some typical responses to this might be.. "NO WAY".."HOW?".. "THERE'S NO GOOD NEWS, WHERE WILL IT COME FROM?".. "YOU'RE CRAZY C.J.!"
Listen, bear market rallies happen. They exist. And they usually happen when you can't find a single reason for it. Think after the Bear Sterns blow up. The day after Bear Sterns exploded we started a massive bear market rally that lasted over a month.
The reasons for this can be best explained in some charts;
S&P first.. we have a short term double bottom potential, a channel to pop out of over 1003, and a long way to go after that.
DIG next... same exact look..
UYG last... same exact look.. remember.. commodity stocks and financials are what will drive the next bear rally.. cannot have one without them. These all look like short term bottoming patterns with a potential HIGHER LOW in play after today.
It IS still possible that we head back down and visit 897 one more time, so I am not advocating adding to long positions quite yet. If 897 falls, then a prime opportunity to add to a long position will be between 897 and 848. And the last potential range is 770 and 848. But IMO.. I think we may have a seen a bottom for the next few months.
I only added 500 shares of DIG this morning.
Position is now 4000 shares of UYG at 8.65$ and 500 DIG at 31.85$.
I will not add more unless one of these 2 things happen;
1) we take out 897 to the downside. In which case I will add some more near 848.
2) we take out 1003 to the upside.. in which case it's time to go all in long with potential targets starting at 1150 and higher.
Have a good weekend. And good luck trading.
C.J.
4 comments:
Nice blog C.J. You mentioned that you've been trading for 12 years. Do you do it for a living? Or how does it fit with your other work?
Also, you mentioned you use 97k of trading capital. That seems somewhat on the low side for position trading. Can you elaborate a little on your overall strategy. I'm new to trading in a major way. I am looking to do more of it and eventually have it as my full time profession so I'm looking to learn from other like yourself in this area.
Thanks.
Hi Webjazz,
As of now it is a hobby and has been for a long time. It fits into my work because I do not daytrade, I position trade, usually only buying and selling once every week to a couple months.91K is my current trading capital, which is seperate from my retirement accounts which I handle differently. I hope to do this for a living one day, but think I need at least 350-400K of capital to do so comfortably. My goal is to get there within 5 years, a lofty goal, but don't think it is impossible at all. I started with $1000 in college when I was 19. The first 6 years or so was on and off with a lot of ups and downs. But i have gone from 12K 3 years ago to 91K now.
My overall strategy is to buy when blood is in the streets and go short when the market will go to the moon. But this strategy is disiplined and requires a lot of technical analysis.
I build positions slowly, which is often the hardest part. Rarely do I exceed 50% of my capital at any point in time. I find doing so escalates my nerves/stress and causes bad decisions.
I am currently about 50% as of today. If the market does sell off further, I will be very careful adding, only at the lowest possible price points. (848 and 770 on the S&P)
This way I avoid the "forced sale" or nervous sale out of the market and I won't miss the turn up. And the turn up always comes.
The hardest part to manage disipline is when you are on a roll and doing well because it ALWAYS turns on you. That's why technicals such as I have shown in my charts are so important and regardless of the hype on CNBC or any emotion, you must respect what you see not what you think.
Unfortunately, what i've learned over the years is that much of this can't be learned from someone like me or in a book. You must live it yourself.
My suggestion if you are a new trader is to move extremely slowly. 1/8th of my pace. I'm 50% invested... you should be 10% invested. The lessons learned will not cost you as much. I was lucky to start so young with a small amount of money that I routinely doubled and lost all of it and more on a consistant basis.
If you start late with a large capital basis and not much guidance, these lessons and be extremely painful.
You might be on a roll over the next month and come to decide I am full of crap, but just remeber that it ALWAYS... ALWAYS comes back. Ups and Downs, you must manage them to your advantage. If you've done great for 2 weeks, cut what you would normally do in half.
That's about all the advice I can give you. Much of what I say will only come back to you down the road.
Thanks for reading and wish you luck trading in the future.
C.J.
Thanks for that detailed response. I've saved it for future reference.
My outlook is for the market to stay in a bit of a range for a while. Maybe 1050 at the high end and 850 or so at the low end. I realize that's a hugh range, but that's to be expected in a market with the vix so consistently high.
I don't think it can have the energy for much higher, but if credit conditions or big bankruptcies continue, it could break below 800.
Do you play both long and short and the same time so that while your distributing one you're accumulating the other. That's a strategy I haven't really tried because it requires one to be kind of schitzoid.
BTW, can you eliminate the Word Verification on submitting comments. That's kind of a pain.
"Maybe 1050 at the high end and 850 or so at the low end. "
This is where technicals come in.
If you look at my posted S&P chart. (click on the chart to see a larger image and read the comments) 1003 is the line in the sand so to speak. If we close over 1003 convincingly... say 1010 or higher.. We'll go much higher. Much higher than 1050. Just to fill the gap from the start of the sell off requires the market to rebound to 1150. That is where my targets begin if 1003 is taken out.
On the downside the reversals back up could happen at 848 or 770. Which are the Oct. 10th bottom (848) and the 2002 bear market bottom (770).
Below 770 has no support down to about 550.
But history has shown Novemeber and December to be kind to the market even in bear market years. So that's why I am sticking to a call that we have seen the lows at least until January. And we get a rally through the end of the year that has a minimum target of 1150.
I'll check into the "word verification", just started this so might be an option or something.
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