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.