Wednesday, January 28, 2009

We (and everyone else) have been talking about the wider SPX range.  Call it 920-820 roughly.  We have been experiencing range bound trading across many sectors.  The XLF briefly broke low, but for now has made a double bottom. 







I am a short term trader.  I do not execute a short term trade solely based on the above chart patterns.  But I do combine them with what I am seeing during the day.

Outside of some XLF/financial trades last week we have been experiencing:


  • weak stocks bouncing
  • strong stocks stop going up
  • frustrated traders
  • lots of reversals off the open
  • less volatility
  • less movement in major indices
  • "one-off" trades working. (financials last week for a bit, education stocks a few days ago)

I combine all of the above with the bigger picture (charts above).  We are rangebound and every intra day trader needs to adjust their size, strategy, aggressiveness, etc.. accordingly. 

Trading RM has also developed the Trading RM Oscillator to help our desk determine the environment.  Login onto www.tradingrm.com to download our Trading RM oscillator as one indicator of the current trading environment.  See previous posts for a more complete description of the Trading Rm Oscillator. 

The most recent Trading RM Oscillator is posted below.  We can see a slight hook back down to 2008 holiday levels. 



Tuesday, January 27, 2009

Necessary Evil

The path to becoming a successful trader is filled with what I call necessary evils.  I believe that traders learn best by learning from their mistakes.  Too often new traders have unrealistic expectations.  They think that they will never experience a trading slump or difficult patch of trading.  When they start to slump they are not mentally prepared to deal with the stresses associated with difficult trading.  At Trading RM, we talk about accepting the fact that all traders will struggle from time to time.  It is very important to know that trading is filled with many ups and downs.  The most successful traders know how to deal with these setbacks.  The acceptance makes it easier to deal with the struggles and allows the trader to focus on the learning process.  Each of us needs to know what to do when a slump sets in.  First, cut the amount of capital you trade.  Next, make an effort to take something positive from the experience.  It is often helpful to talk to other traders.  Make an effort to get back to the basics, the things that made you successful in the first place.  When I am in a trading slump, I remind myself that I have been here before and I will  be there again.  Then I take a deep breath and begin to  work on my trading skills.   

"Hot Stove" number

We have been reading and seeing that this market is giving us opportunities to make money.  However these opportunities are not bundled in the same way that they were in September - November 2008.

We have blogged about the following:


  • stock specific action


    • as a side note to this: we saw ESI was great to trade on Monday January 26th, but APOL/CECO/COCO were tough

  • being selective and taking what the market gives you

  • paying attention to index and stock technical levels

  • being patient:


    • trade like a cheetah  (SMB Training)

    • trade like a sniper  (Dr. Brett Steenbarger)



We discussed the concept of a "hot stove number."  I am referring to how many times a child will touch a hot stove before he realizes he should no longer touch it.  If you are trading a specific name/style/# of decisions/direction and it is not paying you...how many times will you try it in a day/week/month before you back off?  Develop a hot stove number.   

************************************************************************************************************************************************

In an unrelated side note, for those of you who saw "The Wrestler" or plan on seeing it, it is a total rip off of the documentary "Beyond the Mat."  I can not believe it has not been mentioned anywhere that I know of. 



Monday, January 26, 2009

Most, if not all the commodity prices have seen record highs in the last 9 months.  (Gold, oil, nickel, coffee, steel, and the list goes on and on)

I belive the most precious commodity is one that rarely gets attention.  TIME
 
There are only 24 hours in a day to get everything done.  As traders', your learning curve never stops.  You always are striving to get better.  Some of us have families to take care of when we get home and we leave our work at work.  However, there are many slow times; days when the market just vacillates one way, and then goes back the other.  (Think Summer).  This does not allow the trader many opportunities to profit, but it does allow the trader to learn how to become better.

Today was one of those days.  The market seemed to drop dead at 1030am central time.  Instead of pressing (always leads to losing) I got up-to-speed on the blogs that I enjoy reading frequently.  I did some technical research and talked with some fellow colleagues.  I also went over my 2009 goals with one of the principals of the firm and received some invaluable feedback.  
Taking a step away from the physical execution of trading, is also beneficial  when you are having a bad trading day.  Doing the research and talking with colleagues builds my confidence and gets me in the right mindframe to trade again.

Making/managing the most of your time is a skill that comes with experience.  (think trading)
Sometimes it is not always about executing positions that makes you a better trader.   

Thursday, January 22, 2009

Notes from today's trading



  • AAPL +5.53, MSFT -2.27 on day

  • XLF exactly at November lows

  • many indices in a 3 day sideway range: SPX, NDX, Euro, Crude, XLE...                  

  • SPX held and bounced from 800 support

  • AFL was easie rot trade than HIG, UNM, MEt, etc..

  • ESI was easier to trade than COCO, APOL, CECO



It could have been my timing/positions but this afternoon felt very "range bound" to me. 



  • We will continue to attack the weakest/strongest stocks (ESI over APOL/CECO and AFL over other insurance today)

  • We will continue to key on XLF and leading financials as one indicator

  • We will continue to monitor SPX resistance levels at 820 and 800

 

Wednesday, January 21, 2009

Bullish day

Quick observation: Wednesday January 21 we saw almost every sector rally.  I personally found it hard to get with the trend of the day, especially after the morning sell off seemed to confirm the longer trend.  In hindsight what signs did I miss?

Mid day IBM was +$6, MA +$10, GS +$9.

This left a few hours of one way bullish action (most of our desk was able to get involved long).   It seemed the leaders were the weakest from the previous 3 days (financials, credit cards, REITs).  A previous post tells us to listen to the market.  As short term traders it is not our job to make predicitons, but to trade what the market gives us. 

Tuesday, January 20, 2009

Sector Participation

We mentioned in the previous post  that today we saw sector participation and outsized moves.  Trading RM has been discussing and trading the fact that the XLF (and to some extent the IYR) are leading the move down.   Trading RM makes use of our blog, our morning worksheets (available by registering at www.tradingrm.com), and our daily trading to identify and trade these trends. 

Below Trading RM will highlight one setup from Tuesday January 20th which was a good entry point to play the REIT sector. 

Between 2:15pm cst and 2:33pm cst we saw the following price action:


  • SPX:  806 ->815

  • IYR:   30.78 ->30.90

  • SPG: 42.55 ->42.43

In other words the REIT sector remained weak/sideways relative to the market move up.  Whent he market rolled the REITS were already making new lows and ended up closing on their lows.  (Pick a name and the chart looks similar: VNO, BXP, SPG, etc...) 







Today we saw some different trading:


  • Group participation in financials (STT, STI, PNC, BACetc..)

  • Group participation in Uk Banks (HBC, BCS, RBS, etc...)

  • Outside day for GS

  • Group participation in REITS (SPG, BXP, VNO, etc..)

  • Weakness across all sectors/commodities

The Trading RM Oscillator depicts an uptick in our trading environment.  Last night the Osillator was at 23.71, as of Wednesday morning we find it at 29.50. 



Please visit www.tradingrm.com to download the Trading Rm Oscillator and the Trading RM morning worksheets daily. 

Monday, January 19, 2009

We continue to see the Trading RM Oscillator flatline.  It has neither sloped up nor down since the new year began.  The levels and slope of the Oscillator tell us to be patient, trade stock specific, and to book winners when we have them (not be greeedy).  The Trading RM Oscillator is available daily along with our morning worksheets at www.tradingrm.com under "Products."  If you have not registered you can do so here for access to our worksheets and Trading RM Oscillator. 



For an explanation of the Oscillator please visit early posts

Thursday, January 15, 2009

I often talk to traders about listening to the market.  The market will always tell you what to do.  We use several market clues or tells to help us figure out what the market is saying.  We created a great tool called the Trading RM Oscillator which helps traders gauge the current trading environment.  We have been saying that the market has been telling us to be patient, trade less, and be focused as the best opportunities often show up when you least expect them.  Traders will often have a difficult time cutting back and trading less when the market dictates it.  By nature, traders want to make money.  When it is time to cut back traders are often conflicted because their desire to make money is greater than the desire to listen to the market.  Many times it is obvious to our new traders that the market is telling them to slow down, however, they are slow to adjust because they want to make money.  I would argue that the amount of money that a trader saves by cutting back during difficult trading environments is just as important as the money made during good trading environments.  In addition, cutting back will often preserve emotional capital as well, which ensures that the trader will be prepared to take full advantage of the next 5 star day.  The master trader will recognize and accept that cutting back is the difficult yet the correct trading decision.

Good luck.

Wednesday, January 14, 2009

SPX vs XLF

We have discussed at length the wider range that the SPX is in.  It is now sitting at the bottom 840-850 range.  This is also the October lows. 



The XLF has moved well below its October lows and is approaching its November lows. We will continue to key on the XLF and its leaders as one key to our trading. 





Matt Mersch, Trading RM
mm@tradingrm.com

Trading RM update 01/14/2009

At first glance today seemed like it should have been a great trading day.

The S&P was down 30
The VIX was up 5.9.

Being short term traders (and short term traders of options) these seem the makings of a great day.  Upon further review, much of the movement in the Vix/SPX/individual stock was over night.  There was opportunity today to catch big moves, but it was select.  If one was trading options you may have seen a decrease in volatility, depending on what time of day you entered the position.  The SPX had a slow/sideways/choppy move from open to close. 

Our Oscillator continues to confirm that we should be name specific, booking winners when we have them, and be extra selective on names traded and capital allocated.  It has some what flat lined after a brief up tick from holiday levels.  (For an explanation of the Trading RM Oscillator visit previous posts). 



The chart of the Vix today is interesting.  A big portion of the gains were made overnight and in the first hour.  If you were net long options you may have seen sideways action and volatility leaving your name.   As intra day traders we can not get frustrated over what moved overnight.  The Vix declined from 9am cst until the close.  (Times on chart are est).  



 

Monday, January 12, 2009

Those who read the morning blog or downloaded our morning worksheets noted the XLF and the IYR leading the market down on Friday.  That move continued today.  The SPX continued to the bottom of the wider 850-920 range.  Today we saw some other sectors on their third day down (SLX, KOL, MOO).

Tomorrow I will be looking for several keys to determine if we are in a bigger downtrend or if we are range bound.  I will use this among other things to determine the aggressiveness of my trading. 


  • Does C have another outsized move and lead the financials?
  • Does the SPX hold 850?
  • Do other sectors continue to develop bearish chart patterns? (see KOL below)


Range vs trend?

As mentioned in the morning blog and the morning worksheets IYR and XLF tipped their hat by entering a downtrend ahead of some other sectors.  Today we saw the SPX approach the bottom of its larger 850-920 range.  We also saw several other sectors join the XLF and IYR in

I have included a 5 minute S&P futures chart from today's market action.  The red cross is the opening of trading today.  (You don't need to look at the data to the left of the red line). 

I identified on the morning sheet (posted on the tradingrm.com website every morning before open) that 874.25 was a good support level.  Sure enough, the S&P sold down to this number at 920am CST.  This level held for one hour before being broken. and the market went lower.  Now take a look at the blue line, i have drawn on the chart below.  This is the 874.25 low.  This support now becomes resistance at 1250pm.  This was the dead high for the rest of the day.  During slow, rangebound markets; technical analysis can be useful if applied correctly.

Sunday, January 11, 2009

Trading RM Oscillator: We see our Oscillator settling in just slightly above holiday levels.  Trading remains stock specific.  We are looking to take profits when we have them and be extra selective. 




Trading RM morning trend sheet: The trend section of our morning worksheet shows a few sectors moving into short term/ 3 day down trends.  These include REITs (IYR) and Financials (XLF).  We see the SPX in a short term/3 day down trend. However the bigger picture for the SPX shows it being back in the 850-920 range. 




All of our morning worksheets are available at www.tradingrm.com. To register at our site visit us here.  For an explanation of the Trading RM Oscillator please see previous posts


Thursday, January 8, 2009

Trading RM morning sheets

We've had several questions on this: to download the Trading RM morning worksheets or the Trading RM Oscillator, users will need to download and use Adobe Reader

Stock specific action

When we mention stock specific action we are referring to a name that stands out from its sector and from the market in general.  This is different from the second half of 2008 where we saw a lot of market participation.  (Buying/shorting a specific financial often did not vary from buying/shorting any other financial for example.)  I am going to highlight 2 specific examples from today's action that Trading RM identified and traded. 

The first is SHLD.  What were the signs that SHLD was having a different day? 

1. Strength within its sector: The morning saw weakness across various retail names (RTH, JWN, WMT, TGT, etc..)  The retail sector was weak premarket and initially after the open. Conversely SHLD gapped higher.  SHLD moved higher in the premarket, on the open it continued higher.  It retraced, but not anywhere near its premarket high. 






2. Identified on the Trading RM morning sheet:
  for those that download out Trading RM worksheet every morning, SHLD was identified as possibly being in play on the long side today. You can register at our website to view the morning worksheet and morning trend sheet every day. 

3. Strength in relation to the market - the general market sold off initially, while SHLD made highs.  See the above chart, the grey line represents the S&P. 

4. Breakout to the next level on a daily chart.  Just eyeballing the chart gave us an initial resistance of 43.25.  The next stop up was 50.00, which is where SHLD closed.



Note: none or all of the above lead us to trade a name.  They do however draw our attention to the name at which point we use our skills in timing, stock selection, controls/discipline, and capital allocation to determine how much, if any, to trade. 


The second great stock specific example from today was SGR.  What signs did we have the SGR was having a different day?

1.  SGR is in an uptrend - unlike numerous sectors and the major indices - SGR has not moved back down below the top of its previous range.
2. Unusual volume - note daily chart
3. News - SGR issued reports on its earnings and hosts conference call





Note: none or all of the above lead us to trade a name.  They do however draw our attention to the name at which point we use our skills in timing, stock selection, controls/discipline, and capital allocation to determine how much, if any, to trade. 

















Wednesday, January 7, 2009

7:50 am cst

Visit www.tradingrm.com to view the most recent morning worksheet, trend worksheet, and TradingRM Oscillator.  (Under products -> morning worksheet and under products -> propietary index). 

If not have not registered yet please do so. 

We have seen a slight uptick (low of 17.84 on December 31,2008 to present reading of 24.92) in our Trading RM Oscillator.  However we are coming off the holiday period - historically slow for short term traders.  So our oscillator has told us that the opportunities have slightly upticked compared to the last two weeks of 2008. Which still leaves us with an environment where we are best served by trading less, booking winners when we have them, and focusing on selection and timing. 

We will continue to monitor and post updates to our oscillator.   You can view the Trading RM Oscillator by registering at www.tradingrm.com.  For an explanation of the Trading RM Oscillator check previous blog posts


Tuesday, January 6, 2009

Happy New Year!  Time to get to work.  The first couple days of 2009 have been on the quiet side however that is not to say that there have not been good trading opportunities.  I have been focused on listening to the market to make sure that I am making the appropriate adjustments.  So far I have been able to make money on both sides of the market.  Timing and stock selection have been critical.  It is important to trade the sectors that are in play now regardless of what they did last year.  I think that the themes for the first part of the year will be different from last year and by trading both long and short positions I believe that I will be able to figure out what the market is telling me to do.

Good luck.

"Market Performers"

Today I saw a lot of market performing names.  By this I mean they traced the S&P.  Below are 3 charts: the SPX, XLE, and HPQ.  XLE has been "in play" and breaking out recently.  Today however it "market performed." 

HPQ on the other hand remained strong without regard to what the rest of the market was doing.  It is our jobs as short term traders to weed all the noise (market performers) and be involved in the special names.  Visit our website to learn about more tools used by Trading RM every day. 



XLE looked much like the S&P today.  The grey line represents the S&P futures.



HPQ on the other hand remained strong.  The grey line represents the S&P future.  At approximately 12:00 cst HPQ remained strong as many other sectors sold off with the market. 

Monday, January 5, 2009

Trading RM morning sheet

Available at the Trading RM website (www.tradingrm.com) is the morning sheet our traders use to prepare for the upcoming day.  I have attached a snap shot below.  Those who register with our site will have access to this daily. 


  • The top half is devoted to sectors and indices that we have traded/followed recently.  The High/Low/Open/Close for the previous day is included.  Also is the short and long term trend.  This section is great to get an idea of what sectors are trending and which are rangebound.  

 



  • In the bottom right half of the morning sheet we have an area where we mark names/sectors that were strong or weak yesterday.  Also we make a note of names/sectors that may be in play today.

 



  • The bottom left corner is divided into:



    • What's working now - the types of trades/themes/ etc.. that have paid most recently


    • Important data points - we fill in any significant stock or index level we may see


    • Today's Numbers - economic releases for the upcoming day


    • Today's Goal - filled in by each trader with their personal goals for the upcoming day

Sunday, January 4, 2009

Friday was HOT

Friday (January 2nd) was the first trading day of the new year.
One of the best trades of the New Year was HOT (Starwood Hotels).  HOT gapped up higher on a rumor that Sam Zell was acquiring more shares in company.  Not only did HOT gap higher on the rumor, but the gap higher was thru any prior resistance.  (See attached chart).  On a technical level, this is what traders like to look for.  A stock gapping higher or lower on a daily chart thru prior resistance or support with above average volume. The traders' who were short HOT, were locked in because of the gap and had to cover at higher prices which propelled the stock even higher.  Good luck trading this year, Michael.

Friday, January 2, 2009

The Trading RM Oscillator has again made a new low with a downward slope.  This continues the themes we have seen of name specific trading, less range, taking winners when we have them, etc...  For an explanation of the Trading RM Oscialltor see our previous posts

SPX Range broken?

Trading RM (along with many eyes on the market) have been looking at the 920 area in the SPX as the top of a range.  Today we saw the SPX trend up slowly all day on light volume.  SPX eventually eclipsed the 920 mark and held, albeit on light volume.  Monday's action should tell us more.  If we test and hold above 920 we will be out of our previous trading range of 850-920. 

What signs did we see today as we approached 920 indicating strength?



  • Industry leaders strong all day after brief morning sell off (XOM, GS, GOOG, FSLR etc..)

  • Another steady Vix sell off/ no panic

  • Biggest S&P down move approximately 4-5 points max

Here is a longer term shot of SPX which we first posted on 12/17/08: