Take a break

I won't trade for a while, maybe a month, maybe more. I'll take a break. Look to get back if the market indeed crashes in October. I lost huge amount of money and now I need to review my process, I hope to make a comeback, but with the way things went the last few months, I may not be able to come back. In that case, good luck to you all.

1. Money management is the most important thing in trading. I failed miserably in this.
2. Don't trade options unless you consistently time the market right in stock. I failed miserably in this.
3. I feel ashamed of myself, the way things went the last few months.
4. I feel more ashamed that I feel ashamed of myself.
5. Good luck to your all.

Defeat

I was defeated again by my reckless decisions of using options and holding these options against the tide. Now I need to go back to basics of trading, just use ETFs and stocks, and I won't run against the time.

1. Market was higher again today, I sold last index puts for huge loss again.
2. I think the market will likely pullback tomorrow or Friday. FXI is a great short target. Most home builders shot up higher 5% early today, to only lost more than 5%, HOV is an example. So the shot in the arm (rate cut) is over.
3. Tomorrow we'll have GS number, can get better look into the impact to investment banks. In the end, it's the earning that decides the market direction, not Fed rate cuts. And earning depends on economic cycles.
4. On the long side, I like GLD,SLV and GDX.
5. Oil is a wild card.
6. Since Fed will add liquidity to the market and encourage reckless traders, momentum plays like RIMM, AAPL and BIDU will have more upside to go, until they can't go up any more. Hard to predict a top.
7. So I'll wait on the long side if not feel comfortable to short. Nothing wrong with that.

A famous saying: in order to become the great, you have to be defeated, embarrassed by your mistakes; then you'll learn from it and become the great. Now, at least I have the first part in place. I just need to learn from it.

What a joke

1. WTF wrong with me?
2. Market rallied almost 3% today on Fed's 50 bps cut.
3. The Fed had said in its previous three statements that inflation was the main concerns. Now they started to unleash the gate of stagflation.
4. We should have a short term rally, very likely to all time high.
5. We will have a recession and inflation: inflation is already here, if you eat and drive; recession maybe here already, if you try to sell a house.
6. The Fed rescued risky investors today, nothing more and nothing less, with market only 4% from all time high before the announcement, after today, it's only 2% from all time high.
7. You never see a crisis this close to the top.
8. Gold and precious metals, commodities are places to be. The bubble goes on, maybe last into 2008. But after that, we'll have a long bear market.
9. Fed's decision is to make the bubble bigger.
10. If you're not taking the riskiest asset in the market, you're not trying.
11. I am so stupid to trust the Fed will honor the value of dollar, now I think dollar will be worthless in 10 years.
12. From now on, I will not play options, I will drastically reduce shorts.
13. I lost my right to play these risky positions.
14. I have to beg for forgiveness for my gambling spirit and the mistakes and pains I have caused.
15. If nothing else, I will be a better person in life, I will learn from these mistakes and walk away from gambling.

I will play three patterns in the future:

1. Extremely oversold conditions and extremely overbought conditions.
2. New highs.
3. Long term fundamental plays.

Give up

I started to liquidate some of my put positions at great loss today. For the rest, will do 1/5 each next week. Bulls, you win, I give up.

Friday and next week

Today the market was strange, very strong out of the gate, but previous strong Nasdaq faded quickly, Dow was the strongest index, with GM and MCD did the most up lifting. Dow was up 1%. Another very painful day for bears.

1. IWM and MDY were weaker than QQQQ, which was weaker than SPY, which was weaker than DIA.
2. Today's wonderful news: CFC secured another 12B credit line, the news lifted the market spirit. Is this their last decisive move?
3. Sector rotation again today. The previous leader, like tech, was weak and previous laggards, like financials, were strong.
4. I checked retails (like BBY) and financials stocks, both sectors were down more than S&P500 in recent months. Looks like the smart money already know we're either heading to a recession or a meaningful economic slow down.
5. Unless we have other "wonderful" news tomorrow and next week, I expect a mini bounce at the best, and then we head lower to test 1430, maybe the August low.
6. With this market, with the Fed, I have to say I'm still clueless. Multiple indicators are pointing to a pullback as well, let's see if the market can fool us again.
7. GS, LEH, BSC and CFC all shot up a great percent today, very much a strong bounce on a down trend. All are good short candidates, but better wait after Fed and their earning releases.
8. You don't want to catch the top or bottom, but want to sacrifice some profit to be on the safe side, I was careless in this regard. By waiting, you can avoid lot of mistakes, like being totally wrong.
9. Why do I have to play options, there are two things against me: the stock's movement, and time. Time is running out quickly if you place the wrong bet in options.
10. Fed will cut 0.25%: it won't show too much weakness in the economy; and it won't put too much pressure on the dollar. The market will likely sell off. This is the most likely outcome.
11. Thanks Ryan and Curt for your comments and ideas.

The spirit is willing, the flesh is weak

I was very surprised the market held very strong today, on top of yesterday's strong showing. You thought a patriotic rally and no bad news yesterday therefore we rallied, today, here were the high line news, you thought the market would give up some gains, but it finished strong (flat) today:

1. U.S. dollar hit all time lows against Euro. So a Fed cut will put further pressure on the dollar, therefore not good for dollar based assets, including U.S. equity market and bonds. Falling dollar is one of the factors behind the 1987 Black Monday crash.
2. Oil hit all time high, over $80 for the first time. So that's inflationary, energy happens to be one of the non-essential items (another is food) Fed excludes from calculating core inflation. So we don't have issue there.
3. Signs of credit problems re-emerged as Barclay's (BCS) was reported to inject $1.5 bln into a third fund, Golden Key. Late in the day, however, Citigroup (C) attempted to calm investors’ concern by issuing a statement that their subprime losses were declining.
4. NY Post, Countrywide seeks more capital, taking decisive steps to ensure future "growth"(or survival). I thought they already took decisive steps a few weeks and days before: taking full 11.5B line of credit; 2B equity investment from Bank of America; cut 12,000 of employee(1/5 of total). And now this? Remember, it's price was at $16.6, below the $18 Bank of America paid for the 2B. And CFC only covers one of every five mortgages in US.

But I was dead wrong and bet against the tide:My recent actions in the market. I felt clueless about what's driving this strong U.S. market, only 5% off all time high in S&P500!?

1. Maybe the article about Patriots spying on Jets is right, the U.S. market is also filled with cheating activities, for these of us who are clueless, we'll finish last: If you're not cheating, you're not trying
2. Maybe Fed cured all the issue that can trigger another black Monday:Black Monday 1987
3. If the Fed cuts enough (50 basis points), good for equity market, what about dollar?
4. If Fed doesn't cut enough (25 basis points), what about the price already in the market?
5. Fed is cornered between a rock and a hard place.
6. Still I have no one to blame but myself, I thought I knew something about market, I learned the history and past patterns about the market.
7. But like Churchill once said, the only thing we learned from history is we don't learn from history.
8. I should know better.

9-11

It's been six years. Now we have:

1. A failed war in Iraq that cost more than 3700 U.S. soldiers lives, more than these killed by 911. And the top general was reporting to congress today, on the "grave" situation in Iraq now.
2. bin Laden is still alive and just issued two videos to mark the anniversary of 911, after president Bush vowed to get him "dead or alive".
3. The market was up 40% since 911, with interest rate was cut to 1% to jump start the economy,and then raised to 5.25%, and a housing bubble was born and started to burst.
4. The market was happy about the first cut in interest rate next week and market closed up more than 1.4%, within 5% of all time high.

I hope you find strength and peace in this special and sad day. We can all make ourselves better each day since we're the lucky one to live in this great country.

A wild day on Wall Street

Volatility returned to market. Today Nasdaq opened higher with 20 points gain, then sold off after the open, at one point, down more than 20 points, then slowly it climbed up, and 30 minutes before close, Dow was up 90 points, and Nasdaq was up 10 points. Last 30 minutes, All indices went down fast, Dow is the only one finished in green with 14 points gain, and Nasdaq down 6.

1. Since the last hour was controlled by funds, I think the selling into strength is still the game in town.
2. The market could not hold the modest gain after open, after Friday's 1.9% sold off in Nasdaq, telling me traders were nervous.
3. The economic news are not as good as people hoped.
4. From TA perspective, the test of August low looks more promising than ever.
5. Let's see if bulls can keep this market from tanking before Sept.18th.
6. I think we'll likely see a drifting lower before the Fed. But with this market, you never know.
7. I need to take off some puts when market sell off again. Today I was about to sell, but the limit order was too high and it's not triggered.
8. My target is 1430, then 1400, and then 1370. These are supports.
9. On the upside, 1460, 1490 and 1510 are resistances. Today S&P again failed the 200 MA. It failed 50MA last week. The 400MA is 1380.

Jobs number

August payrolls fell 4K, first drop in 4 years. Market expected an increase of 112K. And July's number was revised down from 92K to 68K, and the most surprise of all, I kid you not, was the June's number was revised down from 126K to 69K. Nasdaq and Dow were off 1.9% and S&P 1.7% to 1453.

1. Most traders were expecting a rally after weaker jobs number, but not this weak! If we revise the number down again next month, we can have another 100K less job than we thought, I hope not.
2. If you add these three months numbers together, we have 200,000 less jobs than the market expected in three months. We have every indication that this economy is heading to a recession.
3. Hank Paulson said he was not surprised and was confident strong growth in the later of the year, wow! Nice spin.
4. I think the reason we don't have a panic sell off is the rate cut. Traders think we may get 50 basis points rather than 25 basis points rate cut on Sept.18th.
5. Like I said yesterday, the rate cuts won't make a difference in terms of asset bubble and major economic cycle.
6. We should see August low before Sept.18th, barring a surprise Fed cut next week, which I think is highly unlikely, since that shows Fed is panic and rescues a market still within 6% of all time high.
7. This week I did pretty well by holding these losing put positions, knowing it's likely to have a down day like today soon. Mental toughness is very important! My problem is too early, this is another area I need to improve.
8. Good thing I added puts on Wednesday, which lowered the average of my cost.

Next:

1. My first target is 1420-1430 area, then 1400, and then 1380. I think 1380 is a very likely September target.
2. If the market drop too fast, I'll consider take some puts off the table.
3. I won't be surprised the market sell off hard if we only have a 25 basis points cut on Sept.18th.
4. We have a 20% drop from high in 1998 and 36% drop from high in 1987. And some considers today's condition is worse than 1998, so don't be surprised we have another 15% to go on the down side.
5. If we do have a 20% correction, S&P500 will be at 1250; and 30% drop S&P 500 will be at 1090.
6. On the other hand, the market can make sideways and push higher if the economy is indeed strong and all the issues are turned out to OK, which I think the probability is less than 10%.

Storm is coming

The market marched on, with Dow and S&P500 up about 0.4%. ECB and Fed again injected 57B and 31B respectively into the system. You wonder what's going on. And yet market marched on, thinking a tiny 0.25% drop in U.S. rate will cure all!

1. Housing market shows the worst is yet to come, with more than 2M home loans to be reset to higher rates in 07 and 08.
2. Credit crunch is at its early stage. Libor climbing for 11th straight session to fresh 7-yr highs, this is just one sign of credit crunch.
3. ISM show economic activity is stronger than people think. Why Fed should bail out risky investors?
4. We are down less than 5% in S&P 500, considering all the issues we have, and hedge funds are begging for a rate cut!
5. And tomorrow's job report will play a role to assist people to predict on how Fed will move.
6. I think regardless how Fed will move, we have serious issues here, it won't be cured by Fed cutting rates.
7. The asset bubble across the global can not be cured by a rate cut. It has to be readjusted. Like all the bubbles in history. If anything, rate cuts and liquidity can only make things more painful in the end. Just like the internet bubble we had in 1999, Nasdaq went from 5000 in 2000 to 1100 in 2002.
8. So we'll have two paths to current asset bubble:
9. We have a correction near term, and maybe a short bear market to work out the overheated asset bubble. Market may go down 20% in this case.
10. Or the market marches on to create even bigger bubble, because the Fed will bail us out. This in the end, will create even longer and deeper bear market. Market may go down 50% if we have another rally to all time high from here.
11. So let's trade the market as the best I can, and knowing the first major move (20%-50%) is on the down side. Just don't know when and from where.
12. Gold and PM broke out today. I think they'll go down with the market. So I wait.
13. VIX again showed there are lot of risks in the market. And I think something is up. A storm is coming. Let's be careful on the long side, and continue to add on the short side.
14. And I'll focus on short term plays. Now I'm leaning to short.

Timing of Apple's upgrade

Sometimes you have to wonder the timing of wall street's upgrade. Yesterday, Piper Jaffray raised price target on Apple to $211 citing strong iPhones & Macs. Yesterday, AAPL was up 5 to 144. Today, AAPL was down more than 7 to 136. You think Wall Street analysts are doing a great job?

1. Like Jesse Livermore knew this wall street operation 100 years ago, we have the same thing now. Pump and dump.
2. Today finally market was down. And I added QQQQ puts.
3. But just like last week's big drop on Tuesday, we had a strong bounce the following few days. For bears, we need a follow through, otherwise, bulls will run bears over again.
4. All the factors I mentioned in the last few blogs are still valid, we're on the edge to a test of lows (1400 or 1370 for S&P500).
5. Both Dow and S&P failed 50MA today. But if there is no follow through, the bulls can push the market higher yet again.
6. I'll watch S&P500 1460 and 1490 areas, if we break out the range, we'll likely have a decent move on the upside or downside.
7. I happen to think we'll test the low in the near future.

Be strong

In order to become a good trader, you have to be strong and you have to know that losing is part of the game. It's how you handle your losing positions that determine your performance as a trader. I didn't handle this well recently. Since I was wrong last Wednesday, I just held these positions and hoped it would go my way, and sometimes I was scared enough to almost sell these positions. I need to have steel nerve to hold positions. I will sell not because I'm scared, but because I'm wrong, there is a big difference between these two.

1. The market went up again today, which is a surprise to me.
2. The volume is light, indicating some traders are not returned.
3. And twice trading days in a row, we sold off about 0.5% at the end of last 30 minutes, indicating the "smart money" is selling into strength.
4. Dow and S&P are sitting right above the 50MA. A break above is telling people to join the party.
5. All the credit issues are still there, housing market is weakening, economic activity is weakening, and people are calling the bottom is in, Fed will cut.
6. Today several analysts upgraded tech companies like AAPL and YHOO, and the rotation to tech is very strong recently.
7. So what does this market telling me?
8. Rally on light volume, market rise on bad news; sector rotation; selling into the close.
9. I think lot of hedge funds are still waiting to dump shares to raise cash. How can they do this to get maximum out of their positions?
10. September is the worst month in stock market, and we rallied big today on weaker economic news, because people think Fed will be free to cut based on weaker economic data.
11. I think hedge funds need some pumps and upgrades to unload their shares. This is part of wall street operation.
12. And 1490-1510 are strong resistance in S&P500.
13. And my indicators are again telling me it's time to add shorts. But I won't, since I made mistake to be shorting too early, now I need to enter on better price.
14. Regardless what methods you're using, need to be flexible and learn quickly. But most importantly, I need to be mentally strong enough to be a good trader. You make your own luck.