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chessNwine

Full-time stock trader. Follow me here and on 12631

Excuses Are For Losers

noexcuses01

On days like today, you see many traders whining about how politicians and external events lost them a lot of money in the market. They were holding such beautiful stocks with amazing potential until…IT happened.  Sure seems like an easy thing to do. Why come to terms with your face-buried-in-the-sand-all-in-triple-long strategy, when some four-eyed schmuck of a screaming Senator on television has his glasses dangling from his nose like he is about to flunk your doctoral dissertation? Well, the fact is that we have been losing momentum as of late in the markets, and I strongly suggested that you have a large cash position throughout earnings season to boot.

Stocks are getting crushed today, and the underlying action is even worse.  We have taken out the 20 day moving average on the $SPX and, barring an impressive close, we have also clearly broken down below the trend line of the rally since February.  The best thing I can tell you right now is to IMMEDIATELY come to terms with your current portfolio.  Cut any laggards you have had on the long side, as they will get crushed twice as much in a correction.   Beyond that, being at least 30% cash is the ideal position.  We have many layers of support below us, so if you choose to aggressively short here then you need to be extremely nimble doing so.

Finally, if we manage a rally attempt this afternoon, watch the 1195 and 1200 levels as resistance to see how well we negotiate them as a gauge of strength.

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Churn Baby, Churn (Market Wrap Up 04/26)

churning

The $SPX fell 0.43% to close at 1212, as we made another marginally higher yearly high today. To be sure, momentum is waning, and the new highs we are making are not particularly breathtaking given the underlying action that we are seeing. Many intraday moves higher were faded into the bell today.  Let’s be clear, the real issue is whether we are simply in a period of tight trading before our next move up, or whether we are slowly sliding down the rope before the bears really seize control and we go crashing down.  The reason why I say we are still in somewhat of a neutral, consolidating range despite making fresh highs is because of what I am seeing in the chart below.

spxdaily15

As you can see, we are churning at the lower trend line of the rally since February.  It is a real plus for the bulls that we remain above the 20 day moving average after having tested it twice last week.  However, as I said last evening, the longer we churn here the more likely it is that we will eventually break below it.  Lower trend lines are supposed to serve as a supporting reference point, where bulls aggressively buy a dip there.  Here, we are seeing a mentality that the market is merely “hanging out” at the lower trend line, rather than sharply bouncing off of it.  This is something to keep a close eye on tomorrow and beyond, but it is probably not something worth acting on to the short side quite yet.

I raised my cash position to back over 50% today, as I sold out of $AES and $COCO.  Perhaps I am being too cautious, but frankly I am at peace with the idea that if we catapult higher tomorrow I will not reap the full reward.  For me, the stock market is not just about potential reward, but rather the reward relative to the risk involved.

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Chess Moves

6a00d83452a49969e200e554cbe3c38833-800wi

I sold out of $COCO and $AES earlier today. I am content to raise more cash here given that market leaders like $GOOG and $GS are seeing big breakdowns.  I am still looking for longs. However, I am inclined to be as picky as I have been in months when choosing setups.

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Setups For Week Of 04/26-04/30

spxdaily14

As I discussed in my video market wrap up on Friday, the broad market is acting constructively.  The bears had every opportunity last week to take this market down hard given the Goldman Sachs and  Greece news, in addition to all of the calls that we had rallied too far, too fast.  However, the charts indicate that we consolidated in a healthy way for most of the week before making a marginally higher high on Friday. We also tested the 20 day moving average (blue line above) twice last week successfully. Going into this week, it is important to remember that we remain in earnings season, so make sure you check the earnings schedule for each of your holdings.

I would also become cautious on the long side if we test the 20 day moving average again this week.  When you test one of the major simple moving averages (20/50/100/150/200), you would like to see a sharp bounce off of it.  When you start to see churning or a general hanging out at a moving average after a nice rally, it usually is a harbinger of a correction to come.  With that said, however, I will not fight this trend.  I just want to point out scenarios that may unfold in advance, so you can mentally prepare what you will do if faced with them.  I am either long or in cash, but not short at all.

Besides the $SPX, if you are looking for possible leading indicators of which way the market is going to go next, here are three charts worth keeping an eye on. I chose them because of their respective reputations as bell-weathers.

dd

ge

iyt1

Below, you will find my top individual setups for this upcoming week. Feel free to pick and choose whichever ones best suit your trading style. Also keep in mind that even the best setups can fail, so please use stop losses as a way to manage downside risk.

glw

ysi1

yrcw

swc

mlnx

prgn

gnk1

aes1

coco2

Finally, if the market weakens this week, keep an eye on these marquee names for shorts,  as they have been breaking down.

gmcr

goog

gs1

DISCLOSURE: I am long $AES, $GLW, $COCO and $YSI.

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Trading Like a Lawyer

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PART I. A GENTLEMAN OF HONOUR (sic)

Now that I have the emotional buffer of being several years removed, the entire ordeal of first year law school exams is completely and utterly hilarious, yet also pathetic.  All semester long, you read actual cases and memorize stupid facts like the name of the grocery store where the Plaintiff slipped and fell on her ass because there was a spilled can of Ragu pasta sauce in aisle 4.  During your entire academic life, you did well by outworking everyone else–It worked in high school and college. Lo and behold, just as you are finished digesting turkey on Thanksgiving, it hits you that your one and only exam for each course is quickly approaching,  You scramble to organize your notes (“outlines”) and you attempt to memorize every last detail of every single off hand comment that your professor made in class.  The students in your first year class start freaking out.  Girls stop caring about makeup and tight jeans. It is all sweat pants, all the time.  Guys who you thought were decent people some how, some way, have suddenly developed the knack to keep forgetting to send you the notes you asked them to, for the one Constitutional Law class you missed when you had the flu.

Before you know it, you are staring down at an exam and a bluebook answer sheet in a quiet room with your classmates, many of whom are jittery from the combination of energy drinks and pills they have been popping as a last ditch effort to cram it all in. You are competing directly against them on a grading curve. Hence, performance is all relative. You have three hours to answer about five essay questions, and that will single handedly determine your grade for the course. They are hypothetical fact patterns, where a client comes to you with a long sob story, and you get to “play lawyer,” and advise her on her legal issues and  the ways to address them.  No class participation grade, no “A” for effort, no scratch and sniff stickers, no names–all anonymous.  When it’s over, it’s over.  You will probably stand outside in the courtyard and nervously do a post-mortem on the exam with insecure douchebags that are trying to psyche each other out after the fact.  You will rinse and repeat this process for each of your first year exams, pretty much. When you finally receive your grades several weeks later, you will be so burnt out that it will barely matter anymore.  You will have done well on the exams you were sure that you failed, and you will have not aced those exams you were sure you did.

To that last point, about a week before my first exam, one of my more esteemed professors, a cocky middle aged rock star of a professor with a thick British accent, gave my class a lecture on the entire spectacle surrounding law school exams.  He taught Tort Law, which is comprised of legal issues such as negligence, intentional infliction of emotional distress, assault and battery, assumption of risk, etc. Basically it is anything that isn’t a procedural, contractual or criminal case. After reading iBankCoin for over a year now, you can imagine how hilarious I find his speech now, given all of the British accent/gentlemanly references that The Fly and Jake Gint regularly make.  With no less than a few days to go before his exam, he coolly told the nervous class, “You can study all you want and still get a ‘C’ or worse. This is not college. I will give you no points for rambling on a concept after you have already earned your allotted points.”

In other words, what he was saying was that if you blew your wad talking about a negligence issue in one of his hypothetical fact patterns on the exam at the expense of talking about another issue–let’s say an assumption of risk issue, then you will have missed out on a legal issue and thus not get full credit.  Of course, this makes sense.  Let’s say you’re a lawyer in the real world and a client comes to you with a long sob story.  He asks for your advice, and you do really, really well telling him about one issue he faces, but you completely miss another issue that is significant.  Well, you’re a shittier lawyer than the other guy who can cover each issue even if he does so only superficially.  Do you see why? Lawyer’s can’t afford to miss issues.

Anyway, the cocky British guy showed us a sample grading sheet that he used for one of his older exams.  It looked like chicken scratch, and it was typed! He wrote in fragments, with some point allotments next to each issue.  He showed us the corresponding question sheet, and it was a long fact pattern of a question that appeared like it needed a long, grand response to get an “A.”  For the purposes of this example, let’s say it was the above story of the lady Plaintiff slipping and falling on her ass on a spilled can of Ragu at a grocery store.  She sued the grocery store.  Turning back to his grading sheet, it literally looked something like this:

Negligence (5 points)

-Store have duty to Plaintiff? She was a customer–special relationship. (4 pts)

-Breach o/ reasonable care? Depends, how long was Ragu on the floor for? OUGHT to have known? (3 pts)

-Proximate Cause? Did she slip because of something else? Should she have been more careful? (2 pts)

I thought to myself, “That’s all?! THIS is all there is to getting an “A” in law school?! This little bullshit grading sheet?” You see, he didn’t even care what conclusion you arrived at, so long as you briefly mentioned the relevant issues that arose.  If you did, you got points. If you didn’t, then no matter how intelligent and godly you sounded in your eloquent response, you were wasting time. He also couldn’t care less about you dropping case names or bullshit facts from the cases you toiled over all semester long.  All he wanted to see was that you knew the relevant legal issues cold and could apply them to a hypothetical case that he had concocted.

The professor then concluded his little speech by smugly saying,

“You see, in theory, it is really not that hard at all.  You should NOT start writing your answer right after reading the fact pattern. Rather, you should take a few minutes to organize your response issue by issue. And then all you have to do is ‘dink’ each issue on its head in a focused and cogent manner. Besides, why should I give you credit for regurgitating facts or case names from the semester right back to me, when it’s an open book exam?”

In retrospect, I can probably look back on that speech with a smirk because I got an “A” on the exam, basically by following his advice, and also because I loved the subject matter.

PART II. APPLIED TO TRADING

An interesting thing about trading, or even investing, is that the market seems to be like one giant open book exam every day. The opening bell rings, and there are many issues to spot. You are basically on a large grading curve with other market participants, just like you are on a curve in law school.  If a stock drops sharply, it may be a good buying opportunity, or it may be time to sell and cut your losses if you’ve been holding it.  It really all depends on your analysis.  One thing is for sure, if you spend all of your time focusing on one particular issue for a stock at the expense of another issue, you are making a mistake just as my professor said.  For example, let’s say you are an expert in technical analysis, and you see a chart that is a true gem. I mean, when you look at the chart you think it is almost orgasmic.  Well, guess what? If you buy that stock and it turns out that they are reporting earnings the next morning, and they miss and the stock gets killed, you missed an issue!  You see, it’s the same concept.  If you miss an important issue, odds are that other market participants will not, and you will fall behind them on “the curve.” Only here in the market, as opposed to law school, missing issues means that you’re losing capital.

Beyond spotting issues, perhaps the best thing that has helped me as a trader is organizing my notes before each session.  As crazy as it sounds, I have a little grading sheet of my own for each stock that I hold, or am considering trading.  It looks something like this:

GLW (Corning)

-Cup and handle pattern–bullish

-Can it break $20.85 (key resistance level)? If so, on volume?

-Earnings soon? (Wed 04/28)

-If no breakout by Tues–consider selling? (Depends where price is)

I urge you to do the same for each of your holdings, or potential ones.  You are bound to be overwhelmed if you do not have a specific watch list of stocks for each day, or at least each week.  But, frankly, that is not enough. You should be more organized than that.  You should know each relevant “issue” for every stock you are stalking, just like a lawyer should for each of his clients.  Being organized and doing your homework are two of the most basic things that you can do as a trader to become more profitable. If you feel overwhelmed by all of the stocks that you are looking at on a daily basis, then cut down on the number of stocks that you are scanning.

Thus, with your notes front and center, all you have to do is run through your “grading sheet” and see how each stock is holding up during the session.  Will the GLW cup and handle pattern materialize before earnings next week for me? If not, maybe I will take off half of my position so I am not making a big earnings gamble.  Either way, I will see the issue and have a chance to address it.  There are enough external variables in the market, that you should have a tight leash on those ones that you can, indeed, control.

I hope you found this post helpful.

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