Re-Shorted Today

The stock market has rallied over 5% in a weeks time, and the S&P 500 is pushed up against its 50 dma.  Prices have pushed up near extremes that I feel comfortable taking short positions into again.  I am changing strategy this time to only manage a couple positions, since I am having to trade the swings now to get back into the game.  I am still nearly in last place.

I noticed that the Russell 2000 had rallied nearly 50% the last 12 months compared to the S&P 500 which had rallied 38%.  The $RUT was pushing against resistance which made a compelling short.  I used the 3X inverse ETF TZA.

I also believe China is not out of the woods.  It was also at an actionable area here as well.  I shorted it with the ultra inverse ETF FXP.

I am managing the trades with contingent stops on the S&P.  This is not automated, but a mental stop should the $SPX move into the 120 area.  Realistically, I do not see any more than 10 points of upside here.  I have set alarms to warn me.

Why TBT Suddenly Made No Sense

As well as my other positions I might add

This will be a long post because I have a lot of explaining to do.  For the record, I have exited all my trades, and I believe I played this crash like a harp string this go around.  My account is still embarrassingly low, but it is amazing what a little time allows you to do.  I vow not to repeat my past mistake from February.  This market will not allow for such mistakes.

There is a lot to mention so I will get started.  I will begin with the first two positions I exited a week ago.

TBT:  I am pleased with the way I traded this one, even though I lost money.  I purchased this ETF on January 15 at $48.51 and placed a stop on TBT at $46.00, which triggered a sale at $45.99 on April 30 on all shares.    I still believe that the overall idea is correct, and in a few months it should work lower, but technically speaking it became very sick.  You can see from the TLT and TBT charts below what happened.

XBI:  First, price broke below the channel.  Then, there became an area of resistance it could never sustain a breakout above.  Lower Highs after such a strong run made me nervous.  I had no idea what lied ahead.  I purchased this ETF on February 3 at %57.39 and sold it at $60.79 for a small gain.

 SZK:  I had forgotten to post this one back in February as I got stopped out.  This is the reason to use stops.  If you recall, retail stocks had an incredible run that began in February.  Fortunately, I was stopped out on Feb 12 for at $41.75.  Of course, the gains in retail were wiped out in a couple days.

I liquidated the balance of my positions (except for half my commodities position due to light trading volume) at the close of trading on May 6. 

CMD:  Sold for a small $1.04 profit.  I was only able to move half the position, and intend to liquidate the balance on Monday.

TWM:  Shorting the Russell was a very bad idea.  I feel lucky to escape with a $2.52 loss.

SDP:  I made $1.37!  Yippie!

SRS:  Technically, it was one of the best shorts I had, but the loss of $2634.50 made it the worst.  I had no stop so it was horrably mis-managed........as most of my losses were.  That will not happen again.

FXP:  I lost $$274.48.

FAZ:  Lost $3.69 on another horribly managed trade.

SSG:  Semi-Conductors cost me $3.13.

TYP:  A crazy candle on Thursday has left this chart useless.  Tech stocks crashed hard Thursday and Friday, making my loss here seem palatable.  I lost .47 a share on 1000 shares.

I will map out my strategy going forward in my next post.

Why TBT Still Makes Sense

Below, I have outlined my argument for shorting bonds or buying TBT.  This is a revision from my earlier post made back on January 18.

This is an updated chart on the $IRX, or the 13 week treasury yields.  The price you see on the right represents the treasury yields when you move the decimal point one digit to the left.  It is currently trading at 1.3, which means the yield is actually .13%.....not 1.3% or 13%, but .13%.  In other words, it is nearly free to borrow money.  This is what has helped fuel the dollar carry trade.


TLT is the 20 year bond ETF.  For months, it traded into a nice downward sloping channel until it began consolidating sideways recently.  On several occasions, I had mentioned that I entered this trade early, but it is beginning to work out now.  Yes, it broke out above resistance, but it did so on low volume.  It finally pulled back hard on the 24th (yesterday) with the heavy volume I have been waiting for and is breaking below support today. 

The 30 year Futures contract broke out, and then faked out of its channel.  It has not broken support yet, but when it breaks ascending support dating back to last summer, there goes a great shorting opportunity.

I used TBT for the trade.  As low as the $VIX is trading, I would not be afraid to buy some TBT calls as well.  Again, notice yesterdays volume spike.

Shorting Semi-Conductors - SMH

Semi-Conductors will tank next.  The near term target would be 23.38 with the longer term target near 22.  This is the 50% Fib level, and is smack dab in the middle of the gap left back in July.

I am using the ultra short ETF SSG to short semiconductors.   You can see the correlations between the two charts.  I bought 500 shares at $20.51.   My near term target is $26.65, and the intermediate target is $33.

Baling on Commodities

I should be jumping for joy after a day which saw my portfolio jump in value nearly 4.5%.  You might not believe me if I told you that 4 of my 9 positions were down nearly 5%.  What saved my bacon was having positions shorting China and Financials that were up nearly 10%.  I am still holding my bond short and my biotech short which were down hard, but I am watching them closely.  I am dumping my commodity longs however.

DBC - The price action Tuesday was my signal to buy DYY.  Price action today tells me it is over already.

DYY - I am just trading what I am seeing

USO

DIG

XBI - Biotech Looks Strong

Biotech and health care stocks have been the strongest sectors the past year.  Of the 5 major etf's that trade in this space, one in particular stands out.

Several of the ETF's just broke out into new highs with heavy volume behind them.  These are set ups that traders make their bread and butter on.  XBI has out performed the other etf's in this sector now the last three months, and has broken into new highs.  Today, I purchased 175 shares at $57.39.

FAZtastic! Shorting Financials

Financial stocks appear to be breaking down to me.  The XLF is showing 6 touches on the bottom side of its consolidation, while only three touches along the top side.

FAZ is a triple inverse ETF for the financial sector.  It is retesting a support area which should make for a good entry point.  Any strong break with volume below this support area, or a strong break above resistance of the trendline on the XLF chart above would constitute areas to bale from this trade.  I bought 550 shares of FAZ at $18.54.

Shorting China - FXP

Maybe I have lost my mind since everybody I know is still saying China is where it is all at, but the charts just tell me bad things are in store there.

I shorted China by buying 1050 shares of FXP at $9.60.

Shorting Retail - SZK

The retail trade has leveled off, and is looking very toppy here.  This pattern is more of a modified head and shoulders pattern.  I suspect we won't see the RTH this high for a long time.  

To capitalize on retails demise, I purchased 235 shares of SZK at $42.66, which is the ultra inverse consumer goods ETF.

Buying Commodities

Commodities have been beaten up pretty good over the last month or so, but are at support now.  We are now in the process of filling a gap that was left back in October.

With this theme in mind, I decided to begin adding some commodity longs.  I started on the 27th by buying 1400 shares of the the double long commodity ETF DYY at $7.18.

On the 29th, I followed this same idea with a long on oil.  You can see by the end of the day, I was questioning this decision.  I am keeping this one on a short leash though.

I bought oil by buying 300 shares of DIG at 32.95.  I am betting on the upward trend continuing.

Buying Back Oil Trade by Selling DUG - $564.02 Gain

Oil fell as expected, and the price action of the USO etf reached support.  I aim to stick with the trend, and as of now, the trend is still up which means it is time to let this one go.

I had purchased 800 shares of DUG on 1/29/2010 at $12.09, and sold them on 12/26/2010 at $12.82 for a .73 gain for a net $564.02 on the trade.

Shorting Real Estate - SRS

There are a lot of lines in the sand out there in terms of prices pushing against areas of resistance.  Real estate, like the rest of the equity market, has enjoyed a tremendous rally since last March.  If you look at the real estate ETF IYR, you will see that it is showing weakness.  A reasonable expectation here is that it will turn lower for a while.

With this expectation in mind, a great tool to short real estate is the triple inverse ETF SRS.  I just bought 1250 shares at $7.93 with a stop at 7.20.

Shorting Oil - DUG

Oil is certainly weak in this current environment, as are all commodities.  This is the chart of the energy ETF XLE.  I love the double top here, and it could be a very nice short.

With that theme in mind, I shorted oil buy buying the ultra inverse oil ETF DUG by buying 800 shares at 12.09 with a stop at 11.75.

An Adjustment on TBT Stop

For the record, I did lower my stop on TBT to 46 on January 19.

Shorting Utilities - SDP

The XLF Utility ETF has traded against the 50% Fib level from the December 2007 high, and appears to be weakening.

I like this bottoming action on the ultra inverse utility ETF SDP, and thought I would pick up this little morsel before the big bounce!  I picked up 500 shares at 20.61!

First Trade - TBT

I have been watching bonds trade for some time.  In case you did not know, bonds and interest rates share an inverse relationship.  Over time, as bonds decrease in value, interest rates rise and visa versa.  

This is a chart on the $IRX, or the 13 week treasury yields.  

Now, just tell me, would you say there is more risk rates will go up, or go down?  (please don't say down)

There is a 20 year bond ETF called TLT.  You can see it is trading into a nice downward sloping channel.

Looking at this chart, I would have probably just preferred to wait till it reaches the upper end of the channel, but when you look at the 30 year T-Bill futures chart, it is near the top end of a channel, and there is a long way for it to fall below.

Soooooooooooo, I did not feel bad under the circumstances to demo a trade Thursday night.  The only question would be what is the weapon of choice.  I chose the double inverse ETF called TBT.

This is not a slam dunk near term.  Like I said, I may have gotten in early.  If so, I am only risking $1.00 on the trade.  My stop is in at $47.50 so my risk is managed.  If that level fails, I intend to re-establish the position when the price hits the S1 Trend line.