Cover your solar shorts? +40% gains in 3 days? Yes, cover!

This is for those who faded the solars (http://ibankcoin.com/gioblog/?p=2217).  I am issuing a warning to take profits on any shorts in solars very soon, either today or by tomorrow.  At least cover half of your position.  I would not want to stay short solars over the weekend.

For those of you who are position trading into solars, you may want to take note of FSLR bouncing off a key support today at 137.  You can enter here, or you can wait for the next Vix spike up for a more conservative entry point. 

Speaking of the Vix, notice it just trending straight up today.  No spikes!  Again, this means people still think the bear rally is not over and are moving in and out of longs, trying to find an intraday bottom.   Remember, your probabilities are low to find an intraday reversal without a spike in the Vix.

Anyway, if you faded the solars as a swing trade, you came up big in the past 3 trading days.  These are HUGE  +30% gains.  Classic fades!…

Right now, I am waiting for the final hour of trading to get long solars as a day trade.  Relief rally play.  But that’s irrelevant to this post.

aloha!
-gio-

“Too much complacency.”

That is what me and Mac (chartswingtrader.com) were chatting about yesterday as the market punched in another 200 points before elections (http://ibankcoin.com/gioblog/?p=2220).   “The spike down only tells me we are getting near overly complacent levels.  Take partial profits, or start hedging some longs.”   …Vix wins again.  Here’s our chat yesterday:

Mac:  Gio, Do you see volume totals still low overall for today? Not as low as yesterday’s putrid totals but well below average? They look low here via Telechart but it is always hard to tell intraday. All I see moving here are solars, coal, and oil stocks, at least on my watchlists. The strong stocks of the past week are pulling back or putting in reversals. I find that weird. I would agree therefore that things are possibly getting complacent here and the possibility of a reversal exists. That is, unless we are going to have a rally like August-October of 2007, where there was virtually no volume the whole time but stocks still went up. Hard to play those rallies though. I have a feeling that is what we may be in for.

Gio:  I’m bullish on commodities in November, but the Vix this “low” is telling me to start taking profits or not enter new longs. A lot of low quality stocks are up on low volume.

Man, I remember that dumb rally from August-October! It really hurt the technicaltraders. It also led to THE selloff of the decade. I hope that doesn’t happen again.

I originally had Dow to +10k on this rally, but seeing how fast the Vix got crushed makes me think twice. People forget, that the reversal to the upside occurred when the Vix was north of 80. That’s almost 50% away in less than 2 weeks. sheez.

Pinoy (pinoytrader.blogspot.com) wants me to buy solars on a dip, but I’m like, “what dip?” We haven’t had one for about a week! Oh well, lets watch this market rip higher.

… after the spike down, the next day the Dow dropped almost -500 points, even though many people were bullish on the elections.  Too many people wanted “green-energy” stocks as Obama was stomping the competition.  We told you to fade.  Look at [[spwra]] or even ReneSola Ltd. (ADR) [[sol]] or JA Solar Holdings Co., Ltd. (ADR) [[jaso]] .  Case closed.

Welcome to iBankCoin, where traders come to trade.  Careful, you might get shot here.

Well, I got this sector on lock down for now.  Yes, “for now”, because according to the law of large numbers after being right on solars too many times, my next call on solars will be wrong.  I called a fade on solars Monday night ahead of the elections (http://ibankcoin.com/gioblog/?p=2217) based on the fact that you should “buy the rumor, and sell the news.”  I warned yah… “take profits in solars!”  Obama Green stocks = red stocks [[spwra]] , Suntech Power Holdings Co., Ltd. (ADR) [[stp]] , First Solar, Inc. [[fslr]] , JA Solar Holdings Co., Ltd. (ADR) [[jaso]] , Energy Conversion Devices, Inc. [[ener]] , Yingli Green Energy Hold. Co. Ltd. (ADR) [[yge]] , ReneSola Ltd. (ADR) [[sol]] , LDK Solar Co., Ltd. [[ldk]] .

I also got the Vix readings down, which is my personal Da Vinci-S that I use to dissect this market (what? you don’t know what aDa Vinci-S is?  Shame on you).  Its easy to get caught up in the “market is going to rally because some woman is not going to be vice president” justification (no offense to vice presidents), I mean, that’s probably what 90% of bloggers out there thought.  But the Vix double spike theory shut that down saying to NOT buy that nonsense rally yesterday (oh yeah, and Wood’s Big Bamboo was wrong six times in a row, so the LLN theorem suggested that the Bamboo’s next call would be right. heh).

Trader Psychology

So, after being right on solars for quite some time, that got me thinking a lot like Fly, that I should try and “trick” myself and the market by making another bold call, but quietly investing like 1/20th of a normal position since that call will be wrong.  Haha.  Does that stuff really work?  I know what a lot of you do that!  And here’s why… its all about trader psychology (a topic I enjoy, that’s why I’m a Vix chaser).  The more and more you get a call right, then the more nervous you get about your next call.  Your mind starts over-thinking things like, “What’s going on?  Surely my next call will be wrong because I can’t be right all the time.”  And so you go and sell your longs prematurely, either that or you try to “trick the market” by publishing some random call, believing that the market has ears or that your audience’s attention dictates your skill, so that you can hurry up and get that wrong call out of the way.

… you know what, sometimes that works!  And it all goes back to the law of large numbers.  Just look at the New England Patriots.  But there’s a better way to “trick” the system.  Basically its this:  when you’re on a win streak, just keep trading!  When you’re on a losing streak lighten up your trades, either in size or in frequency.  Don’t over think things.  Just set some rules to maximize returns and go by them.  Treat your trading like a business.  When times are good, you hire workers, buy more products etc.  But when business is slow, you layoff people, keep your inventory low.  You can’t think, “well, I’ve been selling so much toys during holiday season, surely tomorrow no one will shop here so let’s shut down the store,” nor should you think “Wow, ski sales have been really slow here in Hawaii.  Maybe I should try adding snowboards to my inventory to get sales up.”  That’s not going to increase your sales, and neither does that improve your trading.

So, when you’re hot, take advantage of it!  We all get those streaks, and when it comes, make sure you get aggressive on it. 

Oh yeah, my next call, for the sake of the law of large numbers, is to buy this solar dip.  (actually I’m trying to trick the market.  I’m secretly still shorting solars on a fade, but I’m trying to get a wrong call in first.) …this is annoying.

This song is dedicated to the Dow Jones…

Well I’m done fading the solars.  Look what I did to CSIQ.  Murder.  Stock is still falling, but I don’t want some stupid short-cover spike to eat up the profits.  You know what I’m talking about.

Anyway, it was a great setup, and congrats to whoever played it.  We gave solars to you as a long since last week, and I said to fade them last night on a gap up.  The trade was confirmed when FSLR reversed at 175.xx, and the Dow reversed.  There was a 9-12% move on CSIQ from the top to play with, and I was happy to take about 5%.  Clean exit on the fade!  

Lesson:  Buy the rumor (coal-tapes), sell the facts (elections), especially on a gap up with low volume.  Also, make sure you cover your day trade short once panic selling starts (see chart above).  More solar fades…

Anyway, I’m expecting a short cover rally into the close on solars.  

Aloha!
-gio-

Just wanted to alert you guys that we had our first spike DOWN on the Vix this morning on the 2-week chart, about 12%.  Hmmm… naturally, of course, since it is election day.  Now the Vix is trading at the mid 40s.   Another spike down would signal a good opportunity to get short.  However, a 2-month chart signals a double spike already occurred.  Remember, the more volatile the Vix, the more better it is to look at a smaller  , hence, the 2-week would be a better indicator.

Anyway, the spike down only tells me we are getting near overly complacent levels.  Take partial profits, or start hedging some longs.