Today was a day when I did almost everything wrong. Somehow, the gods smiled on me, and I was able to make a profit, but I gave up a lot. The government changed the rules on the sub-prime, and CFC opened up 25% higher. I sold a lot of Countrywide (CFC) right after the opening, and got it off at $11.63…it got as high as $12 and change, before it reversed. No stock in it’s right mind opens 20-25% higher without a firm buyout offer and keeps that level all day. CFC took about an hour to get down below $11. I was watching all day, and finally decided to pull the plug on the whole trade. I bought all my CFC back at $10.78, $10.84, and $10.92 by hitting the offers that had size. It took three trades to get rid of the size. Right now, I’m not short any CFC at all. I won’t stay in a market when they change the rules right in midstream. CFC had a monster day, with almost 100 million shares of it being traded. With that kind of strength, I decided to take my profits. Even though I missed the lows of the other day, I still made a massive profit because my position was so large. However, on my scalping, I made every mistake in the book. I lost $0.40 on AAPL, got ripped for $0.95 on GOOG and felt lucky. I sold at the bottom on bonds and took a little hit there. I went short in the gold market, had bad timing, and still lost money in a down market. Rimm hurt me badly. I spilled a little blood today in copper.
I’m still in a state of total confusion regarding the markets. I’m always guilty of paying too much and selling it too cheap. I did that today, and wasn’t even greedy.
I felt a profound sense of relief after covering all of my shorts in CFC, as that was my biggest risk. As it was, by 11AM, I was short a total of 110,000 shares of CFC. I had to cover it because my risk management system kicked in and told me to cover. I always obey my system.
My grain spreads all cooperated nicely, and I made an average of 3/4 cent on the total size of my position.
Even though today was emotionally exhausting, I ended up on the plus side, which is a good thing.
Jeff
Hi Jeff,
What happened to not trading? and not trading copper especially?
(Just messing with you.)
I’m sorry your CFC trade ended up being such a struggle, though glad it was ultimately profitable for you. The 25% open on the government intervention non-news highlighted my point about CFC being in a fishbowl with all eyes on it. I think a lot of other people were also heavily short CFC - and they (not you) panicked. You traded your way out of the worst of it nicely. That stock (and Citi) is the emotional touch-point for this issue. Comparatively, Thornburg was up only 5% and the others that were showing positive money flow were up about the same order. Before today these were actually being accumulated by a few brave (or stupid - it’s a fine line) souls, while CFC was definitely, unequivocally short-covering. (Who in his right mind would be taking a long position of any size in that stock?)
Surprisingly, the US Treasury actually answered my email to them about setting up MLEC as a credit insurer for buyers (as opposed to market-maker or whatever they want to do with it), but it was just a thank you. Who knows if anyone read it.
My portfolio recovered some more today. My biggest gainer, go figure, is Thornburg Mortgage, up about 17% currency-adjusted. My tiny little Biovail trade is nothing to write home about, but it’s up almost 6%, and that’s better than being down 6% - or stopped out. I haven’t held Trina Solar for a month and it’s been to $68 (where I sold a bit) and $34 (a little above which I bought a bit), and today settled somewhere around $42 and change. My position in it is down overall by about 7% but up about 20% from the last point where I added to it (in a reallocation trade). If you want a wild stock, try on this puppy.
Hey, and I’m a genius-for-a-day in Starbucks - sort of. It actually today fulfilled a set-up pattern I’ve noticed is quite powerful and gives you a great, tight stop-loss point. And it is this:
1 - On any move below the 50-day MA, your first set-up point is the last intra-day low of the down-leg. As long as you don’t go any lower, your set-up is alive.
2 - Wait for the next intraday peak (higher than on either day beside it) to form - it can be wherever. That’s your next point.
3 - Next you wait for the next intra-day bottom (lower than on either day beside it) that does not breach #1.
4 - If the stock stays between #2 and #3 for 3 consecutive days without breaching either, buy at the open the following day. (A variant is to buy the break-out above #2 as long as #3 was not breached in the interim.)
The nice part is that often this is a tight pattern, and your stop-loss is placed just below #3, for typically around a 5% risk (sometimes less), while the stock can really run for 15-20% or more. Check it out on a few charts. For example, Thornburg Mortgage got the buy signal on Tuesday, and Starbucks today. This is a great signal for bottom-fishing, because it usually doesn’t form until things have settled down, and if it goes against you it gives a very tight natural stop. (It doesn’t really work for shorting or selling because tops don’t form quite the the same way.)
I’ll be posting my full portfolio and month-end this evening.
Cheers,
George
Comment by allocator — December 1, 2007 @ 1:22 am
Have you backtested that theory yet? It sounds like an interesting pattern.
I get in real trouble when I try to bottom fish or pick tops.
Jeff
Comment by masteroftheuniverse — December 1, 2007 @ 4:17 am
I haven’t backtested that pattern rigourously - more anecdotally. I always take a quick glance for it on a chart, and a successful outcome is surprisingly frequent.
I actually call it the “launchpad” pattern, because that is what it does - it hits bottom, bounces off, drifts back down but not to a new low and then qualifies if it holds in-range sideways for the 3 days. My interpretation of it is that the 3 days confirms that buyers have stopped the downtrend that was retracing toward the previous lower low. Essentially buying-support and time create a springboard for the stock. The tighter the formation, the more powerful the effect, and I think it’s because on a chart it visually looks like a strong breakout, especially if you have a strong one-day move out of it. This would look very bullish to a chartist.
Look at Starbucks and you’ll see what I mean - a tight little bundle and then boom! Another one is “CA:IIC” at bicharts.com - ING Canada - one that I own, just went through it. It absolutely blasts out on the fourth day. Another one that did exactly the same thing is Vulcan materials - it’s secondary low was 80.04 it held above that for 3 days and then away she goes.
An example of a failed one is FormFactor (FORM). After the initial downdraft, it topped at 39.53, pulled back to 36.06, held for 3 days, gapped open the next day at 38.49, but instead of following through, drifted back down and breached $36.06. You’d lose about $2.50 on that trade since you’d put your stop just under $36.06.
It doesn’t form that frequently, so a steadily declining stock will kick you out maybe once or twice before you “latch” on. And of course you can improve the odds by paying attention to other factors like the general market and other technical indicators.
I’ll point out some other ones as I come across them, and watch the effect.
Cheers,
George
Comment by allocator — December 1, 2007 @ 5:02 am
You ought to get a number crunching program such as TradeStation, get all of the tick data, crunch the data from that pattern, and get the exact percentages on that pattern. With Trade Station, it will even go so far as giving you a historical P&L if you had traded that pattern. Those number crunching programs really make a big difference, since they will even pick up patterns you haven’t even noticed. I even automate some of my trades through TradeStation, whenever a certain signal shows up, I automatically go long or short depending on the rules of my system. I only automate those trades that have a 75% win rate.
Jeff
Comment by masteroftheuniverse — December 1, 2007 @ 4:08 pm
I haven’t got the time or capital (outside of retirement and education accounts) to trade right now, except for the one small account in which I’m trading Biovail. I do consulting work unrelated to the markets at the moment.
I’ve already researched the REAP system I talk about with a lot of random and back-testing, and it’s sufficient (low-maintenance and effective - as long as I stick to it) for my purposes.
If you were to calculate and play the statistical odds of any pattern, then you’d be looking for it regardless of the stock and trading it mechanically. You’d need to also test and determine a specific exit strategy to statistically optimize the profitability. I’m really just looking at using this particular one as a way of getting a positive start for a position trade with a profit objective of 30-50%.
Cheers,
George
Comment by allocator — December 2, 2007 @ 4:35 am
Oh yeah, I look at about 100 different patterns. Actually, I use TradeStation to do the looking for me.
My exit strategies sometimes change, like the one I used for CFC….I just gave up on staying short as I just didn’t want to stand in front of a freight train.
Jeff
Comment by masteroftheuniverse — December 2, 2007 @ 11:17 pm
My general feeling about trading is that unless you have an edge like an experienced floor-trader, you’re way better off position trading - like you did with the Chicago-Minneapolis spread - using the scaling with the profit method. “Reminiscences of a Stock Operator” is timeless.
Trades need time to make big money. Even Livermore says his big money was made sitting. And if you’re on the outside trading from a PC, trading costs can eat you alive. All the screwing around I did this summer getting in and out of the market and adjusting this and adjusting that cost a lot of money in commissions and currency exchange costs.
I try to look for things that are simple.
Cheers,
George
Comment by allocator — December 3, 2007 @ 3:59 am
Actually, my costs are almost as cheap trading off the computer as when I was on the floor. Since I still own a seat in Minneapolis, I’m exempt from exchange fees, NFA fees, and most exchanges have reciprocal agreements. I can get down 1000 shares on TradeStation for $3.00, which is pretty cheap. However, When I add up all of the commissions I pay out in a year, it does add up. One advantage to trading on the floor is that you don’t have to pay for scratch trades, which saves you a lot of money over a year. In Minneapolis, I used to pay $2.00 per contract round trip on self executed trades. Since I used to trade 500-600 contracts a day, my clearing price was pretty high. However, since all scratch trades were free,(and I bought and sold a lot of wheat at the same price over a day) my bill was a lot lower than it could have been. Still, I remember spending over $100K a year in clearing fees. Now that I trade a lot less than I used to, I don’t worry about the cost of execution. If I’m right, it really doesn’t matter
Jeff
Comment by masteroftheuniverse — December 4, 2007 @ 1:12 am
Well at those kinds of transaction costs and staying in one currency you can change your mind a lot without too much damage. I’m really hamstrung by the stupid Candadian government policy of finally allowing as much foreign content as we want in registered plans, but not allowing these plans to be denominated in foreign currency accounts. And the brokers charge you a currency conversion on every transaction (and they don’t net it out intra-day either). I could stay in Canadian stocks, but there’s not a lot of choice. (Whenever I tune in briefly to a local Canadian market call-in show, all everyone ever wants to talk about is mining and energy stocks.)
So I have to stay with approaches that require infrequent trading.
Cheers,
George
Comment by allocator — December 4, 2007 @ 4:11 am
I didn’t realize that the Canadian Government controlled currencies…that really sucks.
Out of curiousity, what do they charge you on a currency conversion? Would it be cheaper to do the currency conversion in the USA?
Do most Canadians keep their porfolios in “Canadian only” stocks, or do they also own a lot of US stocks? Are there regulations regarding retirement accounts for foreign stocks?
Have they unregulated the commissions in the Canadian brokerage industry, or is still pretty high? I remember in 1978, paying $40.00 to buy 100 shares of stock. That was a lot of money and in 1978 dollars.
Cheers,
Jeff
Comment by masteroftheuniverse — December 4, 2007 @ 12:57 pm
The Canadian government doesn’t control currency exchange per se - it’s just that in registered accounts which receive beneficial tax treatment such as tax deferral can only be denominated in Canadian dollars. I could easily open a short-margin-options-futures account US dollars outside the retirement and education plans. Right now the tax benefits outweigh the transaction costs (as long as I don’t trade heavily.
I think on a round-trip they’re taking 1.5% to 2% out of my hide on the currency conversion - that’s big. My broker is a little better about. They realize the issue to the extent that they will offer you a narrower spread called the “mid-rate” on more-or-less offsetting transactions - but you have to ask for it, they don’t do it automatically.
Canadians still mostly invest in the Canadian, as US investors mostly invest in the US market. Because of this local bias, and because you don’t have a great selection in Canada, CAnadian stocks have tended to be on the pricier side relative to US stocks. The other problem with Canadian stocks is you can’t get good free information about Canadian companies. MSN actually has a great stock screen, but only covers interlisted Canadian stocks that trade on US exchanges. The information in Canada is crap and/or, or expensive.
The Canadian brokers are also de-regulated, though the bank discount brokers are still expensive. I pay $26 per market trade right now (below 1000 shares). I could get $7-$10 from a boutique outfit, but I’ll tell you, in this environment, I’m glad I moved my accounts out of e-Trade. Bank of Nova Scotia (where I’ve had my accounts for several years) is a big-ass bank here, and that’s just the way I like it until things start to clear up in the credit markets..
I’ll move my comments from now on up to one of your more recent posts.
I hope Denise is feeling better today.
Cheers,
George
Comment by George Parkanyi — December 5, 2007 @ 5:45 pm