Weekend Equity Market Comment - 11/18/07

The market action Friday was relatively mild for an options expiration, however the Wednesday and Thursday before have become the unwinding days over the last 5 years or so.

There was some decent action in the first half of the day, but from lunch to near the close was mostly directionless random noise that simply kept us on the sidelines. Day Trading captured 9 1/2 points on the day as I will not trade the last hour on option expiration day, it tends to be a crap shoot and we are trying to get the odds on our side not 50/50.

The probability model was pretty much on cue for Friday, which actually is impressive considering the option expiration. The model is calling for a higher consolidation day with very high odds of a sharply higher day.

The intermediate term outlook is starting to shape up a bit towards the bullish side with a very quick shift in short term sentiment. There are also some chart patterns on the daily chart indicate a potential solid bottom in place on the intermediate term and call for a run for the highs.

We also are coming into a very strong seasonal period with strong bullish days on
November 19,21,23,26,27,28 and 29th.

The market could be setting itself up for a great end of the year rally, especially considering that the market has simply been marking time since mid-June. We have only a month and a half to put together a decent year and the presidential cycle calls for a good 2007, while the decennial cycle calls for prices to be flat to slightly positive at best.

The long term probability model calls for a strong recovery in the second half of November and a very strong December possible on the order of 7-9%.

We continue to buy weakness and will begin getting set up for the possibility of a very strong end of the year rally.

Intra-Day Update - Exit Long

Pattern failed, Exit Long at the Market.

Get ready for a potential short on a break of the lower line!

Intra-Day Update - Lots of Action Today

Long from 1460 on the Break.

Keep a close stop Just back inside the triangle just in case the pattern fails.

If it does fail then reverse to the short side.

Intra-Day - Get Ready!

Get ready to make a move dependant upon which way the triangle breaks!

Intra-Day Update - Stopped Out of Long 4.5 Points Captured

Stopped Out with 4 1/2 points profit.

9 1/2 points so far today.

Intra-Day Update - Lock In 5 Points Profit

Move stop to 1455.75 and lock in 5 points profit.

Intra-Day Update - Lock in Profit

Move stop to lock in 2.5 points profit.

Intra-Day Update - Move Stop to Break Even

Move stop to 1450.75...Break Even.

I don't like the pattern on the 1 minute STOCHASTICS.

Intra-Day Update - Re-Enter Long

Long again at 1450.75. Keep a close stop at 1449.50.

Intra-Day Update - Stopped Out With 5 Points

Stopped out at 1449.75 with a 5 point profit.

Intra-Day Update - Lock In 5 Points Profit

Move stop to 1449.75 and lock in 5 points profit.

Intra-Day Update- Move Stop To Lock In Profit

Move stop to 1447.25 to lock in 2.5 S&P 500 points.

Intra-Day Update....11/16/07

Need to break and hold above pivot point in order to keep this upside healthy.

Should we fail to do this then I won't even wait for my protective stop to get hit, I will simply exit the trade at the market and look to go short, for the simple reason that should we break back below this pivot yet again it may spell some trouble for stock prices.

Intra-Day Update - 11/16/07

Long from 1444.75, with a stop 2 ticks below todays low.

Waited too long to fade the gap and it got away from me, so here is the first solid trade

of the day.

Pre-Open Comment 9/16/07

S&P 500 is poised to open 7 points higher.

I will be looking to fade the gap, but not right at the open.
I will give it 5 minutes and see what it brings. I have a feeling it mat gap up 7
but then continue to rally to higher by 9-11 points.

PIVOT POINTS FOR 11/16/2007

Pivot - 1455.77

Resistance - 1461.91, 1468.05, 1476.50, 1484.95, 1499.54

Support - 1447.32, 1438.87, 1432.73, 1426.59, 1412

Scalper Trade - 11/15/07

New Scalper Trade For The Long Bond.

Day Trading Module - 11/15/07

Print this out and save it for your reference as it contains some great information.

It also gives you a feel for how I trade during the day. I also use the 5 minute chart and you can go back into the posts from today and see why the 5 min chart was telling us a substantial move was on the way.

While I do not have time to get this detailed during the trading day ( I barely have the time to post my trades) I will make an attempt to post the 1 minute chart every night with the actions and analysis I took accordingly.

Pivot Points 11/15/07 For Your Study

Short Gold Position - Lock In A Double

The gold position is much like the cotton position I commented on earlier.
Gold has confirmed its intermediate term trend shift to lower and is also in a position
to have a free fall in price should this decline be anything worthwhile.

With this in mind, I am going to move my stop up to 100% R.O.I. as we have better than a 140% return thus far and gold should free fall from here and NOT rally. Moving this stop to this level will guarantee us a very nice profit, while also protecting us if we are in error about this move. It will also leave enough room for the gold market to continue lower and our position to continue its profit.

This trade has also reached a point to where the stop will have to be moved and monitored as the market goes our way in order to maximize the trades potential.

Keep an eye on the Grains also as they appear to be ready to follow the likes of Cotton and Gold!

Daily Equity Market Comment - 11/15/07

Once again the probability model disappointed us with its prediction of higher prices for today. That is two days in a row now, but I realize that this model is very streaky and we only use it for a guide as what to expect.

Currently the S&P 500 is near a critical juncture that requires higher prices in order to keep the most recent low in tact and also keep the intermediate term model in the bullish camp. So far the market has almost given back all of its gains from the stellar rally on Tuesday.

The good news behind this type of action is that if we can keep the low in tact then it bodes very strongly for a decent move higher and moving down as we have to almost erase all of the gains then becomes a big positive if the lows can hold, so there actually is a blessing in disguise here.

The other positive we have going on here is that there seem to be quite a few investors starting to jump onto the bearish band wagon and this is great for the intermediate term health of the market. We need to continue to see the vast majority of traders want to sell the rallies as they occur as we have seen all week. This should at least guarantee us a run back to the highs above 1570 on the S&P 500.

The probability model is rather mixed for tomorrow as it calls for the lows to hold and a rally to ensue. What it is not clear on is exactly what course the market will take to achieve these goals.
I have a grouping of numbers that suggest a sharply higher move up tomorrow and then I have a group of numbers that suggest a flat to mildly higher day. The only certainty the model calls for is that the market should not close lower and some stability should be forthcoming.

I continue to honor the reading of my intermediate term model which continues to call for buying weakness and this is exactly what I have been doing.

So inn a nutshell, the market should move higher from here but it must do so with a sense of urgency in order to keep the intermediate term in the buy weakness area.

On the day trading front, it was once again a very interesting day as the market remained range bound and scalping came fairly easy. Then, as we have seen time and time again the trading range was violated to the downside and we got a sizable move down. Although we did not know for certain which way the market would break, we did know that the wedge and triangle on the 5 minute chart were indicating a break one way or the other and an increase in volatility and this is exactly what we got.

Take a look back at the intra-day postings for today and you can see it develop. These types of days are excellent for learning what to expect out of the markets based upon patterns that repeat over and over again. Although these patterns are on a very short time frame, these same patterns come up in the daily and weekly charts as well.

Cotton - Move Stop To Lock In Profit

Cotton has not officially confirmed the intermediate term transition to a down trending market.

The cotton position has better than doubled, so lets lock in at least 75% R.O.I. on this trade.

Move your stop from break even to the appropriate level to lock in profits.

One of the main reasons for this move is that now that cotton has fully broken it should go into some type of free-fall if this decline is to continue.

Get Ready for a Large Move

There is a lot going on here based on the 5 minute chart.

This tells us two things.

Number 1 - Activity is going to increase dramatically very soon

Number 2 - There is going to be a sizable move to go along with the increased volatility.

Let the market tell you which way it wants to go and then get on board.

I realize that does not sound very scientific, but it is the way to trade.

Intra-Day Update - Go Long

Finally we are presented with a trade opportunity.

This is a good place to go long and or buy calls.

Keep a very close stop for protection.

Day-Trading Tip - 11/15-07

Once again, what does the first hour of trading tell us about what kind of price behavior we should expect for the rest of the day?

Much like yesterday it would seem.

With the gap for all intensive purposes being filled in the first hour, the market has very high odds of being a non-trending day and this we should look to sell the rallies and buy the weakness.

As with yesterday, we also need to be aware of a break in either direction of the days range.

To be perfectly honest with you, it has been one of those days so far that I have done nothing but fade the gap this morning. There is simply a whole lot of noise with no real high probability set-ups and when in doubt, stay out.

Daily Equity Market Comment

The action today was pretty much along the lines of what you would expect after such a sharply higher day that we had on Tuesday. It remained 50/50 which way the market would break going into the last 1/2 hour, but we were tipped off not only by the triangle on the 5 minute chart, but also by the breaking of the trading range of the day to the downside. I have attached the 5 minute chart as well as the 5 minute chart to illustrate my points of today.

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The probability model for tomorrow is calling for a resumption of the rally tomorrow.

As a matter of fact it is calling for a flat to higher open, with the open being the low for the day

so we very well could be in for another good upside day. I don't really expect anything as powerful as the rally on Tuesday, but there is strong probability of a good rally day.

We will know withing the first hour as to what type of day to expect, either trending or consolidation. As I had written in the intra-day postings today, the fading of the gap in the first hour of trading gave us a strong clue that today was going to be a consolidation day. This put us in the position to sell rallies and buy weakness and it was very profitable. On a consolidation day it is also very important to watch far a break out of the trading zone for a potential mini trend to jump aboard. We got that in the last half hour of trading as the days lows were taken out and further weakness set in.

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The probability model continues to signal that we should buy weakness and that a potential intermediate term low has been put in place. However, I continue to see very little evidence that this is the ultimate low for any type of strong assault to the upside. While I was glad to see the fairly strong put buying during yesterdays strong rally, the put/call ratio went back to its recent trend of being way to complacent about current levels of the market and this is NOT a healthy sign on the intermediate term front.

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Until we see more evidence either way, we will continue to follow the advice of the probability model and buy weakness.

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I will be posting more day trading modules to show some very simple strategies to use during the day to not only scalp the S&P, but also to find strong moves of 10 points or more with a short amount of trade holding time.

Intra-Day Update - Getting Ready For A Possible Big Move

Looks like the S&P is getting ready to make a strong run in one way or the other right here.

Odds favor one more break down, perhaps to the 1481 area before moving higher again.

Get ready to jump on board regardless of which direction it decides to move!

Intra-Day Update - Stopped Out of Short

Stopped out of the short position with 3 1/2 points S&P 500 profit.

Day Trading Tip #1

What does the gap being filled within the first hour of trading tell us about what kind of day the market will give us?

The first hour of trading is the most important in determining what type of action the market will bring for the day. Understand that none of these are 100% accurate, but their accuracy is high enough to give us a great guide for how to trade the day.

For example, today saw a strong opening for the first 10 minutes and then the fade began back to the open and even gave some back.

This give us a very valuable clue as to what we should expect from the rest of the day.

It tells us that there are very high odds that this will not be a trending day in either direction and the market should stay range bound from the range established in the first hour.

So the plan then is to sell rallies and buy dips within the range. It also tells us that should the market break out of the 1st hours range on either side then there should be an extended move in the direction of the breakout.

We also do not need to wait for the market to move through the entire range before we buy or sell. We know that it will be a choppy day and to sell rallies and buy dips. More aggressive traders can look to the 1 minute chart with a simple 44 period stochstics to signal buys and sells. Look to scalp 3-5 points on each turn. Of course this type of trading contains more risk, but you can limit your risk with very tight stops, as you will know almost right away whether the trade is going to go your way or not. Typically no more than a 1 point stop for scalping this way is prudent.

The most recent trade is proof in the pudding of this type of strategy.

Notice also that when the 5 min chart also gives a sell you should look for the move to be more than the 3-5 point scalp and perhaps in the 6-9 point range.

Remember also to always use your stop and to move the stop up as the trade goes your way.

Here is my set up for moving your stop on scalp trades.

1- Initial position...... 1 point stop loss

2- 2 points profit ....... Breakeven stop

3- 3 points profit ...... Lock in 2 points

4- 4 points profit ...... Lock in 3 points profit

5 - 5 points profit ..... Lock in 4 1/2 points profit

You get the idea. The more profit the trade begins to generate the tighter you make your stop.

The most important concept in this module is the importance of using a stop and also moving the stop as the trade goes in your favor.

You can have the greatest timing module in the world, yet without the proper use of stops you will eventually be doomed into a large depletion of trading capital.

Intra-Day Update - Sell Short

Going to sell short right in here, with a close stop just above the high of 6 minutes ago.

No Update On The Blog Tonight

There will be no update on the blog tonight as a family emergency has taken precedence.

I just got home from the hospital and I will need to get back to the hospital very early in
the morning.

Therefore, there will be no daily update and no intra-day updates tomorrow as was the case today. I have not even had an opportunity to start my daily work, so there will be some catch up to play very soon.

If all goes well then the updates should continue tomorrow night.

I do hope some of you were able to capture some of that great upside we got today and should tomorrow be a consolidation day then it will offer you some excellent intra-day swings from which to profit.

Aggressive Equity Trading Account

Here are the stocks that I will be looking to buy tomorrow in the Aggressive Trading Account.

CADE
CINF
OZRK
MSSR
OXM
BXG

Did you happen to notice the strong performance in the Local Bank issues today?

This IS the first sign of a potential turn around in the financial sector.

I realize that everybody seems to be talking about the Techs, but this only leads more credence to the potential turn around in the financials.

TNH Opens The Door

Pivot Points For Your Study

Cotton - Has broken the Triangle to the Downside

Cotton has broken the Triangle inside a Triangle pattern to the downside.

Now in order to confirm this break the price needs to continue to work lower and not stall.
We also would not want to see price move back into either triangle.

We went short cotton last week so we already are positioned for a move lower.

There is quite a bit of potential for sharply lower cotton prices both on a technical front and a fundamental perspective.

With an further substantial downside price action I will move my stop on the short position to break-even.

Daily Equity Comment - 11/12/07

If you recall on Saturday I mentioned that the probability model had given a 15% reading on lower prices today with a final low being put into place on Tuesday of this week.

Now I am not going to pretend that I had looked for this particular action today as a 15% probability is pretty darn close to the category of Ignore. However, what we must heed to is the fact that the 15% probability became the reality and thus takes precedence.

I continue to be concerned about the Put/Call ratio that today was again under 1.00 which shows that the buy the weakness crowd is still in full force. This indicator alone contributes to my thinking that once this intermediate term low is put into place, and a counter-trend rally has exhausted itself the market very well could have yet another leg down which might get a little ugly. Of course we will have to address these possibilities as the unfold, but trying to find a general framework is always a good idea.

Currently the probability model is calling for the intermediate term low to come in sometime on Tuesday and not much lower price wise than where we currently stand. While there continues to be risk on the S&P 500 cash all the way down to 1420, it appears that the worst is over and a continuation of buying weakness is in order.

I have already purchased three long positions in the Aggressive Equity Trading Account and I will look for more opportunities tomorrow.

So to put it all in a nutshell........ We are very close to an intermediate term low and buying weakness still appears to be the prudent course to follow.

Day Trading Closing Comment

While today certainly did not pan out as the probability model had called for, we were still able to capture 15 S&P 500 points, mostly on the fade of the open.

Intra-day we were as high as 22 points captured, but the last half of the day caught me off guard as I tried to buy weakness and was stopped out twice before I let the rest of the day go.

Today is yet more evidence of exactly how important stop loss orders are and why they should be used, not only in very short term trading like we are doing here, but also on an intermediate term basis as well. Had I not utilized stops when trying to establish my longs as the market moved lower then the outcome would have been giving back ALL of the profits from the first half of the day and maybe even going negative on the day.

There is no question that at times you may get stopped out only to see your position move in your favor almost immediately after the stop is executed. There may also be times that you get stopped and it continues to go against you, but eventually breaks hard in favor of your position.
These things are going to happen and for every one move we get stopped out of and ultimately miss, there will be thousands more trade opportunities in the future.

When you will really appreciate using stops is when you get stopped out and the S&P continues to move against what your position was 10 or 15 points in short order. It is at these times that they are a lifesaver and the advantage thereof far outweighs any of the negative effect of being stopped out prematurely.

Trust me, even after being involved with the equity markets for 20 some years, it is still very frustrating to get stopped out of a move early or at times the top tick before the market moves in your favor. I just keep reminding myself of all the times that stops saved my butt and the times when I was young and new to these markets and did not use stops because I was smarter than the market! (Yeah Right!) I could tell you a story that would break your heart about some of my early options trading when I was 19 and was on the streak of a lifetime. Alas, youth got the better of me and I lost it ALL, and I am not talking about chump change either, I am talking about a starting stake of $2000 that I managed to turn into $275,000 in a little over 8 months!
I was the smartest Mail-Boy the firm ever had as that is where I was working at the time. I had veteran brokers, traders and market makers coming to see me every morning to get the skinny on what I was buying or selling or shorting or boxing or whatever. But I will tell you that I went from the smartest mail boy at the firm to Zero in exactly 1 weeks time. The $275,000 evaporated to zero as I put it all on the line with the option trade of a lifetime with NO STOP!! After all, stops were for wimps. Not to mention that I got tunnel vision brought about by the potential payoff of the position. I had figured that if the market went where I thought it would I could parlay my $275,000 into a little more that 3.25 MILLION! In the end, there was no 3.25 Million. There was no $275,000! There was a big fat goose egg. So to make a long story short, it was one of those veteran traders who had told me time and time again to not risk more than 10% and to ALWAYS us a stop that finally got through my thick scull. He never said I told you so to me or chastised me or snickered. He simply wrote on an index card in red magic marker NO MORE THAN 10% OF YOUR TRADING CAPITAL IN ANY ONE SPECULATION AND ALWAYS USE STOPS! I still have that index card. I had it laminated and from time to time when my head starts getting a little too big and I find myself assuming to much risk I get that card out and I read it over and over and over again.

So there you have it! A short story about why stops and capital restrictions are so important.

So if I can be so bold as to make a suggestion to you. Make your own index card with just those two simple rules on them and read it from time to time. I will guarantee it will be well worth the small amount of time it takes to make it. Also, feel free to print out this story or ask me any questions about it because if I can stop just one speculator from eventual ruin then the story being told will be well worth the typing.

I will be posting the daily market comment, later this evening so come on back and check it out.

Intra-Day Update

Go long in here with a tight 1 1/2 point stop

Intra-Day Update - Sell Longs

We are going to exit our long positions with 6 S&P points profit and wait for the 5 min chart to generate a sell to go short.

Move Stop to Lock in Profit

Move stop on long position up to 1459.56 basis the cash S&P 500 to lock in 2.5 points of profit.

I will be looking to exit the long and go short on the 1564 to 1566 area.

Intra-Day Update - AGGRESSIVE LONG

With the intra-day model calling for another move up to new intra-day highs and the S&P quietly drifting lower here, I am going to go long in here, with a tight one dollar stop.

If we do move to new highs it will be a worthwhile trade and we have 12 points of S&P profits today to cushion us.

Keep in mind, that this is a very aggressive trade!!

INTRA-DAY UPDATE - 11/12/07

Starting to show some intra-Day weakness after a very nice bounce from our 1447 upper target level.

I am out of my longs after fading the lower opening and I will be looking to find a place to enter short positions. Ideally I would like to see the SPX make another intra-day high for the day and it would not surprise me to see that process begin shortly.