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Managing A Winner

There’s never much discussion or analysis of a winning position on the interwebs.  Mostly we just get the end zone dancing, which is about the only thing I enjoy in football.  That and Mike Vick like five years ago or Barry Sanders in the early nineties. 

Trading psychology books often state as fact (What’s really a fact in psychology?  I mean come’on, I eat brains) that the sting of a loser stays with a trader much longer than a win of equal proportion.  Perhaps that’s why we pour over a loser, or hold memes like “There’s always a lesson in a loser” so tight.  I certainly learn from every trade, all kinds.

With that in mind, let’s take a look at a ten bagger I traded this week, Riverbed Tech — ticker symbol RVBD:

I’ve marked points where I’ve scaled, and I’m still holding a 1/3 position. Going back to psychology, I need to lock in gains along the way. It feeds my craving for instant gratification. Therefore, I always scale out at logical price levels. I figure I can always reenter the trade. HOWEVER, once I get down to my runner, it becomes a matter of conviction in the name and the picture the chart is presenting.

As I noted, the $20.00 level is the next logical scale point and I may sell there. But I may also stick around the name and ride a pullback, eventually reloading my position. If you pull up the weekly chart, you will see a significant amount of price confluence at $20.00. It’s a very logical scale point, perhaps too logical. Therefore, given the magnitude of the pump and the bleeding logic surrounding the “big round” $20.00, I may go for a fill of the above gap.

Study your winners just as much as your losers.  Don’t beat yourself up either way.  Remember, the holidays are about forgiveness.

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Goldman Sachs Breaks The Cup – Builds Market Confidence

Today your favorite senator’s bank, Goldman Sachs, made a clean break through the neck (cup?) line I recently highlighted and suggested you give buying GS shares a strong consideration.  Going forward the $125.00 level should be considered a VERY significant price level for not only GS shares but the entire market.  Massive investment banks have massive institutional shareholders and are an important piece of sentiment for the overall market.  I scaled off half my position as it had grown to nearly 20% of my portfolio but the breakout merits continued bullishness.

Keep this important level in mind as a puzzle piece when forming your bias:

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Not All Retailers Digest Turkey Equally

There has been a noticeable outperformance by online only retailers since the week leading into Thanksgiving.  Doing some old school channel check homework at my largest shopping centers has turned up lighter volumes.  Have people cut back on spending this holiday season, or are more people opting to shop from home/work using their smart phones and PCs?

I initiated longs in SHLD and SKS this morning in anticipation of them playing a bit of catch-up, however, I don’t trust their brick-and-mortar business models nearly as much as their online ONLY competitors.  Heat, well dresses sales associates, rent, and taxes are expensive.  I’ll dump SHLD and SKS on any signs of weakness.

Update:  I sold both SHLD and SKS when neither name participated in the 10 handle S&P rip.

Note the respective performance of AMZN, EBAY, SHLD, and SKS since the Monday leading into Thanksgiving:

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Markets in Rip Mode

Going into 8:30 the S&P futures were above recent swing highs.  We set a Globex high at 1434.25 and we are pricing an open right near yesterday’s close.  I noted early yesterday that a Santa rally may be short lived and I wanted early involvement.  Yesterday was the spark that lit a massive pile of paper aflame, whether we get the soaked logs ignited is another story.

I expect to see some early back-and-fill action.  Key price areas include last Wednesday’s Fed reaction around 1430 then possible support at yesterday’s high/close which coincides with last Wednesday’s value area high at 1428.   The next level of key support is yesterday’s value area high at 1422.  Should we sustain trade below that level I would expect a quick trade down to the value area low of yesterday down to 1416:

My plan is to cut any early weakness out of my portfolio if necessary, to make room for better charts.  Stocks of interest going into today are CERN, HEK, FTK, REGN, SHLD, and SKS.

For the sake of redundancy of an important concept, should we sustain trade below 1422, we could get a quick flush.  I may cut some longs and see how things pan out.

Update: S&P making a new overnight low into the open.  Looks like participants want to re-auction the thin rip from yesterday’s close to ensure buyers are still present from 1422-1425.  Not quite rip mode!

Update II:  We are in fact IN RIP MODE!

http://youtu.be/ofoIMg76Sng

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Facebook Enters The Honey Hole

My favorite trade is the first pullback after a big thrust higher.  The more violent and unexpected the thrust was, the better.  One of the best ways of identifying the magnitude of the initial thrust is by using a momentum indicator.  Many use the RSI, I prefer the CCI.  If you look at how CCI is calculated you will understand how its oscillations reflect momentum.

I started buying FB two Fridays back perhaps a bit overzealous sure, but it wasn’t a full position because the stock had not pulled back into my honey hole.  Well here we are today, in the honey hole.  Now I didn’t buy any shares today, and I may not buy any tomorrow, but should we see STRENGTH of rhinoceros proportions I want a full position and will add.

Completely aside: I got creamed for a good 2% loss to my portfolio earlier in the year exhibiting my voodoo on the  thirty three level as if it was any semblance of support the day after IPO.  I learned my lesson, and @chessNwine made sure to iterate that we should wait 3-6 months to get a better technical picture of IPOs.  Thus, I am patiently waiting to buy shares in lifestyle brand RH which I can assure you will be in my portfolio in 2013.  Developing…

Note the angry bear’s laser like focus on the honey hole:

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Put Some Cash To Work

Sometimes rallies of the Santa variety can be short lived.  I want my cash working in the market early so I went to work buying high quality charts.  Last night’s homework, 95% of which was done on this BEAST site alone, had me ready to pounce at the first sign of heard buying.

I sold MLNX because it made new lows early this morning and likely won’t find strength until a catalyst comes along, possibly earnings or the massive migration to online shopping.  I started new positions in RVBD, AMZN, and BF/B.

My largest position (GS) is performing admirably as is the entire financial sector.  All my other positions are still behaving constructively.  There’s a lot of session left, but the bulls grabbed the edge early.

After my morning moves, cash has been brought down to about 18%.

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Drink Up This Holiday Season

I built a new screen this evening in The PPT to feed me stocks and ETFs nearing hybrid oversold.  Considering my desire for instant gratification, I honed the screen in on names with strong three day performances following a hybrid oversold reading.

The screener piqued my interest when the top two names on the list (BF-B & CEDC) were from the Beverage – Wineries and Distillers industry.  I then noticed the industries low ranking in The PPT universe.  I like extremes so I pulled the charts up and like what I see:

I also like the high and tight flag forming in BEAM, especially where it resides within the range from earlier in the year.  A retest of the ranges low end would be the perfect x-mas gift to buy with both hands:

The sector has relatively mild seasonality favoring the bulls, and the charts seem to agree with the thesis. I love spending the holiday season purple lipped from enjoying wine with family and friends.  The holidays are always a great excuse to buy high end spirits as gifts and for memorable house parties (full Jason Treu).  And in support of the above Santa picture, I still hold shares of PPC aka the chicken don.

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Test Driving The PPT

The halls are decked with holly and wreathed succulents are paring with the aromas of the fire to create a lovely woodsman scent in my home. The animals are lounging and I couldn’t imagine a better way to spend my evening than at home opening Fly’s toolbox, The PPT. The unfettered celebration last night, which brought out the best/worst of my normally politically correct co-workers, was fun and dare I say outlandish. Pare that with the excitement of getting an interim position here, in the hallowed halls, and let us just say I’m just now returning to my senses.

The first time firing up The PPT is like stepping into a formula one racecar. Mario Andretti could configure a car to his exact specs, but you can’t expect to hop in and win the Grand Prix.

Good luck with that

I look for a very specific chart pattern when I enter a stock. It doesn’t always look the same but the methodology is simple. There are two steps. Define a stock’s trend, and trade the pullbacks in the directions of the trend. That’s it, momentum trading. Sometimes I wrap a thesis into my positions, other times I seek diversification of industries.

The PPT clearly can increase the odds in trading with one data set alone, seasonality. I’m thrilled to build my understanding of The PPT scoring systems and building their probabilities into my trades, but I built my first screen to build the seasonality edge into my momentum trading.  Thus the “Comeback Kids” was born, and I like what I’m seeing.

I built the screener to give me stocks that have underperformed their seasonality this month and tossed in a few fundamental ratios and volume thresholds to ensure I’m not getting any garbagio. The idea is mean reversion to seasonality. If any of the results fit a trading picture I like, I’ll stalk come Monday.

Several of the 37 stocks look ready to make a comeback. I really like Cooper Tire & Rubber (CTB). It has the look I like and a thorough seasonality dataset:

It has over 3% of mean reversion seasonality built into it, which coincides with the first logical scale out point, prior swing highs. Getting that first scale means I’ve done my job, and pumps thereafter are the cream (no homo).

 

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The Essence of Knife Catching

“We are what we repeatedly do.  Excellence, therefore, is not an act but a habit.” – Aristotle

The allure of buying a stock that has been crushed in anticipation of a juicy mean reversion is enough to zero out many traders accounts.  On the charts, the positions always look magnificent and take almost no heat.  But the nature of a stock cascading lower is much different than what one finds in a pullback of a prevailing uptrend or even a flat liner.  The stock is falling rapidly in value because there are more sellers than buyers, and the price is exploring lower for interested buyers.  It won’t stop until it’s met with a buying force stronger than the sellers so knowing “where you’re wrong” is vital to preventing portfolio devastation.

Setting a stop is something traders always hammer home, but in my experience the essence of success is more than setting a stop, it’s consistently setting a stop in a methodical manner.  I’ll demonstrate my method with my current knife catch, which is drawing blood from both my palms, MLNX:

The levels I’ve drawn are Fibonacci extensions of the prior swing higher.  The idea is participants who successfully caught the knife the first time will have stops placed below their entries.  Often times the market will go on the hunt for these stops and the next move lower is an artificial lowering of price that will be resolved once the hunt is over.  Of course if price continues lower even more selling could be triggered so get out of the way. 

By defining the setup and repeating the methodology over-and-over, I can build statistics on the trade and based on the win-rate I can determine position sizing.  These types of trades aren’t as high a win rate, but the reward much higher, I usually max out at ½ the size of my normal position.

 

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Logical Scale

You can stay with your positions and stick some coin in your purse.  I still like ATML and it’s having a good day.  However, my plan dictates taking some profits when price reaches a level where it’s likely to pause at the least.  Don’t over think stuff like this, keep moving:

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