March 09, 2021 Finding Support

After hitting all time highs at the beginning of February, the market wanted some of the money back.  There started a huge sell-off of the tech stocks as well as the overall market.  On the first week of selling and higher interest rates, it didn't seem like anything was out of the ordinary.  It started off with a higher Monday, then a quick sell-off then slight recovery by the end of the week, but then a bigger sell-off continued. 

The next week the market breached the 8 day moving average.  This should have been the first indicator of things to come.  Unfortunately many were caught in the sell-off since most times in the past had been "buy the dip" mentality.  As the sell-off continued into week 3 (last week), Friday offered the most hope, after breaching the 20 day moving buyers finally came back and closed back right on the 20 day moving average on the weekly chart.  This was enough motivation for buyers to come back in this week on Monday and Tuesday.  Tech hasn't fully recovered yet, but oil and reopening plays are becoming more and more attractive.

Are we out of the woods yet?  I'm not sure, but if enough bulls come in, the market can resume its upward trajectory.  Still 50% cash.  We shall see.  Happy investing!

 

February 18, 2021: Market Pullback and learning patience

After two days of pullbacks here are some lessons learned:

Have a trailing stop loss.  After making over 400% return on AMAT and AAPL, I got careless and started buying again, thinking this market will continue the uptrend.  I should have known better. 

Usually after a huge run-up, there is a pause to gather yourself.  Don't let the momentum get carried away. 

 I need to take my profits and take a day off to enjoy them.  I need to let things cool down before going back in again.  I need to wait for a pull-back and wait for another good entry point.

Instead, things got a little bit excited this week coming off of President's weekend.  I saw pullback coming, and yet after selling on Tuesday, I started buying again.  Market dropped Wednesday, so I decided it was a good idea to double-down while trend turning.  MACD and RSI were not showing good signs, and yet, my own judgment told me it was good to buy ahead of earnings.  Not only buy, but keep buying the dip until my cash position was diminished. 

So lesson need to be learned:

It is okay to be in cash position until things cool down.

It is okay to WAIT for a better entry level.

After a huge run-up: i.e. Twice hitting 400% on two different positions, it is okay to take a break and to enjoy your profits.

If the market turns on you, cut your losses and sit out.  There is no need to add more money to a losing position.  

Don't guess bottoms.  Just WAIT for good support.

If the market turns on you, WAIT until market stabilizes before putting in new money.  WAIT for a continuation signal or a reversal signal.  WAIT! Be patient.  Protect your capital.

Bottom line: Don't be impatient with your cash. WAIT with your money or someone else will.

Earnings Feb 2021: AMAT (350% return so far!)

After hitting new highs @110.88 on January 19, AMAT came into my radar.  My usual response to new highs is to wait for a pullback and some consolidation before jumping on it.  This time was no different.

On 1/30 saw a huge drop due to GME and AMC (aka reddit short squeeze).  Market pulled back almost 2% and got everyone scared.  However as a technical trader, there was plenty of opportunity to see that things were improving.  The first week of Feb, AMAT bounced alive having dropped below 100 and touching support levels of 97 before buyers came to the rescue.  After seeing strength, I opened an initial position with a Feb 19 Call at 100 strike price.  This provided exposure at the money and 16 days before earnings release.  

The next day I see another pop in open and dropping back down to support level of 100.  I doubled down on the position seeing the strong open and afternoon fade.  Two days later on 2/5, AMAT popped to 105 and faded in the afternoon to a low of 101 representing a higher low.  I proceeded to add a third time at the same 100 strike price.  This was 13 days before earnings.

My intuition proved correct as AMAT popped unto 107.5 level (higher high) and faded into the afternoon with a higher low on 2/10 (8 days before earnings).  Seeing resistance level at around $111 level, AMAT has plenty of room to fill the gap as well as plenty of time to achieve this so I decided to add to my position a higher strike price, Feb 19 calls at 105 and 106.    

On 2/11 AMAT jumped 6% reaching new high levels.  I stuck to my plan to take 1/3 off the table as my original calls reached over 200% gains.  I kept the remaining 2/3 for selling next week knowing that as companies approach earnings, volatility increases, and as a result, premiums increase in value.  

So on Friday 2/12 heading into a 3 day weekend, 6 days before earnings, I have about 2/3 of my position with options up between 250-350%.  Not bad for two weeks of trading.

God bless and happy trading!

Earnings Feb 2020 TWTR (400% return)

One of my many strategies is to look for momentum stocks as they approach earnings.  There is usually a higher interest in a stock as it is approaching an event especially earnings.

Take for example TWTR.  Hurt by having to censor the exPOTUS and others spreading false news, TWTR hit a relative support level around $45 last month before the inauguration.  

As each week of earnings approached, you can see a movement towards a higher high and a higher lows on each pullback.  But for 3 straight weeks there were relative gains in TWTR from $45 all the up to $60 today right up until earnings release.  How can you profit off this movement?  A Feb 19 call ATM $45 would have been $3 on 1/19.  Today that same call would be worth: $15+.  A 400% return.  

Would you have had the conviction to pull the trigger back in January and buying all the pullbacks and holding?  Would you have bought 1/3, 1/3 and 1/3 on the way up?  What would your position and size be and where would you play your stop loss as the stock advanced?  These are questions you need to answer as you form a plan for a big harvest.  Momentum is seasonal.  It will change.  Will you be ready to plant the seeds and tend the weeds as you prepare for the big harvest?  

Options Harvest will help you develop a plan:

- Till the land: Find momentum stocks

- Plant your seeds: Enter your initial positions (buying at supports and pullbacks)

- Wait/Weed: avoiding YOLO and FOMO and developing a stop loss

- Harvest the fruit: Understanding sell levels (areas of resistance, when to sell)  

May the God of the harvest bless you richly.

January 27, 2020 Earnings Reports, Short Squeeze, Market dump, Fed statements

The day was filled with excitement.  Short sellers were still trying to cover their shorts with stocks like GME, BYND, and AMC.  These small companies jumped nearly 200%.  Money was definitely flowing towards these shorted companies.  As a result of this and along with earnings, money was flowing out of the large caps.  

With MSFT and AMD reporting this morning and FB and AAPL set to release report in the after the market close I knew today would be very choppy, but I had no idea what the actual story would be.  That was the major reason I took profits yesterday.  The last week of January and early February is both very exciting and scary.  

I have lost a lot of my gains during this time period.  In previous years after a huge run-up, I usually gave it right back due to careless (cocky, overconfident) trading.  This year, I worked with my own emotions and sold off before earnings.

Market Psychology:  The bull market is easy to make money.  It's during the choppy sessions that makes it very easy to lose money.  So how do you set yourself up for success?  Trade when the market is easy and sit out or trade with smaller position sizes when market is unsure.  

Again, trading is different from investing.  Investing is for the long term.  I have a large percentage of my account in funds and ETFs.  I set it and forget it.  But when I am actively trading options, I take into consideration the current conditions of the market in order to size my positions.

Today's S&P map was mainly red.  What do you do when NASDAQ is down 2% or 3%?  Do you take the loss, do you hold on for dear life?

As choppy as this was, being on the sidelines helped me have clearer thoughts.  

I was pretty content with my run-up from January MU earnings, INTC, FB and AAPL move.  I sold for a very large profit and decided to sit out.  But what if you were not in cash? What if your option lost 20-30% or more today?  

If it hit your stop loss, you need to sell.  There is nothing wrong with selling and taking a loss.  You could always buy back later at a lower strike and increase your probability of success on your trade.  

Should you buy more?  I would wait until the dust settles just a bit.  Signals have changed, supports have been broken, I would wait until price stabilizes.  Never ever catch a falling knife!

Good luck trading.  This is one of those days I would just like to sleep in and forget it ever happened.  But as master Yoda would say: Face it, you must.

Earnings Edition: FB and Texas Hold'em

With powerful earnings from INTC and an almost 400% return in AAPL January options.  I opened a play in FB.  FAAMNG stocks were back in favor around the 2 week of January in anticipation for earnings.

I opened a position in FB 270 expiring January 29 in anticipation of a run-up to earnings.  I also plan to sell day of earnings on January 27.  This has been a very easy way to skim the surface of earnings without actually having to risk the volatility crush and earnings disappointment.  

There is a feeling of missed opportunity every time it sky rockets (FOMO), but I have also experienced risk of earnings disappointment and great loss, especially in Facebook.  When looking at earnings, I have to both maximize gain but also minimize risk.  

So for this tutorial, I bought FB the Friday before earnings (5 days before earnings).  I watched it go up and down.  The dip on Monday scared me.  This lasted between 11-11:10am which was so fast.  But the recovery in the afternoon has been remarkable.   

Imagine a game of Texas Hold'Em or Poker.  You can't make money unless you're in the game, but you can't always win them, people can bluff you, you might hold a weak hand, your opponent might have a stronger hand, but in Hold'em you also have the random cards the dealer flips over (the Flop, the Turn, and the River Card).  Sometimes those cards can help you out, other times they don't.  But you won't know unless you stay in the game and call at each turn.  

Holding options until the day of earnings is similar to that.  Each day as you approach it is like the Flop and the Turn cards... and the day of earnings is like betting on the River card.  In most instances this is a 50/50 endeavor.  But in order to see the Flop and Turn, you gotta be in the game.

My plan is to sell on January 27 right before closing.  I have also noticed that most stocks rally at the close especially into earnings.

Coaching Lesson #1 You can't make money unless you're in the game.

Coaching Lesson #2 You can make lots of money on risky bets, but the inverse is also true (you can lose lots of money on risky bets).  Minimize your risks.

Fake Outs and Stop Losses

As a retail trader, one of the big lessons they teach is to always have a stop loss.  Whether it is 5% or 10%  or some other support, you are told to always have one just in case there is a huge drop.  

But for some reason, I think there's also a computer algorithm that has an alert when there is a huge spike due to stop losses being triggered.  Case in point yesterday morning around 11:00-11:10.  There was a lot of selling and the huge spike down triggered some stop losses.

 

The question:  Did you get stopped out?  Did you take profits earlier when the $AAPL was going higher?

Because earnings is in 2 days, I have been planning to take some profits.  With the big jump and subsequent run from 9:30-10AM, I was able to take 1/3 of my position off.  Between 10-11 when things were fraught with indecision, I took another 1/3 off.  

When panic hit between 11:00-11:10 where were you?  Did you stay by your computer, did you take a break?  Were you ready for the rally at 11:11?

If you stayed away from the desk from 10 until close you would have missed the excitement and the takeouts.  As a retail trader with a day job, its easy to get caught up in the excitement, but their are greater powers at work.  There are professionals and millions of other traders or SHARKS that will eat you alive.

These fake outs are meant to shake out the weak hands.  They are meant to scare the pants off of grown men.  As a retail trader, you are being seen as a fish bait, chum for the sharks to eat alive.

Coaching tip: Don't watch the screen all day.  Have your plan, know your stop losses, and remember to stay sane in this market.

Don't let the ups and downs of 10 minutes of the day ruin your plans.  God bless and happy investing!

5 Lessons Learned trading in Jan 2021

This has been a fun month of trading.  Here are some lessons learned from trading.

#1 Stick to your plan.  Always have a plan.

What is your entry, exit strategies?  What is position size?  What is strike price and expiration date?

#2 Let your winners run by having a plan.  What is your target price?  

My example is $INTC.  Right after CES $AMD dropped and $INTC jumped big.  I sold after the first jump of about 3%.  My options were about 50% profit, but the next two days but then it went up 7% and 13%.  I left another 200% on the table.  Sure I got profit but ended up missing out on an incredible run.

#3 - Cut your losses or reposition your strike prices.

I picked up some $AAPL options 2 weeks ahead of earnings.  I readjusted as it started losing and picked up at a lower strike price just so I can get a good position.  

I cut my original options so I could buy back a better strike.  All these options expiring on Jan 29, the same week as earnings report.

Which leads to my #4 lesson is stick to your strength.  

A friend asked me what is $AAPL story?  Meaning what are its fundamentals?   Unfortunately, I am a technical analyst.  I know the M1 chip is revolutionary.  They are dropping their Intel chips and building their machines with in-house cpu and are destroying Intel machines benchmarks.

But that type of analysis isn't my strength.  I enjoy looking at technical analysis.  I see $AAPL retesting the $127 line.  I also see $140 target before earnings. Meaning: there is usually a run-up before earnings testing previous highs.  So in my mind, there is $13 move in the upside in two weeks.  If it breaks down, I will sell for small loss, but if it confirms, I'll make a decent return.  

What are your strengths?  Is it options, is it technical, is it following trends?  Know what your plans are and don't be derailed by doubts or other people's strategies.  Know your strengths.

#5 is my long time lesson which is don't hold short term options through earnings.

Always have a plan.  Earnings provide the biggest gains and losses.  Unfortunately you can't predict which way the market will go.  As a general rule I sell my options before earnings to avoid the volatility crush that happens after report.  I sold MU day before earnings and took my profits.  I played NFLX right.  So 2 days before.  I sold 80% of my INTC and got crushed with my last 20% that I held through earnings.  There was a leak with INTC and earnings came out early.  I thought I was riding high at 3:58, but after hours, it got crushed and ended up down 9% the next day.

SO, have a plan.  Know your environment.  Start trading so that you can reap a large harvest.

God bless!

New Day, New President, New Year

New year, new president and the market continues to run.  As a swing trader, always remember the trend is your friend.  As long as you respect supports and resistances, there will always be another day.  Be sure to stick to your plan and follow your goals.  Lock in profits when you achieve your goal and cut your losses when you are wrong.

My pickups last week included $AAPL $NFLX $BABA.  With $NFLX hitting for the fences, FAAMNG is back up.   Looking at Semiconductors this week $AMD $INTC $ASML $MU

Remember the long game.  Investing is for the long term and not just day trading.  

Observe and till the landscape (look for market trends). 

Plant your seeds today (Open Positions!!).

Wait and weed (With patience and a plan, have a stop loss, add to position, etc)

So that you can harvest for the future (take your profits!).