Meaningless Action/Thoughts for 2010...

Today's last minute sell off was just as meaningless as the last few positive days that we've had. Low volume moves mean nothing. While one may argue that today's volume was slightly higher than the other days, it is still below average. Today's selling may have been nothing more than retail and a few prop desk traders cashing in before the new year begins. Of course, this is not a 100% guarantee. Still, I believe that 2010 will be another strong year for the market. We may have a few bumps early on, but I am still comfortable enough to know that if there are real opportunities, I will definitely take advantage of them. In any case, now is the time to kick back, relax and reminisce about the challenges and rewards of 2009. It is also the time to make plans and set goals for 2010. One of my goals is to take the Series 65 and start an investment advisory firm. "Surviving" the 2008 decline made me realize how dedicated and passionate I am about trading and researching the financial markets. More importantly, it made me realize that there is room for improvement in the money management sector. I've heard so many horror stories from family and friends on their misfortune in the markets, especially in 2008. Little do they realize that they could have avoided their mishap had they had control of their own funds or at least had a competent money manager overseeing their capital. While you may be thinking that yes, most of the top managers lost money in 2008, that is still a bad excuse. Most of these managers are using outdated strategies that simply do not have an edge in today's market environment. Most of them are so far gone that they are uncomfortable of even changing their strategies. I know money managers that simply just threw their hands up, closed up shop and opened up restaurants and gelato shops. Over what? A single difficult year? Excuse me, a difficult year that also offered double to triple digit returns for those who caught the micro-cap oil stock move during the spring and summer months? I will admit it is sometimes hard to sit on the side and do nothing for months on end. Unfortunately for traders, we often feel compelled to trade every single day, no matter what the market conditions or trend. That is a bad habit that even I struggle with to this day. But I have tried to improve upon it. As traders, we sometimes fail to realize that we are at a great advantage. We can liquidate positions in seconds and avoid large losses. And yet, if we do not learn how to sit patiently and wait for the right time and opportunity, our advantage is lost. Every year, I improve upon my trading and strategy. This year will not be any different. Even small improvements and refinement make a difference. With that said, good luck to everyone in the new year. Have a fun and safe New Years Eve and a Happy New Year!

New Buys

New Buys: IDN (in at 2.35)

Sold: IDN (+97% gain)

Mostly in Cash

Besides today's new trades and a couple that I am holding, I am mostly in cash. I closed quite a few longer term trade positions and some other ones that were initiated a couple of months ago. I will try and have the trades and their gains/losses posted by December 31st or January 1st.

New Trades

New Buys: ASYS (in at 11.01), HOLI (in at 12.17), WEBM (in at 1.03)

Trade Financial Instruments and Strategies That You Are Comfortable With...

Trading Time Frame/Holding Period:

One thing that I learned after several years of trading is that you need to stick to trading what you fully understand. When markets fail and we encounter bearish periods, we often try to change up what we trade and how we trade it. This is an emotional issue that we come across. While I do encourage traders to try out different strategies and different trading mediums, you have to realize that you will have to pay your tuition in those mediums and strategies before you master them. Take for example someone who daytrades successfully and wants to be a swing trader or a longer term pattern trader. At first, it will be difficult for the trader to adjust to the new trading style. More often than not, the trader will face frustration from losses and mistakes when trying out the new strategy. The trader needs to come up with a game plan and learn to switch out of intra day day charts that only display the action in hours, min, secs, etc., and begin to observe the action on a daily chart that may be sprawled out for several months to a year (depending on the traders strategies optimal time frame). If the trader wants, he or she can adapt to the new strategy. On the flipside, the trader may realize that his or her previous strategy was superior and led to better results but was simply lagging just because of the current market conditions, volatility, etc. I had a similar experience during the nasty 2007-early 2009 bear market.

Taking Volatility Into Consideration:

There are instances where day trading is a better strategy. For example, earlier in the year, when the VIX was in a high position, it made more sense to day trade positions versus holding them for several days and so on. The constant volatility erased gains as quickly as they were acquired, so a nimble day trading strategy was key at that time. Once the VIX began to settle down, individual stocks were able to begin sustainable, longer term moves that required longer holding periods, in order to make the most out of your positions and its possible gains.
While I tried day trading, I truly never got into it. Occasionally, I sometimes put in a day trade or two, but I prefer to hold my positions for longer periods of time. Still, if the VIX ever goes parabolic and breaks out, you can bet that I will abandon the longer term trading and tailor it to a shorter term holding period.


Investing/Trading Medium:

Another mistake that we traders are prone to is not sticking with trading instruments that we are familiar and knowledgable on. Again, just like the trading style/time frame issue, its okay to try out new trading mediums. I've traded just about everything from stocks, options, FOREX, futures, and commodity futures. Each trading medium is a different beast that requires time to understand. I still occasionally trade FOREX, market futures, and commodities, but I have abandoned options for now. I trade these other mediums because I understand them and can tailor a strategy around them.

Concentrating on a Working Strategy:

So you are comfortable with a time frame and trading medium. Now you have to concentrate on what strategies work for you. One tip is to limit how many strategies you utilize and stick to just a few or simply, just one. Also, don't go crazy with the indicators. I just just a few simple indicators and that is it. I know some traders who have an information overload everytime they load up a chart. I take one look at it and I get a headache. Pick a catalyst and stick to it. Whether it is news driven events, volume surges, 52wk highs, breakouts/breakdowns, earnings induced behavior, etc. Stick to one or a few of these or combine a few catalysts and follow them.

Nothing Substantial...

The next few days will be quiet until the instiutional investors come back from their vacations. Once the new trading year begins, I expect that we will have a firmer understanding of where we stand and where we will head to next. I read an article last night on CNBC about following the VIX to time the market. You can be sure that the VIX readings are already beginning to feel obsolete. Most of the current breakouts feel either too weak or too speculative. I am feeling a bit neutral and waiting for more signals before I make any new moves.

Merry Christmas and Happy Holidays!

It's been a rough, erratic and yet profitable year. Now is the time to put the market to the side and enjoy the fruits of our labor. It is time to sit back and relax with friends and family and to be thankful for all we have...Happy Holidays! -Nick M.

Trades

New Buy: ANX (in at 0.1843), WNI (in at 7.49)

No Surprises....

Today's dip was pretty much guaranteed. This shows how important it is to read and interpret chart readings. Anyone that looked at the chart of the VIX could have predicted this. This isn't rocket science. Instead, this is simply just a battle of discipline. Can you be disciplined enough to follow the markets unstable logic? The VIX readings are a freebie. In time, when the VIX is used by every Tom, Dick and Harry as a market direction indicator, it will become obsolete. By then, institutional investors will be manipulating VIX readings a 100 times a day in order to fool the average retail investor into losing his or her capital. For now it works, so use it, before you lose it.

Watch Your Head...

I don't know about you, but right about now, I would be weary of a negative reversal. We may have one more final push higher (until the VIX hits mid to high 19), but I wouldn't be surprised to see that move fail before the end of the week. While it is not unheard of or impossible for the VIX to continue trailing lower, the odds are slim, as it would take an enormously positive set of news to initiate such a move. For now I am in profit taking mode. There is no sense in letting gains go to waste. I've enjoyed some strong moves in some of my longer term trades and some decent ones in the shorter term category, so I can't complain as 2009 will go down as an awesome year. I know that there is some chatter of a X-mas rally. It may happen or it may not. If it does occur, expect it to occur early next week (Monday-Wednesday?).

New Buys

New Buys: GFRE (in at 10.55), MERX (1.99), OSUR (in at 4.60)

Added To: FIRE, MGPI, XRTX (great recovery)

Watching: FSRV, SMED

Stock Picks and Trade Ideas

New Buys: CBPO (in at 10.34), RXII (in at 3.05, low float)


Keep an eye on AMOT, SUPG, YTEC, ZSTN

Stocks of Interest

Not much going on in terms of breakouts, but here are several stocks showing strength on a day that has thus far, been pretty much uneventful...

AMR, CBK, CHRS, CYCC (mentioned yesterday), DAL, HPJ, LCC, NEP, NEXM (mentioned yesterday), OXGN, QMM, PED (very risky, but could spike out), SBSA, SNSS, TGEN, UAUA

Bits of Strength Here and There

Strong Stocks: AKNS (if it doesn't close near LOD), AMCE, CYCC, CYTX, GSIT, NEXM. OXM, SNSS, TCX, UPI, XING

Trades

New Buy: ERII (in at 6.59), FFHL (in at 1.50...low risk), MDW (in at 0.90)

Sold: AMZN (for roughly 28% gain)

Watching: NEP, PIR, TPI, VISN

Will Cash Be King Tomorrow??

I sold most of my stocks and I am sitting in mostly cash as of now...Today was fine except for the fact that we are still stuck at resistance. Other indexes like the RUT can't even climb above the 50 day MA. The VIX is also nearing 20. We may have one final attempt to push higher in the morning, but I have a feeling that it will fail and the indexes will close in the red. Just my opinion. I could be wrong...

Actions: Profit Taking?

Sold for Loss: LTON (-16% loss)