Stanton Moore is sick. Real sick. Muther Fuckin’ sick. If there was a drummer that I could magically play like, it would be a close race between David Garibaldi and him. Here he is with an excerpt from his educational DVD “Taking It To The Streets.”
This post originally appeared on TraderPlanet.com
Bottom picking is a dangerous game, but you can make it less dangerous if you combine your “script” with some objective technical analysis.
STAY OFF THE BEACH
Using the term “script” as a verb translates to “planning, devising, or making arrangements for,” i.e. Morgan Stanley (MS) has formed a bottom and will soon break out.
But if that is all you use to trade, then your next script may read, “I now collect cans on the beach because I lost all my money in the market.”
So let’s take a look at MS and see what technical points help to confirm our script.
The first positive sign is that the stock formed a double bottom around the $12.30 area on June 4th and July 23rd, indicated by the red support line. Shortly after that second bottom, a downtrend line beginning in late March was broken which also coincided with the recapture of some key short-term moving averages.
Price is now basing under the green resistance level around $15.10 which is bullish. This level has been tested four times and each time it is tested the chances that it will be broken on the next successive attempt increase. These technical indications help to support the script that MS has found a tradable bottom, but ultimately price and volume will be the final determination to act.
A break of the $15.20 level with a spike in volume would set up a good entry for a swing trade. You could put a stop in below the resistance now turned support level roughly 50 cents below your entry depending on your risk tolerance.
A reasonable target based upon the extension from the three-point range it would be breaking out of takes it to the $17.75-$18.00 area for a risk/reward ratio of about 1:6.
Let’s be honest, you could pretty much throw a dart any day of the week at the StockTwits Blog Network, and end up hitting a post that is better than 99% of the other stuff out there that passes as financial blogging. So to say these are “The Best of….” is a little disingenuous; let’s just say these are some of the posts from the last week that caught my attention and I think will interest you.
Last week I was stuck at the Money Show in San Francisco so I had to skip “Best of…”, but now it is back.
The Mother of All Analogs (Revisited) Wall Street Bean
The Riddle of the Resilient Economy Solved?? ValuePlays
Tough Crowd: Notes from the John Paulson Call The Reformed Broker
In My Experience, UN-Learning Has Been the Hardest Thing The Minimalist Trader
Do national home prices even matter? The Basis Point
American Virility Sizemore Insights
How Do I Loathe Thy Career? Let Me Count The Ways… Rogue Traderette
The Dollar Continues to Bounce Inside its Bear Flag Raghee Horner
Investing vs Gambling Meta-Post Kid Dynamite’s World
A Look at 9 Quotes from George Soros Ivanhoff Capital
Cable Closes Bullish FaithMightFX
Marketview: Rejecting the Acceptance Dynamic Hedge
The Problem with the Transports Dragonfly Capital
Long to the Hilt Downtown Trader
Personal Finance 101 Crossing Wall Street
Is Microsoft About To Breakout? AlphaTrends
Advice From Some Top Technicians All Star Charts
Jiro Dreams of Sushi Abnormal Returns
[Today's guest post was sent in by Rich Wayne. Thanks for letting me post it Rich.]
Fan of your blog and thought you would appreciate this. The other day my wife asked for an update on how the trading has been so far this year. Told her its been great and should be a stellar year. Then she wanted details:
What did you buy? Lots of stuff like Apple, Facebook, Groupon, Lululemon, etc
So we own all of those now? No, but probably will again.
Thought you said Groupon sucks? It does that’s why I bought puts.
You put it where? I bought puts because the lock up was expiring and I figured there would be a price drop.
Why did you buy it if you think it sucks? I bought it because I think it sucks.
Isn’t this the stuff you did last time that lost us all that money? No. Learned my lessons on that.
But you bought something you don’t like….
At this point I switched to ‘Yes, baby’ mode and did my best to change the subject. But what I wanted to do was channel Col. Nathan R. Jessep. Here is what I should have said:
You can’t handle the truth! Woman, we live in a world that has markets. And these markets have to be traded by men with balls. Who’s gonna do it? You? You, Bernie Madoff?
I have a greater skill than you can possibly fathom. You weep for ‘buy and hold’ and you curse the algos. You have that luxury. You have the luxury of not knowing what I know: that buy and hold’s death, while tragic, probably saved E-Trade. And my existence, while grotesque and incomprehensible to value investors, makes money.
You don’t want the truth. Because deep down, in places you don’t talk about at parties, you want me in the market. You need me in the market.
We use words like put, call, short…we use these words as the backbone to a life spent making money. You use ‘em as an adjective. I have neither the time nor the inclination to explain myself to a woman who shops with and spends the very money I provide, then questions the manner in which I provide it!
I’d rather you just said thank you and went on your way. Otherwise, I suggest you open an account and short Facebook. Either way, I don’t give a damn what you think it is I do!
Thanks for letting me vent.
This week on my Monday morning hit for “Business for Breakfast” I explain the difference between buying a refrigerator and buying a stock, as well as much more wackiness related to trading and the markets.
The body of my best friend from childhood, Eric Philips, lay motionless on a gurney in the county hospital. He had just died. Twice.
Eric was at the nadir of what had been a two-year addiction to heroin that took him from class valedictorian to strung out junkie. One who broke into people’s garages in order steal things that he could fence in order to support his habit.
The journey had now ended under the harsh lights of an emergency room ward, surrounded by nameless and faceless medical professionals who were trying to ensure that the children he had yet to have would some day exist.
At the time his situation had sparked a very intense discussion among those of us that knew and loved him; who should be held responsible, the pusher or the junkie? Put in financial terms, the mortgage broker or the borrower? The financial “professional” or his customer?
We know that the financial pusher is consciously selling something that will cause harm to his customer, all of which has been documented recently in one of the best books ever on the subject by Josh Brown. But what about the customer? Don’t they have any culpability in this devil’s dance? Where does personal responsibility come into the picture?
I ask this question because I just spent the weekend attending the San Francisco Money Show where I had a chance to interact with hundreds of financial customers. I spent hours basically doing the “in person” version of what I try to do on this blog, helping people to better understand the markets and trading by showing them a different perspective.
I had a number of great conversations with some intelligent and thoughtful investors and traders. But unfortunately, the vast majority of the people I spoke with did not fall into that category. Instead they chose to embrace “active ignorance” about the financial markets.
They roughly broke down into five different categories, and if you are one of these “types” you deserve to lose all your money as far as I am concerned.
The answer to everything is gold.
These people are what are known as “gold-bugs” but they should be known as “gold-idiots.” And although thanks to the “broken clock” phenomenon they may have seemed wise at times over the last few years, remember, most have been calling this same tune since 1980.
“I don’t trust the markets so I am buying gold.”
“I don’t trust the financial professionals so I am buying gold.”
“I don’t trust the government so I am buying gold.”
“I think my wife is cheating on me so I am buying gold.”
“I am having erectile dysfunction issues so I am buying gold.”
That is all they can answer to any question, “gold!”
What’s even more ridiculous is that their distrust of the markets makes their myopic view exponentially worse. They pay huge transaction fees, taxes, and risk thievery by hoarding physical gold instead of “owning” it in a more efficient way that would free up space for homemade preserves and elk jerky in their shelters.
Technical Analysis is voodoo.
Let’s have a $100,000 Pyramid moment shall we?
Clue : “You find this on pottery. It is often on doughnuts. You will see it in the eyes of most people when you mention technical analysis.”
Answer: “What is glaze?”
I saw that glaze come out when I mentioned such crazy and exotic TA concepts like the simple moving average or a support/resistance level. I might as well have been saying that Martians landed on the Earth as far as most were concerned.
It still boggles my mind as to how many people who are active in the market have never looked at a chart of the instrument they are buying, let alone tried to use some basic TA concepts on it.
On a TA side note, as I was turning down the hall at the hotel to go to my room, I heard a very well-known market technician who peddles his eponymous indicator say to his wife….
“Obama is going to ruin this country. They should kill him!”
Democrat or Republican I have to say that is one of the most ignorant things I have ever heard someone say in public, even if he thought he was alone. I only regret that I wasn’t quick enough to add to his “kill” list by saying as I passed him…
…”and promoters of black box vanity indicators that haven’t worked in ten years.”
The whole system is manipulated.
Algorithmic bots control the markets. High-frequency traders control the markets. The Fed controls the markets. The illuminati control the markets. Justin Beiber controls the markets, well…at least the Canadian markets.
These folks have bought into the conspiracy theory that the market is controlled, but what is even crazier in light of their beliefs is that they refuse to stay out of it.
They use their theories to excuse their lack of success in the markets instead of adapting to the machinations that they claim are so “obvious” and then using them to make money.
I know everything.
I admit it, the people who fall into this group I have the least amount of patience for. Not only do they not want to learn anything new about the markets, but they feel that they in fact know all there is to know about the markets.
One lady I met spent thirty minutes talking to me, no…more accurately, talking at me, about her trading. She knew all there was to know. She had obtained trading perfection and had come to the show just to let people know about it was what I could only surmise.
When I brought up ideas like “The Most Important Concept For Successful Trading,” she either knew about them and had dismissed them or didn’t know about them and dismissed them.
At one point “A-hole Brian” showed up and asked her what she had thought about Rolo Tomassi’s book on finding consistently profitable trading setups. She answered “I don’t find that his stuff works very well.” Check please…!!!
Afraid of Social Media.
I have pounded the pages of this blog on what a powerful tool social media is when it comes to trading. It may not be for everybody, but if you don’t even make an effort to get familiar with it and what benefits it can bring you, then you are just ignorant in my opinion.
After suggesting to one man that he sign up for StockTwits, his first question was, “what do they charge?” I explained that it was free, but he could sign up and then follow some really good traders and leverage their trading ideas.
“Oh, well what do they charge?”
Once again I explained that it was free, but I could see the skepticism in his face. I finished up by suggesting that he read my blog where I talked about trading in a different way.
“Ahh, I get it. What do YOU charge for your blog,” he snapped as if he had finally discovered my hidden agenda.
“Nothing,” I said.
“Well, then why do you do it?”
“I’m just retarded,” I replied (in my mind).
Spending as much time as I do on StockTwits, it is hard to remember that no matter how large and deep the community is, it still occupies rarefied air compared to the public at large.
So much of that public has either put their head’s in the sand or decided that financial education is finite, relieving them of the need to keep evolving their thinking. No wonder they have been like lambs to the slaughter for the financial services industry.
It’s never too late to learn though. Some of the best conversations I had were with folks old enough to be my parents and who were as current and educated about the markets as anyone I know.
And as for Eric, well, it wasn’t too late for him either. Those medical professionals were successful in their efforts. Eric was revived for a second time, eventually cleaned his life up, and moved to France where he has lived ever since, now complete with a lovely wife and two beautiful children.
Make sure to check out my new book Trading:The Best Of The Best-Top Trading Tips For Our Times (just click the banner below).
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Earlier this week I did a post about an insane trade from the 90′s, and asked readers to submit their favorite trading stories from that decade. I got a great one from Jean Fonteneau (@JFinDallas on StockTwits) which he has kindly allowed me to post.
I have quite a few trading stories from the late 90’s, got to see a lot of crazy trades and crazy market moves and got to travel the world and meet all sort of interesting and crazy people in the process of chasing the bubble.
I can vividly remember that day in April 2000 where the Nasdaq was down 16% at some point during the day, high flyers dropping 40/50 points, closed down 9% and was up like 10% the next day…
Most of my stories revolve around the IPO market, pretty much since the Netscape IPO in 1995, and even more so starting in 1997 the IPO market was booming (or more like exploding, big-banging, insert superlative here).
I was a partner (junior partner that is) at a small fund focused on small/mid cap US market, mostly technology, we were trading the market very actively (today it would be a fancy ”hedge fund” but back then it was just a “fund”) and playing the IPO market very aggressively, basically that meant we were showering any broker that had the potential to underwrite hot IPOs with very large amounts of commissions, it was all very established (and very corrupt in a way) at the time, your fancy $GS, $CS, $MS, $RS, $HQ etc… broker would pretty much straight tell you if you do this much amount of commission with me for this year, you will be in this bracket and you will be entitled to this allocation.
So it had all started in 1995-96 with brokers calling us saying “hey, I have X thousands of shares of XYZ Silicon Valley obscure software/microchip company for you if you want them ?” and they would be instantly up $2, then they would be instantly up $5, then $10, the $20 and $50. I think I remember the first one that really really got of the rails, Broadcast.com, BCST, I remember me and my partner looking at each other like “this shit is getting really crazy” as we were ringing the register. http://news.cnet.com/Broadcast.coms-bang-up-IPO/2100-1001_3-213462.html (By the way best trade of that era still Mark Cuban cashing out at the top).
The number of IPO grew exponentially and the premiums that some of them enjoyed also, we were involved in almost all of them, now in almost every developed market around the world. I remember that period as pretty much every day coming to the office have my jaw drop at the amount of money that had been printed, start again the next day.
I would regularly go to deal roadshows, a fancy powerpoint presentation around a fancy meal in a fancy hotel, it started with one a week, then it was two a week, then three, then I remember one week at the height of the insanity in early 2000, I had almost every breakfast, lunch and diner that week booked with a roadshow, I think it was more than twelve that week, the end was near.
Thankfully my partner was a brilliant mind, older than me and had a lot more experience than me with the markets, everyday as we were counting the loot of that day he was quick to remind me “This is all a great carnival, an illusion, something never to be seen again in our lifetime, and it will all end very badly…” (this would save us and our investors a lot of money later…)
Probably didn’t need all that background info to lead us to that one trade, but oh well… So for me the trade that pretty much captured the era, the VA Linux IPO in December 1999, lead by Credit Suisse First Boston, deal was priced at $30. Our broker that usually treated us well (because we treated him well…) gave us what looked like a pretty small allocation and we were sort of pissed of at him.
Then the stock started to indicate for trading around $100, which didn’t even shock me as I had gotten used to this kind of crazy pop, but we definitely felt better about it (“Another hard day of work at the office, haha…”). At that price, multiples were already not in the hundreds but in the thousands, but who cared.
As time went by the indications started moving higher, $120, $150, $200, after an hour or 2 it finally opened at $299, 10 times the IPO price, $269 above what we had paid for it in an instant, and the craziest thing of all is that I didn’t even sell it instantly, I was so taken by the frenzy of the time myself at that point that somehow I felt it might go higher, nuts, and briefly it did hitting $320.
Thankfully my partner took the initiative and we sold our shares around $280, booking one of our largest gain on a single trade ever, of course this price would never be seen again, it would only trade south from there hitting $4 a few years later and then was finally bought out for peanuts.
To this day I can’t think of any stock being up more than $250 or 1000% in a single day, this was 1999.
(Also to this day I can’t understand who in their right mind would think it was reasonable to bid $300 for that stuff after it had been already grossly overvalued at $30 by bankers and analysts, but I guess that’s the nature of the stock market when in tulip stage).
As retail traders we share a bond and a camaraderie about the markets. We are not trading together, but we are not trading against each other. That is not the dynamic between the locals in the trading pit. It is survival of the fittest, where the act of “trading” exists in its purest form. If you don’t know how to navigate the waters, you will be blown out in short order, which is the subject of today’s guest post by Jeff Watson.
Jeff is a veteran of the pits and has forgotten more about trading that most of us retail guys have ever known. His blog masteroftheuniverse goes into extended periods of hibernation (like now) because Jeff is an active trader and that is his priority. However you can probe the archives of his blog to find trading wisdom that is as relevant today as it ever was. This post originally appeared on his blog and he has been kind enough to let me re-post it here.
About 20 years ago, the wheat market was trading in a 3-5 cent range for the day. We were standing around in the pit picking off the orders, and when the orders were slow coming in, we would play around with the bids and offers, trying to pick each others pockets.
When the market was illiquid, locals would try to move the market by bidding it up or offering it down, and we could move it around a few cents pretty easily with little resistance. However most guys had a vested interest in not getting the reputation for “spearing,” which is the act of hitting the bid when someone is trying to bid the market up.
A person who practiced spearing was usually a newbie, who would try to make a quick 1/4 cent, or $12.50. This would sometimes piss us off, as a bunch of spearing could hold a market back for the short-term, believe it or not.
There was a new local who leased a seat and had never traded more than one or two contracts at a time, who would always spear you if he had a chance. By spearing, he was taking short-term gains, not looking at the big picture, and avoiding the big moves because nobody would give him more than one or two contracts. Since he never traded more than 10,000 bushels (or 2 contracts) at a whack, he wasn’t a presence, but a fringe player.
However, he had an overpowering ego, was loud and obnoxious, and thought he was a big shot because he had a badge….and was well capitalized. The only time I saw him really trade was when I was offering March wheat at 6.80. I was a quarter cent above the market and was offering it to keep a spread in line. The other players knew that I had size, and didn’t want to go through me, and no one hit my offer.
We were all looking at the Chicago market, when it suddenly traded up a cent (a minute before, I had flashed my clerk and bought a large amount of WH [March Wheat] to cover a position there, and that uptick was my trade), and I offered more March wheat at 6.80. The kid hit my offer, saying “Take it.” I asked him how much he wanted, and he said, “All you got!” I said, “Sold 3,000,000 bushels (600 contracts).”
He sputtered, and said he couldn’t take that much, but I told him that he owned it already, and wrote the trade on my card. He started to protest, but the pit committee guy, and time and sales ruled that it was a good trade.
You never saw the color drain out of someone’s face as quickly as it did from his. The rest of the pit smelled blood and the other locals started offering the market down, then a couple of hedging companies started selling. The kid stood paralyzed, realizing that he had screwed up his short career in one stroke of ego.
He couldn’t get out of the market, didn’t have the talent to trade his way out of his predicament, and had no friends to help him out. Later, I found out that his clearing firm had to cover his trade and they ended up giving me the cold shoulder for a couple of days.
That day, at the close, I covered my whole 3,000,000 bushels about 2.4-4 cents lower, which was a great day for me. As for the kid, he never traded again in the pit. We used to see him sitting in the balcony for a few weeks, watching the action, haunting us for a while, then he disappeared completely. I wonder whatever happened to him.
One’s ego can cause ruination if left unchecked, like the kid in the above story. Ego and emotion can be the worst enemy of a trader. Trying to impress others by cavalierly putting on a size trade that’s 100 times bigger than you’ve ever done is a quick way to the poorhouse. Not thinking clearly 100% of the time while in the markets will cause you to bleed money to those who are thinking clearly 100% of the time.
According to an AP story out today, a number of unshuffled decks of cards were introduced into a mini-baccarat at the Golden Nugget in Atlantic City by the casino itself, which ended up costing them about $1.5 million dollars.
The cards were supposed to be guaranteed to be “pre-shuffled” right out of the pack by the manufacturer.
This last bit is puzzling to me, because in over 25 years of going to casinos I have NEVER seen a situation where the dealer did not spread out the deck after opening, and then shuffle the cards, or put them into an auto-shuffler.
But even more bizarre is how this went unnoticed by the casino staff themselves, who based upon the story may have graduated from the Helen Keller school of casino management…..
At first, it seemed like a coincidence, the kind of thing that happens from time to time at a casino, where the same number or same sequence of cards happens twice in a row.
But when the players at an April game of mini-baccarat at the Golden Nugget Atlantic City kept seeing the same sequence of cards dealt, over and over and over again, their eyes grew wide and their bets grew bigger, zooming from $10 a hand to $5,000.
Forty-one consecutive winning hands later, the 14 players had racked up more than $1.5 million in winnings – surrounded by casino security convinced they had cheated but unable to prove how.
Unable to prove how….???? Okay, well given that the statistical odds of having forty-one winning hands in a row is about a kazillion to one, you’d think that some moderately intelligent security personnel would have at least stopped play.
And apparently it wasn’t just security who was trying to figure out this diabolically clever “scheme.”
The Golden Nugget said it flooded the area with floor persons, managers, supervisors, surveillance and security officers, believing they were watching “a sophisticated swindling and cheating scheme” in progress.
Why there are any managers or executives still employed at the Golden Nugget today is a mystery to me. The only solace I suppose they can take is that the same thing happened late last year at the Trump Taj Mahal, where they let play go for 3 1/2 hours before the realizing something was wrong.
Yesterday I did a post about an insane trade from the 90′s, and asked readers to submit their favorite trading stories from that decade. One of the best was from Sean McLaughlin which he has kindly allowed me to post.
Sean is familiar to most as Editor & Curator for StockTwits, but he also is a seasoned trader and regular content contributor via his blog (www.chicagosean.com) and his StockTwits handle (@chicagosean). I was fortunate enough to meet Sean and his wife earlier this year and found him to not only be knowledgeable and personable, but a very funny guy as well.
Unbridled Hubris, circa the year 2000.
I worked in a tightly knit office of about 30+ guys during the 1998-2002 internet boom/bust.
So, around late 1999, this hot-shot late 20′s stockbroker decides he wants to quit his job and become a day trader. He comes into our office, all full of himself and with a check for $50k to open an account.
He proceeds to attempt to chat up every guy in our office to learn from them how they made money. This isn’t normally a bad thing as we were all friendly and in it together. But this dickbag was so cocky. Whenever some of our most profitable traders would give him advice, he’d scoff and be like “that’s how YOU make money, and thanks, but I’ve got some better ideas”.
About two months in, from the way he was acting you’d think this guy was making money. Every day, at least once a day, he’d have some profitable trade on and he’d strut around the office making sure everyone knew about it. Of course, you never heard about any of the losing trades he was also sitting on. And in reality after two months his 50k account was down to about 30K….
But then he “tamed the beast.”
Fast forward to just a few days after the NASDAQ peak in April 2000. Yahoo ($YHOO) has traded significantly down from its highs, and Mr. Dickbag decides that it is DEFINITELY going back to all time highs. So one morning on the first green opening in several days, he loads the boat huge. Leverage was a bit of a non-issue at our firm, so even though he had approx $30K in his account, he put on a position worth about $150K of $YHOO stock.
Well, wouldn’t you know it, $YHOO starts retracing back to its highs, moving 10 points up like it was nothing. DB starts hooting and hollering, cheering his stock position on, making quite a spectacle of himself. $YHOO moves up another 10 points and it starts to become unbearable.
He calls up his wife: “Honey! I’VE TAMED THE BEAST!! I’m killing it in Yahoo!!” he repeated several times. He then calls up his former stockbroker buddies gloating about how quitting his job was the greatest decision of his life and that they should quit and join him. “I’m making a fortune! I’m taking all you pussies out this weekend! I’m getting us a limo and drinks are on me!”
Meanwhile, the rest of us in the office were all looking at each other, rolling our eyes, and secretly plotting to pants this dick and throw him out the window. Nobody likes gloaters, and we all especially hated this guy.
At the close, DB was up about 35 points in his $YHOO position, within one good run from all-time highs again. Naturally, he decided to break the cardinal rule of day trading and hold his position over night. He wouldn’t even take some of the profits off the table. He was so sure tomorrow this stock would be making highs again.
Well, the next day, $YHOO did indeed gap up higher, but only slightly. Of course, our friend had a mighty big smile on his face, as he now considered himself the top dog in the office. He was sitting on something like $150,000 of open profits on an account that just 24 hours earlier was worth $30K.
I wish I could tell you this story ended here with our hero taking his profits and picking up his buds in his fancy limo.
Sadly, Yahoo essentially traded straight down, hard, for a seemingly unending streak of days. And two months later this Dickbag was separated from his wife who filed for divorce, was penniless, and was dead. He committed suicide.
Moral of the story? Don’t be a Dickbag.
You might also enjoy: I Will Kill Myself Tomorrow If Apple Doesn’t Go Up – Tales From A Margin Clerk.