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.
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.