Rhody Trader

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Today’s action was about the biggest no brainer you could ever imagine - well at least before the FOMC announcement, anyway. The market was going to open between Monday’s 1401 point of control and the 1393 one from Tuesday. That meant it was very, very, very likely to stay between the two on a day when the really important thing wasn’t going to happen until late in the day.

True to form, the market traded down to the lower band point. I got long there and later got out when it move up toward the upper level, booking a few points. After that I just sat back and waited. No sense messing around in a narrow market ahead of a major event. Things tend to get screwy as the time approaches.

The other predictable thing was that if the market was to move higher it was going to take out the 1404 highs from Monday since they were never rejected. The market didn’t quite get to the 1410 level, which was the January monthly point of control for the S&P 500 index, but they got close.

Things were crazy in that first hour after the rate announcement. Eventually the market took out the 1393 level, and I almost got short. Given the volatility, though, I didn’t think it was such a great risk/reward set up, so I skipped it.

I realized late in the day today that it’s been one year since I started this new gig as a stock analyst. I’d been a fixed income analyst before. I’d been a forex analyst before. I’d even been a fill-in energy market analyst on a few occassions in days gone by. Before one year ago today, though, I’d never been specifically focused on the stock market.

Of course I’ve been trading stocks for 20 years or so. It’s not like this was a totally new thing. But I’d basically done the stock market analysis for my own uses. I’d never written recommendations and trading thoughts on stocks, ETFs, and indices for others to read - especially professionals.

Now, on a daily basis I’m writing intraday index trading strategy, and swing and position pieces for sector ETFs and individuals stocks. I’m writing technical stuff and I’m writing fundamental stuff. Oh, and I’m writing valuation stuff.  My boss, for some reason, considers that something outside fundamental analysis. I’m writing earnings previews and listening to conference calls. Good stuff! Well, maybe not that last bit.

So now it’s a year later. Boy it went fast!

Gold has been taking a dive of late - down from above $1000 to the lower $800s in the matter of about 6 weeks. I haven’t really looked at it from a trading perspective in a while, so here goes.

Below is the daily chart for GLD, the spot gold ETF. It’s worth noting a couple of things.

First, the Bollinger Bands got quite narrow a short while back, though not as narrow as back in December when the market broke out of a near two month consolidation. It means we’ve got a good directional move in place now that things have started going lower, but probably not a really big one.

Second, you can see the two lines I’ve drawn in just above and just below the $85 level. The one above represents the support line going back to the January pull-back lows which has been touched, or at least approached, several times now. The lower line goes back to that November/December triangle. The combined area of those lines should represent good support for GLD.

It would be no surprise at all to see GLD check up soon. That could make it a decent buy for a bounce back toward $90. If, however, that support doesn’t hold, the market will almost certainly take GLD back down into that high value consolidating around $80.

Even though I missed yesterday’s oh so exciting day (right!), I still felt pretty good developing an expectation for today’s trading. Given the FOMC meeting and the Payrolls data this week, it was always likely to be a balancing day. And given that the open was going to be somewhere in the middle 1390s, it strongly favored a range contained by yesterday’s 1401 point of control and Friday’s 1388 one.

Now 1394 was Thursday’s point of control, which really also represented the top of a large joint value area down to 1386 shared by Thursday and Friday. That being the case, I knew it was pretty good odds that if 1394 was broken the market would continue down. So I shorted when that happened and grabbed a few points on the drop.

Once the market reached the lower end of the proscribed range, I saw a buying opportunity when downside momentum was clearly fading. Unfortunately, I got tricked out of the position by the internals and didn’t stick around long enough to grab the relatively easy points from

I was a bit under the weather yesterday, so I took the day off. Didn’t even look at the markets until after the close. From the looks of things, I didn’t miss much. Pretty narrow range in stocks. Back at it today, though!

I’m still bothered by the lack of any real participation. I was looking at the latest Commitment of Traders data earlier and it was the most dull I can remember seeing. Open interest in all the index contracts is flat and low. Volume is pathetic. The advance/decline figures are not confirming the new highs. While I do see a lot of positive action in individual stocks and sector ETFs, and clearly the market is generally drifting higher overall, one can’t help but wonder if we’re ever going to see some new participation in the move.

Oh well.

By the looks of it, tomorrow I will be guest blogging for Get Rich Slowly, which is a personal finance site. I was asked if I could write something up on stock picking, which I did over the weekend. The subject, of course, is quite broad. Even streamlining the discussion, I was still at about 1500 words when I sent it along, thinking J.D., the host, would want me to cut it down and/or focus on a specific area more. He didn’t, though, which was a surprise.

You won’t catch me arguing, though. That blog has over 50,000 subscribers to its RSS feed alone, nevermind the site visitors.

By the way, that The Secret to Trading Success post on my trading education blog has got some serious legs. Thanks to a continued stream of people finding it through StumbleUpon, that post has become the second most popular individual post in the history of my blog - in just a week! The site stats show visitor counts over the weekend that are twice what they would normally be for Sat/Sun, if not more.

Again, I won’t be complaining.

For a while there I was thinking it was going to be a losing day for me today, but the late rally turned that around and I went home a few points to the better. That’s always nice.

The price levels of interest included yesterday’s 1393 point of control, yesterday’s highs at 1399, and the single print point at 1385, which was essentially a rejection level on the rally up.

The market opened the day very close to that 1393 level, which suggested we could be seeing some further consolidation around that area. Things turned weak, though, pretty early. I was able to get a quick short in when I saw that things weren’t going so well, but ended up getting out for only a small gain when the market started showing signs of support in the upper 1380s.

Of course the market would later continue on lower. Not only did I miss out on additional gains from the short, but I’d actually gotten long when I saw some strength coming in. That position got stopped out for about a 4 point loss, and I was in the hole by a couple points for the session.

The market got stronger eventually, but it spent a lot of time in those upper 1380s not doing much of anything. Late in the day, however, I started to see some internal strength building again, and got long for another try. It was a real grind for some time, but once the market got through the 1393 level it shot up to make new highs. That was predictable since Thursday’s highs hadn’t been rejected.

I love this quote from Vince Farrell posted on Larry Kudlow’s blog:

The market can stay irrational far longer than you and I can stay solvent.

One of my colleagues just informed me that Treasury prices have risen an average of more than half a point on Friday’s in 2008 and hasn’t once fallen. At the same time, the S&P has been down 10 of 15 Fridays, and up only three times. The average drop has been 22 points and the average gain 16.

The Financial Philosopher has done a guest post on The Change Blog in which he says “People want to be told what to do”. From my experience in trading education (and beyond), I can tell you that’s 100% true. Obviously it’s not everyone all the time, but that definitely seems to be the case for most folks most of the time.

I’m loving my EUR/JPY right about now (see EUR/JPY: Might Be a Good Time to Be a Seller). I generally try to avoid negative carry forex position trades where I can (might as well earn the interest, not pay it), but the set up for a short was just too nice. I got into a position just a bit below 165. If the pattern plays out, it could be worth 10+ JPY.

Today was a fairly fun day.

Of course that’s always going to be the case where you can take a chunk out of the market. A lot of times day traders don’t catch the trend day type of moves like we got today, but I did just that today. The fact that I was short-term bullish on the basis of the market having basically done a gap fill and then creating higher value yesterday certainly helped.

The key levels for the day heading in were yesterday’s point of control at 1379, and Tuesday’s at 1375 on the downside and 1392, Friday’s point of control to the upside. The opening price in the low 1380s was a bit above yesterday’s point of control.

I actually got burned early on. When the market dipped down to the area of yesterday’s point of control and I started see some lack of follow-through I got long. Unfortunately, that was right before the 10:00 Housing data, which knocked me out on a four point stop.

I was able to get back in later when the market stalled out after making a new low below yesterdays. That, of course, was a great long entry point and I rode it all the way up to the area of Friday’s 1392 point of control. When the market started stalling out in that area I took my nearly 20 points and walked away. I could have gotten more perhaps, but not too much.

So basically I took a 1R loss early, then had about a 5R gain on the second trade. That’s a pretty good day by any standard.

My The Secret to Trading Success post on my other blog was apparently of sufficient interest and insight to generate a StumbleUpon citation yesterday. That’s pretty cool. It didn’t send thousands of visitors to the site, just a bit over 100 (edit: more like 600 1000+ now), but still it’s folks who probably wouldn’t have visited in the first place, so that’s a good thing.

That blog is actually on track for new record month. The site as a whole will see more traffic and visitors than any prior month before this week is even over - maybe even by the time today is over!

To help out the group, because I’m a team player like that, I’ve been doing earnings previews and listening in on the post release conference calls. The previews aren’t too onerous as it’s just compiling information from a few different sources. Those calls, though, can be torture.

Yes, sometimes there are nuggets of info, and if you are really focused on those stocks it probably makes sense to listen in. For someone like me who looks at fundamentals to get a broad view, but who trades almost exclusively off the technicals, they can get pretty mind numbing. It’s especially rough since I have to sit through the whole thing from beginning to end no matter how many highly specific product questions get asked by Wall Street analysts or how many times management says we won’t go into that now, but will at our analyst meeting in two months.

Thankfully, this isn’t a permanent all the time feature of my job. I have to give the other guys in my group credit for being able to sit in on these calls day in and day out, waiting for that one little nugget that could move the stock. I couldn’t do it.