Monthly Archives: August 2015

Correction

Well, we finally had a 10 percent correction, and what an exciting correction it was. The correction was caused by very nervous investors, a slowdown in China and a devaluation of the renminbi, the Chinese currency.

If you were still heavily long the market you have my sympathy, but if you sold into this drop, I have some of your money.

On August 24th, I bought BIDU, MU and URI, which I already held in my account. BIDU was my best and most profitable trade of the day.

blog bidu 15 min 8-24-2015

BIDU had support at 133.70, 120.15, 113.55, 104.60, 101.60 and 91.00 bucks. I noticed BIDU down 13.00 around 140.00 in the pre-market, well before the open which gave me plenty of time to check news and fundamentals for BIDU. Nothing new. So the trade was all based on market action. The futures were down 650/700 points at that time. The Chinese market was down over 6 percent overnight. That same percentage would bring the DOW down about 950 points. I decided to wait for the open but entered orders at 101.51 and 105.11 in different accounts.

The reason for these orders was if BIDU somehow reached these levels there would be a huge bounce. I expected to have to chase it from wherever it bounced, and in one account I did chase it and got in at 109.84.

13 minutes later I was out in the 142 to 144 area.

On my last trade on MU I lost 80 cent on an entry at 17.61. Strong support was at 13.25 and on the morning of the 24th I entered orders at 13.51. MU had closed at 14.53 the day on the 23rd after begin drug down by the three previous days of losses in the DOW. This trade took 5 hours but I sold at 15.07, a 12 percent gain in a few hours.

Finally URI, a stock I had bought on 7/24/2015 at 67.00. The low up to that point had been 62.46 but on 8/21/2015 it dropped to 61.63. Oh oh. The next support level was at 55.98, a long way off. On 8/24 URI dropped to 56.66 and I doubled up at 57.00 for an average of 62.00. URI bounced to 63.98 that day but I didn’t sell until 8/27 when it hit first resistance at 68.49.

I’m not detailing these trades to show you what a great trader I am but to explain what a fabulous opportunity the market offered us that morning. Anyone that could read a chart saw this trade coming.

We had three down days on the DIA, SPY and the QQQ and then an 850 point gap down on the fourth day. This was all based on slower growth in China but precipitated by 2 percent devaluation of the renminbi. The bottom was in the 3rd minute after the open with an 1130 point drop. In 15 minutes the DIA bounced 900 points.  Whether you were trading stocks, futures or ETF’s the only thing required to make money on the 24th was a little knowledge of the markets and charting and some cojones.

Over the weekend as I was driving somewhere and I was tuned to a financial talk show and listened to the host go on for an hour about the impossibility of timing your buys and sells in the market. What a load of hogwash.

The things that are required to make intelligent decisions are;

Knowledge of the perceived intentions of the Federal Reserve.

Knowledge of macro events in the world markets.

Knowledge of the market bias of traders, both pro’s and the general public.

Know the real valuation of the instruments you are trading.

Be able to read a chart with confidence.

Once you put these five items together you come up with a pretty fair picture of where the market is going. When you have a clue where the market will go trading is a lot simpler and more profitable.

The DOW (DJIA) needs to penetrate 16860 to recover 18000. If it can’t do that we will continue lower.

Don’t forget QE3 is still in place.

 

Time to Buy

 

Baron Rothschild, an 18th century British nobleman and member of the Rothschild banking family, is credited with saying that “The time to buy is when there’s blood in the streets.” He should know. Rothschild made a fortune buying in the panic that followed the Battle of Waterloo against Napoleon

blog dia 30 min 8-24-2015

 

This is a 30 minute chart of the DIA, a Dow Jones proxy this morning, 8/24/2015. At the low the DJIA (Dow Jones Industrial Average) was down 1130 points. WOW!!!!

In a conversation with my trading buddy yesterday I told him I thought the market would reverse its fall Monday or Tuesday with a big gap down and then a reversal so I was prepared for this event. For this to become a true statement the DIA needs to close above 15771. A close below 15771 and we could continue down. I am talking in the short term here. Short term is defined as the next 30 days. In the long term the market is heading lower.

The way I prepared for this event was to check my hot list (about seventy or eighty stocks that are at or approaching value levels) and watch them closely in the pre-market. This list gives me a constant source of new trades.

At 7:00 CDT (open of the pre-market) BIDU was already down 13 at 140 bucks and the DOW was down about 650.00 points. Since BIDU is a highflying Chinese internet stock I decided to wait for the full market open at 8:30 before entering a trade.

In May of 2010 I was long AAPL at $247.00. AAPL was down $11.00 at that price and I was in at a strong support level. The market was down about 300 points and was about to flash crash. I thought I had a great position until the market dropped to minus 1000 (in about 30 minutes) and AAPL dropped to a low of $200.00. I was holding 1500 shares and was down $70500.00 in a heartbeat. I held on as AAPL bounced but lost 24k that day.

AAPL was what I was thinking about as I watched the markets unfold this morning. I entered orders in two accounts at 101.51 and 105.11. My other trading account I entered no trade and had to chase BIDU and got in just under 110.00. The low was $100.00 even. Support was at 91. That was why I only entered orders in two accounts. I didn’t want to be down 10 bucks a share on a couple thousand shares.  BIDU wasn’t my only trade today. I also bought MU and URI. There were hundreds of other great opportunities. It’s all in how you look at it.

If you looked at an 1100 point drop as a disaster you need to change your perspective. It is really a great opportunity.