FAS-tastic … a day-trader’s tape

These type of days are very rare, but if you find them, then it’s worth trading the volatility.  Today I traded the 3x Bull ETF FAS both on the long and on the short side.  The market certainly played out that way as we saw the Dow rally from down -200 to +90 back to down -50.  From my notes last night I had Vix @ 55 as a rally point, and wow, did we sure get that set up!  Here’s an analysis of my successful day trades.  I made one error at Vix 52.46, where it seemed like support was building so I went short on FAS at 14.30.  It was a bit too early so exited for a loss at 14.50.  However, under VIX 50 I re-entered the short at FAS 15.25 (near the top!) and added at 14.70 and watched as it fell apart… all…the…way…down… under 13.  I covered at 13.14.  During that period of panic sell on FAS, the market reversed from +80 to -50.  Seeing the Dow/SPX red was NOT what the FAS bulls wanted to see.  Incredible!

At the end of the day, I made out about 3% on the long side, and 12% on the short side for FAS.  If I bought and held FAS from my entry point at 13:20 pm, then I would have came out with 7.45%.  Again, I don’t consider myself as a traditional day-trader, but rather a volatility trader.  I rather go out and play in the sun than watch green and red tickers.  But if volatility is on the tape, then I’m usually there to trade it.  Thought process of these trades can be found on my twitter.

Today was crazy.  Now relax brah…

Aloha
-gio-

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You can probably enter some quick shorts if the Vix gets over 51 (Wednesday’s Financial Meltdown high on the fear gauge) since the Vix will probably move higher than that if it gets near that area.  Currently the VIX sits just below 50.  However, if we do get a spike up above 55 I will be adding hedges again since 57 will be a tough spot to take out on the short term.  I’m not really sure “fear” can get that high when we have Bush being taken out of office in about a week, therefore I am cautiously short here (On the other hand, many people are selling assets based on Obama taking the role as new President.  There has been some opinions circulated around on the media suggesting that Obama will immediately be tested with a crisis or “event”).  There’s the possibility that the bulls pull together a 2 punch combo soon.  For instance, if oil reverses, energy can rally (despite that possibility, I don’t want to make that trade).  Or, bears can just cover and we can squeeze.

Whatever happens, this market is done.  We are heading lower…

January so far has given us a classic bear setup.  It’s so classic, so by the book, so simple, that I feel like something has to go wrong.  That, something will happen and catch the bears off guard a little.  Know what I mean?  Look at the setup!  So perfect…

–  Low low low volume rally from late November to early January

–  laggards leading that rally; numerous spiker-stocks/relief rallies straight up to resistance

– November lows taken out

–  Many leadership stocks reversed (AFAM, APOL, CSKI etc) on HIGH volume. See Danny’s Leadership Index update.

–  Gold back under the 50/200 day

–  Oil retesting lows

– Cramer says buy the dip

– CNBC says get long

– Vix under 40 = too much complacency

–  Dip-buying in C turns into bank/financial fail trade #1,502

– scans for breakout stocks discouragingly very low, but people still buying them

–  AAPL fails 90

… it’s just all too easy.  I’m sure you can add a number of more flags.  After yesterday’s distribution day of -3% across the indexes, the one thing that discourages me from getting aggressive short at this moment is that it feels like that’s the crowded trade.  We’ll get our setups, then we’ll attack.  I go for the wave, and not the chop.

So, what’s gonna happen on the 21st or 22nd Powell?

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Fear is back in the market!  Today we got our first Vix spike up off of retail news.  You should probably be covering some of your shorts here since you want to be shorting at complacency ( Vix under 40) and covering at fear (Vix above 50) as a general rule.  This spike up on the Vix is actually bigger than appears, simply because the Vix has been consolidating for a while (translation = dead, boring, sleeping, impotent).

Anyway, so far it looks like this week the first card of the flop is now a Queen of Diamonds.  That’s a huge upgrade from yesterday’s Two of Spades.  I don’t know, it’s still murky out there, and I still have the same sentiment on the market:  cash is two aces, but shorting is the winning side under the 200 and 50 day.

Well, at least with the Vix back we can start looking to trade the volatility.  I was getting disinterest in the momentum plays that were only lasting a week.  Looks like I pretty much nailed the medium term bottom on the Vix at 35.

I guess it’s fitting to bring this back.  This one is for the paper-chasing bulls. Wipeout!

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Save Your Energy for a Better Wave

Right now, I’m afraid of the flop.  We could get another Ace or Jack… really, we are “50/50” on the medium term, and being here on this tight range means we could easily move big.  But which way?…

… it’s really really tough to say, and don’t let anyone trick you into thinking they know, because really, they don’t.  Half of us will be right, half of us will be wrong.  Half of us will think we know the market, the other half will say it was 50/50 anyway.

Whatever.  If you have a heavy bias, bull or bear, you cannot go to sleep without first checking overseas markets.  You cannot call your girlfriend without first checking a stock quote on your phone.  You keep refreshing iBankCoin.com to see if Fly or the other tabbed bloggers have picked a side, or changed it.

I see it.  I see it all in the tape.  I feel the market when it’s afraid, when it’s hopeful, when it’s vengeful.

Look, I am a sentiment trader specializing in trader psychology so I know what both sides are thinking.  Whenever I am outside the box, looking in on traders, then I understand the market.  For a short moment, I admit, I was inside the box and that is why I have been confused.  After successfully shorting the market with the Vix in the 35-38 level, I thought the market was due for a relief rally and so I covered.  Two days later, and we still are going down, on low volume, but still down.  I can feel the bulls and bears in a long, trench warfare that is currently at a stalemate.

That is why, right now, if you’re holding mostly cash, then you are holding two aces in your hands.  Once the flop is down, then place your bets because you are in control.

Both sides have great arguments and that is why we are stuck in a dangerous carbon monoxide-filled channel that is slowly and silently killing any animal that resides in it.

However, in your mind you should understand that first, cash rules, and secondly, the winning side is the short side as long as we are under the 200 and 50 day moving averages and you’ve been short since the breakdowns.

What happened to you bulls? What happened to that “This stock will breakout above the 50 day!”  You know what, it didn’t.  What happened to that “I will wait for a pullback on this rally before buying”?  We’ve pulled back, but no one is buying.

And you bears, where are your testicles?  What happened to “No worries, we’re rallying on low volume”, well guess what, we’ve been fading on low volume too.

Investors Business Daily still has us as a “confirmed rally” on their front page… well, this is the most unconfirmed rally in the history of rallies.

Yesterday I did some portfolio shuffling, and today I will probably do the same.  I mean, I just don’t feel comfortable with what the market is whispering right now- Vix consolidating; leaders reversing (education/medical); doji charts… feels like the market is cooking up something.  We could launch up or down, but I do NOT want to be a part of this.  I really don’t.  Not until I see more “cards.”  Thus, I will exit more long positions (sold my education longs already) and remove all recs on swing longs for now; I also intend to cover shorts that have lost a lot of volume in the past few days.  I have to let these stocks “re-set”, or, in a Poker analogy, I have to wait for the cards to be dealt before making bets.

Don’t get me wrong, I’m not full blown bearish here.  In fact, I advise not to enter new shorts here either (especially fades) because on the short term, we are really oversold, and the Vix is “overbought.”

Simply put, if you are long or short here, you are merely hoping.  Hoping the indexes bounce or fall through support, because that’s what you were taught.  Sorry folks, you’re too early; you’re jumping the gun on hopes.  In the long run, the market doesn’t make hopeful people money… it makes disciplined people money.  If you’re not comfortable with your positions, go to cash (don’t cover shorts that are working) because you really aren’t missing out on anything.  Sometimes you just have to let the small waves pass in order to catch the big one.

ALoHa,

Gio

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Enjoy some local ‘kine music from Hawaii’s island trading blog.  Just chill.  That’s how we live and trade here.

Check my twitter early morning, every morning, for “thinking out loud” trade ideas.  They’re intended for me, but you might be able to find it useful.

Alohaz!

-gio-

http://twitter.com/thehawaiitrader

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What was that?!

Today’s choppy, misdirectional tape felt a 2 of Spades was shown on the flop.  At least the 2 wasn’t a diamond.

APOL sold off on a report.  Managed to hold 80.  DV and STRA followed to the red, but APEI and CPLA remained green.  Still too early to short.  Will buy the next dip.

ISRG reversed at 104.03.  That’s a good stop point if we decide to short here.

Ags/Ferts for strong today.  TNH up 7.85%, getting closer to the 110 range.  Currently at 106.49.  Stock is heavily shorted.

SRS showed bearish signs today.  Market at -90 was the only way it was green.  Closed down nearly -6% close to the lows (61.03) despite red Dow and slightly green SPX.  SRS does not work well in mixed markets.

Gold showed some bearish signs.  Shorted EGO based on GG rally back to the downward channel (use 12-day)

AFAM rallied right up to yesterday’s lows.  Consolidating here.  Not ready to re-short.

Solars got quietly and brutally hit.  JASO and SOL both down -9%

AAPL looked scary, but later bounced 86.35 creating an intraday double bottom.  Rallied up to yesterday’s close.  Again, a low and tight range.  Nasdaq is a short with AAPL under 86.35.

Banks continued to fall, but today didn’t take too much of the market down. ie, BAC.

Oil moved up a little.  CLR, HK, GMXR up about 4%.  Airlines down nominally.

… we probably will continue to be “flat” and/or “choppy” for a while.  The market is rangebound.  Better to wait to see the flop first before making big moves.  I plan to play the intraday directions.  Today was a day where there was none!  Very tricky day today.  Yikes!  Given a certain direction I prefer to short on day trades.  If not, then I think it’s a good idea to just hold your aces and stay mostly cash.  If I remember correctly, the market has had 6 straight red days on the Dow and NDX, and 5 on the SPX… ?  Something like that.  Regardless, it’s not a good time to enter new shorts here, plus I had Vix 45-47 as a cover point.  I probably won’t get too aggressive or make much trades until the Vix is in the 47-50 area.

-gio-

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