Sunday, December 13, 2015

Here is Why I'm Staying In Cash

In the last 8 sessions, $SPY and $QQQ dropped by -4.5%. We witnessed a very similar situation 5 weeks ago on November 3rd as well. On Friday Dec 11 when the market opened, all the major sectors started with a big gap down and we never recovered. This is the time to close out all the losing positions and harvest profits. It is best to stay on the sidelines and conserve capital until the market is in a Confirmed Uptrend. Currently the 2 major indexes, $SPY, and $DJX are trading below the 200 day simple moving averages. These are technical signs that the market is breaking down and the overall health of the market is very sick.
Remember that CASH is considered to be a position too.

Sharpen Your Skills

It is disheartening when the market just trades sideways like it has for most of 2015. This is the time to stay vigilant and practice trading using a virtual trade platform. In 2015 we have seen that the market can turn on a dime and within a few days we could have a Confirmed Uptrend. How the market will react to a rate hike by the Feds this week is not something that one can predict. It is best to see how the institutions react and where they deploy their cash. It is wise to take the lead from them. One thing we know for sure though is that they have been supporting big cap stocks like $FB, $GOOGL, $GOOG, $AMZN, $LNKD, $PANW, $SBUX, $MSFT, $MCD - just to name the few. Institutions want to show good performance of their portfolio for the year end. Because these stocks are not volatile due to the sheer size of their daily trading volume, institutions can park their monies and assure consistent performance.

My Market Outlook

April and December are the 2 best months of the year historically. This year $SPY did less than +1% in April and December is down by -3.5%. Our traditional Santa's Rally in the market has fizzled. Retailers like $M, $JWN, $BBBY and $WMT did not do well during the Back to School season. The last 6 weeks of the year is where they make 40% of their profits but they have given up some of their market share to online retailers like $AMZN in the last 4 weeks. $USO - a proxy for oil - has dropped down by 90% from its all time high achieved in July of 2008. There is a lack of demand world wide and the currencies of emerging markets are in a downward spiral with the US Dollar strengthening. I have set my year end lower targets for the 3 major indexes as follows:

  • $SPY - 1970
  • $QQQ - 106
  • $DJX - 168
We could have a rally at the beginning of next week with the Fed announcing their decision on the rate hike and institutions covering their short positions. We could also experience the downtrend that we experienced in late August. It is a risk that I would rather not be exposed to and I think it is a good time to stay mostly in cash and not take any new stock positions this week.

Stocks Worth a Virtual Trade

These are some of the stocks that I will do virtual Option Credit Spread trades this week to keep my skills sharp:

  • $AYI
  • $NTES
  • $FB
  • $GOOGL
  • $SBUX
  • $MCD
  • $PNRA
Happy Trading!

Monday, November 23, 2015

The $DOW Stalls - Yet $QQQ Is Up 10% YTD

The $DOW Stalls - Yet $QQQ Is Up 10% YTD

We are at the same level now on the $DOW as we were on Dec 31 2014.  However, $QQQ is up by a whopping10% but the $SPY is up a mere 2%.  This is an indication to me that we are nearing the end of the 7 year bull cycle that started in March of 2009.  The last several months have been driven by the Technology, Health Care and Consumer discretionary segments of the market.  All of the stimulus from the central banks of US, Japan, Euro Zone and China has no effect on the earnings or sales of publicly traded companies.

We are nearing the end of third quarter earnings season.  The retail sector as well restaurants have done very poorly in the third quarter.  Energy and the Industrial sectors are still the worst performers year to date.  There are, however, opportunities to invest and trade stocks that are in the Technology and Consumer discretionary sectors.

A Traditionally Bullish Week

Traditionally, the week of Thanksgiving starts a bullish run in the market.  This is a short week too so the market could just keep the momentum from last week and take off on Monday morning.  Thanksgiving week momentum usually keeps the pace for the following six weeks until the end of the year.  Last week, all the three major indices, $SPY, $DJX and $QQQ lead the market with a +3.5 %.  Last year November was the best month of the year too.  Since $QQQ index is the leading performer year to date and last month it did +11.37%, it is best to look for stocks in the Technology sector.  Also Consumer discretionary is the leading sector in the market and with $ being the strongest currency in the world, it is better to be looking at stocks that are more US centric to avoid the currency headwinds.

Stocks on My List

Although we are heading into historically the bullish time of the year, I am also cognizant of the fact that we have 12 distribution days between the $NASDAQ and $SPY.  Most of these distribution days have occurred in the month of November.  Institutions took their profits during those distribution days and last week they started investing heavily into some select names.  I have developed trading plans for the following stocks:

  • $LNKD
  • $ORLY
  • $MAS
  • $STZ
  • $CRM
  • $LUV

Some of these stocks have passed their ideal buy points so I would monitor them on Monday to see if some of them retrace to their buy point for my ideal entry.  I also have a secondary list of stocks that have a bullish set up for a low risk option trade. They are:

  • $FISV
  • $AMZN
  • $DIS
  • $HD
  • $FB
  • $ATVI
  • $RAI
  • $V
  • $TRV

If some of these names look familiar to you then you have obviously been reading my blog.  I have brought these stocks to the attention of my readers in the last couple of weeks.  These are stocks that have good fundamentals and technicals.  They are big cap stocks that trade over $100 million daily and not subject to high volatility like the thin stocks would be.  They also are very liquid with a tight bid/ask spread with options.  It is not a bad idea to take small positions in several stocks to take advantage of the bullish sentiments during this week. 

Have a Happy Thanksgiving and enjoy the turkey dinner with the family.

Happy Trading!

Monday, November 16, 2015

The Bulls Are Out of Breath

The Bulls Are Out of Breath

The market had a great bullish run of +10% in $SPY in six weeks since the September lows.  Last week the bulls were exhibiting signs of exhaustion and were running out of breath in their advance to punch through the ceiling of 213.34 in $SPY from mid June.  Institutions came in droves beginning of the week on Monday and by Wednesday, they had started getting rid of all retail and technology related stocks with increasing volume.

The $SPY dropped by 3% in the last 3 days of trading.  Leading sectors $XLY and $XLK that had been doing so well for the last 5 months, dropped by 5% within just a few sessions. Currently they are all trading below the 34 day ema.  It took the market several weeks to gain 10% only to lose more than a third of that gain within a week.  None of the sectors were spared last week because there are signs of lack of global demand.  Oil has begun to slide down to $40 a barrel and other commodities like copper, silver, gold and other metals use in the industrial sector are reaching their all time lows.

Conserve your portfolio

This is the time to be very defensive with your portfolio and to stay disciplined.  Cut your losses with any position that hits your loss target. Retail apparel stores really took it on the chin last week with some stores like $M, $TIF, $JWN and $DDS dropping by 15% to 18% with disappointing earnings and outlook.  Other retail related firms like $ULTA and $NKE dropped by 10%.  The retail apparel sector depend on increasing sales and earnings from back to school season to buy their merchandize for holiday sales.  They make 40% of their yearly profits in the last 6 weeks of the year.  Their disappointing sales and profits in the third quarter means that they will have less capital at their disposal to fill their stores with merchandize for holiday sales.  Outlook for the retail sector is not good and as such it is best to cut your losses and conserve your capital for the next opportunity in other leading sector.

Some of us are still licking our wounds from the deep correction we had on August 24th.  We do not want to be in that position ever again.  The market has repeatedly dropped down from 8 day ema to 34 day ema in as little as 3 to 5 sessions during minor correction of 5% to 10%.  Hoping that the position you have will recoup the losses and come back in the next couple of sessions is not a good strategy.  If the position has met its loss target than it is time to pull the plug on the position before a minor loss turns into a major one.

Positions Closed out for a Loss

The first week of November was the sixth week of the rally and the market was making rapid advances to all time highs of June on $SPY.  Last year in mid October, the market took off for the following 6 weeks in a similar manner only to take a breather by end of November.  The market moved sideways for the following several weeks after that.  I have held losing positions in the past that met their loss target for a session or two, only to have that minor loss turn into a major one.  Last Friday I closed out my debit spread option position on $ORLY for a loss because the stock dropped to the loss threshold on my trade plan for that position.   I closed out my November credit spread option position on $NKE for a loss too.  I could have waited 5 more sessions for the option to expire but there is the inherent risk of the stock going even further below my loss target which loses me even more money.

Stocks on the Horizon

Currently we have 11 distribution days (days of heavy institutional selling volume) and most of them have occurred in the last two weeks - which is very concerning to me.  This is not the time to put out a lot of cash for new bullish positions. Asian markets of Japan (-1%) and Hong Kong (-1.5%) are down as of 9.30 pm Sunday evening as I am preparing this post.   Some of the stocks that have still maintained their momentum are:

  • $MCD
  • $DIS
  • $FISV
  • $LUV
  • $AMZN
  • $CBOE
  • $NVDA
  • $LNKD
  • $GOOGL
  • $NTES

I will focus virtual trades Monday morning on some of these stocks and stay on the sidelines for now.  I will observe the actions of institutions this week for clues as to the sectors and stocks that they are deploying their capital. 

Happy Trading!

Monday, November 9, 2015

Manage Your Profits - $FB $ORLY $LNKD $LUV $AMZN $ULTA $SBUX $STZ $PSX

Manage Your Profits

The reason every trader gets involved in the market is to make profits!  As traders, we identify the right stocks and the right entry points for trades but many retail traders skip the critical step of creating a trade plan that includes a profit target before pulling the trigger.  The consequence of that oversight is that those traders will sit around watching their screen or smartphone trying to determine their exit point in real time.  Not only is that incredibly risky, it's a massive waste of time and energy!

I always encourage my students, followers, and colleagues to create a trade plan with all 3 possible exits:

  1. Profit - If you commit to a profit exit, you're free to use those profits to place more trades and increase the size of your portfolio
  2. Loss - Conserve capital when a trade goes against you
  3. Timing- When a growth stock moves sideways and misses its breakout, your money is tied up and doing nothing for you

Quick example, I recently placed an option trade on $PAYX on Oct 26th. The trade plan included a profit target of 100% and my window of opportunity was 2 weeks in order to avoid the option expiration on November 20th.  Everything went according to plan and I hit my profit target of 100%!

So now that I've accrued those profits, it's time to harvest and re-invest them into the next trade.  My trading style, is to keep things moving along - almost in an "assembly line" fashion.  

My Capital Is My Inventory

I like to treat my capital the same way a retail business would treat their inventory.  I want that inventory to move, and if it doesn't - I replace it with fresh new inventory.  On Thursday November 5th, while I was out running errands, the trade met my profit target and the sell order was executed automatically.  Thanks to the style of trading I use, I wasn't eating up time in front of my computer or iPhone to monitor and micromanage that position. 

It is always best to automate a trade with contingency orders to close out the trade for profit.  This is a really critical step if you're going to save time and boost the efficiency of your trading routine.  When I talk to other retail trades, they often tell me that they just don't have time to sit down and create a trade plan.  However, they'll go on and on about how they've spend countless hours watching the daily for their position tick by tick.  My question to them is, are you tracking that time spent?  Wouldn't that time be better spent creating a trade plan?  I certainly think so!

Stocks on My Watch List

Currently the best performing sectors since the follow through day on October 2nd are $XLK, $XLY and $XLF.  Stocks in these sectors account for most of the gains in the market over the last 5 weeks.  Low risk stocks that offer us an opportunity this week are:

  • $FB
  • $ORLY
  • $LNKD
  • $LUV
  • $AMZN
  • $ULTA
  • $SBUX
  • $STZ
  • $PSX

The bulls are still in charge.  The market has made a +10% move over the last 5 weeks. For the past 4 sessions, the market has moved sideways. This is to be expected, institutions need to digest their profits and re-orient for their next positions. You should expect the market to consolidate some this week and watch for stocks to retrace to their buy point. 

Happy Trading!

Monday, November 2, 2015

$XLB and $XLP Show Me That It's Time to Celebrate - Plus My Short List: $FISV $AYI $MAS $IDTI $RCL $CC $LUV

We May Have Turned a Corner

October was the most profitable month in the market for 2015 which is welcome news.  Most of us are still licking our wounds from August so this time of performance is a nice change of pace.  Here's a break down of the performance in the 3 indexes I pay the most attention to.

  • $SPY +8.50%
  • $DJX +8.47%
  • $QQQ + 11.37%

Here are some other reasons to celebrate:

  1. All 3 indexes are trading over their 200 day DMA
  2. $XLB appears to be back
  3. $XLP has passed its highs from August

These are outstanding results.  Traditionally October is a very volatile month.  Last year the market made a down move of 8% the first two weeks of October only to rebound up for 8% the last two weeks of the month.  If the current momentum keeps up than we are poised to surpass the all time highs that we attained for $SPY in May and $QQQ in July.

November is traditionally one of the best months of the year.  Last year, the month of November was better than October.  At this rate I am inclined to open up a bottle of champagne and cheer on the bulls for taking the controls.  Before I do that, lets decipher the market and identify the leaders in the market.

Market Drivers

There are just a handful of stocks that are responsible for the volume and uptrend in October.  Institutions have accumulated hoards of cash from harvesting profits from the Bio-techs and Healthcare Sectors and are now investing in Big Cap stocks.  These are the stocks that trade $200 million to over $1 billion a day.  Stocks such as $AMZN, $MSFT, $GOOGL, $AAPL, $FB, $CSCO are the GENERALS in the market because of their big cap status.  Some of these stocks have gone up by 10% ($AAPL) and others as high as 18% ($MSFT) to 20% ($AMZN) In order to have a sustained rally, we need the SOLDIERS to participate.  These are the second tier and third tier stocks that trade less than $200 million daily.

As a retail trader, one has to follow the lead of the institutions because they are ultimately the ones that decide the direction and momentum of the market.  Over 70% of the daily trading volume in the market is accounted for by the participation of the institutions (hedge funds, mutual funds and pension funds).  They have begun to deploy their cash in beaten down sector such as $XLB (materials).  This was the best performing sector in October and it rallied 9.67%.  Stocks such as $PPG in the material sector has rallied 19% in the same period.

My Short List

I have a list of stocks that trade between $100 million to $200 million daily that have made it through my funnel method of stock selection.  These are the SOLDIERS that are poised to participate in the rally because institutions have begun to pour monies into them as well.  We still have numerous companies reporting their earnings in the next two weeks so I have eliminated them from my list.  It is too risky to be holding on to the Stock or Options through earnings.  Some of the stocks that are on my watch list are:


For those of you that are following my 4 Option trades that I had posted last week, I would like to make you all aware that $ORLY November 270/280 Call Debit Spread was closed out on Wednesday for a 110% profit in 10 days.  It was closed out just the day before earnings were reported and it met my target for the stock to be at $262.70.  This was all written in my trade plan and I just executed it accordingly.

Happy Trading!

Sunday, October 25, 2015

The Bulls are in Charge

Bulls Are In Charge

Last Thursday and Friday was a very pleasant surprise in the market. Institutions came into the market with hoards of cash that they had harvested from taking their profits from the Biotech and Health care sector ($XLV). Institutions were very anxious to deploy their cash when the market opened on Thursday, leading to a gap up in all the three major indices ($SPY,$QQQ,$DJX). Volume had been lackluster ever since option expiration Friday October 16th and the first 3 days of last week. There was a bearish tone to the market since all the major indices were meeting their resistance levels and there just wasn't any significant volume commitment from the institutions. That all changed once Mr. Draghi of European Central Bank (ECB) indicated monetary stimulus on the horizon for the euro zone. To top it off, the Peoples Bank of China (PBOC) slashed their lending rate for the sixth time to spur growth and support their declining stock market and unhappy populace.

We are in the midst of earnings season this week. There are over 40 diverse firms slated to come to the earnings confessional - some with very poor outlook and others with mediocre performance. Expectations are that earnings in the third quarter will be 5% less than the second quarter. That doesn't bode well for the market except that we are now expecting easy monetary policies from the two largest economic zones of the world. This will lead to money being invested in the stock market and we can expect the bulls to be in charge now.

My Market Sentiments

Currently we have accumulated 7 distribution days just in the last 9 sessions. This would alarm me under normal market conditions. That all changed on Thursday and Friday when the volume in the market was 70% above the average volume that we witnessed at the beginning of the week. $GOOGL,$MSFT,$AMZN and $MCD traded over 200% in volume two days in a row during earnings report and they popped up anywhere from +5% to +9%. These are very bullish signs. My bullish targets for the major indices are:

$SPY ... $214
$QQQ ...$117
$DJX ... $183

Currently these indices are trading above the 200 DMA (simple daily moving average) and the institutions use this as a line in the sand to make their bullish move. Monday morning we should be getting a confirmation of the institutional commitment if the Asian and Australian markets make a similar bullish move.

Follow My Stocks

Currently I have conservative low risk option trades on the following stocks:

$PAYX ... 52.50 Nov Call Spread (October 23 trade for 35cents debit)
$NKE ...  127/130 Nov Put Credit Spread (October 21 trade for 90 cents credit)
$PM  ...  86/88.5 Nov Put Credit Spread (October 21 trade for 70 cents credit)
$ORLY ... 270/280 Nov Call Spread (October 16 trade for $1.30 debit)

They are all in the money (ITM) right now. Feel free to follow these trades along with me and comment your thoughts on them.

Stocks on My Watch List

There were 5 growth stocks that made my watch list this week and subscribers to my service got an access to my detailed trade plans for stock purchases on these stocks. There are other stocks that I am monitoring for possible Option Trades this week and they are:


There are other stocks with strong fundamentals and technicals but they have earnings reports in the next two weeks. I just don't want to take the risk of earnings surprises. There are plenty of opportunities from my very strong watch list of 5 stocks and it is best to just concentrate on the "Rock Star" stocks that have come through my funnel method.

Happy Trading!

ps: A lot of my subscribers were asking me as to why they didn't get my blog delivered to their email box last Monday. I was gone to Nashville Tennessee the previous week for a  'Cancer Walk'  along with my family. I also took some time off for a mini vacation and as such I didn't publish anything on Monday. I am back on my bullish mode as of this week.

Tuesday, October 6, 2015

Don't Celebrate Yet! $SLB $GG $POT $OIH $SBAC

We had 4 days of high volume trading in the market last week but all the three major indices that I monitor - $SPY,$QQQ and $DJX - moved up about just 1% from the week before. They are also trading below the 200 sma. Some of my readers have been asking me as to weather or not this would be a good time to be taking some stock positions since the market is in a  "Confirmed Uptrend"  My outlook on the market is still leaning on the bearish side. All the 9 major sector etf's - $XLK, $XLV, $XLB, $XLI, XLY, XLP, XLE, XLF, $XLU - are still trading below the 200 day sma as well too.

Payroll report on Friday was downright ugly. Figures for September payroll was 30% below estimate. The numbers for August were revised downward as well. $CAT had announced a plan for major reduction in their payroll as well. $WMT also announced a cut back of 500 positions at their headquarters. We are already in a deflationary environment and there really isn't any wage growth to speak of. Under such circumstances, it is best to wait for a few days to see where the institutions are deploying their capital. In the mean time it is best to continue to look for bearish opportunities in the market.

Institutional Behavior

I have often indicated that the institutions - pension funds, hedge funds and  mutual funds - account for over 75% of the volume in the market and they ultimately are responsible for moving the market. One has to follow their lead if a trader is going to be profitable and successful. One also has to be cognizant of the fact that there is an actual human person who works for the institution that actually makes these trades. They all suffer from the same emotions that we as retail traders have to deal with. They also exhibit the same herd mentality that we as retail traders do as well.

Lately in the last several weeks I have noticed that the institutions keep rotating in and out of biotech and health care stocks. They also begin to look for bargains in the depressed sectors such as the energy, industrials and materials. This is what has caused the rally in the market last week. One thing that the institutions can't do is keep the extra cash in a checking account like we as retail investors can do from exiting profitable positions. They have to be fully invested at all times. What they have been doing for the last several weeks is spreading their monies into thin stocks where they can control the price or they are taking positions in the depressed sectors where they think they are getting a bargain. This is the reason why I as a retail trader just don't trade thin stocks or consider depressed stocks as a bargain.

Bearish Opportunities

I continue to see opportunities on the bearish side of the market. Some of the stocks that can present itself for short term credit spreads are:


Just be mindful of the fact that most of these stocks report earnings this month. Plan your trades so you don't get caught with a nasty earnings surprise !

Happy Trading!

Monday, September 28, 2015

Bears On The Prowl - $MOS $APD $BP $APA $LNG $WYNN $X $AA

Bears On The Prowl

The market crash that we suffered on August 24th should have served as a wake up call.  After that session we headed into a bearish scenario that has lasted 6 to 8 weeks. 

The Bears are out and about and prowling the market for their next opportunity. This was very evident once the price of oil began to plummet 10 months ago and gas prices in US began to slide down below $2.00 a gallon. Savings from the drop in oil never increased consumer or capital expenditures by businesses. Wages in US and the rest of the world have stagnated so we are now in a deflationary environment.

The largest manufacturer of mining equipment $CAT has lost 33% of its stock value within the last 12 months. On Thursday it gapped down over 6% with 4 times the average daily volume. $CAT is only reacting to what they see in all the countries that they do business in. This was a confirmation that the market is headed for a very bearish outcome in the next couple of weeks.  This subject actually came up for discussion at a private event I co-hosted with a colleague on Saturday and it led to a great conversation on global demand.

Nobody Is Producing!

$CAT is a multinational company and they have been giving low guidance for several quarters now. They've projected those sentiments all the way out to 2016, so they're telling us something - if we're willing to listen. This is not a caterpillar story. They are reacting to what they see as a lack of demand for raw materials all over the world. Major miners have not been buying or placing orders for new equipment because there aren't enough buyers out there for the raw minerals that go into our products.  

There is also a lack of demand for steel and other metals that go into the building industry. This in turn leads to commodity countries such as Canada, Brazil, South Africa and Australia suffering a loss of revenue from the lack of exports of their mined material.  

My Market Outlook

We will be heading into the "Earnings Confessional" in two weeks when $AA reports its earnings. Second quarter earnings was a disappointment and the market reacted negatively last quarter. Some traders made money trading $NKE but its success should not be extrapolated to reflect as a health of the economy or the market. Currently the  "Market is in Correction" and I project the major indices may be headed considerably lower in the next couple of weeks. My target for the major indices are:

$SPY ... 185
$QQQ ... 90
$DJX ... 15,400

Currently all the major sectors are trading below the 200 DMA (daily moving average) That in itself is a sign of a very poor health of the market. Europe and Asia markets were down by 3% last week and that will have a dampening effect on our US markets. The worst performing sectors are:

$XLB (materials)
$XLI (Industrials)
$XLE (energy)

Some of the stocks that are worthy of pursuing a bearish Option trades are:


Most of them report their earnings in the last few days of October so if I'm planning a trade now, I'll be ready to harvest profit or cut my losses in week 3.

Happy Trading!

Monday, September 21, 2015


Low Risk Trading

Lately, I have been talking to quite a few traders and students that I mentor and most of them express to me that they lost money in their stock positions during the market correction on August 24th. Some of them have just given up because the market has been just trading sideways since March of this year. I often talk about "Low Risk Trades" but I have gone further by explicitly showing them what exactly a low risk trade looks like.

On Friday Sept 11th, I established a Virtual Trade on $ORLY for my students.  As this is not a good time to be taking a stock position and putting a lot of money at risk, I felt it was best to show them what a  low risk trade actually looks like.

$ORLY has been trading along its 8 day ema (exponential moving average) for the last 8 months and making a move of 7 points up on average per month. It is strongly supported by the institutions as well. Instead of buying 100 shares of this strong up trending growth stock and exposing $25,000 to market risk, I decided to buy at the money (ATM) 250 strike call option for October for a debit of $3.75 per contract. There was a trade plan in place to make a profit of 100% with a target for the stock to move from $245.85 to $252.85 in the next 15 sessions. Within 3 days of placing the Low Risk Option trade, the stock maintained its momentum and we closed out the position for a 100% return on our investment. The stock had moved less than 3% but our low risk trade made a 100% gain.

Opportunities Under Current Market Conditions

In my blog on June 1st, I was preparing my readers to stay in cash mostly and only approach the market with a low risk trade - stock or options - and harvest profits from their positionsMedia was frantically talking about Greece and Euro zone than. Now we are talking about China ... China ... China or Janet Yellen.

This week media will once again talk about elections in Greece or Russian troops and missiles in Syria. That is just market noise. I look at the data and it was just glaring at us for 2 years that we are headed for a major correction in the market world wide. It is good to look at the stock charts but one has to dig deeper and look at the performance of the commodities as well as world major currencies and etf's to get a clearer sentiment of the market.

Emerging markets such as China, India, Brazil, South Africa and Turkey depend on raw mining materials to produce things that the developed economies of US, Japan and Europe consume. Look at the weekly stock charts of the following mining and oil related companies for the last 4 years and you would think we are in recession already!

Mining companies


Oil Related companies


Some of these companies have lost 50% to 90% of their stock value since reaching their all time high. These were the signs that there is lack of demand from the developed countries of Europe, Japan and US.

Currently the worst segment of our US economy is retailing, energy related oil and gas, rail transports and chemicals. All this data is my confirmation that we are headed for a 5% correction in the next several weeks with 3 digit moves in the $DOW - up or down - with regularity.

It is Sunday evening as I am writing this blog and I am totally at ease and I know I will sleep well tonight. I hope my readers are mostly in cash and any positions they take will be a very low risk trade. Have your trade plans in place for profit, loss or time exits. That is one important lesson that we all learnt with my Virtual Trade on $ORLY this week.

Happy trading!

Monday, September 14, 2015

My Market Sentiments - September 14th 2015

Trade Plans

Traditionally, this is the time of the year when things look very gloomy in the market. The past 4 weeks were brutal. All the gains that we had made in the $SPY in the last 14 months were wiped out in just last 20 sessions. This is why it is critical to develop a very detailed and well thought out trade plan for any position you take.

These trade plans should always have specified profit, loss and time exit targets. Trade plans are your guide to setting up benchmarks for harvesting profits and increasing the size of your portfolio. One of the main components of the trade plan is planning for a loss exit. This is the part that a lot of traders overlook and have difficulty executing.

I find that it is best to set contingency orders with your broker.  Basically, when you make your initial stock purchase, set your order to include contingencies for the loss and timing exits you have pre-defined in your trade plan. This is how you avoid the kind of losses that a lot of traders lived through these last 4 weeks.

My Market Sentiment

Currently I am more bearish now and we may be headed for another 5% correction in the next 5 weeks. This sounds alarming but the data is very clear on this subject. I highlighted my reasonings in a blog post on May 13th with my take on 'economic PSTD'.  There are currently over 25 countries that have devalued their currencies to gain an economic advantage of lowering the cost of their exports. China isn't actually the source of the problem, it's the sheer lack of demand from developed countries causing these effects all over the world.

Emerging markets economies depend on exports of manufactured goods to the developed markets of Europe and America. They use the commodities like oil, metals, iron ore, coal and fertilizer components. There has been a dramatic drop in the demand of these commodities since 2013 which gives a lot of weight to this lack of demand argument.

The slide in the price of oil since June of 2014 is the latest example. There were plenty of warning signs in early 2013 when there was a dramatic drop in the the mining sector. Stocks like $GDX, $AUY, $ABX, $CLF, $FCX - to name a few - were dropping precipitously. Economic expansion depends on the use of commodities and when there is a lack of demand for them, it makes sense that the commodity countries will face a recession. Canada and Brazil are already in recession. Australia and South Africa are headed that way too.

Bearish Option Trades

75% of stocks trend in the general direction of the market, so it is worth considering placing some bearish option trades with a sweet spot of 45 to 60 days out.  Here are a few ETF's and stocks to consider for bearish options:


Happy Trading!


Tuesday, September 8, 2015

Virtual Trading: Why I'll Be in Cash This Month

Virtual Trading: Why I'll Be in Cash This Month

It was nice spending the long Labor Day weekend with my family. We had a gathering of four generations with different ethnic backgrounds for a fish fry with Greek salad and some French bread.  That's about as much of a melting pot as you can get in America!

It wasn't just the good times and family that kept me, stress free.  The biggest reason is because I am mostly in cash right now. While we in US were enjoying our festivities, markets were open in Asia on Monday. They start the ball rolling on Sunday night for the rest of the world markets and set the tone for how the rest of the world markets react.

With the market is in correction right now, this isn't a good time to be taking any stock trades or bullish option positions. This is the time to be on the sidelines but also a time when staying sharp on your trading skills is a must. A lot of traders that I talk to have just given up on the market because they have lost substantial portions of their portfolio.  However, right now is when a trader should stay even more disciplined and focus on their Virtual Trading!

Most, if not all, brokers offer the ability to virtual trade so use this option to keep your skills sharp. Virtual Trading allows you to stay in the good habits of trading without putting any money at risk. It also allows you to test out new systems and theories, so use it to your advantage.

Maintaining Good habits

Maintaining good habits like building a watch list, or creating trade plans - is critical in the market environment we are seeing now.  Even if you're not planning to place a trade, the market could turn bullish and we could see a follow through day when we least expect it.

Having studied the last several severe (20% or more) market corrections, the same general theme appears. The market is predictable because human behavior is predictable.  Always remember that the market is really just human behavior on display.  Looking at the history, most of the gains in the market are made right about the time when the market has reached the low point of correction.  The ensuing "bounce up" of a true rally provides sustained growth for a few weeks before things start to move sideways.

In my Monday blog posts in August, I identified several stocks on my secondary watch list every week. For access to my primary watch list you can subscribe here

My secondary list is made up of stocks that are ideal candidates for Virtual trading. Not surprisingly, some of these stocks keep appearing every week due to my strict pre-requisites for consideration. 

These stocks show early signs of institutional support which means they could be the leading stocks when the market health improves. My stock list for virtual trades this week is:


Just a reminder - I'll be hosting a live presentation on my methods on September 26th that you're welcome to attend!  I'll be covering my process for selecting stocks and Ron Appel will walk us through some specific options techniques that can be used on the stocks my system produces.

If you would like to attend in person, we'll be hosting it at the East Lake Woodlands Country club from 9:30 AM to 12:00 PM.  We have limited seating available so sign up here to reserve your spot!

If you would prefer to review the event On-Demand after the fact, we have an option for that too.

Happy Trading!

Sunday, August 30, 2015

My Secondary Watch List: $NKE $UHS $V $SBUX $CMG $FL $STZ $GOOGL $AMZN

20% Price Swings on $QQQ

Last Monday we witnessed a sheer panic in the market.  One of the major index - $QQQ - that I monitor, had a price swing of 20% that day. The two sectors that have been leading this year (Technology $XLK and Health Care $XLV) also had a similar price swings on Monday. Traders on the floor were letting their emotional instincts of greed, fear, hope and pride get in their way of making sound decisions based on the market data. 

Retail investors were caught completely off guard too and they were quickly liquidating their positions as well. This is what volatility looks like. There was extreme volume in trading that day. The last time we had such a high volume on the $QQQ or the $SPY was on Sept 22nd 2011. Market was in correction at that time too and was trading below the 200 simple moving average (SMA), just as it was last Monday. 

The Market is Predictable

One thing I have learnt from trading the markets is that market is made up of individuals like myself all over the world. Market is predictable because human behavior is predictable. It doesn't matter if you are a part of an institution such a hedge fund, pension fund or a mutual fund. There are individuals like myself that actually execute buy and sell orders. 

We may all use technology and programming algorithms on the computer to aid us in accomplishing our tasks in the market but there is always a human being that actually does this task. 

Lessons From Market History

Currently, most liquid and transparent stock markets of the world such as Australia, Germany, France, Hong Kong, Brazil, Korea, Japan, Mexico, Italy, Spain, Russia, India, Canada - just to name a few - are hovering below their 200 simple day moving average (sma) Our US market is also hovering below the 200 sma. 

Is this a coincidence?  The price of oil has plummeted by 65% since June of 2014 as well as the price of copper, iron ore, gold and silver has been on a downward trajectory. There is a lack of demand for products all over the world. Savings from low price of oil has not resulted in consumers spending that saving. They are instead saving that money or utilizing it to spruce up their homes.

Looking over the historical aspects of the market, I notice that since the lows on Sept 22nd of 2011, $SPY rocketed up by 9% within 4 weeks. A similar thing happened on October 16th of 2014 when the $SPY bounced up by 10% within 4 weeks as well. We have had a very similar rally in the market 4 days last week with a very similar volume on the $SPY. I am fully prepared this week with a primary list of 6 stocks that are poised to lead the market. This list is available to subscribers of my watch list service.

There are other stocks on my secondary watch list as well that I am looking for conservative option strategies, if the market resumes its uptrend this week. Some of those stocks are:


As always, I look to the Asian and Australian markets on Sunday night before I go to bed. They set the initial tone for us in the US markets. If the market resumes its uptrend this week than it is best to take only a very small position initially. 

Happy trading!

Monday, August 24, 2015

The $SPY Bloodbath

The $SPY Bloodbath

Watching the market take a nose dive last week was, unfortunately, not a surprise for me.  I raised concerns in a post on July 27th about the lack of demand and then two weeks ago I noticed that $DJX was down -2% year to date.

I was stopped out of a $NKE option debit spread and $FL credit spread option trade this week because the market took a tumble. I placed stop loss orders for all of my trades just in case the market turned against me. 

Most traders I talked to last week were anxious and afraid because of the market performance.  In these times, being in cash make sense.  Switch to virtual trades for a few weeks and let the dust settle!

So far this summer, I've stayed mostly in cash and all of my positions have been small. I used mostly option trades to minimize my exposure to the market which has come in handy during this rough patch. 

Market Outlook Going Forward

My outlook on the market has been cautious ever since July of 2014. Major currencies such as the $FXE, FXA, $FXC, $FXB and $FXY have been dropping while the the US $ ($UUP) has been rising since July of last year. Oil price is also down by 65% ($USO) in the same period. Minerals and metals metals such as $GLD, $SLV and $JJC have also been dropping. Companies that mine the metals, coal and fertilizer components are also on a down trend.  
Major mining equipment manufactures like $CAT gave a very poor guidance which signals a lack of global demand.

If you believe the media, you would have thought that this market turmoil was because of one of a litany of items.  Greece, Ukraine, ISIS, Russia, China, quantitative easing, the culprit changes almost daily!  The truth of the matter is it is simply lack of demand world wide.  When consumers aren't buying up products, the companies that produce them have a lower demand for raw materials.  It's really as basic as that!

In the U.S. alone, $M is down 16% over the last 5 weeks. $WMT is down by 30% since the beginning of the year!  School starts today for my granddaughter and  'back to School' season is one of the most profitable seasons for retailers and yet, retailers are hurting?   

Institutional Behavior Is More Important Than Ever

I know that over 70% of the volume in the US market is the result of Institutional (hedge funds, pension plans, mutual funds) investments. They are the drivers of the stock markets performance every day. They were quick to dump technology ($XLK) and healthcare ($XLV) stocks last week. They took profits and used the cash to invest in defensive sectors such as $XLU or high dividend paying stocks such as $MO, $RAI or $LMT. 

Some of the money went into defensive ETF's like $TLT  I also noticed that they have spread some money into thin stocks (trade less than $100 million daily). This is a safe bet for them because they have the weight to control the price of these stocks.  

I intend to track their footsteps over the next week. Also, there will be a sector rotation in the coming days seeing as how most of the names in technology and health care are extended.

As I have said before, this is no time to be heroic. It is best to be in cash and close out your losing positions.  Conserve your capital and never place a trade until you have a well thought out trade plan in place.

Happy trading!

Wednesday, August 19, 2015

Greed & Pride - How They Cloud Your Vision

Last Week I walked you through a hair raising experience - and showed you how I used my fears to my advantage.  This week I'm going to dig into greed and pride and continue with this month's theme of The 4 Deadly Sins of Trading.


Let's face it, every retail investor is driven by greed.  The key to success in retail investing is to feed your greed in healthy ways. This means you need to limit your risk and exposure!  One way to do this is to train yourself out of looking at dollar amounts and, instead, focus on the percentages involved on your trade.

For example, if a $1000 position pays you $100 of profit in 8 weeks, you have a choice in how you perceive the success of that trade.  Either you're going to look at it as $100 or you're going to look at it as 10%.  Both are technically accurate but, in my opinion, measuring this trade as a 10% profit is the healthier choice.    

Here is why I want you to look at this trade from the 10% perspective - you just increased your portfolio by 10% in 8 weeks!  If you get into the habit of growing your portfolio at 5% a month over the course of the year - you're going to be pretty happy.  

Your Number of Shares Is Irrelevant! 

Time and again people tell me "oh I like that stock, but it's too expensive for me!"

When I probe them on how much cash they've got available, though, it's always enough to get a few shares of that pricy stock.  I have found that many retail investors cling to the idea that if they can't buy 100 shares of something, they can't take that position.

While there's some merit in that line of thinking, I would personally rather have 1 share of a $700 stock versus 700 shares of a $1 stock.  Remember, expensive stocks are expensive for a reason!  Conversely, cheap stocks are cheap for a reason!  When you look at the price of a stock, you're looking at its perceived value from the markets point of view.

If you're still hesitant to follow that approach, keep in mind that option trades like credit spreads are a great way to get involved with an expensive stock, even if you don't have the funds to actually purchase that stock.  The point is, you should feed your greed by getting involved with stocks that are out competing the general market.  

Interested In a Live Presentation On My Methods?

Use Pride To Your Advantage

Recently I wrote a post about a trade on $AVGO that went against me.  The biggest take away from that scenario is that I used my pride as a trigger to action.  In that case, the action was a post mortem on the trade that helped me learn why the trade turned out the way it did.

Unfortunately, most day traders and option traders will lose their entire portfolio within 5 years.  There are a number of reasons why this happens.  In some cases, there's a lack of education and understanding of the market.  In some cases, the risks involved weren't clearly understood by the trader.  I think that pride plays a role here too, though.  I have found even in my own circles that traders are hesitant to admit when they are wrong.  Without admitting your shortcomings, it's impossible to fix them.  

Think You Can't Be Wrong on a Trade?

Prove it!  Either the data on a chart proves your hypothesis, or it doesn't.  The worst mistake you can make is to start down the path of; I think, I feel, I hear, I hope etc about a trade.  

Keep in mind that a stock is only good if it's going up.  If you decide to trade a sideways or falling stock because of non-chart related data like, speculation of earnings or a new product launch, be aware of what you're doing.  It's perfectly OK to get involved with stocks for those reasons but don't fool yourself into thinking that it's a good stock.

The bottom line is that you have to be honest with yourself about what you're doing.  Remember, If it's a good stock it doesn't need to "come back" - it's already moving up!


Hopefully this post helps you get you pointed in the right direction when it comes to greed and pride.  Next week I'll finish off the theme by showing you how to balance the personailty of a stock with a few different trade strategies.  

As always, keep me posted with your thoughts on my blog topics and...

Happy Trading!

Sunday, August 16, 2015

$DJX Is Down 2% YTD

My Performance Last Week

Last week I was stopped out of 2 option positions. One was a credit spread on $CELG and other one was a debit spread on $SBUX. I took the time this weekend to do a post mortem on these trades.  I selected the right stocks and the right option strategy but the market turned negative within a few days of placing my trades which led to me getting stopped out.

Reviewing the performance of the three major indices that I track ($DJX, $SPY, $QQQ) one thing jumped out. $DJX is down -2% year to date and currently is trading below the 200 daily moving average, which is what institutions prefer to trade off of.  $SPY and $QQQ are hovering over the 50 dma.  These are bad signs in the market! 

Being stopped out of my positions on $SBUX and $CELG was something I had planned for in case the market turned against me. It helped me conserve my trading capital. These stocks are still fundamentally and technically sound.

My Market Outlook

August is typically a bad month for stocks. However, last year at this time, the market took a turn to the positive and shot up 5% in the last two weeks.  I am fearful of the market but I am using it to my advantage by scrutinizing the charts. I just step back when I am fearful and look at what the story the data tells me. Charts reflect the price and volume and the strength of the stock, but they also represent human behavior.  There is always going to be noise and chatter from the media but I prefer to verify what I hear by looking over the charts and doing my own due diligence.

Survival Of The Fittest

For access to my primary watch list and virtual trade plans this week, you need to subscribe to my service, however, here is my secondary watch list


One thing we have seen in the market lately is that we have a 3 digit swings up and down in the indices. I prefer to wait until later in the morning after things have subsided before I place my trades. I don't ever chase the trade either. It is better to wait and just let the price retrace to the target price identified on the plan.

Happy trading!

Wednesday, August 12, 2015

Using Fear & Hope To Your Advantage

Just a reminder for those of you in the Tampa Bay area - I'll be hosting a live presentation on my methods on September 19th that you're welcome to attend!  I'll be covering my process for selecting stocks and Ron Appel will walk us through some specific options techniques that can be used on the stocks my system produces.

If you would like to attend in person, we'll be hosting it at the East Lake Woodlands Country club from 9:30 AM to 12:00 PM.  We'll also be recording the session and we will make the material available for all attendees so that they can review it as much as they like in the future.  If you're interested, you can sign up for more information below:

Interested In a Live Presentation?

The 4 Deadly Sins of Trading: Fear & Hope

This month I'm breaking down what I consider to be the 4 Deadly Sins of Trading - Fear, Hope, Greed, and Pride.  Last week I gave you a brief overview on the topic and this week I'm going to dig deeper into fear and hope!  Let's jump right into how you can recognize when these emotions are taking over, and how you can turn them to your advantage.


Before we talk about trading, I want to take you through an experience I had in the early 80's when I worked for the airlines.  What started as a routine flight into Boston turned into one of the scariest moments of my life!

I was in the back of the plane as the crew supervisor and it was the last flight of the evening so everything was pretty quiet.  If not for the quiet I may not have noticed, but the engines revved to a high RPM and then I felt the plane banking out of the landing pattern.  Just based on experience, I knew that the pilots had aborted the initial attempt and were lining the plane up for another approach.

A few minutes later, the same thing happened and at this point, my fear started to rise.  I glanced out the window and noticed that a massive bank of fog was obscuring the runway lights.  Knowing the dangers of Logan airport I started to worry about a potential water landing.

As an employee of the airline, my training kicked in and my fear moved to the back of my mind.  I was reminded of my responsibility to my crew and the passengers on the plane.  I had to prepare my crew for a possible water landing and make sure that passengers were strapped in safely.  I had to trust that my pilots possessed the know how to see us through this situation and when I accepted that - a sense of calm settled in on me.  I immediately started focusing on the things that I had control over.

I recognized my fear as a result of the abnormal behavior of the aircraft and I relied on my training to get me moving in the right direction.  As a trader, I recognize my fear when the behavior of a stock doesn't line up with my predictions.  So how do I get moving in the right direction? 

  • I pull up my trade plan (remind myself of what was I thinking at the time)
  • Consult my charts to see if my trade plan is still valid
  • If valid, I make sure that my contingencies are properly prepared
  • If there's something I've overlooked, I fix it ASAP

Scott O'Neil has a really interesting take on how fear impacts traders.  You can check out his video on it below: 


Plan for the worst...but hope for the best.  You're probably familiar with this phrase because so many people use it.  Unfortunately, the phrase is used so often because so many people ignore the common sense behind it!

In trading, when you choose a stock you're obviously going have hope that it will perform the way you want it to.  However, you can't overlook the realities of the world.  You've got to plan for as many outcomes as possible.  In my case, I like to prepare for every potential outcome on all of my trades.

To keep hope from leading me astray, I like to do a few things before I place my trade:

  • I work off of the 8 day EMA because it's the single most important measure of health for any momentum stock.  Now I don't have to rely on hope or guesses - the data is clear.
  • I open a separate chart that just focuses on the sector that my stock belongs to.  The sector chart is what I use to give me a heads-up on the intentions of financial institutions.  
  • I review charts on the direct competitors and related industries of the stock I'm looking at.  For example, if I'm looking at Nike, I'm going to do a quick check on Adidas and Reebok as well.  I'm also going to spend a few minutes reviewing the health of Footlocker!  

This is the type of pre-trade activity that keeps me from having to rely on hope to hit my goals!

Next week I'll dig into Greed and Pride to show you how to fully recognize their advantages too.

As always, Happy Trading!

Monday, August 10, 2015

$CELG and $UHS - Plus My Targets For Credit Spread Trades

Is Fear Holding You Back?

Lately, every trade I place has turned on me or behaved out of the norm.  Even more frustrating, I've gotten stopped out, only to have the trade go the way I had planned, just a few sessions later! 

Naturally, I started to question my methods but when I talk to other traders, they seem to express the same frustrations. They tell me that they are fearful of placing trades and have just given up on the market for now. Some have even abandoned their process of screening for a proper watch list and setting up a trade plan.

That's a bad idea, though, because it dulls your edge and that will come back to haunt you when the market turns around.  Instead of giving up entirely, it's better to continue as-is but trade on a virtual account that doesn't put your real money at risk.  This is the best way to keep your skills sharp and learn from what's happening!

My Market Outlook

This earnings season has given us a lot of unpleasant surprises. Most of the bullish moves have been from a handful of stocks. Most growth stocks will make a 5% to 10% move, only to retrace to their buy points within just a couple of sessions. Most indices and sector ETF's are trading right around their 50 day simple moving averages (DMA) The $DOW is even worse and trading below the 200 DMA.  As a retail trader who trades very liquid growth stocks, I just don't want to be any where near the 50 DMA and certainly not the 200 DMA. That is a bearish territory for me.

Currently we have a very high distribution count. Last Friday at the close of session, we had all the sectors trading below or hovering around their resistance lines. The only sector that was holding ground was the Consumer Discretionary ($XLP)  Institutions were parking their monies in the tobacco, staples and pharmacy related companies. Most markets in the world are downtrending. Commodities like oil and mining materials along with precious metals are down trending too. This all points to a lack of global demand. It is best to be looking at stocks that are US centric.

What I'm Looking At

There are only 2 stocks that survived my funnel method this week. They are:


Last year, the month of August gave a return of +5.07% but most of the move occurred during the 2nd half.  I don't want my to fear hold me back from entering the market this week so I have prepared a target list of strong trending growth stocks for some low risk credit spread options. Here is what I'm looking at:


I prefer to wait on Monday until mid morning just to let the dust settle down. Any position I take will be small to start out with. I am mostly in cash right now and keeping my powder dry.

Good luck and Happy Trading!

Thursday, August 6, 2015

The 4 Deadly Sins of Trading

Your Instincts Are a Problem

In August, I'm going to talk through what I consider to be the 4 Deadly Sins of Trading - Fear, Hope, Greed, and Pride.  

For the length of my trading career, several of my mentors have stressed to me that I need to remove all emotion from my trading.  So I started coming up with ways that would help me to approach life with an almost Mr. Spok-like attitude.  Unfortunately, I failed because I just wasn't able to tune out all of my emotions.

Scott O'Neil, who I admire greatly, has a pretty awesome series of videos on this topic.  Definitely worth checking out so I'll be embedding them in my posts through this month.  

He's one of the proponents of removing all emotion, which I don't 100% agree with but I still recognize that there is a ton of merit in what's he's saying.  However, I modified things to line up a bit closer with my own personality.  

My Alternative

I realized that there had to be a better way for me to do things.  A way where I could somehow use these potentially harmful emotions to my advantage!  I assumed this would be a risky adventure given that nobody else was talking about it, but I knew I had to pursue this for my own financial well being.

I also knew that my instincts and emotions existed within me for a reason.  It's because there's an evolutionary advantage to them!  Think about it, fear of risk is a useful tool for survival when you live in a dangerous world, full of animals that consider you to be a part of the food chain.  Our greed encouraged us to eat as much as we could in times of plenty which helped us survive through times of need.  Instincts helped keep humans alive and have been passed on to every one of us as a result.  

Interested In a Live Presentation On My Methods?

The Technique

I decided to start treating my dealings with markets the same way a Cro-Magnon man would deal with a world full of saber tooth tigers.  I began to nurture my instincts to limit their negative impacts in my trades.  

Training myself to recognize when I'm feeling one of these emotions was the first step.  For example, when I recognize that I'm feeling afraid, I force myself to take a deep breath and step back.  I wait a few moments for the fear to subside, and with a calmer state of mind I turn my attention to charts and data!  

Now, some may say that what I'm doing is actually still eliminating my emotions from trading but I think my unique perspective here gels better with my over all approach to living life. Using my emotions as a trigger to action makes me feel more in control of my trading, and that's a must for me.  Incorporating instincts into my process may be one of the smartest things I've ever done!

Wrapping Up

Now that I've gone through a basic introduction to my approach, next week I'll go through the specific dangers of Fear and Hope in trading - and how you can turn both into an asset!

As always, feel free to reach out to me if I can be a resource in your trading education!

Happy Trading!


Do not take a position unless you are prepared to sustain a TOTAL LOSS. Your loss could include the money you invested as well as commissions and transaction charges.

The Information I provide is for education and informational purposes only. The Information provided is not intended to be and does not constitute financial advice, investment advice, trading advice or any other advice. The Information provided is general in nature and is not specific to you or anyone else.