Why Stop Loss Should Be Part Of Your Trade

I played MR again, trying to short it below $40, since it was a pivot resistance point. Confident from my previous short attempt i was hoping for a repeat. I shorted 600 MR @ $39.99. This was exactly the same trade i played earlier. However the only difference this time was I decided to short more of MR if it went up, due to the fact that it wont hold 40+ for long. (since it couldn't hold it in the morning too). My next short entry was 600 MR @ $40.29 (making my average 1200 MR @ $40.14). This plan turned out to be a horrible trade because that meant I didn't setup a stop loss. With no stop loss in play i was left vulnerable to any spike up. This is exactly what happened. In the last hour of trading MR took a bounce from $40.10 to $40.82 leaving me angry at myself for not putting a stop loss and cutting short my loss.

At this point I had to 2 options, to hold my short overnight and hope for a drop or to cut my losses and run. Overnight positions are very tricky and can sometime lead to huge loss. I decided to cut part of my loss and covered 600 MR @ $40.60 leaving 600 MR overnight. Really silly trade caused me $450 loss. Yikes !!

Rule: Always play with a stop loss.

Some Trades Work Just Awesome

Pacific Sunwear of California, Inc. (PSUN) played out exactly the way I had planned it. It feels awesome when it does.

I sold PSUN at $9.51 with a profit of 6.5% (my entry point was $8.93) in 2 trading days.

Woohoo....

When Is It Not A Good Time To Short

Chico's FAS Inc. (CHS), a specialty retailer of casual to dressy clothing and accessories, reported lower first quarter profit due to a decline in sales. The company continues to expect negative comparable store sales and lower earnings for the first half of 2008. Net income posted by the company plunged to $12.7 million, or $0.07 per share, for the first quarter from $47.2 million, or $0.27 per share, a year ago but beat analysts' estimate of $0.06 per share. Net sales for the quarter declined 9.6% to $409.6 million from $453.1 million reported for the same period last year, reflecting a 17.5% decline in comparable store sales. Fifteen analysts estimated revenues of $416.58 million. For the first half of 2008, the company continues to expect negative comparable store sales and expects to have lower earnings than the first half of 2007.

The fact that the company beat estimates made the stock spike more than 12%. However i believe this is a bogus rally. That said, shorting on the first day of a big spike up is not always a good idea.


The reasons being

1. 11% shorts will start covering. This short squeeze might take the stock higher.
2. This upswing can lead to change of sentiment among investors bringing in more buyers.
3. The stock sits very close to 52-week low making it a safer long bet in terms of risk/reward.

Knowing this fact i stayed away from shorting CHS. However after the initial spike from $7.50 to $8.15 in less than an hour, CHS saw a selloff. It dipped to $7.91. I expected it to crack down and i shorted 1000 CHS @ $7.93 only to see it go up again ending at $8.14. I covered 500 at $8.09 with a loss of $80 and holding 500 overnight hoping it slides back.

Ideally I should have not played CHS today like i earlier stated. Until all the buyers dry out and start selling and the smart short sellers jump in, its not a safe short.

Rule: Never short a stock on the first day of a big spike.

WatchList For 28th May 2008

Watchlist for Long Entry


Watchlist for Short Entry

Why Am I Playing Lousy Retailer

Pacific Sunwear of California, Inc. (PSUN) is a specialty retailer focused on action-sport inspired casual apparel, accessories and footwear designed to meet the needs of active teens and young adults.


I am playing PSUN, purely on technicals. PSUN formed a bottom during the month of Jan 08 at $8.87. After a lousy earnings PSUN hit $8.82 again on 23rd May 08. This could be a pivot support point and possibility of a double bottom. I might be completely wrong and the trade might turn out a horrible one. But in terms of risk/reward it looks lucrative even though the fundamentals are against it. Fundamentally PSUN posted a wider first-quarter loss of $37.1 million, or 53 cents per share on lower sales and a charge related to the closure of a facility. However the loss was in line with analysts' predictions. Technically PSUN is oversold and the following indicators show that.

Current RSI = 24.46
Current MFI = 14.58
Current Slow Stochastics = 4.59

Entry Price = $8.93
Exit Price = $9.43 (Meaning a 5.5% profit)
Stock Price = $9.14 (Up 2.35% for now)

Why You Need To Be Patient With Your Trade

Trading takes alot of discipline. Good traders always make a set of trading rules and stick to it. They have already calculated their exit positions even before trade entry. Planned trades always work out better than no-exit strategy trades. That said, most traders always end up breaking their own trading rules. More often traders will lose money or make a smaller profit by breaking those trading rules.

One key ingredient to be a successful trader is to be patient. Patience pays off sooner or later. I didn't bank much profit on the following trade because i broke my own rule and lost my patience.

Mindray Medical International Limited is developer, manufacturer and marketer of medical devices in China. The ticker symbol is MR.



As you see, MR has strong resistance at $40. Knowing this fact, I entered a short position at 39.95. (1000 MR short @ 39.95). I expected it to crack back to lower 39's by afternoon. However from 11.30 am to 2.30 pm MR was trading absolutely flat making it an extremely boring trade. I had planned to cover at $39.05 for a $900+ profit with a stop at $40.15 just in case it broke the resistance. Turns out 3 hours of flat trading made me lose my patience and i covered at $39.90 with a lousy gain of $40 after commission. Just 2 minutes later, MR cracked. It cracked below $39. This would have made an excellent exit....

Rule: Be patient with your trade.

Bearish Engulfing Pattern

A chart pattern that consists of a small white candlestick with short shadows or tails followed by a large black candlestick that eclipses or "engulfs" the small white one.



As implied by its name, a bearish engulfing pattern may provide an indication of a future bearish trend. This type of pattern usually accompanies an uptrend in a security, possibly signaling a peak or slowdown in its advancement. However, whenever a trader analyzes any candlestick pattern, it's important for him or her, before making any decisions, to consider the prices of the days that precede and follow the formation of the pattern.

Lets take a look at few current charts to predict future movement.

Cardiome Pharma Corp. (CRME) is a drug research and development company focused on developing drugs to treat or prevent cardiovascular diseases. Bearish engulfing pattern is formed on this stock today. This makes CRME a short-term short candidate.

Current Price: 9.20
Target Price: 8.80

























Packaging Corporation of America (PKG) is a producer of containerboard and corrugated products in the United States. Bearish engulfing pattern is formed on this stock today. This makes CRME a short-term short candidate.

Current Price: 25.32
Target Price: 24.00

























Source: Investopedia

Trade Tips For 7th May 08

RSI = Relative Strength Index
Slow Stoc = Slow Stochastics
MFI = Money Flow Index

S1 = 1st level of support
S2 = 2nd level of suppport

R1 = 1st level of resistance
R2 = 2nd level of resistance

U.S. Pending Home Sales Probably Fell in March for Second Month

Bloomberg has latest story about US Pending Home Sales: U.S. Pending Home Sales Probably Fell in March for Second Month

Fewer Americans probably signed contracts to buy previously owned homes in March for the second consecutive month as falling prices and tougher loan rules discouraged buyers, economists said before a report today.

The index of pending home resales fell 1 percent after a 1.9 percent drop in February, according to the median forecast in a Bloomberg News survey of 30 economists.

The glut of unsold properties is driving down home values, while rising defaults on subprime mortgages have prompted lenders to restrict access to credit, representing more hurdles for buyers. The slump in residential real estate may persist for much of the year, hurting economic growth.

....

Recent reports indicate the worst housing slump in a quarter century is far from abating. Purchases of new homes plunged in March to the lowest level in almost 17 years, while the median price fell the most in almost four decades, according to the Commerce Department.

Sales of previously owned homes fell in March for the seventh time in eight months, according to the Realtors' group.

The pending resales index is considered a leading indicator because it tracks contract signings. The existing-home sales report reflects closings, which typically occur a month or two later.

....

Home values fell 7.7 percent in the first quarter to the lowest level in almost three years, according to Zillow.com, an online real estate data provider. Zillow also estimates that almost 52 percent of owners who bought homes in 2006 now owe more on their property than it is worth.

.....

Access to credit is also shrinking. The share of banks making it tougher for companies and consumers to borrow approached a record in the past three months, according to the Federal Reserve's quarterly survey of senior loan officers issued this week.

....

The fallout from the housing downturn is spreading. The world's biggest banks and securities firms cut a combined 65,000 jobs in the past 10 months as mortgage losses and writedowns for financial institutions reached $319 billion, according to Bloomberg calculations.

I believe we are still not out of the woods. The current rise in the stock market seems like a short term uptrend in the bear market. Such violent rallies are very common in the bear market. These are opportunities to lighten up on long positions and slow start entrying short positions.

Trade Tips For 6th May 08

All of the following are trading tips for 6th May 2008 only.

Short Entry

1. Big Lots, Inc. (BIG) through its wholly owned subsidiaries is a national broadline closeout retailer.
2. AmeriCredit Corp., (ACF) is an independent auto finance company.
3. Corinthian Colleges, Inc. (COCO) is a post-secondary education company in the United States and Canada, with more than 62,115 students enrolled.
4. YRC Worldwide Inc. (YRCW) is a holding company that through wholly owned operating subsidiaries offers its customers a range of transportation services.
5. Capital One Financial Corporation (COF) is a diversified banking company focused primarily on consumer and commercial lending and deposit origination.
6. Focus Media Holding Limited (FMCN) operates out-of-home advertising network in the People’s Republic of China using audiovisual television displays, based on the number of locations and number of flat-panel television displays in its network.
7. Lennar Corporation (LEN) is a homebuilder and a provider of financial services.

Long Entry

1. CF Industries Holdings, Inc, (CF) is a manufacturer and distributor of nitrogen and phosphate fertilizer products in North America.
2. VympelKom OAO (VIP) is a Russia-based provider of wireless telecommunications services in Russia, Kazakhstan, Ukraine, Tajikistan, Uzbekistan, Georgia and Armenia under the Beeline brand name.
3. Kinross Gold Corporation (KGC) is engaged in gold mining and related activities, including exploration and acquisition of gold-bearing properties, the extraction and processing of ore, and reclamation of mining properties.
4. Silver Wheaton Corp. (SLW) is a mining company with 100% of its revenue from the sale of silver.
5. MEMC Electronic Materials, Inc. (WFR) is engaged in the design, manufacture and sale of silicon wafers.
6. Evergreen Solar, Inc. (ESLR) develops, manufactures and markets solar power products enabled by its String Ribbon technology.
7. Domtar Corporation (UFS) is a manufacturer and marketer of uncoated freesheet paper in North America

Trade Results From 5th May 08

Trade Results From 5th May

Short Positions
Stock Price Yest Price % Change
BIG 27.78 28.31 -1.87%
ACF 14.29 14.49 -1.38%
AAPL 184.73 180.94 2.09%
LFC 67.75 68.29 -0.79%
COCO 11.34 11.36 -0.18%
YRCW 18.00 18.56 -3.02%
AUO 20.14 20.35 -1.03%
XLF 27.23 27.71 -1.73%
COF 55.40 55.23 0.31%
FMCN 39.66 38.48 3.07%

Long Positions
Stock Price Yest Price % Change
WFR 63.89 65.37 -2.26%
KGC 19.72 19.00 3.79%
ESLR 8.37 8.43 -0.71%
SLW 13.64 13.27 2.79%
UFS 5.92 5.92 0.00%

Trade Tips For 5th May 08

All of the following are trading tips for 5th May 2008 only.

Short Entry

1. Big Lots, Inc. (BIG) through its wholly owned subsidiaries is a national broadline closeout retailer.
2. AmeriCredit Corp., (ACF) is an independent auto finance company.
3. Apple Inc. (AAPL) designs, manufactures, and markets personal computers, portable digital music players, and mobile communication devices and sells a variety of related software, services, peripherals, and networking solutions.
4. China Life Insurance Company Limited (LFC) is an insurance company in the People's Republic of China.
5. Corinthian Colleges, Inc. (COCO) is a post-secondary education company in the United States and Canada, with more than 62,115 students enrolled.
6. YRC Worldwide Inc. (YRCW) is a holding company that through wholly owned operating subsidiaries offers its customers a range of transportation services.
7. AU Optronics Corp. (AUO) designs, develops, manufactures, assembles and markets flat panel displays.
8. Financial Select Sector SPDR Fund (XLF) seeks to provide investment results that correspond to the price and yield performance of the Financial Select Sector of the S&P 500 Index (the Index).
9. Capital One Financial Corporation (COF) is a diversified banking company focused primarily on consumer and commercial lending and deposit origination.
10. Focus Media Holding Limited (FMCN) operates out-of-home advertising network in the People’s Republic of China using audiovisual television displays, based on the number of locations and number of flat-panel television displays in its network.
    

Long Entry

1. MEMC Electronic Materials, Inc. (WFR) is engaged in the design, manufacture and sale of silicon wafers.
2. Kinross Gold Corporation (KGC) is engaged in gold mining and related activities, including exploration and acquisition of gold-bearing properties, the extraction and processing of ore, and reclamation of mining properties.
3. Evergreen Solar, Inc. (ESLR) develops, manufactures and markets solar power products enabled by its String Ribbon technology.
4. Silver Wheaton Corp. (SLW) is a mining company with 100% of its revenue from the sale of silver.
5. Domtar Corporation (UFS) is a manufacturer and marketer of uncoated freesheet paper in North America.

Disclosure: Short BIG, Long SLW