Monthly Archives: July 2015

Trading Discipline

Discipline

We traders are generally a successfully bunch of people. We either had a good job that we stayed with or we were successful entrepreneurs. Either way we were able to generate a little excess cash and were not satisfied with a two percent return on our money.

We decided that the stock market was the way to improve the return on our money. Those whose money is in a 401k or IRA are limited to going long, hoping that we can pick a stock that is going up. High income and/or high risk individuals open up a margin trading account where you can go short or long.

There are numerous things that must be learned to be a successful trader.  Fundamentals, what market to trade, market influence, reading a chart, what indicators are useful, support and resistance, how does an earnings call effect a stock and what part of that call is important and on and on.

Once I had all that down I thought I was a market wizard. I often made the right call and surprised myself by buying or selling within a few cents of a top or bottom now and then. Back then (1999/2000) I was making 50/60 trades a day so I didn’t realize even a blind hog finds an acorn now and then.

What happened was I quit losing money (or very little anyway) but I wasn’t making money either. I was just swapping spit and the broker was making a fortune.

It took me a long time to figure out that my problem was discipline. Although I can look at a fresh chart (new to me) and find support and resistance in several time frames (5 minute, 60 minute, daily and sometimes weekly) in a minute or less I wasn’t abiding by what charts were telling me.

I would get caught up in the emotion of the moment and in my fear of missing the trading opportunity I would get in too early. I would rationalize this by telling myself that IF the stock hit support I would double up on it. On the sell side of the trade I would get out to soon because I didn’t want to lose what profit I had.

The way this actually played out was that when the stock reaches support I was already 4, 5, 6 hundred bucks in the hole and as often as not couldn’t pull the trigger on the second trade. Then if the stock continued down I sell for a 1 to 3 dollar loss per share. If I were still in when the stock did reverse now instead of making 1000 bucks I made 400 or less because I would sell to early. To do this as a short just reverse the sequence and there’s another small profit trade.  This gets old fast but if you’re as stubborn as I am you can do this a lot before you give up. Fortunately I had enough winners to stay even or show a small profit.

This kind of action wears on you though. It’s hard to maintain a positive attitude if you keep screwing up every day, and without a positive attitude we all have a real problem.

The answer to this problem for me was discipline. I tried a little experiment. My next 25 trades I would determine support and resistance and a target exit price for the trade. I could not enter the trade more than one half of one percent from my target and had to hold to my exit target or a reversal pattern.

I was stopped out in 2 trades and made 9 k net on all 25 trades. I was a trader reborn.

What I have found is that as long as I follow the rules I make money, quite a bit of money.

The rules include pre market diligence, trade entry and exit, indices and sector performance and fundamental valuation are the major considerations. If I don’t do my job I lose money. If you’re trading due diligence is your job.

Dave Cappaert

 

 

URI again

My last trade on URI I was stopped out for a loss of 2.25. I just bought again at 67 flat  There is support at 66.45 and the 200 SMA (simple moving average at 66.31.

22-Jul-15 16:13 ET
United Rentals beats by $0.11, misses on revs; co lowers FY15 revs guidance; announces new $1 bln share repurchase program   (77.60 -1.17)
Reports Q2 (Jun) earnings of $1.95 per share, excluding non-recurring items, $0.11 better than the Capital IQ Consensus Estimate of $1.84; revenues rose 2.1% year/year to $1.43 bln vs the $1.45 bln consensus. Rental revenue (which includes owned equipment rental revenue, re-rent revenue and ancillary items) increased 3.5% year-over-year. Within rental revenue, owned equipment rental revenue increased 3.7%, reflecting year-over-year increases of 2.8% in the volume of equipment on rent and 1.5% in rental rates.

  • Co lowers guidance for FY15, sees FY15 revs of $5.8-5.9 bln vs. $6 bln Capital IQ Consensus Estimate, down from $6.0-6.1 bln
  • Courtesy of Briefing.com                                                                                                                                                                                                                                                                                    As you can see they beat their EPS by 11 cents but had a small miss on revenue. The problem seems to be the lower FY15 revenue guidance of 5.8 to 5.9 billion versus consensus of 6.0 to 6.1 billion.

Their trailing EPS of 7.39 gives URI a P/E of 9.06 and a target of 112.35.

Up to this point my trades on URI have been half normal size or less and kept on a tight leash. Now I’m in with several thousand shares. It’s possible URI could go lower but if does I will still be in and looking for a turn pattern.

Down a quarter as I write this,

Good luck

Downside guidance is never a good thing but this is very minor (3 percent)

Read more: http://www.briefing.com/InPlayEq/Search/Ticker.htm?ticker=uri#ixzz3gkH5WTVl

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SLH

Bought Solera (SLH) at 39.50. SLH had support at 39.40 with strong support at 37.02.

SLH bought Identafix  for cash this A.M. They also guided FY16 to 2.84 / 3.08 This brings the valuation to 42.60.

SLH has fallen from over 70 to it current price which is much more inline with valuation. If the 39.40 support is broken SLH has strong support at 37.02

First target is 44.00 then 46.15 and 48.25

Reversal Patterns

Reversal Patterns

Today I have an excellent chart from WPG. WP Glimcher Inc. is an apartment leasing company. They were split off from Simon Property in May of 2014

blog wpg 2015

 

This single chart shows many of the things I’m looking for in a turnaround stock.

We will start with the parallel channel that runs from the left side of the chart to center right bottom (blue lines). In the middle of that I drew another line so I could track the accelerated fall in pricing.

  1. The last two bars in the fall are larger which indicates panic among those who are not familiar with the fundamentals of WPG or it is just becoming too painful to stay in this stock. This is very often much more pronounced than we see here. The larger the bar the bigger the panic. What’s happening are the strong hands (the folks who make money in the market) are buying from those who folks who lose money in the market.

 2 Never go long a stock when it is high and never go short when it is low. The stock may go higher or lower but your risk is too high. If you’re going to buy a stock or anything else, buy at wholesale. If you’re selling, sell at retail. Don’t forget that going short is selling short.

3 Risk is defined as how much money you can I lose before I abandon this position. We all have a limit were we just can’t take the pain anymore. For most people that means setting stops that you will not let your position exceed. Then you at least know what you may lose on this trade.

Since I have been trading for almost two decades now I use a little more of a sophisticated strategy.  I first bought WPG back in May at 14.44 where I thought it was severely oversold. It bounced to 14.95 and started to drop. I sold half the position for a quarter and most of the rest for a dime. I kept a few hundred shares. If I had been playing this stunt with a 100 dollar stock it would have been a hundred shares or less to hold because the risk is so much higher. As it was I was down 400 bucks before I added several thousand shares to this trade.

The red candlesticks (bars) are negative days from the opening price of the day and the green candlesticks are positive from the open that day. The two lowest bars on WPG chart are called a tweezers bottom. I like them even more when they have long tails under the body of the candlesticks. As is evident in the chart they signaled a sharp reversal. Notice the large candlestick when the upper parallel line was broken. WPG topped out at 14.40 when Goldman announced they want to buy more WPG at a lower price.

 

23-Jun-15 07:22 ET WPG WP Glimcher initiated with a Neutral at Goldman; tgt $14  (14.13)

Courtesy of Briefing.com

It’s always nice to know the big boys are interested in your trade.

Let’s take a look at the blue circle area. Two days after the high of 14.40 Goldman gave WPG a neutral rating and a target of 14.00. That’s where it gapped down on 6/23/2015.

4 A double bottom or a higher low indicate a possible turn in the direction of the stock.  This a strong reversal signal and gets stronger and stronger the farther the stock has fallen, as long as the fundamentals are still intact.

WPG then moved back up to 14.29 and set the cup for a cup and handle reversal pattern.

5 A cup and handle is another strong reversal signal. On stocks that don’t do a sharp V reversal you will see this pattern often. The entry for this pattern is the breakout over 14.29, the high of the cup recovery.

 6 An ascending triangle breaks higher over 80 percent of the time.  The ascending triangle is the next pattern we see. The breakout for the triangle is 14.14, for the cup and handle 14.29 and for the higher high 14.40.

I’m looking at the valuation on WPG to be at least 10 times P/E of guidance of 1.77. So the target is 17.70. There is resistance at 17.08, 17.76 and 18.22. I will sell half at 17.00 and the rest at 17.50.

This is the plan of battle, but commanders will tell you the plan changes as soon as the first shot is fired. So be flexible, if the market starts running up hard and takes everything with hang in till it stops. Conversely set a hard stop and don’t let a stock run against you, especially if you have a nice profit.

WPG broke to the downside and set a lower low than the cup in the cup and handle. That pattern is now broken and worthless to us.

KORS, which I have been trading way to long, finally set a cup and handle which I bought at the breakout.

blog kors 60 min 7-31-2015 On a stock that has taken the beating KORS has, this is a typical breakout from a cup and handle. Notice that on the morning of the 27th KORS set a high of  39.77, then fell away for the day. On the 28th it set a lower high at 39.61. That was the top of the cup and handle because it then set a higher low. Yes, a higher low is a big deal because it tells you the bears (sellers) couldn’t take it to a new low.  If they are no longer in control the stock will go higher. Notice that there are three higher lows before KORS broke through 39.61. I don’t buy this pattern until the break over the top of the cup.