Bull Trend Intact ?

After a big scare, the market appears to have resumed its upward trend.  We are seeing volume coming back in the market on up days.  Either this has been the perfect bear trap or the bulls are back in charge.  Based on the Elliott wave theory, we are probably about to enter wave 5 of the market uptrend.  That is the fastest and steepest gains that offer immense opportunity for making money quickly.  However, since wave 5 is followed by a significant pullback, caution is in order to watch for stock topping patterns and lock in profits.  I ended up going to mostly cash for a while.  I couldn't help but nibble here and there.  I doubled my money in an Accenture option position, but overall the portfolio lost significant value (15-18% of total value) from a peak of $18,500 down to around $15,000.   I am now cautiously optimistic again and looking for good patterns to play long positions.

What a difference a day/week makes...

The day after the last post, I was riding high.  The portfolio reached as high as $18,500. The market rocked and everything seemed to be rosy (which made me wonder if the end was near).  Anyway, since then, the portfolio value has retreated back to around $15,000, I am about 90% in cash.  And there appears to be no end to the misery.  My current positions are a debit spread on AOL (about a 50% loss), Sprint (20% down), PHM (about break even), GTI (closed 40% of the positions at 100%, looking at 100% loss on the rest, resulting in a slight overall loss unless it reverses before Feb expiration), SYY (looking at losing most of the secondary investment - the original returned several hundred percent), HD (Home Depot) - 90% loss, and DRYS (DryShips) is looking at around a 65% loss at the moment.  I regrouped and closed out my GroupOn positions yesterday, along with the remaining 1 AOL option (that was not part of the spread) in order to raise cash.  With a strong market day yesterday and a strong opening this morning, I was surprised to see the DOW down 200 points soon afterwards.  Now I am glad I raised some cash.

Looking at the market using DOW's Weekly Chart, we see that there is a possibility that we are in wave 4 in the long term trend.  This means that eventually this can turn out to be a bear trap resulting in an explosive move to the upside (Wave 5).  However, I don't wish to have all my eggs in that basket until I see evidence supporting it.  I like the economic news for the US.  The sell-offs in Asia have me baffled a bit.  However, if you have ever read Jesse Livermore's book, he used to say the market does what it does.  When people ask him why the market went up/down, he picked up the paper and just pointed to a story and said that's why.  My philosophy now is to let the market tell me what I should do.  After things being rosy and most of the trades being profitable, all of a sudden most of my long trades are losing money.  That tells me to lighten my exposure, step back and reevaluate.  Sometime that means going to cash and waiting to see which way the trend will go.  

And while you are waiting, enjoy yourself, take a break and enjoy the feeling of being in cash while the market whipsaws the bulls and the bears.

An apology and updates

Wow, I just realized that it has been over 2 years since my last update.  I knew I had been slacking, but this is ridiculous.  I will try to do more frequent updates (I am pretty sure that is what I was thinking last time as well).

I started this account with $3000 in the beginning of 2010 with the goal of turning it into $1 Million.  Let's see where we are with that goal.   As of yesterday, the account is around $16000 and I pulled out around $1400 to pay for my toys (XBox One, PS4, and some other electronics).  By the end of 2010, the account had a return of around 100%.  Then I lost track because I failed to download my statements.  But I had made it up to around $12,000.   At that point, I was introduced to the guys at Tasty Trade.  I listened to what Tom has to say and it made a lot of sense.  So I started following their style of investing, which is stay small, sell premium (instead of buying calls and puts, I was selling calls and puts trying for about an 8 to 10 percent return per month).  However, they were somewhat biased towards a market drop (bears).  To make a long story short, over the next year I managed to lose 50% of the portfolio and ended back around $6000.  I am not saying anything bad about their style but it didn't work for me in this market.  It will work much better in a sideways market (or a trending market if you pick the right side).

In Dec 2012, the portfolio was worth $8000.   And as I mentioned earlier, now the value is around $16,000 (so the 2013 return was around 100%).  Granted I have not pulled money out of this account to pay for taxes, which is probably something I should do in order to have a true representation of performance in an taxable account.  In 3 years, the portfolio has generated a return of approximately 450%+ on the original investment.

So now I am back to my old philosophy of "go with the market".  Regardless of how scary the market might look, if it is a bull market, the better odds are on the long side.  I am still mostly in calls.  However, at present, only about 20% of my portfolio is invested.  The rest is in cash.  For a portfolio that trades in options only, risk management requires me to stay largely in cash just so that if the market turns against me and I lose 100% of the invested capital (currently in options), I still have enough reserves to stage a comeback.  Remember, the market trend dictates the direction that 3 out of 4 stocks will follow.

Anyway, my current positions are in AOL (coming out of a flag pattern), SYY (my profit windfall for last year), MSFT (I think the pull back is done and the stock will perform over the next month or so, plus I like that Ballmer is leaving and the XBOX One platform is pretty nice, and the charts look good).  GTI, ZNGA, DANG, DRYS and CLF are some of the other currently held positions.

Here is to a great 2014, and may I have the time to continue to post more stock analysis that I have in the last 2 years.

Cheers.

Domino's Pizza (DPZ) update

The flag pattern appeared to break down and the stock price undercut the stop loss order point that would normally be set by investors.  A lot of the people who got stopped out might now want to get back in now that the stock is rallying and is gaping up.  I have decided to stick with my positions even though they expire in December to see if I can hit my targeted returns.  Here is to the current optimism in the market (however temporary until the next set of bad news comes in from Europe) and the potential profits.

Domino's Pizza (DPZ) update

The stock still continues to base in the formation.  We no longer have the pennant formation.  I would say the flag formation is still intact.  But the move needs to happen soon.  I am targeting a move from 34 to 35 to start taking profits (or sooner if this pattern takes too long to materialize).  I am starting to see a lot of positive coverage in the press about DPZ (e.g. Cramer has now recommended it in Mad Money).  I am looking for that move where everyone piles in driving the stock up about 15-20% and take my profits as option expiration drawn near.

New Stock Setup - Domino's Pizza (DPZ)

Looks like Domino's is setting up a very nice Penant  (Flag) formation.  This formation can pay off handsomely if it works.  Take a look at the attached chart.

The stock has moved from around a low of 26 (Oct 4) to around 32.50 for the flag pole formation.  And then is around 31.5 at present while making the flag/pennant formation.  That is about a 17% move (all numbers are rough and conservative).  A flag or pennant formation will generally result in the same percentage move if it breaks to the upside as before.  So we can (very conservatively) look for about a $5 move from here in a short period of time.  I am playing this with Dec options.  Dec 32 calls are running around 1.05 bid and 1.25 ask (but you can probably get them around 1.15).  I would expect the option to get to $4 or higher if the stocks makes it move in short order making it a potential triple play.  I also own some Dec 30 calls at present.   Of course, if the market breaks down (and who knows which direction it will head into with the Greek disaster that is ongoing in the European front), all bets are off.  This is a high risk, high reward pattern that I have played successfully in the past for very large gains (and some severe losses as well).  So buyer beware. 

Disclaimer:  This should not be taken as a recommendation to buy.  You should do your own due diligence and research before opening any positions.  Stock and Option trading is inherently risky and can result in the loss of all of your capital.  You should always apply sound risk management techniques.

Market jitters

I don't like the look of this market at all.  I think we may be headed for a pretty significant pullback.  I have been raising cash lately.  I am about 70%+ in cash already but will probably end up going 100% to cash real soon.  There may be some hope in the near term (daily charts) but the weekly and monthly charts are starting to look like a bunch of head and shoulder patterns are forming in a lot of leaders.  We are starting to see the initial breakdown in some of the former leaders and the stochastics are starting to turn downwards.  Better be safe and conserve capital to fight another day.  There could be some downside opportunities coming up.  Nothing has made me any money on the long side of the trade in over 6 weeks.  Maybe the short side is the way to go.   Be careful and watch the market carefully if you continue to be long.