The point of any long position, just like any relationship, is to move from the lower left to the upper right.
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Stock Basics
“Don’t trust your own opinion and always back your judgment until the action of the market confirms your theory.”
AS I write this U.S. index futures are getting obliterated. This comes in tandem of China's weaker yuan that has since created a rout in their equities just days before their Chinese New Year. This tumble has triggered their circuit breakers for the second time this week.
The ES_F index is down a little over 1% to 1961 on the lows. That's nothing in comparison to what's happening in China though where the Chinese stock exchanges shut down shop less than a half hour after they opened after the CSI 300 Index obliterated more 7% triggering another circuit breaker event.
The catalyst for the selloff in Asia comes after China's central bank cut its daily reference rate more than any other time since August. China's signaling to the rest of the world that they've got an increased threshold to do what it takes to shore up their weakening economic growth.
JENGA
China puts everyone else on edge Jenga style.
We've seen an accelerated retreat from risky assets to start the new year. With the riskiest equities taking it on the chin first. The index as a whole has already seen a 2.4% haircut and will presumably end the day and week lower than that.
This is a classic real life scenario of the popular game Jenga. With different blocks coming off the whole group one by one. Unlike Jenga however, we don't actually need to see these blocks come down. Financial markets are operating in fear that the yuan's sharp depreciation may only accelerate, which would signal that China's economy is even weaker than everyone believed. If that's the case we could see a spark of another wave of devaluations around all of Asia and in other key countries/economies.
With Wall Street closing at three month lows on steady volume, the signal is clear. Risk aversion is on the board. Asset managers are getting out of the riskiest assets and avoiding another shoe dropping on them. This risk aversion was only amplified by the overnight plummeting price of oil and the geopolitical concerns behind North Korea's nuclear test on Wednesday evening. And now we get this shit. Fuckin' China.
LINES
Let's take a look at some levels.
SPX has been in a downtrend on the daily. 1973ish and 1954ish are the next lines int he sand.
Above you we see the S&P 500 levels and downtrend on a daily basis. Below we'll see it on a weekly basis.
SPX weekly
DOWN DOWN DOWN
With all the turmoil and an absence of buyers in the market the bias remains to the downside. And with uncertainty as to how levered banks are and the level of exposure they may be facing when oil companies start going down this makes for a very troubled market situation. As I stated in the first post of the new year, the catastrophes that may lay buried underneath the oil madness are uncertain as of now and we should not try to pick bottoms. With a hint today that levels of credit default swaps in oil backed securities possibly being so high in some companies that bankruptcies and failures are nearly imminent, it goes without saying, get the fuck out the way.
It is quite obvious beyond that rhetoric that in some cases a chase for performance and growth may continue so it is my bias that we continue to trade opportunities to the long side as they present themselves while maintaining a downward bias.
Start at Stop: Form a Plan
“The only thing to do when a person is wrong is to be right, by ceasing to be wrong. Cut your losses quickly, without hesitation. Don’t waste time. When a stock moves below a mental-stop, sell it immediately.”
You're probably here because you want to make money in the stock market. You might be someone who is new to trading, someone who's been trading for a while and wants to get better, someone who thinks the market is rigged, someone who is bored and doesn't want to trade on their own, someone who is at their wits end with the market etc etc. Whatever the reason is that brought you here today, if there is one thing that you take away from this site please let it be this -- Form a plan and stick to it.
Let's run an experiment. Close your eyes and think of the last person you spoke to about the stock market that isn't an active trader/investor. What was the first thing they asked when you told that person about the market or a trade you took? Almost all of you probably thought "How much can I make?" That comment is so unbelievably common it almost always makes me chuckle. That comment is why I wanted to start here, at the very beginning.
Most people who fail when it comes to investing/trading do so because they lack focus and conviction in their plan. Whether it's not knowing your setup, not trusting your setup, or just plain old greed, lacking a plan or not sticking to one will almost always ruin you as a trader/investor. Having a plan is so important that I felt it must be addressed at the very top. Having a plan is the fundamental backbone to investing/trading. It is something that anyone can do, even if they have no stock market experience.
You might be asking yourself "How do I form a plan if I don't know anything about the stock market?" Ah, that's simple, by using a stop loss.
- Stop Loss: In simple terms, a stop loss is your emergency exit strategy. It's the absolute maximum you are willing to lose on a trade/investment that you place.
The most common mistake I see from new and seasoned investors alike is not respecting their stops, or worse, not having one. Even more troubling, and like the experiment we ran at the top, many who are new to investing (or worse some who have been doing it for years) think in terms of what their profit will be prior to entering a trade, rather than what they could possibly lose. This is a fool's mindset. The key to investment/trading is capital preservation. You simply cannot preserve your capital if you do not know what you can possibly lose.
So if you take nothing away from this post, or any other post in the future, please take the following away; Always know what you are willing to lose before you enter a trade. Always know your breaking point.
That simple rebalance of your thought process will set you apart from most investors/traders and put you on the path to success.
“It is not good to be too curious about all the reasons behind price movements. ”
Like many, I spent a part of my weekend keeping tabs on what was going on in Paris. I tried my best to avoid 3rd part media outlets and tried to stick to raw data from a Reddit thread a friend of mine passed on to me. Going into Friday my bias was to the downside and with relentless selling pressure and support broken on Friday in SPX I saw no reason for that downside pressure to cease.
So with the news of a terror attack shortly after the market closed on Friday it was no surprise that stock futures accelerated their declines. And when they closed for the remainder of the weekend at 8pm on Friday, the markets were hinged on just how bad the news would be from Paris. Two days of pins and needles. When they finally reopened Sunday night those wanted to panic did. And with that sudden and slight panic we tested the 2000 support level on SPX and found support there. Monday's session followed this lead and the markets continued in uptrend fashion "business as usual."
Personally, I am not a fan of trying to find trades that require precise entries. I prefer broader time frame breakouts/breakdowns and find painting with a broader brush to provide the optimal risk reward for success. Monday's tape however provided great opportunity for "bottom fishing." Specifically with AMZN.
AMZN's stock just came off nearly a 10% decline from its all time high just this past Thursday. The issue was trading off nearly 53 points in just 1.5 sessions. This decline landed the stock near some critical support and gave us an entry opportunity. Again, I am typically the type of trader that finds broad based breakouts and breakdowns on multiple time frames, but could not resist an opportunity like this. I want to quickly assess the psychology of the trade and give a frame of reference to it for future potential finds like it.
If we take a look at both the daily and weekly charts for AMZN we notice that there is support near the 620 level on the issue. Furthermore, if we take a look at the 4 hour chart we see a solid trend line in tact and both support and 50 day support lined up again near 620. With this information, I assessed how the stock would behave on a five minute basis (MOMO) intraday chart.
As we can clearly see on the five minute chart, the issue found its support around 620 as we'd hoped. Specifically we saw three hammers on the five minute followed by higher lows and higher highs. Though our exact target of 620 was not necessarily tagged, that level was in fact tested and did in fact hold. That presented us with a beautiful combination of an opportunity.
The following combination is what I'd like to highlight:
-Approximate 10% retrace from ATH in just two sessions
-Wildly "oversold" conditions both in the market itself and in the issue
-Multiple time frame support alignment
-Multiple hammers against multiple support levels.
With that said, each one of these indicators alone would present for a good opportunity to the long side. Combined they presented a great combination for a very well defined trade. Moving forward, we are now able to see what sort of potential a trade like this may have.
“We want to perceive ourselves as winners, but successful traders are always focusing on their losses.”
I want to start by saying that even with today's nonsense I walked away from the table with a significantly profitable day. Not Wall Street billionaire or Oprah Winfrey Weight Watchers big, but big nonetheless.
I have been a trader in some capacity, whether amateur or professional, for over nine years now. In my time I've survived some crazy upswings and some violent turmoil. I've seen companies implode and others sustain astronomical gains. I've watched as CNBC has recycled and churned their fair share of pundits and "hot shots." Like all "viewers" I have my fair share of likes and dislikes, I've ridden the wave of "Fuck you Uncle Carl" to "Holy shit, uncle Carl!", and have watched the totem pole of the "Hot new hedge fund king" get churned.
With all that said, I've never seen anyone cross the airwaves (including Dan Nathan himself) in such privileged pejorative guile anywhere close to that of William "Bill" Ackman. Aside from his self absorbed attitude where even his billionaire peers hate his guts, I cannot recollect an instance in the last three years plus where that guy has been significantly right on anything. When I pour through his bio, I can't see anything really that screams "Brilliant" when it comes to trading or investing. I guess the MBIA thing maybe, yeah, maybe? 10% stake in Target? Well I guess if you have that kind of cash, yeah sure. The Barnes & Noble deal? Lol, really? That's all you got?
Before I go any further I want to take a moment and show a two graphs. I also want to remind everyone that no one individual is bigger than the tape. No matter what sort of self righteous Napoleon complex exists with them, they are just minnow in an ocean of whales.
Bubble Phases
These are the well known, repeated, and outlined phases of any stock market bubble and crash.
VRX
VRX Weekly
If you lay VRX over the phases of a bubble what do you get?
Fucking perfection.
Dear Bill, you privileged narcissistic asshole, you are fucking wrong. Admit it, move on.
The fun thing about the market is that even when you are right, but not right with the timing, you will go broke before you are actually right. I get it, you grew up in a privileged New York Real Estate family and are accustomed to hanging around people that were not on your level. But Billy, this is like the time where you bet your dad you'll get an 800 on your SAT. Except this time, your dad can't let you off the hook and you're fucking with other people's money. Not just your own. This isn't
Oh and Billy, take it from a guy who actually got a perfect test score and is used to being "The smartest guy in the room" (even with you in it). Doubling down on monopoly money at the tail end of a QE cycle is just lunacy. Especially when shit is broken. You might as well head to vegas "Playar."
Based on nothing more than your arrogance I hope to God you're wrong and this VRX is Enron 2.0. Just so I can stop hearing about you and your self adoration.
Aside from all this, I am just unsure how long this will last before people start to investigate if you're running a Ponzi Scheme the likes of which has not been seen since Bernie. Seriously, how is anyone as wrong as often as you are without any severe setbacks? Tick tock Billy, tick tock.