DummySpots.com

Below is a list of today’s Top 30 Stocks from a screen I developed based on the recommendations of a well-known trader. They are ordered by the screen’s ranking of their significance as good candidates (not necessarily as longs or shorts, but as tradable movers).

[And anyone know an XHTML-friendly way to split an ordered list into columns?]

1. SPWR
2. STP
3. BIDU
4. APOL
5. CF
6. AAPL
7. PBR
8. MA
9. POT
10. APA
11. RIMM
12. STT
13. SU
14. MBT
15. ICE
16. FSLR
17. WFR
18. MON
19. DRYS
20. CHL
21. UBB
22. CAM
23. DO
24. BHP
25. FCX
26. PCU
27. FWLT
28. FLR
29. MGM
30. WYNN

Doesn’t this look like an interesting and high quality list! Quite different than our normal daily gappers scan, although it contains some of the “usual suspects.”

Here’s the challenge: Anyone have a guess as to where this list came from, and who that famous trader is? Want a clue?

Just a note, for the seven of you who follow my trading thoughts and miscellaneous ramblings (i.e. who didn’t find me by Googling Jim Cramer and Dan Dorfman — that’s pathetic, wrote a stupid little post in Feb ‘06 and it’s still the top search engine lead into my site).

The SPYders action the last three days has eerily duplicated the pattern they formed in August just before the final “drop to the bottom”:

Note the similarities:

• RSI(4) topping in the high 60s, RSI(2) in the mid-80s.
• Three higher highs engulfing the action of the prior 7 days.
• An indecisive spinning top candlestick on the third day (which was today).
• Declining Volume on each of the three days.

As the legendary trader Elmer Fudd used to say, “Be Vewwy Vewwy Careful!”

In an email exchange with LP yesterday morning, I’d said that I was not looking forward to entering a trade before what amounts to a 5-day weekend, but that I may have to if we got anything other than another down day-

If we can get a light down day on SPY today then a positive close tomorrow, I’m in (grade of B). A gap down and reversal this morning (grade of A), or light drop today and OGRe tomorrow (grade of A+) and I’m in. Spike down to new lows, then positive close (A). Or just a plain positive close today (B-).

Well, we did get one of those, and I’m in:

The alternative to developing a method and then strictly sticking to it would be to enter and exit “by the seat of my pants,” and I still have a full-time job (which I’m ICK! about to leave for) to prove how well that works.

Coffee Pot Crisis

A little entertainment for this Thanksgiving Eve. My coffee maker is about a decade old, was maybe $20 new, but makes (made) the best-tasting coffee on earth. I’ve even bought newer, more expensive ones, then reverted back to Old Faithful.

Yesterday morning I shattered the decanter. Is it me, or do they make those things out of the most brittle, breaks- into- fatal- shards kind of glass on earth? Anyway, I don’t usually have panic attacks (often), but I did then. Mister, I have GOT to have my coffee!.

Here’s my rather inelegant, but amazingly functional solution (had to tear the no-drip valve out of the basket, but it’s one big coaster anyway now):

“Coffee Pot”

One of my original intentions in creating DummySpots some hundreds of thousands (millions?) of words ago was to share a bit of what I’m thinking as trades unfold. I’m getting back to some of that. If you trade regularly, I doubt my pointing out where (anything) stands in relation to its 200-day moving average will be of much use to you. You’ll already know that, or have decided it’s not pertinent to your trading style.

Instead, I’m offering what I see based on the methods I use, mostly short-period RSI readings, especially the RSI(4).

As always, if it looks at all like I’m telling you to take any particular trade, please see my disclaimer in the sidebar.

Here’s what’s currently pinging off the cold metallic walls of the cavern where my brain should be:

(Click for the readable version)

Please feel free to share your own expectations (or your opinions on mine). Dialog is always welcome, and it’s a great way for us to learn from each other.

I haven’t been writing much lately. Lots going on. Bought a house. Remodeling before I move in. I have a picture of my Acura TL with 1200 lbs of ceramic tile in it I’ll upload one day. Low Ri-der don’t use no gas now, Low Ri-der don’t drive too fast.

Parasites still pursuing their lawsuit, but it’s being delayed due to some “bigger money” cases, which I take to be good news.

Have had multiple awesome job offers in a short period of time, may yet find the perfect combo of pay, schedule and autonomy and finally leave The Hospital.

Right now, I’m sipping my favorite Hot Drink for a Cold Night (it dropped over 40 degrees in just a few hours last night). Unfortunately I can’t reveal the super-secret family recipe.

(Note this is not the famous cider promoted on the Bob and Tom show by the Dickens company…)

One of these and a bit of reading Vonnegut or Watts or Pirsig, and a crappy day becomes a very relaxing and pleasant evening.

Oh, and the market-

As I wrote last month, I took what was left of my account (mostly drained due to legal and home-buying circumstances) and loaded up on PUTS. The RSI(4) method I developed last Spring and Summer was screaming “short,” and I was just ready to get on with it, one way or the other. As mentioned, on October 5-10, I bought PUTS on QQQQ

I bought PUTS on GE

And, of course, I had to buy PUTS on AAPL

After time decay, the AAPLs ended up in the red, but the GEs and the Qs did ok. I did not manage to blow up.

Which brings me to my newly discovered rule of how the market works: The Market does not want you to lose money; it simply wants to foil any plan you have, which just coincidentally usually is a plan to MAKE money.

Monday afternoon (I have witnesses who hate my guts), I had had all I could take, the RSI was screaming again, and I flipped out of all the PUTS and fully into CALLS on the Qs. I actually entered very near the bottom of that candle:

I fought the overwhelming urge to sell those CALLS Tuesday on that Long White Candle, staying with the odds that after such a run the market would gap up Wednesday morning. It did, and I sold almost immediately. Nearly 200% in a day and a half.

I actually was so “in the groove” that I flipped again and bought a half position of PUTS Wednesday morning, but I had to go lay ceramic tile (see new home reference above), and sold them before lunch for a small gain, 20% I think. Guess if I had held them you’d be seeing the Snoopy picture again.

Anyway, I discovered, or rather remembered, why the different jobs and a few thousand more dollars working for someone else still doesn’t appeal to me…. because my time with my daughters is paramount, and as for income, this is my passion, this is where I want to make my living. As a guy I love dearly said in a trading interview last year,

The autonomy. It’s all on you. No one else to take the blame when you mess up, no one to steal the glory when you shine. YOU are the rate-limiting step, or to paraphrase Seinfeld, the master of your domain. I think trading attracts doggedly-independent individuals for that reason.

OK, Snoopy Dance completed. I was pretty confident in the long signal Thursday afternoon, and loaded up on Calls which expired Friday (I have a witness, I swear). I hedged a bit, with OTM (Out of the Money) Puts - reduced my gain slightly, but cheap insurance in case of a catastrophic dive. I unloaded half the Calls just after the open Friday morning (in between Snoopy Dances), and the rest mid-afternoon when it became clear that we weren’t going to any significant new highs before the close.

I won’t talk specific numbers here, for obvious reasons. Let me just tell you, and the parasites that currently have a lawsuit against me for their car’s clearcoat scratches, and my ex-wife’s lawyer, that the overall amount is a small, insignificant number. It was, however, a sizeable percentage of my overall trading account (lawyers note: my itty bitty trading acount).

So What About Monday?

My RSI(4) trading method says the long is in place. My daytrading experience says Friday’s action didn’t look very pretty. My fundamental analysis says that the Fed dropping the Discount Rate is not only not the good news the market seemed to proclaim, it’s downright BAD news. The Fed has admitted they see the deflation, the looming crisis, and are warming up Ben’s helicopters.

However, these factors all work themselves out in different timeframes, and that’s what I hope to take advantage of.

Based on Friday’s action combined with the trading plan’s signal, I plan to get long again tomorrow on a drop below Friday’s close, somewhere between 140 and 143 on the SPYders.

That Long will be short-lived, because I think any upswing here will be short-lived. The longer-term (fundamental) situation is just too negative.

As I said in a previous post, I’m currently still in “Long-cash-Long-cash” mode, but expect to switch very soon into “Short-cash-Short-cash” mode, probably after the next time I take a loss on a long.

Let’s watch…

We got our buy signal, and we got long. In the previous post I’d said

I see Thursday 8/16/07 as a PRIME, and possibly the LAST, opportunity for a buy signal to emerge before we have to look away

and I also said

I will get long very aggressively on any good OGRe (Opening Gap Reversal) once it trades back into today’s range.

This OGRe wasn’t a pretty one, however. (For a more thorough discussion of how I view OGRes, see this post about Trading Opening Gap Reversals). We got our gap down, but then spent the day alternating between ecstasy and agony with those wide swings… until 3pm EST, that is. Then we got that outrageous “4 dollars straight up in 50 minutes on huge volume” rally right at the end:

The daily chart looks more like a nice clean OGRe since it doesn’t show those intraday vascillations:

Note that, per the Gospel According to Steve Nison (aka Japanese Candlestick Charting Techniques) it’s not a hammer since the lower shadow isn’t at least twice the length of the real body. However, the real body on this monster is $2.31 wide, and the lower shadow is another $2.79 below that, which is still jaw-dropping.

Long, But Not For Long

This trade, like most I’ve written about the last few months, is based on my current RSI(4) -based methodology. These trades typically last from a few days up to about three weeks, with the majority on the “few days” end. So this is still a quick little swing trade in my book, not a pronouncement that we’re headed back for all-time highs.

So Was This The Bottom?

I don’t think so. The macroeconomic factors haven’t resolved in the least. In fact, I’ve continually made fun of the talking heads’ using euphemistic language like “housing slowdown,” “slump” and the ubiquitous “soft landing” … we’re not even close to the last shoe dropping on the housing bubble (can we all agree on that term now?). I firmly believe there’s a Dragon in the Corner and that we’re about to enter the recession portended by the yield curve inversion starting in December 2005 (remember, the recession often takes 18-24 months to show up, but of course the choir has endlessly sang “This Time Is Different”).

Note the deflationary symptoms rapidly emerging: tight credit, reduced money velocity, and hey bugs… check your gold prices– who says gold goes up because people buy it when they’re scared? People are scared as hell right now, but gold is faltering because of the risk of big “D”. Oil’s down, too, thanks to the stronger dollar. And yes, I believe the Fed’s response will be to lower the target Funds Rate soon and start increasing money supply vigorously, but in this case, I’d agree that it’s about their only choice since we’re so far down the Rabbit Hole.

Also, I’ve extensively (exhaustively, painfully) backtested the RSI(4) method I currently use, and it’s told me something: in uptrends, it tends to cycle from the high 20s to the mid 80s, sometimes spiking into the 90s (i.e. skewed upwards overall). In downtrends, on the other hand, it tends to drift up into the 70s, then soar down into the low teens or even lower. The last few cycles, it’s been acting less and less like these are “pullback in an uptrend” swings, and more like full-fledged downtrend thrusts. I may be switching from buying drops to shorting rallies in the very near future.

So You’re Overtly Negative, But You’re Aggressively Long Right Now…

Precisely!

I had said I’d consider any close on the SPYders above 143.55 to be a buy signal. Alas, we got no buy signal. But we did get these:

• The S&P 500 is into the red for the year

• The VIX is at a 4-1/2 year high, and well away from its 10-day moving average (search the site for “VIX Fade Trade” if you don’t know the significance of that)

• The water-cooler chatter has risen to a roar; it’s turned from “look how much money I’ve made” to “look how much money my advisor has lost me”

I see Thursday 8/16/07 as a PRIME, and possibly the LAST, opportunity for a buy signal to emerge before we have to look away so as not to watch the carnage.

Here’s what I’ll be looking for:

I will get long very aggressively on any good OGRe (Opening Gap Reversal) once it trades back into today’s range. Needless to say, that trade would have a stop at the low of the day in case of a failure. I will get long on any positive close above 142.25.

Anything else, and I will stand aside.