I will have an educational article up sometime soon on the subject matter of "blank box" trading. You won't find this stuff in any book. It's what I do and it's a daily preparedness strategy that every trader can incorporate into their trading method.
In the meantime, let's not forget why we even have our day off. As of May 21st, we lost 4,296 soldiers, and another 31,102 wounded. This weekend has got to be one of the toughest weekends for a lot of families out there. I personally know dozens of soldiers that got killed in combat, including my ROTC MSIII instructor at VFMC. It's a dangerous world out there, unknown to some of you sitting in your leather chairs in an air-conditioned room watching episodes of American Idol.
The market hit the 880 level, which was the final support level in my book yesterday. The end of the day, which was met with some serious buying (and not just short covering), was encouraging. Today's action plan is simple, and it is all drawn out on the 3-day chart below. I added a "blank day" so you can use it intra-day to see where the market is located. I do this everyday, and it is a method that I highly recommend.
The red box is "today". The green zone is your support level and the purple zone is your resistance level. The two blue lines in between are minor support and/or resistance levels. That's it. Don't make it any more complicated than this.
We are still in a multi-week consolidation, so you better be hedged. Play both sides of the market, or else you will suffer tremendously. I was down only -2% yesterday, even though I was (and still am) 65% long and 10% short. I will be doing some rebalancing, buying and selling stuff, ahead of the Memorial Day weekend. Don't forget that the markets are closed on Monday, so...you might want to plan ahead for it.
The important matter going forward is to make note of all support/resistance levels. Pay particular attention to the 10-day SPX chart shown below. The designated "green zone", located between 897-902, is the strongest and most widely used support/resistance area for the past 10 days. When/If the lower band is broken, it is unknown how far the market could correct.
The 1-month chart shows a possible symmetrical triangulation and a possible secondary support area near 885. The 7-month chart clears shows that the market closed above the 15-day MA (901). We can expect to see additional support at the 20-day MA (891), which is also the location of the 2-month+ lower channel line. Final support is indicated at 875. All of this is if the market declines.
As for upside, there first needs to be a breakout above 922, then 930. After this, the market has space to move to the 200-day MA (940). Since no one knows what will happen for sure, you should hedge your portfolio going forward, regardless of what your personal opinions are. Frankly, the market doesn't give a shit what you think.
Note the COMP in the circled area. This is the chop zone at the 200-day MA, more reason to get hedged.
My strategy has worked out well for several weeks. At this stage, I am holding onto 6 long positions, all of which are participating in the circus. In addition, I added one more short unit, FAZ, to accompany QID as a hedge for the portfolio. The point is to find long stocks that are not directly correlated with the market while simultaneously protecting yourself against downside.
I made a grand 1.2% yesterday. Woo hoo! No. Yesterday was a complete waste of time for me. I should have just taken a nap.
Anyway, my allocation is 48% long (ANPI, AXL, BLTI, CTIC, LEA), 10% short (QID), and 42% in cash. For those that think the dollar stock circus packed up it's shit and left town, you are mistaken. I will be buying more stocks today.
The market (SPX) is simply consolidating, churning in a large 50 pt range. It is possible that the market may be forming a triangle as seen on the 2-month chart. Who knows? Most of my dollar stocks don't move with the general market anyway. They have minds of their own.
My strategy is very simple. It is to buy $1-3 stocks that present great opportunities while hedging my portfolio with one short unit. The dollar stocks should breakout on an up day, and even though the short will decline, the portfolio should be net positive. If the market goes down, the dollar stocks should not get hit as hard as the general market, and the short obviously will give me a buffer against loss.
If there is a loss, and the chart gets fucked up on the daily, then cut your losses immediately. I've taken many losses during this circus, but the thing that separates me from most traders is that I keep the positions small and I do not hesitate when I need to sell. Take your losses and move on. Similarly, take your gains and move on. Stop fucking around wasting valuable working capital.
Since the COMP is churning at the 200-day, I cannot and do not expect the market to steam roll higher day after day. You have to expect some down days (duh). You must already prepare for them, otherwise, you will panic. In addition, oil is showing a high-and-tight bull flag, which is a characteristic of an imminent breakout. If oil heads higher, then the market goes higher.
I urge everyone to not commit to one side, but have a hedge as an insurance policy. If you notice, I am regularly X% long/X% short. While it may be your goal to make as much money as possible, my primary goal is to preserve my triple-digit gains.
Wait, actually, my goal is to make as much money as possible. Sorry for the confusion.
