay, so there are many reasons why insiders sell their stock that doesn’t necessarily mean it’s a bad stock. But given the meteoric rise of PEIX, and the market’s love for ethanol, we cannot rule out that maybe these insiders feel the stock is overbought. Another thing to keep in mind is that the CEO did resign, so selling his shares is a normal thing to do. But still, notice the huge amounts of selling in May and April: May had over $10 million in planned sales, and April had over $89 million, bringing us to about $100 million worth of stock sold in about two months! These huge amounts are definitely not normal sale amounts, so I’m keeping a close eye on the stocks. The last time I saw this activity was with Google in December, and the stock gave up over 100 points.

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