Why Not To Use Stop Loss Order
I'm busy investrader trader. I work full time so it is not easy for me to trade throughout the day. Thus, from time to time (read: sporadically), when I'm going to the meeting with an open order, I need to minimize damage to my portfolio in case something was happening to the stock while I was not looking at its chart. During those times I use stop-loss orders. Stop-loss orders are dangerous and I want to share with you something about them.
A stop order (also stop loss order) is an order to buy (or sell) a security once the price of the security has climbed above (or dropped below) a specified stop price. (Note that both bid and ask prices can trigger a stop order.) When the specified stop price is reached, the stop order is entered as a market order (no limit). This means the trade will definitely be executed, but not necessarily at or near the stop price, particularly when the order is placed into a fast-moving market, or if there is insufficient liquidity available relative to the size of the order.
I filled an order for 400 PFE at $17.90 (its support). I set a stop-loss at $17.78-- I like to take tiny losses. While away, look what happened:
For a fraction of a second, the price fell to $17.75! Coincidence? This is what happens when others set stop losses and the movement is bearish-- they are being taken out within fraction of a second. More importantly however, stop losses can be seen by market makers and they sure know how to make your life miserable.
Regardless, my stop loss order was not taken out and I'm still in this trade.
Best of all, just see what happened right after:
Apple Poised For a Big Move $AAPL
I have been watching Apple Inc. ( $AAPL ) form a symmetrical triangle for the past two months. This is a Continuation Pattern, which means that the triangle is used as a way to head higher if the trend has been upwards and with AAPL it has been.
A symmetrical triangle is generally regarded as a period of consolidation before the price moves beyond one of the identified trendlines.The sharp price movement that often follows a breakout of this formation can be captured by traders who are able to identify the pattern early enough.
The Symmetrical triangle pattern needs to have a few things working for it and we will check them off here.
1. Trend Should be at least a few months old: Check !AAPL is from march to december.
2. Duration of pattern should be at least 3 weeks old: Check! This pattern is 6 weeks old.
3. Breakout occurs between 1/2 to 3/4 of the way through the pattern: Check! It's about 3/4 of the way.
So now that we checked a few major points off let's look at a price target. We take the distance from the widest end of the triangle and in this case is around $20.
From the breakout at around $200, this being a bullish trend apple has been in we add $20 to the upside and put it at ~$220 for a potential breakout target.
There are a few hurdles here for AAPL though the $207-208 area is major resistance so if it can break that $220 is well in sight.
I bought a January $230 Call option at 0.23 to prepare for the move instead of putting major capital in the stock
Here is the chart (Click to Enlarge)
Update: I tried posting it last night but my host was down so i gave up. $AAPL is currently at ~$207.50 (in between the resistance I mentioned)
I have also sold my Call options for a hefty 140% Profit from yesterday's buy-in price, if Apple breaks above 208 I might be re-buying some.
Merry Christmas!!
TED Target reached: Increasing short positions.
Here we go again.
On September 28 I stated the following:
The TED Spread which measures the general risk in the economy has been rising the last couple of weeks. today alone it rose 5.42% which means interbank loans are now riskier. This is still not significant enough and I would like to see another 33% increase in the TED before I really put a lot of my sidelined money on the short side.
On the 28th TED was at around 0.195 so a 33% move would put the TED at around 0.26 and today TED closed at 0.262 which satisfies my reasoning for going short.
On October 27th TED was in an Ascending Channel and also stated that a higher TED spread would mean that a major market correction is underway as banks are raising loan rates between eachother. Rising rates means there will be some major trouble in at least the financial sector which allocates 15% of the S&P Index.
Here is the latest Chart of the TED showing the channel that has been broken. (Click To Enlarge)
Another Blogger has picked up on the TED and here is Daneric's TED Chart.
Finally keep in mind that the current TED is still far below the average TED which is at around 0.50 (50 basis points). We're halfway there and its good to catch onto this risk indicator before CNBC does.
I will add shorts via options and inverse ETF's very soon but always use my opinions as a viewpoint and not investment advice. Everyone has different risk tolerances.
Happy Trading, K
A few words on the Economy from Christopher Probyn of SSGA
I was fortunate to attend a presentation by Christopher Probyn of SSGA
"The Financial Crisis: Causes, Consequences and the Prospects for Recovery."
I spent more time listening than writing things down so pardon me for just providing an outline of what he mentioned that interested me.
- Headwinds to the economy: Weakness Abroad, Deteriorating Commercial Real Estate Markets.
- V Shaped recoveries usually follow deep recessions, Mr. Probyn is looking for a U shaped recovery to play out.
- Unemployment will reach at least 10% (It's close enough now and we shall see Friday if it happens already)
- Inflation will come way down from the current 1.5% due to the higher unemployment rate.
- There is a good chance CPI will break below 0% (It already has in Japan and Europe) Deflation Alert!
- Do need to worry about inflation until capacity utilization rate goes to at least 80% (Currently in the 60's)
That's all Folks. I hope you found it interesting to say the least.
-K
Volatility Index $VIX Is moving higher.
On Friday The VIX went up 23.95% while the market fell well over 2.5%.
VIX is a popular measure of the implied volatility of S&P 500 index options. Often referred to as the fear index, it represents one measure of the market's expectation of volatility over the next 30 day period.
With the upward movement in the past 2 weeks the VIX has successfully broken a trend line going back to November 2008
See Attached Image (Click To Enlarge)
The VIX also had a bullish candlestick pattern on the 2D frame (2 days per candlestick)
Defeniton of this candlestick pattern is quoted below from Candlesticker:
Bullish Three White Soldiers Pattern is indicative of a strong reversal in the market. It is characterized by three long candlesticks stepping upward like a staircase.
The following are two charts; one showing the Three White Soldiers pattern on the 2D chart the other showing it on the hourly.
2Day Chart (Click To Enlarge)
And finally the Hourly chart (Click to Enlarge)
What does the bullish Vix momentum mean? Well by itself it means nothing to me. But when combining it with the increasing TED Spread, Broken S&P trendline, Numerous bank failings each weekend and many more indicators then it all signals that things are not well and the jobless recovery is not going to last much longer.
As always use caution as these are my observations and I do not make decisions for anyone other than myself.
Happy Halloween! 
-K
$TED Spread caught in an Ascending Channel Pattern
Let's start off with once more defining the TED Spread.
The TED Spread which measures the general risk in the economy. TED increase - is a sign that lenders believe the risk of default on interbank loans is increasing.
I first mentioned TED Spread around September 28 and what occurred was a decline in the markets the following week.
Here we are a month later and the TED spread hasn't lost steam and in fact it is now in an Ascending Channel (Bullish Pattern)
Price Channels usually show trends, With the moves in the TED from Sept 14 till now we are seeing unrest in interbank loans.
I won't keep the TED out of my radar but wanted to document the current possible move upwards. (Which would signal a major market correction underway.)
In the attached image I realized the lowest trend line isn't parallel to the other two but it's close enough to be valid for my benefit. (Click Image to Enlarge)
Happy Investing from K the Investing Freak.
$SPX Psychotic Line Resistance
It was a fun day today.
Market opened up and rallied 10 points by 10:45AM. It was all downhill from there but the big kicker came at 3:10-4PM when the market dropped 17 points.
I will let 2 charts and this link be the hint of what I think we are going to do in the next few days at least.
Chart 1 is a closeup of the past month with the trend lines drawn almost a month in advance. (Click to enlarge)
Chart 2 is a zoomed out view from where the rally began. (Click to enlarge)
That's all folks. These are the charts promised almost a week earlier.
Have a safe investing season this fall/winter it should be epic.
-K
Downhill from here Or more upside?
The SPY made a hanging man candle today and so did a few other stocks like C (reporting tomorrow before open)
It happened on a bullish trend so it is defenetly a bad sign.
It is late but I will update tomorrow with more writing and of course my favorite thing; charts!
-K
A Week in Review: SPX 1035 Oct 1st Prediction Came True
I wanted to review a crazy wild week (7 market days or 9 days overall).
It all started with a twitter post on September 23, 2009 at 9:24PM
It then followed with a blog post about the prediction since twitter is known from moving very quickly and people can miss things at a blink of an eye.
This was on September 25th "S&P at 1035 by October 1st? I Believe it is doable." ( I misspelled doable on the original post.)
We were in a 3 day down move (23rd to 25th.) When I did my weekend analysis I saw a familiar pattern which was similar to a "Kicker Bullish".
That deserved its own post entitled "$SPX Stuck in a 9 Point range... which way will it Break?" Well next day we moved up 20 points.
I was not satisfied with the way the pattern was set up because S&P needed to open up at least 10 points above Instead it started at about the same price as the previous day.
The final blog post was written and titled "The One Day Rally Is Over" In brief, I stated that the pattern wasn't satisfactory to be a real Kicker Bullish and also the TED Spread had been going higher for the past 2 weeks. The TED spread measures the risk in the general economy. With Risk going higher & the pattern looking weak, all I needed was some negative news and got it when S&P began cutting company ratings.
On October 1st I checked back on the market late in the day and to my surprise we had fallen 27 points. the 1035 prediction was reached and breached right on the day I called.
So that is the week in review and the image below summarizes it even more visually.
(Click Image to Enlarge)
Have a good one,
-K
The One Day Rally Is Over!
Last night I posted about the S&P possibly having a Kicker Bullish Setup.
Well The S&P Rallied 18.60 points to 1062.98.
The Setup was not executed perfectly (market would have had to gap higher today then go the distance)
All bets are off on an extended rally that needs to go higher than 1080.15 to be worthy of anything.
While the market rallied the S&P only traded at half its normal volume.
Stocks like Citigroup which had traded over a billion shares a day, are lately trading at less than 500 million.
The TED Spread which measures the general risk in the economy has been rising the last couple of weeks. today alone it rose 5.42% which means interbank loans are now riskier. This is still not significant enough and I would like to see another 33% increase in the TED before I really put a lot of my sidelined money on the short side.
We had MBIA (MBI) stock trade up 11.38% today only to be down over 7% in after hours.. why?
Standard & Poor's on Monday cut its ratings on MBIA Inc and its structured finance insurance arm, MBIA Insurance Corp, citing an expectation the company will continue to take significant losses from insuring risky loans. ... The outlook for both companies is negative
Well if that wasn't enough the dollar has began to show some strength as well despite the almost 20 point one day rally.
Bottom Line: Be very careful if going long from here on out. The false optimism game has been played for far too long and you might get stuck holding a worthless institutional stock come October. It's also end of month markup so for the next few days prices might be kept afloat by institutions.
Have a good one.
-K
$SPX Stuck in a 9 point range..Which way will it Break?
The S&P 500 index is stuck in a 9 point price box.
1051 is resistance from October 2008.
1042 is support from the last 3 days and also the 18SMA.
We need to see 2 or more days of market closing either above or below one of these 2 points before there is any significant breakout or breakdown.
For the moment we have a setup for almost a Kicker Bullish setup but the 3rd red candle that was put in on Friday doesn't make this a perfect pattern.
If on Monday we follow the Kicker setup, we might have a move to higher highs (above 1080).
The setup is not exactly a Kicker but it fits the bill very well. If $SPX closes below 1042 for 2 or more days then next support is 1030 which would be the defining moment of this "Bull Market".
Here is the attached Daily and Hourly chart (Click to Enlarge)
Look for an update by next weekend if the setup plays out.
-K
S&P at 1035 by October 1st? I Believe it is doeable.
On September 23rd at 9:24Pm I wrote the following prediction on Twitter.
Prediction Alert: $SPX 1035 By Oct 1st9:24 PM Sep 23rd from web
I made that prediction based on a few trend lines I was watching that had begun to break down. This is from September 16th. it took then 1 full week of the SPX moving along that trendline before finally breaking below. (Click To Enlarge)
The next day my system began throwing out SELL alerts and that confirmed my bearish case. I acted upon a few of the alerts and am happy to say that so far they are green.
Here are the alerts for the Major indices.
In my previous post I was expecting the correction to start 10 days earlier than it actually did and that post now stands at 67% accuracy.
Today S&P Closed at 1044. Will it close at or below 1035 by October 1st? I believe it will, what about you.
Have a good Weekend and check out the rest of the signals by clicking above on the "Current Picks" Tab.
-K
The last leg of my August 27th prediction.
Well one last time revisiting my latest predictions since august 27th.
Checklist:
Fake Correction? Check (August 27-Sept 2nd)
Mini Recovery? Check (Sept 3rd to Sept 11th)
Major Correction? In Progress (Sept 14th to ... )
Check the attached Updated chart. (Click To Enlarge)
The Orange Line Scenario Happened for the most part except the fakeout below a trend line (circled above)
From the Sept 1 Blogpost:
Scenario 1: (Orange Lines) Bounce back the next 5 days to reach possible 1040 then drop back to 1000’s and head lower going into October.
I am 2/3 so far looking for a full 100% return on my prediction.
Have a good one.
-K
Mini Correction, Mini Recovery Then Massive Correction?
As I posted a while back, (See the "Fake Correction Followed By Fake Rally?" article if you missed it) the $SPX (The S&P 500 Index) has nicely corrected to satisfy me that there will be another move up 20-40 points to shake off more bears and when they are nearly all out (If market makes a higher high it will be seen as very bullish) it will have a massive correction to trap bulls and make bears cry for getting out too quickly.
I will be revisiting the charts I drew in the previous article mentioned above. Let's start with the closer look in the past 3 days.
I was waiting for the SPX to break either the red or the green line and close below it. Well yesterday it did just that and that was the first clue as to where we were heading today.
The blue arrows are there to just demonstrate the Support line and where yesterday's close was. Grey line was my prediction for the next 2 weeks or so but it was defied by the market as it tanked lower and lower. (Click to Enlarge)
Second chart is the long term view of things and 2 possible outcomes that this investing freak sees realistic.
Scenario 1: (Orange Lines) Bounce back the next 5 days to reach possible 1040 (ADP Nonfarm Employment change tomorrow morning so this could happen if it "surprises") then drop back to 1000's and head lower going into October.
Scenario 2: (Green Lines) Go down further for the next day or to and reach 985-990 for a close (it could go down further and still close above 985 to be valid). Then hit ~1020 shake a few shorts that believe 1000 level has cracked and proceed into 950's.
Scenario 3: That's your opinion and I would like to know
Here comes the updated chart. (Click to Enlarge)
Good luck! and don't forget to follow me on:
Twitter ( http://twitter.com/investingfreak ) or Stocktwits ( http://www.stocktwits.com/u/investingfreak )
For the latest live commentary.
-K
$VION; A perfect trade using the Morning Star Pattern
Today I had a chance to experience those special conditions that cause a day trade to turn into great profits.
The stock chosen was VION. It was down 45% for the day on no news. (It is a Pharmaceutical so I thought some bad drug news came out).
As I watched the price slide down like a waterfall I saw a reversal form. This reversal in candlestick patterns is called the Morning Star.
The patterns is a bottom reversal signal. It is most effective following an obvious downtrend (in this case from 6.50 to 2.20)
According to Candlestick Trading Forum:
The Longer the black candle and the white candle, the more forceful the reversal.
The Pattern psychology for this specific pattern says that when the price goes down fast sellers get panicky. They keep selling off and as they are doing that bulls begin to step in.
Now that I have explained the pattern I used time to explain the entry and exit signals.
Entry 1: 100 shares at 2.90
This was an initial entry to test the playing field.
Entry 2: 100 shares at 3.50
I was looking for price to close above 3.25 for 2 consecutive candles to buy into strength. 3.25 if you can spot it is a resistance from earlier candlesticks.
Exit 1: 100 shares at 4.01
4 is a round number so that makes it psychological for people to dump shares
Exit 2: 100 shares at 4.53
Looking at the far left 4.53 is around where the 2nd large red candle begins. and if you look up further more candles tend to end around 4.75.
Initially I had the limit sell order at 4.74 but I then decided not to push my luck.
Conclusion: After concluding the trade I watched the price go at high as 4.90 then in one big swing it crashed back down to 4.
Overall it was a great risk reward ratio and a well thought out trade. Morning star followed by an initial entry to test strength of the pattern and if it goes your way add another position which will allow you to scale out. Now this did take 2 day trades out so if you have under $25k account you will only have 3 trades in 5 days so it's really not ideal to do every day.
Here is the image to illustrate all the text in this post. (Click to Enlarge)
Hope you enjoyed it and while I do understand this is not a stock pick because it is already gone I hope it serves as a teaching tool to how simple trading can be at times.
-K
