The Student Loan Ranger

Well it looks like the stats spreadsheet I had been working on the past 2 weeks was actually a pretty useful tool.  Nice prediction of this sell off here.  The most important lesson from a technical perspective during this time was the whipsaw consolidation period in the S&P.  The spreadsheet pointed towards a drop from the range, which it did.  During the same day the market rocked out all day, with a surge above the same range the following day.

The surge north was on very small volume.  Here is the chart, and I feel it could be useful in the future to determine the top/bottom of trends.

About time too

I would be more satisfied should we close below 100 2 days running.

Charts that looked interesting on Monday night were: CPB, WY, CX, PCP, AA, CMI, EMC, WHR, MRVL, DAL, CHL, CBS, TWC, WAG & LVS.

EMC, WHR & DAL remain interesting.  I am reminded yet again of just how straight forward the smaller airline trades are just now from a technical perspective (JBLU and DAL).

Strong consolidation range

DAL double bottomed off the 50ema (daily) at support range for a wonderful 3 day candlestick pattern

On the EMC chart, I am watching the $15.40 level which has been prior resistance and is now being tested as a double bottom on the 30min/20day.  The breakout was on strong volume, and the trading has been light the past 2 sessions with a small range.

Inversely, WHR broke out nicely, hit a nice first time retest at $62 but has not dropped below and is testing that price as resistance with a nice bear flag pattern.  The volume is light, and a break below $60.50 would be another nice area to catch a short.

Yesterday was an absolute chop-fest.  Really dull and indecisive day for the first time in a while.  Pre-market the futures are up 2 points at 1028.75.  I’m not really planning on any trades until the following range in SPY has been breached to either side of $102.50-$104.  Statistically, yesterday was really weak and was comparable with August 20th in terms of my stats spreadsheet.  I have noticed a bit of a pattern at the moment, highlighted by the following diagram:

Set to rip today?

Leading days of the 19th and 25th have similar stats; Adv/Dec, ratio, average percentage of DV total, similar R values, similar Up >AR matrix values.  The Av% sector values were slightly stronger on the 25th.

The 20th and 25th shares similar statistics, however the main difference is that the market was up about a percent on the 20th, while barely staying afloat yesterday.  Again the ratios and matrices are similar here.  Elsewhere, look at how weak the materials have been relative to everything else lately, one day of top 2 performance.

The 21st was a strong day all round and has been the best performing day since I started keeping these stats.  If all the stats in the leading days are similar, then technically today should be pretty bullish.  HOWEVER, like I keep saying; in this market, what ever you think is going to happen – take the opposite side.  Therefore I am bearish leading into today but will not be surprised with a bull rally.  The short term range breakout in the SPY should point to where we are heading.

Elsewhere, I am going to have a bit of a cull on the overall watchlist.  Every day I keep finding another 5-10 setups to add to my daily shortlist.  It’s really better for me to concentrate on a list of about 10 all up premium setups instead.  Exposure to tickers has been good for me, but I am looking firstly to narrow the list to about 150 before figuring out where I am best at making the trades.

Speaking of “more setups”, keep a note on AMAT at $14 resistance, LUV setting up nicely on the daily chart in a similar way to FE.  I am waiting for WAG to pullback to the $32 mark (although I think we’ve missed this one), ITW at $42 & EMR to start forming a bull flag.  See what I mean about too many setups to monitor?

Checking the past 10 days of relative strength, I have noticed that healthcare and utilities have performed the best.  If this is such a bullish rally, then why are defensive stocks outperforming financials etc?  In the shorter timeframe, materials have been hammered the last 3 sessions as consumer, industrial and financials begin to wane.

Up or Down?

It is interesting to overlay the stats spreadsheet colour system atop the 10 day relative strength.  Would be more useful if this were done for each specific sector instead.

Charts and intra-day stuff to follow once market open.  /ES now only up 0.25 points before opening in 20 minutes.

Update 09:48US

Futures down 4.5 points in somewhat predictable fashion.  SPY right at the bottom of the range here at 102.50 so expecting a bounce here (to coincide with time of day).

JBLU featuring my favourite short term trading pattern (ascending wedge):

Easy trading

Update 10:00 US

We have slipped out of the short term trading range in SPY and are looking very bearish across the board.  Market top as indicated by contrarianism.

Update 12:00 US

There is absolutely sweet F all volume in this bounce – again.

I’m really hacked off with trading right now.  Last 3 trades in the red, including yet ANOTHER tos limit order issue and a horrendous trade in RDS.  The market maker on this stock has been taking the mickey for the past 2 hours, I even recorded it with camtasia with intent to post on here.  It was just like FTSE stocks used to me.  He’d narrow the spread to a cent, get a few, then widen it up to 15 cents at points – as soon as someone filled at market he’d move it the other way and lock it back into 1 cent.  I shouldn’t blame anyone or anything for the errors and I take full responsibility for my trading, but something else has happened in the past few days in terms of motivation.  Lately it seems (RDS, RTN, ITUB, ERTS) that every time I get into a trade with a nice chart, it goes nuts and just chops around.

I was well pumped last week and enjoying the trading, but this week I just haven’t gotten into the swing of things, and spending day after day in front of a computer (11am-10pm UK time) grinding out tiny winners with a micro account just isn’t satisfying.  Particularly when you consider the amount of work I have to put into it.  Neither is the fact that 2.5 months after finishing a college course, I still cannot even get an interview because EVERY company around here has a recruitment freeze on at all levels.  All of this is having a seriously negative effect on my positivity, and trading is impossible when your not mentally in the game.

Anyway the markets are just ripping at lunchtime at the moment on the back of zero volume, and it’s almost impossible to trade when it acts like this.  Especially when the participation by the big movers is minimal and particularly when were are testing overhead right now.  I don’t have a clue where these markets are heading and nobody else does either.  But some people are just being straight up retarded with this action right now (ie sales data yesterday).

Anyway with the last 3 trades being negative, these have negated all the gains of my previous 5 successful trades.  The ITUB one is just an absolute killer.  I knew the bounce yesterday was total BS, but you can’t change your stop level – ever.  Anyway the stock went back down to Yesterdays lows on a weak double bottom.  About the only stock doing what it should at the moment is JBLU which itself if pretty much a junk stock.

My main issue is lack of capital.  I can only have 1 or 2 trades open at any one time (and also the 3 trade rule), and all too often I am simply picking the wrong trades.  If I could have 4-6 open at any one time, I would be absolutely owning this market right now and be much more capable of absorbing these small losses.

For this reason I’ve decided to stop actively trading until I work up to save the $25k required to day trade.  I estimate this will probably take 3-5 years so let’s hope there is still a market then.  I will try out ideas on the paper system at TOS just to keep the trading brain oiled, but until I have saved up $25k, this blog will be pretty sparse in reading material.

Happy trading.

Belter of a day for the bulls in terms of the numbers.  Very strong internals all day after good housing numbers and feelings about economy resulting from that.  Options expiration too for a bit more volatility about.  Of a list of 361 stocks on my watchlist, only 27 are in the red, with only 11 of those at a loss greater than 1%.  Perhaps the most interesting thing of the day is C above $4.50.  You have to be bullish with a close above this level with no real overhead until $6.50.

On the stats end of things from yesterday, we have more interesting numbers:

Stats from Thursday Aug. 21st

Heavy declines in advance decline volume, wondering if this signals a short term change in direction (up).  MON is the only stock to have had 4 days of decreasing downward volume.

On the technical side of things, most of the stocks I mentioned yesterday have performed well over the past 2 sessions.  It is nice when good economic news ties in well to key technical levels – this could have gone the other way quite easily.  It is not just technical analysis that a trader has to be good at, and the past few days have shown that.  In particular KB, CAKE, DOW, DIS, SPG and ITUB look excellent on the dailies.

I traded DAL at $6.80 yesterday and closed out this morning.  I cashed at $6.94 because I wasn’t at my computer when the market opened, and having heard oil was at year highs with the Bernanke announcement pending – it was a safe play.

DAL entry and exit

DAL is currently trading at $7.08.  I am now on a 4 trade winning streak with 6 of the last 9 being profitable.  There has been a real turnaround in my performance the past 2 weeks as I continue to learn about internals, relative strength, timing and luck.  I have also reduced my account drawdown by 450%  in the past month (which has stemmed from an error in a trade entry/limit order in DRI earlier in the year).

Right now I’m watching ITUB at $18.80 for a 1-2-3 at support.  DIS is testing a triple top on the daily at the moment on nice recent volume, any bull flag type pullback from here would be a seriously implied long.

Despite not having any positions today, I’m feeling quite upbeat about my trading abilities.  Since I’ve returned to the game my knowledge and understanding of how the markets really work – and how different stocks interact with it – has really improved.  I absolutely love trading and everything about it.  But there is something I enjoy just as much as trading itself: statistics.  I love stats, and in particular I love making stats easy to interpret and easy on the eye.

One of my weakest points in trading is the specifics of each sector, and a lack of ticker exposure.  I have started watching the stocktwits stream, just for the tickers.  When I see one, I type it in and check out the chart and try to remember the name.  For the past few hours, while sitting out of the meltdown today, I’ve been working on a spreadsheet with data courtesy of Finviz.  The basic scan is pretty simple: +Small cap, >1m average share, > $20m average daily dollar volume, price over $5.  From this I’ve reduced it down to a list of 432 stocks (not including healthcare stocks).  There are no stats in this spreadsheet, it’s the info I’m keen on, ie;

• Find out where the money is going
• Finding relative strength in sectors and sub-sectors
• Finding liquidity
• Cross referencing my trades to find out which sectors I prefer or am consistent with
• A reference for my relative sector strength scans
• Ability to determine which stocks might be suitable for pairs trading
• Actually knowing some tickers for a change

Getting to know you

I have not included healthcare because basically I have no interest in that sector at all.  I have also discounted oil stocks (services, drillers and refiners) because from analysing my past trades in the sector, my win rate is 0%.  I have also realised that outside of AAPL and RIMM I have no interest in technology stocks.  At present I prefer to trade and watch materials, industrials and financials with a little bit of interest into services/utilities (thin).  The document uses Fridays data, so a more accurate version would have to be compiled using the data over a longer timeframe, to reduce the effects of earnings or news from that day.

Rotation

I’m not at all sure that this little widget on the page will tell me anything of value.  It’s just there for the moment to track where the money is going based on the dollar volume plus the amount of participants in my list.  Basically all it says just now is that people are heavy financials and tech, and nobody cares about utilities or consumer and industrial goods right now.

A bar chart of these values for the next week may be interesting to compare to the relative strength sector performance graph to see the where the cash is going.  I would have to negate financials and tech (heavy nasdaq) from this though.

In terms of strength for this particular Monday morning, the market is junk with the healthcare not dropping as much as the rest.  Materials continue to sell off hard.

I’m not really trading today as I’m only waiting for two setups at the moment:

FSYS bear flagin range

Really like this setup on the 10min 15min chart.  Support at $30 and resistance at $32.  Big drop down this morning and the stock is bear flagging on declining volume with short term overhead at $30.80.  Nice setup for a short today provided the market remains bearish internally.

Bearish action at PCU

Looks best on the 15min, but here’s the hourly.  Gapped down to a previous high this morning with current overhead at $26.50.  I’m looking for some bearish continuation.

For the past two nights I’ve been reading a book about Warren Buffet and George Soros, it’s a book that covers their investment habits and discipline and has been pretty interesting so far.  After reading about the lengths that Buffet goes to to analyse a company, I started thinking about the companies I’ve had exposure to in the past 24 hours – and whether firstly I enjoyed the experience as a consumer, and secondly if I would consider ‘investing’ in that company.  I’m not an investor by any means as I love to trade, and in the current climate I wouldn’t dream of taking any long termers.

The current climate of course is the recession, and I’m assuming much of my experiences with the consumer retail sector have been majorly affected by the “Global economic downturn”  as BBC news love to say about every 5 minutes.

Shopping/Retail:

I’m moving house in the next month, so spent a bit of time yesterday about town checking out deals on sofa’s, beds and electrical/white goods.  I went to a retail park which had two national furniture stores (DFS and Harvey’s) and two electrical goods stores (Comet and Currys).  DFS is the store most people in the UK would think of when shopping for a sofa.  The store was pretty average, and despite a large range there weren’t any that I would actually buy.  My brother also pointed out that there was a sofa that was in the same place as it was the last time he visited the store, about 18 months ago.  Poor stock choice and an inventory which they cannot shift?  No chance am I either buying a sofa or buying the stock (if it were available).  Also – why are people selling sofas wearing suits?  It’s a seat not a Seat.

Next door is a chain called Harveys, which I didn’t even know was there until I walked past it.  I’d also never even heard of the brand.  As soon as we went in, there were 3 or 4 people saying hello from various angles and distances.  I’m not keen on salesmen when I’m shopping, because I generally know what I want and I know exactly when I intend to spend money, and exactly when I intend to just look around.  Anyway instead of the usual “How are you?”, “Not working today?”, “Great day isn’t it?” (which I hate) – I got “Feel free to look around, if there’s anything you like, there is a stack of leaflets detailing the finishes and dimensions of all the products in the range and their prices – if there is anything else you need to know, come and talk to one of us”.  To me, this approach is so much better, and once one person said it, the rest of the floor staff seemed to be aware, and there were no repeats.

The range in this store was a bit better, they actually had regular nice sofas instead of outdated chunky uncomfortable leather and suede combinations.  The staff were better, the quality was comparable and the pricing was better.  The atmosphere in the store was a bit better too.  So why have I never heard of this store?

DFS advertise all the time on TV – total ‘lifestyle choice’ advertising which I despise.  Audi’s, BlackBerries and gym memberships are lifestyle choices – somewhere you stick your backside after at the end of the day is not.  Anyway, with so much advertising, people inevitably end up there spending money.  This means that they know their product doesn’t have to be the best, the cheapest or come with the best service.  That to me is stupid.  If you’re at the top, you should try and make the gulf between the competition as large as possible, meaning premium products at good prices, excellent service, good warranties/guarantees and knowledgeable sales employees who understand the business.  All the guys in Dfs were pretty young.  Market leader and a negative experience.

In Harveys, the guys were older and looked more comfortable in their roles.  The products were similar however there was more variation at Harveys.  It was also cheaper.  I would be happy to buy a sofa from there and I would buy stocks in that company.  It is likely that the staff there are on a higher commission rate than at dfs either way.  Market minnow and positive experience.  So Harvey’s if you’re reading; spend some cash on advertising and get the money through the door.

Next up was an electrical store called Comet.  I don’t know how many times we were asked if we needed help.. it was ridiculous.  The same staff kept walking passed, and at one point two came up and asked us one after the other if we needed help.  Commission and instructions from management to “get the sale” immediately sprung to mind.  If they were so eager to push the product, then they were obviously getting a cut.  There is then a stronger than usual conflict of interest between me and them.  They will not care what it is exactly that I need, they just want to flog me something.  I don’t like this approach, and I while I would use their website to buy the goods, I wouldn’t spend an an afternoon in there buying a hoover, vacuum, toaster, kettle or fridge – because there would just be too much hassle from staff.  Market standard (with Dixons and Currys) but negative experience.

Under the spotlight

Banking sector:

All too often I get a call or a letter from my bank offering me either; a loan, a credit card or an ‘advance’ account.  I never reply and I more or less put the phone down after the sales reel.  The other day I got a call from the local branch asking me to come in to see the manager.  I asked what it was about, and she said “just a chat”.  After arranging a time, I immediately assumed it would be a face-to-face sales pitch from the manager about a loan/card/account.  My intention from there was to get in, stop him short, tell him that if I want something I’ll ask them and then leave.

It was literally a chat.  Just a meet and greet and asked if there’s anything I want give him a call (got his direct number).  It was over in 5 minutes and he was a decent chap.  I left feeling pretty chuffed that the bank took the time out to do that without a sales pitch.  However, there is obviously analysis out there that says if somebody uses their service long enough and rejects all offers via phone and mail, that the chance is that they prefer a physical meeting.  So are they taking advantage, or are they genuinely interested and trying to improve customer relations after the meltdown in the financial sector?  Lloyds is a market leader, and while the meeting itself was positive, I remain cautious about ulterior motive.

Utilities sector:

Most days I drive the 12 mile stretch between Aboyne and Banchory in Scotlands north east.  There is one thing I have really started to notice lately, particularly from 3pm to 5pm.  It is probably a global phenomenon that you have also noticed; the slow moving utilities vehicle.  My town is quite rural and is 30 miles away from the nearest ‘City’, Aberdeen.  This city serves as far west as Braemar which is 60 miles away.  It seems that the drivers of these vans and cars drive start to drive as slow as possible at around 3pm.  This is clearly an attempt to increase the time it takes to return to the depot, which in turn reduces the time spent doing the job and also reduces any crap jobs they might have to do when they return to the depot (paper work, maintenance etc).  It is a lot easier to do something half-assed at 16:45 than it is to do something properly at 16:00.

The speed does vary with different companies.  I have noticed that BT (Telecoms) is by far the slowest.  We’re talking 40mph all the way.  Scottish and Southern Energy are the best, maintaining the legal road limit of 60mph at all times of the day in their equipment-laden 4×4s.  British gas is really slow too, at around 45-50mph.

Anyway what has this got to do with investing?  Efficiency.  The side of the business you see every day is how you judge a company.  If a BT engineer is going slow, then he’s lazy, not interested or actually has nothing to do (so is wasting the companies money by extending his work hours by slow driving).  The SSE engineers nip about, and I always see them here and there working away.  It shows that the staff are motivated and well trained, and the company are pushing to do as much as they can in a regular working day.  Good sign, no?

The council:

Yes yes, we have schools, parks, old folks homes and community centres and all of that, but the council have to be one of the most inefficient systems out there, particularly when it comes to road maintenance.  The past 5 days have been a prime example of a waste of tax payers paper.  The council have spent over 5 days working on re-tarring two bus stops on the main road in the town I live, while simultaneously re-tarring part of the entry to the petrol station, 25 metres away.  Cones have been up since early last week, and a light system has been operating since.  The result after 5 working days – they have taken off the first layer of tar.. that’s all.  Not only that, but 15 minutes away from the lights, they have a manual stop/go system with the most unhealthy looking human being I have ever layed my eyes upon.

Our council workers are lazier, fatter and slower than these in the pic from jstewart at trekearth.com

What are they doing?  It would take 5 semi-skilled operators less than 2 days to re-tar what is essentially an area of space equivalent to 3 parking spaces.  There were probably about 20 workers there, and with the exception of the plant operators and the soon-to-be-dead sign swivel-er, nobody was working.  I estimate there is at least another 5 full working days in this gig.  10 days with 20 workers, plus machinery, equipment and materials?  China built an international airport in 3 months.  The south deeside road was sub-contracted to a private company and they re-tarred the whole thing (20 miles) in 2 days…  Would you buy a stock in a road maintenance company that had the councils standards?  No chance.  The only reason they get away with it, is because they are the council.  Oh, and they strike all the time too.

Anyway rant/article over.

Strong morning, but first things first; a reminder of how glad I am that I quit the UK market about a year ago.

When I wake up each morning, I check out Google Finance on my BlackBerry lifestyle choice device and read the first few articles that cover the overnight futures action and any major news in the pre-market.  The headlines are generally from WSJ or Reuters, sources I respect and enjoy reading.  Anyway WSJ and Reuters both indicated a lower open after some overnight selling (which is actually what happened, then the market ripped).

Anyway the third article said “US Stock Futures update: Futures up overnight”.  I checked the chart and this was total balls.  The source? Interactive Investor!  My old UK broker which I used to rant about all the time.  Their news was garbage, their platform was garbage, the data feed was unreliable, their commissions were obscene, their execution was terrible and their order types were very restrictive.  This makes me wonder why a site like Google would even look twice at their news feed.  II are a total joke, and I maintain that anyone who trades the UK market go to a shrink and get their head checked out.  I mean literally every stock in the US has a 1 cent spread, even thin small caps.  About 80% of the FTSE100 highest volume stocks have 5-20p spreads… come on!

My main issue with the UK market, except for the manipulation and commission costs was the lack of good solid information, data feeds and software.  Any respectable US broker who opens up shop in London would make an absolute fortune and would undoubtedly monopolise the brokerage market for non-instituional investors.

Anyway back to trading:

Bit of a body blow today in AEIS, after selling off my position in thirds yesterday, the stock is up 3.5% and looking pretty decent on the daily chart.  The problem here was that my stop was way too tight (it was only 1.25% risk instead of my usual 2.25%).  There was also positive divergence, and had I held until close I would have seen a nice candlestick reversal pattern which continues a nice trend with a 3 day reversal pattern.  This trade was really simple, but my execution was shocking and this is something I need to continue to work on.  It’s showing nice strength today while the large cap techs pull up the Qs.

Again my primary trading issue is my lack of capital, with more I would trade on a portfolio rotation basis with 10% positions in stocks like AEIS which would also be hedged.  This is derived from the relative strength issues from this week so far, I was short high strength and long weak strength.  I should really have a few positions in different sectors, and I’ll look into this today.

Here’s the AEIS daily:

AEIS daily

Sector strength analysis for past 5 days:

Relative Strength in sectors

Intra-day sector strength

Not seeing much in the way of entries today after spending most of the time setting up the RS charts for future analysis.

Update 18:30 BST

Money is moving out of the financials and the sector is not making new highs with the market.  Industrials and techs are taking charge with both sectors breaking bull flags.  Watch AAPL out of $166 to see if this RS analyis works or not.

Ralph Lauren is literally the strongest stock relative to consumer goods and the S&P  and I’m short.  The strength compared to LIZ in particular (down 5%) is just ridiculous.

AEIS is literally the weakest stock relative to the Nasdaq and I’m long (have sold off 2/3 with 1/3 remaining).

That says enough about my week so far.

Elsewhere in equities I mentioned yesterday but didn’t trade:

HOG Double Top

SSO Bear Flags

I’m going to blame my poor decision making skills this week on the fact that I’ve just started to watch the markets on an intra-day basis again in the latter part of last week.  These bad trades (so far) have taught me some lessons that I can incorporate into my trading.  Mainly about relative strength and sector strength.  Secondly to just wait for the absolute premium entry like the HOG double top from yesterday.

Getting the setups is easy enough, the evaulation and actual trade execution remains the difficult part.

Juiced up my technical indicators in an attempt to sure up my trading.  Lately I’ve been caught out by a lot of false breakouts and breakdowns, as well as unreliable follow-throughs in particular chart patterns.  I’ve been fiddling most of the weekend trying to find an optimum intra-day charting setup that can work alongside my daily swing trade charts.  I have also been expanding to weekly, monthly and at times quarterly charts with interesting results.  There are a lot of bear flags in the ultra long timeframes which are coming to a head in the next week or two.

Anyway I’ve gone with the following setup for the intra-day charts (these give the actual trigger):

• 15 min chart with 25EMA
• Double smoothed stochastic overlay
• NYSE breadth with ADX overlay
• Volume of course

From backtesting, this setup works quite well for my style of trading.  Of particular note is a descending wedge from a POT chart:

Descending wedge in POT

While typing in random tickers, I also notice a very nice flag in AZO at a key technical level:

AZO flag

Haven’t done much time scanning for setups this week as it’s my strategy that needs improving.  Should be an interesting week, I can’t help but feel bearish over the coming week – but lately whatever you think is going to happen, do the opposite.

I have decided that timing is the most important aspect of trading based on what has happened in the past 2 days.  Starting with the missed trade in PH (Skype call) there was a missed trade long AIG at $22 yesterday (Mobile call), a missed long in FRE at $0.81 (Toilet break) and a missed long at $1.02 in ABK this morning (currently $1.18 – Message pop up on platform got in way of pressing buy).  The problem is not using limit orders, which I don’t trust when the market is ultra-volatile (AIG yesterday for example).  I would have had 4 sweet trades with these, and instead I’m suffering with a short in a clothing retailer.

Job data gave a nice rip in the futures before the open, however this massive jump was still withing the trading range of the ES at 1007-990.  I don’t like it when stocks continue to rip when the futures are quadruple topping.

Techs and Ags are very weak this morning, particularly AMZN and MON.  I am waiting for C to pullback to $3.80 and elsewhere I am eyeing up CBS at $9.25 and HERO off the 50EMA.  Interesting charts about and would like to see a sustained pullback.

At this point in time I would just love $25k to daytrade with.

Just want to cover 2 trades from the watchlist which I’ve traded so far this week. They are both excellent setups and really great trades, but my execution was shocking in retrospect and I need to uncover the reasons why. This should also give readers an insight into what I look for when stocks are approaching trigger levels.