Cool

Today when I watched the Dow shot up 100 points early again, my heart was sinking. Why I always added the puts in front of another rally? I really wanted to sell to cut loss. But then I told myself to wait and see. It turned out to be a great decision.

1. By 10:30 MST, the market was almost flat, erased all the gains due to "great" economic news.
2. And the ISEE number told me people were expecting a great rally. So I added IWM puts again. Too bad I was still recovering from the shock early, I didn't add ultra short ETF at the same time.
3. Then the market dropped, like I expected. And before close I sold all most IWM puts I added the last three days for a good profit.
4. Of course, the ones I added today gave me the best profits, and the ones I added two days ago were pretty much even.
5. Sometimes, you can just do it daily to reduce risk and increase profit at the same time.
6. And I watched the market rallied back at the close. Since today's action again is good sign for bears, I added MZZ before the market close.
7. That's what a cool head can do to you. I need to be more like this in the future.
8. My actions to sell most of the QQQQ puts early on 6/26/07 was a great decision, today's decison to hold and then add IWM puts was another great decision. If I can keep up like this, I can make a little money out of this market.
9. It's good to be on the right side.

Market:

1. I think the market shifts to the bear side, if we had news like this a month ago, we'll have triple digits gain for sure.
2. We had iPhone debut, RIMM blowout number, "great" spending number, etc. And all the market did was to give up 100 points, went down 100 points and then closed down 14 points?
3. I don't expect it go straight down from here, but I feel like it tests at least 1460 in S&P 500, if not lower.
4. Now S&P twice broke 50MA intraday and could not hold, and closed below 50MA. The more it spent time under 50MA, the more stronger the resistance is.

You create your own luck

Today the market was very volatile, specially around 2:15PM, up the first 10 minutes, and then down the next 10 minutes. Eventually the market closed flat.

After hour, RIMM had a great earning and announced 3 for 1 split, up 29 to 194 in AH.

1. I lost more money this year in RIMM puts than any other positions, and I sold RIMM puts one month ago. Now I can feel the pain lot of shorts feel right now. Will lost another great percent tomorrow.
2. This is the lesson I learned, I will never ever short hot stocks, no matter how overvalued they are. Yes, if you catch the end of the move, you'll make a fortune, but if you don't, you'll lose all.
3. And stocks like BIDU continued its push, now at 162. Don't touch it.
4. You make your own luck, so don't complain, don't focus on a few stocks.
5. Change if it's not working, learn from painful lessons, that's the only way to make money in the stock market.

Today's action:

1. Today I did't have chance to sell the IWM puts and SDS I bought yesterday. I thought I could sell them early in the morning for a profit, and add them later after Fed spike. I was wrong.
2. SDS is OK, but the IWM puts dropped while IWM was flat. I don't understand this, maybe the ^VIX was off, maybe people were just too confident that Fed would deliver again.
3. I added IWM puts again when market was up, then again after Fed and the Nasdaq was up 0.7%. Since the market closed flat, these puts I added today are ahead, but yesterday's put are underwater.
4. Also added TWM today. I sold my TWM yesterday at 63.40, today bought it back at 61.5. Also bought MZZ. I like TWM and MZZ better than SDS on the way down. These newly added short ETFs were profitable as well.

Today's market:

1. Today's market action is good for bears, it could not move higher after one snap back rally.
2. I think either it will consolidate, or it will move lower. To retest 1490, and then 1460 is a very likely path in July for S&P500.
3. Of course, a few bounces along the way.
4. S&P could not regain its 50MA and made a shooting star today. DIA closed above 50MA, also made a shooting star. Nasdaq is the strongest recently. Russell 2000 is the weakest among major indices. They all made shooting star today.
5. The market is still on the edge, both bulls and bears are nervous, today bears won a small victory, considering bulls pushed it up all day long.
6. Checking last two weeks, bears gradually gained control over bulls, with S&P500 broke down 50MA and stayed down for 5 days in a row. Since it's the main index, I think it will carry Dow and then Nasdaq with it, heading lower into summer.

BX and ISEE indicator:

1. The BX indicator once again showed its magic, it's up all day long with light volume, then it closed in red for 4th days in a row! This is the largest IPO since Google, that tells us something.
2. ISEE jumped from 116 (yesterday's close) to 171 after 12:30(MST), and closed at 152. It's a bearish divergence and we should head lower in the near future. Seems like too many people were betting a great rally after Fed, so the market should go the opposite way.

Snap back rally

I thought we won't have a snap back rally, but I was wrong. And market gaped down and then gradually rose to a very strong close, volume is light considering the strong price move.

1. When I saw the market erased the loss in first 30 minutes, I knew it's a snap back rally. Market was oversold, bears are nervous.
2. I sold all my ultra short ETFs today, and most of put options. I had small gains in short ETFs and big losses in these puts. If I didn't sell them, I'll be in very bad shape again.
3. To prove a point, I also added DIA calls, I think you can play two side of the market. I sold it for 5% gain, if I was patient enough to close it before the market close, I could get 20% gain.
4. Just before the market close, I added SDS, IWM puts. I want to keep the shorts and puts. And I added them back at much lower price. For example, I sold SDS at 53.50 and buy it back at 52.50. This really encourages me to do short term trade to get myself in better entry price.
5. Now I'm mostly in cash, with some ultra shorts and index puts.
6. I really improved myself in my trading, when market goes against my prediction, and I react quickly to avoid disasters.

Fed, CDO and liquidity:

1. Fed meeting is tomorrow, we'll have reaction for sure. I think we'll have negative reaction if Fed doesn't move to hint the future cut.
2. But Fed really can't hint cut at this stage, it will destroy the dollars.
3. And Fed can't increase the weight on rate raise either, it will destroy the housing market and move the bond much higher. So Fed will keep pretty much the same position, with a little twists in the statement. I don't expect they drop a bomb.
4. CDO issues are not over, and market will notice the risks again down the road, so liquidity will dry up sooner than later, that will be really bad for market.
5. And housing market won't get better any time soon.
6. So don't expect strong growth in this year.
7. Do expect a weak market ahead of us.

Some market observations:

1. TWM dropped the most among all ultra shorts, this indicated to me this is a short covering rally, since IWM is bears' favorite index to short.
2. ^VIX dropped too fast.
3. ISEE didn't rise as much as I expected.
4. S&P500 is still under 50MA.

Action plan:

1. I think today ^VIX dropped 18% to 15 is good sign for bears, because the risk premium are quickly removed, again.
2. So my plan is to gradually add shorts and puts back.
3. I still think we'll have a 10% cut in S&P 500 ahead of us, maybe not from current level, maybe another 1-2% upside in S&P 500.
4. Tomorrow I expect two possible paths to the Fed statement:
5. Open flat and move higher in front of the Fed meeting, then sell off after.
6. Open lower and move lower ahead of the Fed, then another snap back rally after.
7. But there is another remote possibility which I like the most, we open lower and move lower ahead of the Fed, then we sell off after, erase all today's gain and some.
8. I probably won't add shorts or puts until after the Fed meeting, to be safe.
9. I may sell the shorts and puts I bought today to take profit, and then add them back when the snap back rally happens again.

Sit

I correctly called the market actions since last Thursday, and as a result, my shorts and puts recovered greatly. But several day trades are not as good as I hoped, fear of losing forced me to cut loss, turned a winning trade into small losses.

Today market again could not put together a rally, and we closed lower again. You can feel the bears and bulls are on the edge, that's why we can easily pushed up 60 points and next hour down 20 points.

1. Now for me, with lot of shorts and puts, time to sit and find my positions good exit.
2. It's not a time to add shorts aggressively again, only on very strong rally.
3. S&P 500 is joined by Dow to break the 50MA. Nasdaq is not far behind.
4. Short the rally and cover shorts when we have a Feb.27 like sell off. This is the ideal game plan. But market is never this easy.
5. Even though the market looks broken, it may still have a few rallies left, so don't get caught in the rallies.
6. Hopefully this time the market finally and slowly roll over, to the down slope, for months to come.

Blackstone indicator:

1. BX lost 5% again to close below IPO price.
2. This tells me the bull market is over, at least for short term.
3. BX is a great indicator so far.

Reversal day

Today is a reversal day, no matter whatever reason bulls and bears can find to explain the down day, it's a reversal day! Specially after we've been down two out of three days, and we're in a bull market, today's reversal has significant meaning. Bulls find it's hard to get a rally, and bears find it's easy to get a down day. These feelings will be enhanced if we continue on a down path.

1. Many traders are very bullish now, think we'll get a bounce back rally. Even some bears think the same way. This to me is an indication we have more down leg to go. Almost everyone are on the same page, the market goes the other direction. But I don't know how mutual funds managers are thinking, which is the deciding factor here.
2. I think we may pass through 1490 on S&P 500 and test 1460 soon.
3. Of course since we're at 50MA for Nasdaq and just above 50MA for Dow, it's interesting to see if bulls can push the market to rally one more time, if they can't watch out below.
4. It's been a pattern since early March, we always rallied from 50MA; and this time S&P500 is the first to give up 50MA.
5. Don't be oversmart to think you can catch a bounce and then a correction at the same time. It may work this way, it may not.
6. From ISEE, looks like it's still very bullish, which makes me think we have more down side to go, and S&P500 and Dow are not oversold yet, and frankly, on a down trend, we'll get oversold easily, just like on an up trend, we'll get overbought easily.
7. I expect at least a lower close some time this week, how do we get there, I'm not sure. We may get a bounce tomorrow.

Action today:

1. I sold the put options I bought last Friday and sold them after market touched low and then started to bounce. Not the best price, but it's great I didn't sell early morning after market took off to highs, and the profit is good.
2. The best play is DIA puts I added around 11:30am (MST), I sold it after 1:30(pm) for a good profit too. Maybe I need to do this often.
3. After I sold the QQQQ puts, I added QQQQ puts again before the market close, but chose a lower strike price, to reduce exposure, but keep more put positions in the market. Time will tell if this is a bad move or good move.
4. Tomorrow we'll have more data coming in, how market reacts to these is very important.

Blackstone indicator:

1. BX is the largest IPO in the last few years, and it's action tell us more about the market than anything else.
2. It opened Friday at 38 and closed at 35.
3. Today it closed at 33.
4. Checking the chart, it is straight down from the opening on Friday, there is no rallies during two days of action. This seems to me, indicates a market top. If a private equity firm like BX can't get investors interested, it means the end of this bull run.
5. And Blackstone people are very smart, and they pushed the IPO days early, also an indication of more bad news for market to come.
6. I'll continue to watch the new found BX indicator, if you check them, even during today's market rally, it's down. So tomorrow, if market is up and BX is down again, I'll be comfortable shorting; but the other way around, I'll be worried.
7. Pretty sure people knew the price path for FIG, since it's IPO closed at 31, today it closed at 23. If BX follows the same path, we have more cut for BX.
8. BTW, Blackstone doesn't have the courage to take the symbol BS, which is an disappointment.

Crucial week

Next week will be a critical week, with lot of data coming in and major indices sit close to their 50MA, S&P500 is just below, and Dow, Nasdaq just above 50MA.

Three cases to play out:

1. Rally without testing 1490. One possible script is the market gap down on Monday, then it's possible an opportunity to close short, market likely will rally back for the day and rest of the week. I expect the rally may take us to all time high, but won't go higher from there. Bulls are running out of steam.
2. Testing 1490. If the market move down gradually on Monday and close at the low, then we can expect a test on 1490 on S&P500, which will bring Nasdaq and Dow to its 50MA if not lower. Market can hold and then have a small rally; then go down from there.
3. Break 1490. If the market break 1490 on Monday with huge volume, then I expect a straight down to 1460 before we can talk about any rally.

COT:

1. I checked recent COT on S&P500, Dow, Nasdaq and ES(S&P500 e-Mini), the latest data are on June 19th. The first two are bullish, while the last two somewhat bearish.
2. COT is bullish if commercials increase its long or cutting its shorts.
3. Large speculators used to have great track record, but they're on the wrong side in recent years.
4. What strikes me is, we have commercials increase its longs and large speculator increase its shorts on June 19th's S&P 500 COT report, on a large scale which is rare, so it's should be a bullish sign, then we had two more than 1% down day on Wed. and Fri., and Thursday only up 0.5%.
5. Is it possible that this time large spec got it right, not the commercials?
6. Something is going on from the latest COT. Something has to give.
7. Anyway, it's a time to be quick and decisive on my part. Rather be safe than sorry.

Action plan:

1. I think market will likely to test 1490 and then rally back above 1500, but won't touch all time high, before it go down again.
2. So I need to take some puts out when it's approaching 1490 and enter more later.
3. I don't expect market go straight down to 1460, unless we have some very bad news in CDO or economic data.
4. If market closes higher on Monday with light volume, then it's similar to Thursday, we can expect more down days in the week.

Better

Market dropped over 1% again today, that's two out of three days. Not bad at all for shorts. It's better than Wednesday.

1. But countless bounces after sell off made me nervous, as a result, I sold some of my DIA puts, only to see them closed up another 15% after I sold them.
2. This is the golden rule, whenever you hold them they will drop; and when you sold them, they will rise. But I still have lot of puts, and I added QQQQ puts after I sold DIA puts. These are July puts, we still have 4 more weeks to go.
3. The reason being, Dow and S&P 500 dropped about 2% this week, and Nasdaq only dropped about 1%, so if this time the correction is for real, Nasdaq has more catch up to do. And the premium on QQQQ is lower than DIA, I think, so I did the switch.
4. I need to improve my execution in the future, find better enter and exit prices. On Wednesday I didn't sell, and they bounced on Thursday, today I sold, I hope we'll have another sell off on Monday.
5. From TA perspective, S&P500 broke down below 50MA, and if it takes out the June 7th low of 1492, we can sell a real correction, next target is 1460. Then all the way to 1400.

Plan:

1. I need to sit tight to do two things:
2. If it's another one time wonder on Monday (another 1-2% down), then I need to sell them all.
3. If it's just the start of the correction (5%-10%), then I need to sit tight to ride them to the expiration date.
4. How do I know if it's 1 or 2? This is up to me to decide. I think a sharp drop on Monday, I'll sell another set of positions. If it's a less than 0.5% drop, I'll sit on them.
5. I will sell when we have another 2-3% drop next week. Also I'll use VIX, ISEE, RSI numbers to help me to find the short term bottom and sell puts close to the bottom. It's a very difficult task.
6. I'll keep the short ETFs for now.

Bounce?

Today I should know better, a bounce after the sell off. Too bad I had an appointment this morning and didn't get chance to sell the puts. On the other hand, I didn't put the trigger on FXI puts as well. Market was up .6% in Nasdaq and .4% in Dow.

1. Is this just a technical bounce off 50MA on S&P500?


2. Or this is due to the Blackstone IPO tomorrow, people know we'll have a rally tomorrow?


3. Or this is due to Merrill Lynch's back away from the sale of Bear Sterns' asset it collected from its failed CDOs? Therefore, no chain reaction in the CDO market.


4. You can't use 10 year yield as a reason for rally, we had another move higher today, no impact on market.


5. I think it's just a bounce. But tomorrow, let's see if BX can ignite new interests in bulls, or a failed early rally replaced by lower close at the end.
   

Signs of more troubles ahead:

1. After market, Bear Sterns said it may take 3.2B loss on the failed hedge funds. For them, it's just a number, and market can forget about it and move on. People are getting smart now, in 1998, Long Term Capital lost 6 B and market had a sell off. Now it does not even bother the stock price of Bear Sterns?


2. But this is not a good sign for credits in the markets. More may come later.


3. And we have BX pushed IPO from June 25th to June 22. Why is that? They are very smart people, they know the market is heading lower?


4. BX's IPO may indicate the top of this round of liquidity in the market, the end of easy money. Just like AOL's purchase of TWX back in 2000.


5. Any way you look at the market, you feel like at most it has one more dead cat bounce left. But this market makes lot of experienced traders lose tons of money, so don't underestimate the strength of the bulls.

I'll be careful not to add puts. Sit and wait.

I checked the latest COT report, looks like commercials are extreme bullish, large speculators are extreme bearish, this is very unusual, indicates something will happen soon. Either it's the new beginning of an extreme rally or a sharp correction, I think we're close to a correction than a rally.

Tomorrow:

1. Market will open at the high of the day and close lower. That's my feel of the market.
2. BX will open higher, touches high early in the morning and then close lower than the opening.
3. I won't be surprised if the market rally again tomorrow, if that's the case, I missed another chance to sell early today.
   

Good

Finally we got one 1% down day in Dow, S&P500 and Nasdaq. It's good.

1. It's like a pattern since Feb.27th sell off, whenever we have a big down day, we'll have even stronger rally after that. Will this time be different? I'm sure bulls will use the dip as buying opportunity.
2. But this is the first time market failed to take out the previous high before we have a 1% down day. If you check the chart on S&P500, all more than 1% drops since March were followed by higher highs, this is the first time market failed that. We had a sell off early June and market failed to take out the June 4th high.
3. But if market rally big tomorrow, the observation is meaningless. We need a follow through tomorrow on the down side, which is hard to find these days.
4. During the June 5-7 sell off, it's the first time we have three down days in a row for a long time. But the market rallied three days in a row following that. So don't even think about a sharp correction.
5. I'll take a realistic approach this time. I need to sell puts this time when we have a 2% drop. I need to learn from previous mistakes. I need to raise cash.
6. I think I may keep most of the ultra shorts ETFs. No action today. I tried to buy FXI puts, but the limit order was not filled. It's OK, I have too many puts and short ETFs.

Two TA patterns for bears:

1. Double tops in Dow and S&P500.
2. Lower high. Market didn't get new highs before today's drop. We need lower lows than June 7th's low to confirm this.

Another flat day

Today the market was flat again, but closed in green. Now we have two flat days in a row with narrow range. It's an indication that both bears and bulls are waiting for something to happen. It can break the range anytime now, can go up and down at any time. I expect a selloff soon.

1. Because of the recent market gains and the big COT number (last Friday) indicating strong bullishness among so called "smart money", we have confident bulls. And bears are nervous, just like me, and careful not to push the button and sitting on the edge, ready to give up on any rally.
2. So the two days of indecision should be an indication of a down turn in the near future, the bulls are run out of steam, at least for the short term.
3. If most bears are waiting on the sideline, and bulls are pushing for their luck even after 6 months of strong market, then who will buy more to push it higher? It got to be short covering. And we know there are not much bears left.
4. So I think if there is a decent correction (5-10%), then I can see the bulls got another up leg left; if we don't have a correction and get a rally (5-10%) instead, then I see a big correction(10-20%) ahead of us.
5. Of course, the number can easily be reduced to 2-5%. Even for bulls, "venting" is important. It's like inhale and exhale, you can't just inhale without doing exhale.
6. Yes, we have some "venting" two weeks ago, I don't know if that's enough for another up leg. My take is no.
7. Either way, being a bear right now is not too bad. it's safer than a bull.
8. Of course, cash is the best. Since we don't know which way the market will break out next.
9. It's possible we have a flat week, then next week will be fun. The longer the narrow ranged market last, the bigger the break out it will be.

Targets:

1. I took no action today.
2. I noticed RIMM, AAPL, GOOG and AMZN all had a big down day today comparing to the general market.
3. CROX and BIDU shot up again. I'm glad I didn't add any puts on these stocks. I'll keep watching them.
4. FXI and OIH are overbought. But they can go higher.
5. GLD and GDX just bounce off recent lows, maybe in an up leg. But I think they'll follow the market lower even if we have a small correction. So won't add them.
6. Out of all major indices, Russell 2000, Dow and Nasdaq are more vulnerable than S&P500. And I think FXI and EEM are more vulnerable than domestic indices.
7. Let's see how the rest of the week play out. I still expect a lower close on Friday.

Indecision

Today's market was flat, pretty much an indecision day after three strong rallies last week. But the big momentum stocks all shot up higher, RIMM, AAPL, GOOG, BIDU and FXI.

1. Since majority of the major indices are overbought, I expect a down week to consolidate the gain for the market. Like 1-2%.
2. Housing data will be spun by bulls to push the market to all time highs.
3. Bears are in such a bad shape recently, I think we have careful bears and confident bulls right now, so any meaningful dip will be bought. But this eventually will be ended badly for bulls, when they all want to exit the party.
   
4. I don't see how the market can go higher without some "venting", but with this market, it's hard to predict.
5. I took no action today, and likely won't take any further action until the market points to me down or up.
6. Thanks everyone for your comments!

Market prediction for the next two weeks:

1. I think by the end of June, it's likely we'll be higher than it's now, the bulls want new highs.
2. Before that, this week, the market will likely to finish lower than today, to vent out some pressure.
3. If the dip does not go well, coupled with some surprise "bad news", then we'll end up with a meaningful correction, and then we won't see new highs by the end of June. I see this as a remote possibility. If that happens, we'll have double tops in Dow and S&P500, not bad for bears to find some TA support.
4. For now, I'll go with 1 and 2 as my main prediction.

Some targets:

1. I may try to buy puts on following high fliers when the market turns south, FXI, BIDU,AAPL and RIMM. CROX already went down hard today.
2. I will only buy a small position when the market turns, and these are still up big.
3. Again if enter in a good price, I think if we indeed has a 1-2% down in the general market, I can make a decent profit in these puts.
4. But these high fliers have great momentum, so rather be safe than sorry, need to pick a good spot, and need to exit quickly. Even a paper trade here won't be bad, just test to see if this is working.
5. I won't touch GOOG. It is still strong.
   

Never ever give up

Yes, I lost lot of money being short; yes, I let many chances slip by; yes, I'd be better off just investing in mutual funds or sitting in cash. I did the exact the wrong thing by being shorts and owning puts in this relentless bull rally!

1. Now is not the time to give up.
2. I can cut loss, I can change, I can reduce trading. But I will not give up.
3. I can stop trading, I can watch the market and learn from sideline. But I will not give up.
4. I need to write these lessons, document all my losing trades and post it on my computer before I do another trade. But I will not give up.
5. Maybe I don't have the talent to be a trader, but I'll try. ETFs, stocks, options. I'll continue to learn from failures and correct myself. I did lot of things right in the past, I'll build on these.
6. Sometime, I wish I'm not in the game, I wish I spend time doing other things. I spent time doing this trading thing and lost money. But I will not give up.
7. Life is a long journey, don't doubt myself, I still have time, money and energy to do something in this life. Don't give up. Don't ever give up your dream.
8. I'm not a religious person, but now, I have to have faith in myself. I know God is watching me.
9. I can't promise success in the future, I can't promise I won't lose money again in the future.
10. But I can promise I will work really hard, this I can do. There is no shortcut in life, you have to earn it.
11. I will research more on trading, I will not trade until the odds are great.
12. I promise I'll use sound money management, I will cut loss quickly.
13. I'll use good judgement and I will not be greedy and I will not be fearful of losing again.
14. Maybe trial after trial I still can't do it. I would if I could but I can't, then just give up trading as the main way to make money, and do something different in life. But I will not give up my dream.
15. I'll give myself another year till July 2008. Use current fund as a base and see if I can beat or match the market. All past losses are forgiven. I have to start fresh.
16. Try to make up the losses is one of the main reasons I became greedy and fearful at the same time: I lost good judgement. So let's use today as the starting point.
17. Trading is not gambling, it's playing the odds in your favor, it's finding the inefficiency in the market.
18. So many people in history can recover from total failure, I'm in far better shape. It's not easy, it's very difficult. But I will not give up.
19. I can work hard until I have exhausted myself researching. I can be smart and sharp in trading, don't be a sitting duck.
20. Let's try my best and succeed.

Short term

I think the last six months I lost my sense of the market by predicting a real correction instead of taking what the market tells me. God, I paid heavy price for this mistake.

1. I need to be short sighted, focus on short term trend and the bounce.
2. Common sense eventually will prevail, but nobody knows when.
3. And in last six months, so many times I entered a put positions when after another rally, and it's very profitable the next day or next few days, sometimes the same day, but I didn't take profit, I was greedy, I wanted to make all the losses back. And most of these puts ended up losing big.
4. Since I still think the market is over extended, may have a correction or sharp drop, so I need to only play short ETFs and puts for now.
5. And I need to take the money off the table if there are some profits. Really short term.
6. This market doesn't reward long term traders, or if you're long, then it's very rewarding for the last 5 years.
7. It's still possible we'll have another one or two legs up before we see a meaningful correction (10% or more), but it can start right now without a leg up. This is the beauty of the market. TA can always explain why the top is here and bottom is there, FA can always explain whay the top is here and bottom is there, only after it happens. Before that, your guess is good as mine.
8. So focus on short term, be conservative, don't be greedy, don't try to catch a big fish. A small amount at a time is a pretty good idea, if you can keep it up.
9. Swing trade is not bad idea too, even in this up trend market.
10. So many lessons, so much time, energy and money spent, but nothing to show for it. Shame on me for being numb and slow for all this time! I'm so stupid for such a long time. I still use the previous experience to guide me through, that's not enough.
11. 1999 is different, lot of people losing money by shorting.
12. 2007 is different too. lot of very smart people losing money by shorting.
13. There is always another trading day tomorrow. I'm so fortunate I still have a decent job to support my family and my bad trading record this year.
14. Hope is a four letter word, don't rely on hope. You can only rely on yourself to make money, and your read of the market and decision to enter and exit the trade are more important than your analysis.
15. Fundamental analysis, the more I use it, the more I feel like it's useless if you want to use it to make money quickly. Some times, even Technical Analysis is useless, the market is insane for the recent months, and it's not even at the crazy level as 1999 and early 2000, why can it get more crazy to push up another 10%?
16. I use common sense to value the market, yet I don't use common sense to exit a losing position and take profit for a risky position like put. This is my problem!
17. From now on, just focus on small details of the trade, focus on real short term trend.
18. I'll still use FA and TA to gain an edge, but I need to be short term oriented.
19. Over trading is another issue. I trade too much, sometimes daily. My brokerage firm makes more money than I do for sure.
20. I need to patiently wait, enter at a desired price and exit quickly if it's wrong, and also take profit quickly if I have one. Don't be greedy, small is good. Don't try to catch a 100% fish using risky options.
21. Ok, this is for me to remember.

Back to market:

1. After two days up sharply, I think the momentum is fading, tomorrow we'll like to have a pause or a down day.
2. But if the CPI number is good, I'm sure the bulls will run the shorts over again, and another triple digits gain in Dow will be a good time to add shorts.
3. Other than this, I don't like to trade. Only a crazy up day can give me a trading chance.
4. And if it's a sharp down day, I need to reduce puts and shorts.

A big rally?

I can't believe what happened today. After yesterday's sharply down day, all sectors were down, and today is the reversal of that with even more strength? Who said the market is always right? What makes the market down yesterday is not longer true today? One of them is wrong!

1. I added DIA puts today, and the one added early is already under water. I hope the market will swing back again tomorrow, a sharp down day with even stronger per cent. That will be fun.
2. I don't know what to believe. The previous three months since early March, we're in an unprecedented bull march, with at most a two down days in a row, and usually 5 to 6 up days in a row. And last week we have three days down with big volume, you got to believe it's something new, even from TA perspective, it's an indication of change.
3. But no, it just rallied right back. I still think it's just one up day in a correction, but if I'm wrong, I'm dead in the water again.
4. The things I learned are to take profit quickly, after I bought the DIA puts early today, it's up more than 20% in the middle of today, but I waited, and after market took off again, my early morning peak pick (I bought the DIA puts when it's over 100 point in the morning) became a dead fish again.
5. For now, I still think it's the start of the correction, not the end. But next two days can change this. A good PPI number will squeeze the shorts again, another good CPI number, we can talk about new highs.
6. On the other hand, we can sell off again the next two days.
7. I will reduce puts on a down day, and maybe on a rally day. If it breaks out tomorrow to take out last Wednesday's high, that seems to me is the end of this dip.
8. I'll do more research in the future than trading. Trading is easy way to lose money if you're wrong, specially if you're using sharp tools like options, a quick way to kill yourself.
9. I think the bond story is not a one time wonder, it's here to stay. The inflation is not a one time wonder, it's here to stay. And summer is here, so I don't see how can this market keep marching higher. At least, it needs swing up and down.
10. I'm keep a bearish view and will play on the short side for now.
    

10 year treasury note

So far this week, the market played the way as I predicted over the weekend. It's down 1% after a flat day on Monday. But tomorrow will be another key day, will the market keep moving lower, or the dip buyers will show up? We have economic data tomorrow to digest, but now the key is 10 year treasury note. Put things in perspective, the market is just 2-3% off its all time high, and bond suddenly rises to a level to drain the liquidity out of the stock market, from FA perspective, we have more down side to go.

1. So if tomorrow is another down day, I need to reduce the short dated puts.
2. If tomorrow is a big rally day, I'll consider to add long dated puts or short ETFs.
3. I will play the shorts and puts for the short term, until my sense of the market direction changes.
4. Dow, S&P500 and Nasdaq all point to a turn in the market, and I expect a 10% correction from the top for the short term, so rally will be used to add shorts, and sharp drops will be used to reduce shorts.
5. I will be careful, even though the global markets showed some weakness recently, Chinese stock market took off again, with bad news poured in: higher than expected inflation; natural disastrous weather in south (flood) and north (drought), and yet the market moved up more than 2% two days in a row. Talking about insanity. I hope U.S. market will not follow China's lead.
6. From the chart, the 10 treasury year note will touch 5.5% before it will take a break, and today's auction of 10 billion bond only got 11% purchases from foreign countries, and mortage companies are selling like this is the last chance to get out.
7. The 10 year note breaks out to a 5 year high today, with big volume. If it holds, it has the potential to go much higher, like 6%, that will further drain liquidity out of the stock market, so I'll watch it closely.
8. Due the high interest rates, I don't see gold and PM go anywhere, I'll wait for lower price on PM stocks in the summer.
9. Today I sold some ITM DIA puts and used about 1/2 of the sales to add some OTM DIA puts, this is speculative play, I want to cash and still have exposure in case the down turn is not over, let's see if it's a correct play.
10. Now I wish I have more cash, for traders with lot of cash, they can afford to short some of the momentum stocks like AAPL, GOOG, AMZN, CROX, and RIMM. As long as you have deep pocket, you know eventually these shorts will play out great for you. Yes, these stock can still run up another 5 to 10%, but will be at least 20-40% lower some time this year. For CROX, AMZN and RIMM, I expect at least a 30% cut.
11. But I stop playing these momentum stocks now since I've been burned in RIMM for buying puts since last November, when it's 120. Now it's 167.
12. So if you're rich, you can afford to make mistakes and still can make money. If you're poor and want to make money, be really careful to not lose money first. And don't bet against just one or two stocks, bet against a basket of overpriced stocks, you will win eventually. But who has the patient and time?

Storm

Market was flat today and it's the calm before the storm, unfortunately, I don't know if it's going up or down.

1. I positioned myself for a sharp drop (2-3%) this week.
2. But this market made me afraid of trading and shorting. To say I'm scared of shorting the market is an understatement.
3. I've been shorting since last December. I switched to PM, uranium from time to time to ride with the market, but in general, I'm on the short side for a good 7 months.
4. Now I may catch the final leg up, but do I have the money to ride it down or just cut the shorts again to reduce loss.
5. I promise, if I get the most of my money back this time, I will be really careful not to add too large a position on one or two ideas, like shorting the general market.
6. And I learned my lessons on buying RIMM puts. From now on, I will never ever short or put momentum stocks like RIMM, CROX, TASR, AAPL, BIDU. Yes, you may catch the exact peak and make a fortune, or you'll lose 90% of your money quickly.
7. Buy stocks using FA make sense, short stocks using FA will make you kill yourself several times over a short period of time.
8. On the contrary, I may need to correct myself and go with momentum stocks. This is for the future planning, for this round, let's focus on existing positions and find them good exits.

Keep it simple

The market rallied back on Friday, but I think the down turn is still intact, if we have a follow through next week. S&P, Dow and Nasdaq have not broken the long term up trend, but they're just not the same as before. Check any one of these charts, you think it's more likely we'll have a down follow through than a rally back to up trend.

1. Even for the long term bulls, some "venting" is good for them. Like I said during the Feb. mini correction, 10% correction is normal, now the S&P was down maybe 2.5% from its all time high. So even this is a correction, we have 8%-13% left to go.
   
2. Even the Feb. correction is about 8-10% for most of the indices, so we're not there.
3. Then, there is a possibility this is just a small dip during the bull run, but if you check the charts since March, this is the first time we have three down days in a row.
   
4. And we continue to have bearish MACD for major US indices; and higher price on lower volume; and higher volume on down days, etc.
   
5. And we enter summer, the slowest time for stock. M&A activities have run its course, now we're near the end of the deals. And of course we have still have a few large deal coming on Monday, which is what bulls hoping for.
6. But just like in 2000, some large deals came at the end of the run, not the beginning of the run.
   
7. Like I mentioned a few week's ago, year 2007, we'll likely to have worse than average weather patterns cross the global, and that will not do well for the stock markets in general.

My action on Friday and Thursday:

1. On Thursday, even I think the chance that we'll have a bounce on Friday was pretty good, I didn't sell most of the shorts and puts and reenter at a better price. I want to keep it simple, once you're moving to catch small bounces, you'll get burned.
   
2. Use recent pattern (rally after each dip), I should sell existing shorts after first big drop; then after 2nd big drop. But this time we have three days in a row. If I sell the short, what if there is another big drop on Friday? Then I can't reenter shorts.
3. But on Thursday, I sold IWM's puts, and on Friday, I bought it back at 15% lower, and that's not even the best price of the day.
4. So the point is, keep overall idea as bearish, and if I have three day down in a row, at least took some positions off the table, and can add back if there is a rally, and if there is another down day, then I still have some positions left.
   
5. I added IWM and QQQQ puts again on Friday, not even at the best entry price since I added them too early. But spread the positions over time will reduce the cost for sure.
6. Also added SDD on Friday, it's the ultra shorts on S&P600 small caps. I think it will perform worse than Dow and S&P500 during the down turn, so switch to small caps short is more rewarding if we indeed have a correction.
   

Next week:

1. It's option expiration week, so we may have some ups and downs, and I hope it will be another down week just like last week.
2. And I will add small puts on rally, and reduce puts on sharp falls. This is the idea, very difficult to time the entry and exit. But as a rule, three down days, you got to sell some puts to protect profit; and three up days, you got to buy some puts to get better entry.
3. Of course, real time trading will be far more different than what I discuss here, and all these are based on the idea that the market will turn lower in the this month, and summer. If this is wrong, then the whole idea is wrong, so still keep it simple an keep watching the market.

Last week is different than Feb drop:

1. It started small, and we have three down days with larger than normal volume.
2. On Feb.27th, we had a big drop and huge volume.
3. I think this time, it's more likely a real turn for the market than Feb.27th. Usually the market top for a slow and long lasting bull market like this one (Oct.2002 to June.2007) should be a slow and small drop first, not a volatile one like in 2000. In that sense, last week is more a sign of topping than Feb.27th.
4. ^VIX certain pick up last week, and if bond continues to drop and push the yield higher, then we'll have a big fundamental factor that's not price in the market.
   
5. The possibility of another great rally now is very small, and possibility of a real correction is higher than 50%, I think.

Market prediction:

1. A down market early next week, I think the selling will resume in force.
2. Depends on the economic news and market reaction, we may have a selloff (2% or more) during next week, and then we'll have another rally after the selloff, towards the end of week.
3. In general OE week will expand the previous trend in a volatile way, so let's see if this hold true or not. Either it will enforce the main trend, which is up since March; or it will enforce the short term trend, which is set last week on the down side. I think it will enforce the latter.
   

Another lesson

Today is a great day for me, since most of my positions are puts and ultra short ETFs. The only thing bad is I sold my June puts one day early, otherwise it's a great profit instead of loss.

1. The lesson I learned today is to stick to your gun at the end.
   
2. When I'm fully in shorts and puts early April, and market went up, I should cut loss. I didn't.
3. And in May, when I finally reduced shorts and added longs (ONXX,EMU,URZ,LVS), I really lost twice. Only EMU and a portion of ONXX were profitable. Others were losers.
   
4. And the QID, DXD and TWM I sold in May are all coming back to life after three down days!
5. This tells me what the bulls can do, they forced you to doubt yourself, to change, and then when it finally comes, I'm in the wrong footing again.
6. I didn't 100% switch to long, actually, I did a decent job to continue to hold a big size of the ultra short ETFs and puts. I gave me credit for that.
7. But because I tried to play two sides of the game, it confuses me and significantly reduce the chance of making money.
8. I'm not out of the wood yet. The market may bounce back hard, maybe tomorrow, maybe next week. The buying of dips is still the game until it's totally broken. We're not there yet.
   
9. So now is still a time to be careful and sell short ETFs and puts if the market down sharply again.
10. And we may have a black Monday coming, depends on worldwide situation, the 5% yield may do more harm to dollar than good. Because all world economies are overheated and rising rate is here to stay for a while, and Feb may need to keep the rate unchanged to save housing market, so this will force US yield to go higher to compete with other countries, this will form a cycle to bring down the US market.
    
11. Monday is usually the day people figure thing out. And June 11th maybe the black Monday of this decade. But again, I called a black Monday a while back in this blog, looks stupid. Just because the market was off doesn't mean the end of the world. Until the liquidity is out of this market, I don't see this to happen.
12. Rising yield is one way to get liquidity out, but it's a slow process.
    
13. Another one to crash the market for good, of course, another terrorist attack, which is still a possibility since the world we're living now is not safer than 5 years ago, thanks for our failed foreign policy.
    
14. But this maybe just another Feb.27th, another buying opportunity for bulls, but I think this time it's real. I expect at least a 10% correction in S&P500. We're just 3% done.
15. But what do I know, all the readers are gone and there is no comments recently, which is good. Now I'm alone.
    
16. I will not sell short ETFs and puts until early next week, to give it chance to run, unless we have a sharp drop at the beginning tomorrow morning, like another triple digit loss on Dow.
17. Now is still the time to buy short ETFs on rallies and sell them on big down days.
18. And hopefully, this time I can get all my gold and PM stocks back at much lower price.

Today's action:

1. Added DIA and QQQQ puts.
2. Sold IWM puts at the end of the market close.
   
3. Added TWM again.

What's next:

1. To be nimble to sell on strength and buy on weakness, I mean short ETFs and puts.
2. To have guts to sit against one or two big rallies.
3. Of course 1 and 2 contradict to each other, and I need to do both of them right to a certain degree to make money in the down market, if finally, we get one.
   

Another down day

It's rare since March we have two down days in a row. And Nasdaq could not hold today, down with the rest of the market. But AAPL and GOOG provided great support to make QQQQ better that it should be. Dow down 1% and Nsadaq 0.9%.

1. Even though I really hope it will have a follow through down day tomorrow, recent lessons forced me to take some actions today.
2. Sold rest of the ONXX today. Now I only have some URZ left, and my exit of EMU yesterday was great decision too.
3. I sold my June puts, they are still worth some money, and if I don't exit and the market comes back tomorrow, I'll regret again.
4. I added SDS today. I bought SDS early this year at 60, sold at 56. Today I added again. Hopefully this time it's not too early and I can catch the fall.
5. I don't feel well after I sold my June puts, because they're all losses, and they can appreciate a great per cent if the market continues to fall. But that idea is based on hope, so I sold them. I still kept the puts I added yesterday.
6. Continue to play the short side, and exit positions quickly if it doesn't work.
   

Poor bear

Today the market closed down in red, but if you monitored the market action, the bulls came back strong, with Nasdaq barely down. This is of course, after Dow, S&P500 and Nasdaq were down 0.9% at one point. Poor bear, can't get anything going.

1. I slowly but surely switch to the short and cash side.
2. Sold half of ONXX and URZ, sold all EMU today. Still like URZ long term, and ONXX can be a big winner if the trail of its drug is successful on other cancers.
3. Added QQQQ puts and IWM puts again today. It's not a big position, want to do it over a certain period to average the price. This, of course, is based on the idea that short term market is at risk of a sharp correction.
4. Curt added some comments on timing the market, it's really hard to do that, anyone who correctly predicts the market tops and bottoms has more luck than skill.
5. Let's see what summer brings to the market, if they are going to take profits, it should happen within the next few weeks.
6. China's bubble vented some steam out. The fact that most of global markets are at their all time highs, and the action in China tells me first sign of the top, most likely a few months away before we see major correction.
7. If we do see a correction now, I think it will be bought by the bulls.
8. It's tough to be a small bear in this big bull market.

What's next

I'm very glad I took a vacation, otherwise I may lose more money for being short again. The market is very strong now, Chinese market crash has no impact, bad news is good news for the market. And many shorts think the market may take a short break, so they add shorts recently, get burned again.

1. I'll change my trading from now on, to correct my mistakes since March.


2. I will trade less, trade small and do more short term trade (like one or two days) until I find my touch again. Many of the puts I added recently was a winner for one or two days. If I sold them, I would not be in such bad position now.


3. Recently I wanted to make gain to cover my losses, and then the market went up again, so I lost more. It's a very bad idea.


4. Let's try single instead of home run. That's my new trading rule no.1.


5. And it's not a shame to lose money in this market, many great traders got burned this time.


6. As long as I learned something from the market, it's not waste of time and money.

So what's next?

1. I have to trade based on some simple idea. So the question is, what's next for the market?
2. If I can answer this right, then I can make some money; if I'm wrong again, I will lose money.
3. And money management can reduce the losing amount, which is critical for me.
4. I think the market is at an unstable point, that it may break out again for one last 'insane' push with shorts covering their positions; or it may break down significantly. I put these two cases at 45% possibility each. And there is small 10% chance it will trade in a small range.
5. Since the market is in such an unstable stage of a late bull run, I think even when it breaks out, it will have sharp drops along the way; even when it breaks down, it will have sharp rallies along the way. So if I trade correctly, then I need to take profit quickly to wait for another better one.
6. That's the main trading plan for me.
7. The two long positions ONXX (cancer drug) and EMU (bought by another uranium company) did OK today, so these two longs are in winning position. I'll keep a tight stop on them to protect the profit.
8. On the puts and shorts, now is time to give them some room, and sell them when there is a break, don't need to make all the money back, just need to get as much as possible.
9. My main positions are cash and shorts, I'll keep it this way for now.