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Just a few days ago, I had discussed GOOG as a pullback play, when its chart looked like this:

Well, it did indeed break upward nicely from there, and now the chart looks like this:

A great little $20-plus move since the post, and about $15 above the trigger point of $530. I don’t have a rule in place for selling at a particular extension level on GOOG (”DSM I” only applies to the SPYders), so I’d fall back on the tried and true, and pull a Landry right here, which is to say, sell half the position and move my stop to breakeven. Barring a big overnight gap, that gives us a guaranteed profit of over 1R (our initial risk) on half the position, and leaves the other half in place with a stop at breakeven… in other words, a FREE RIDE. Sweet.

DSM I Targets for 7/6/07

The indecisive action and slightly lower finished changed the RSI(4) projections, and the targets are now as follows:

• Position: Long from 149.70 (this is still trade #2 since inception- the longer holding periods are good on commissions, hard on the nerves)

• Target: Exit at 153.35

• Stop: 149.60

Note that the stop has trailed up to the point where this is essentially a free position. That’s great, but we’re sooo close, and I’m really hoping to tag that target price first.

Bonds Did Bounce

In my most recent currency rant, I noted that the 10-year bond yield had pulled back to 5.0% and looked as if it may resume its climb. Looks like it did, with a bullet. Yields closed today at the very top of their range, at 5.14%. The dollar strengthened, but only very slightly. It should pick up some steam here, unless the Chinese or Japanese are intervening in the market. As I’ve discussed before, if they are, we’ll know by this tell-tale sign: bond rates will rise and the dollar will stay flat or even fall. Let’s hope that’s not the case, ’cause things could get pretty ugly pretty quickly.

I’ve cobbled together a chart of what’s happened since I started testing my RSI(4) - based swing method, which I lovingly call “DSM I ®”. Here’s where we are:

The green “1″ is the first trade entry on June 21. The red “1″ is where that trade was stopped out the next day. The green “2″ is the entry for the second (and current) trade, and the levels I’ve added are the stop and extension targets after entering yesterday’s closing data.

• Position: Long from 149.70

• Target (exit price): 153.45

• Stop: 148.90

I get long on GOOGle about once for every five times I get short. It’s been one of my favorite shorts up there with my favorite nemesis AAPL (although I do occasionally go long Google, at least!). Probably a bias because the biggest gain I ever made in one trade was shorting Google. So am I committing blasphemy by pointing out how strong the chart looks here? Or am I being a little more objective than in the past? I dunno. For now, just keep the straight jacket close by.

Chances are, if there were huge amounts of selling waiting to come in after the new high on 6/25/07 at about 535.00, that selling would have come in with a vengeance after the drop back below the former high, set on 6/7/07 at 526.50. That hasn’t happened. In other words, a Turtle Soup or Turtle Soup Plus One trade (both of which trade the failure of a previous high or low) would have been exited by now for lack of follow-through. A failure of the failure to fail. Get it?

What we’ve had has been a nice little pullback to support, then the support holding as volume bleeds off. If price rises back through 530 and the topless siren of stock trades beckons me to get long (so to speak), I believe I’d be inclined to acquiesce (with my “protection” of course- an initial stop below the near-term low of 519.56).

Oh, and lest anyone ask, “What, a stop over ten dollars wide?”, yes, absolutely, on a $530 stock. I’d certainly consider a $1.05 stop on a $53 stock nice and tight, no?

Not only did SPY generate a buy signal as targeted by my current swing method, it appears that alternate rule I talked about in the previous post (which would have given me an entry over a dollar lower) may be finding its way into my plan soon.

But what I want to talk about tonight is the fact that we got a buy signal from another method as well, a method with the weight of some 800lb gorillas behind it: The Turtle Soup method made famous by Linda Bradford Raschke and Laurence Conners in the 1990s.

Turtle Soup was designed as the contrary trade to the 20-day breakout/ breakdown entries used by the renowned Turtle Traders back in the ’80s. What Turtle Soup did was to trade the failure of a breakout or breakdown.

The way it works is pretty straightforward. Look for a new 20-day closing low on a stock that had its previous 20-day low more than three sessions back. The next day, if price breaks back above the earlier low, get long with a stop below the near-term low.

This turned out to be a very high-percentage trade, and it’s said that some people made their entire living from it. In the ensuing years, the technical sophistication of the market, continuing globalization of markets, and the millions of ways to arbitrage for every cent have caused these breakouts to get “noisy” and often a clean setup is hard to get.

Well, SPYdey gave us one today:

Yesterday’s close was a new 20-day low below the 6/7/07 low of 149.06. Today the price climbed back above that level, triggering a long entry with a stop at the near-term low (today’s, in this case) of 148.06.

The fact that “DSM I ®” generated a buy signal which is nearly identical to that of such a tried- and- true method tells me that this old hound dog is picking up on some of the same scents as champion hunters from the past. That’s goooood.

Gotta run, it’s after midnight, I’m due at work in a few hours, and suddenly I have the urge to scratch some fleas.

First, I want to point out something that may not be so obvious. During the peak of Kris Kristofferson’s Brilliant Lyricist period (about 5 years in the late 60s and early 70s), one of his songs begins,

If you hurt me, you won’t be the first, or the last, in a lifetime of many mistakes. But I won’t spend tomorrow regretting the past, for the chances that I didn’t take.

And the chorus says,

I’d rather be sorry for something I did, than for something that I didn’t do.”

That’s about getting laid, and that’s human nature. Successful stock trading often requires you to act in complete opposition to your nature. The rules are flipped, and it can drive you nuts. In stock trading, you’d rather be sorry for something you DIDN’T do, than for something you DID. Failure to heed this counter-intuitive fact causes us much weeping and gnashing of teeth.

A plan changes that. Here’s a for instance: the plan I’m currently testing in real-time, which I jokingly call “DSM I ®” and is mostly based on a 4-period RSI, has only triggered one trade in the last week, and that trade was stopped for a loss.

Curiously, the loss is not what hurts. It’s having to not trade. To further annoy you with another song quote, as Tom Petty said, “The Waiting is the Hardest Part.”

However, the waiting is not costing me money. It’s saving me money. I’ve seen at least 10 different places in the last few days where, 10 years ago, I would have bought and sold, and would be deep in the hole now. Why all the buying and selling? Anticipating the “Big Move”, and trying to be positioned to catch it. Then, on the next little surge or failure, getting out (at a loss) and positioning in the opposite direction, because it “seems” that’s where the Big Move will go.

Having a plan, and sticking to that plan, inserts some manual discipline over those emotions. Some boundaries. And believe me, we humans need boundaries.

So, the current method I’m testing has lost me what, about a buck-fifty on one stopped trade. However, I guarantee you it’s saved me three or four dollars of losses in, to insert some Southern Grammar here, untook trades.

Enough Already, What’s the DSM Signal Say?

I’m waiting (patiently, agonizingly) for the RSI(4) on the SPYders to drop below 15 for an “oversold” long entry. As of today, that still requires a price drop to around 147.60 or below. Dammit. I wanna be in there. I actually came up with a modification in April (hey, this ain’t no overnight whim) which added a rule to go long on any close which puts the RSI(4) below 20 and where 4 of the previous 5 days closed down. Well, we met that one yesterday, which would have generated a buy somewhere below 148.50.

However, I do not have that rule in place for “DSM I“, and so I’m ignoring it. If price takes off from here for a great 3-day gain, well, I may add it in for “DSM II“. For now, I’m still looking at

• Long somewhere below 147.60 if price drops down there or

• Long above 149.70

Market opens in 30 minutes (”too tired to write” last night). Let’s watch…

The SPY trade was stopped out in one day at 150.24. Also I discovered another error in the spreadsheet I wrote for this project- it didn’t affect the entry and exit targets significantly, but it’s a good reminder to always be diligent in double-checking when you copy/paste new data into a sheet- particularly with cells containing indirect references (which don’t automatically adjust when the cells shift down and over).

I’m planning on calculating the profit/loss for this project based on different position-sizing strategies: fixed-dollar amount, fixed share number, and the one I personally use, risk-based position size (i.e. “R“).

Also, don’t think I don’t realize that I’m starting this tracking right when the market appears to be rolling over, and that I may spend the first “x” trades getting whipsawed. That’s OK. What I’m working on here is paying less attention to what my gut tells me, and only using my discretion within the limits of the trading plan (vs. saying “to hell with the plan, I’m going all in short!”).

Nothing teaches like real life.

Summary:

• Number of trades so far: 1

• Position: Cash (last trade stopped for a loss)

• Plan: Long above 151.60 or below 146.50, with an initial stop of approx. $2 on either one.

Per yesterday’s targets, “DSM I ®” triggered a buy this morning at 151.76, with an initial stop at today’s low of 150.25:

The Plan:

• Take half the position off at 154.50 (due to resistance at the previous high) and move the stop to breakeven.

• Take the rest off if we get to 157.00 without being stopped out. (Yeah, I know. Fat chance.)

• Otherwise, sit tight and respect the stops. Aka The Hardest Part.

(Remember this is a swing trading system I’m trying out, daytrades can of course go either way.)

As planned, the previous trade got stopped at 46.60 this morning. A surge down to 45.20 would have been so nice, but, c’est trading. Instead I’ve got either a quick, acceptable swing trade or a very nice extended daytrade behind me, depending on who I’m telling the story to.

Where are we now?

We’re in the middle of some significant sideways action. Remember, in the book of Dummy, volume at price equals support and resistance. The direction we break out of this range is very important.

After that heavy “down” volume a couple of days back, I’m leaning towards shorting (I always seem to be), but I need the math to back me up before I do. And, despite all appearances to the contrary, I’d be content to go long as well, given an appropriate setup.

I used to enter a swing trade based on the high or low of the previous day. My current method looks for significant movement in the direction of the entry, which may or may not coincide with that previous bar’s extreme.

The numbers I’m coming up with tonight show me I likely won’t be taking a trade tomorrow. I need about 46.10 to get short on the Qs. About 151 on the Ps, 480 or so below the shooting star on GOOGle oogle oogle, and about 112 on my old friend AAPL. What, you thought I forgot Apple?

Long? I really need a break and pullback on any of ‘em.

‘ats it for now.

• Supper Tonight: Leftover Strawberry Pie and Bud Light
• Watching: Season finale of "House"