Thursday, July 2, 2009


The Imperial Eagle


First, I am up over 200% YTD. This is not my all-time high. My 2008 return was 256%. My goal is to hit 300% YTD for 2009.

I have nothing to add, except that we are still consolidating. There seems to be a lot of folks that are confused as to why the market is moving the way it is. If you used technical analysis and not some useless fundamentals, you may have realized that there are 3 key short-term MA's that are boxing in the SPX (15-, 20-, 30-day MA's). These MA's are creating the narrow range that we are in right now. Stop wondering why the market is doing what it's doing by doing some simple homework.

Let's talk about why I post my trades. They are NOT for you to follow. They are for public documentation purposes. If you join me, you do so at your own risk with the assumption that you know what the fuck you are doing. I get really annoyed when people ask me if I am "still in" or "when I will sell". Shut up. You should already know when to exit prior to entering. If you enter blindly, you are sheep waiting to get slaughtered.

Here is a sector breakdown of the SPRD Select Sector ETFs:


Since I don't have much to talk about, let's mix in a little education in here. Today's topic is on FEAR.

Fear, and it's powerful ally - worry, ruin more ideas, intentions, business transactions, and the vitality and energy of more people in the world than any other single thing. The USA has become a nation of worriers. If you intend to build a strong, successful trading future for yourself, you must learn to eliminate unhealthy fear from your thought processes.

Besides the ruinous forces of fear, it can also be one of the greatest motivating forces in the world. Shakespeare said, "To fear the worst, oft cures the worst", meaning that sometimes a good scare accomplishes more than good intentions.

Why do we learn? We get an education because we are afraid of being ignorant. I mean, come on, you don't want to be following my trades forever, right? Most people obey the law because they fear punishment (Unless you're Bernie Madoff). You take a shower and brush your teeth everyday, hopefully, because you have a healthy fear of disease. The point it, some types of fear have value. Fear forces you to think about things you might not otherwise worry about.

However, the negative kind of fear will cripple and debilitate you mentally and then destroy you and your dreams, if you let it.This unhealthy fear will inhibit you and prevent your progress towards success in whatever you do, in this case, trading. It holds you back, prevents you from 'pulling the trigger', restricts you from taking advantage of the ideas you create, and in the end, stops you from taking action, until it's too late to act.

In essence, you become your own worst enemy. There is no one or nothing you can blame but yourself if you let fear take over your life. As yourself, "what are you afraid of"? Are you afraid of losing? Stopping out? Taking profits too early? Deviating from your system? Events outside of your control? What in the world can be so scary that it prevents you from winning in the trading game?

Whatever it is, this fear will prevent someone with great potential from going as far as they might have otherwise. This type of fear usually becomes a self-fulfilling prophesy if it is allowed to grow (being fed by you, of course). Basically, you will lose before you are even given the opportunity to consider any victory.

Where does this fear come from? When you were a kid, did you ever burn your hand on the stove? I bet you didn't touch the stove ever again. Or, if you're a rare case, you kept touching the stove and it took you a while to figure it out. The point is, these fears are usually well-grounded by events that took place in the past. Perhaps you suffered a huge loss, or a string of losses. Your confidence got sapped. I tell my students all the time, "don't dwell in the past in order to see the future". This is an obstacle that only you must defeat on a personal level.

How do you deal with this? It must be done in a straightforward manner. Most likely, each fear developed from a bad experience. We all fail, and we all lose, and this can be extremely demoralizing. When you fail, it is likely that you will start believing that you will fail again. Here are some solutions for some of the more common psychological issues related to trading:

  • Anger over a losing trade - Close out your positions, take a breather, move away from your computer and come back when you calmed down.
  • Trading too much - Pace a limit on your trading activity or even take one or several days off.
  • Wishing, hoping, praying - Base your decisions on technicals.
  • Adding to a losing position - Instead of averaging down, average up on a winning position. (You have never seen me adding to a losing position, ever)
  • Afraid of 'pulling the trigger' - Again, base your decisions on the technicals
  • Fear of being stopped out - If you use stops, let them to their job.
In conclusion, I want to share with you an old fable that I'm sure you already know. It is about the mouse that roared.

Once up on a time, there lived a little mouse. He lived in constant fear of a cat that lived in the village. One day, a powerful space alien magician came to town. "M'lord," the mouse begged of him, "thou art wise and powerful, and my life is most miserable because of a cat. Woudst thou return joy into my life by making me into a cat? Then I would no longer live in fear."

The magician smiled, raised his wand, said some magical words, drew some lines on a chart, and the mouse found himself a cat as he wished. But, he was the most frightened cat in the land. A dog that had been of no concern to him before, now made his life unbearable with fear. Every time he ventured out of his out, the dog chased him.

The cat, desperate with fear, went back to the magician. "M'lord," he said, "being a cat is most miserable because of a dog. Wouldst thou return joy to my life by making me into a dog? Then I would no longer live in fear."

The magician obliged, and the cat became a dog. But he became a dog that lived in constant fear for there was a huge tiger that lived in the forest and made his life...miserable.

Again, this poor creature set out for the magician. This time he asked to be made into a tiger, and it was done. Suddenly, the tiger now found himself in the most terrifying circumstances he had ever known. Hunters came into the forest with rifles and dogs. They even set out traps for him. He had never known more fear than he did now.

Finally, the magician was asked by the tiger to be made into a man, that he would fear nothing from that day on. For the first time, the magician spoke. "As a mouse you knew nothing of cats. As a cat, you knew nothing of dogs. As a dog, you knew nothing of tigers. You know nothing of sickness, old age, or failure. You know nothing about finding and losing a job. No, I will not make you a man, I will again make you a mouse, for in your heart, you are a mouse anyway."

Don't be a mouse.

Wednesday, July 1, 2009


Imperial Bolter - Astartes MK Vb Godwyn Pattern


We just started a new month, a new beginning. Hardly new, the market is still trading in a neutral range. The possibility of an H&S is still present, though this pattern takes months to form. For those that believe the H&S pattern is hocus pocus, let me remind you that the pattern marked the top in 2007 with a neckline break on the 1st week of January 2008. As a short-term trader, I have to take advantage of intra-day and multi-day swings, prior to any breakdown (or a rare failed pattern breakout).

Besides the magical lines on the charts, keep an eye on the 20- and 30-day MAs. We've been trading in this narrow range for the past 3 days. The 20 is located at 924 and the 30 is at 919. For the day, I will focus on the 905-928 range. For the intermediate, I would focus on 895-930.

I took a look at the breadth charts, mainly the NYSE NH-NL's ($NYHL), NASDAQ NH-NL's $NAHL, VIX, NYSE A-D line ($NYAD) and the NASDAQ A-D line ($NAAD). The New Highs-New Lows Index is on it's largest cumulative positive strech since the bear market started. The VIX is back to pre-Crash levels.

The most interesting thing that I found was when I compared the NYSE and NASDAQ (COMP) indices with their respective Advance-Decline (A-D) lines. The COMP is outperforming the NYSE, however, if you look at the A-D lines, the NYSE internals have fared much better.

Finally, on the bearish side, the European indices ($DAX, $CAC, $FTSE) are all forming bear flags. The 20-day MA served as the principal support level for all three, but they have now turned into resistance.The Asian markets are still level.

Tuesday, June 30, 2009


Imperial Guard Leman Russ Battle Tank - Anvilus Imperator Design


Consolidation continues. The new expected daily range is between 915-935 as can be seen on the 1-mo/60-min and 2-mo/60-min charts. The 8-month/daily chart shows that the SPX is currently above the 20-day MA. For a head & shoulders (H&S) pattern to qualify, the right shoulder must be a lower high and the neckline break must be confirmed. Leave your mind open to the possibility that we may not even be forming a H&S pattern. The market remains 'neutral'.

I've also added the SPRD select sector charts, and collectively as a whole, they support my neutral rating on the market. The sectors are not moving in tandem. The materials and energy sectors may be forming small bear flags. Health care, tech, and utilities are in ascending channels. Cons. discretionary, cons. staples, financials, and industrials are in neutral ranges.

On a different note, let's talk about the KASH formula:

Good formulas work just like good recipes. Follow a set of directions, and you can make an apple pie. Take out a cookbook, follow the directions, and you can make creme brulee as good as the person who wrote the book. What's the point? The kind of formula you follow determines the outcome you'll have.

Formulas apply to all aspects of life. Take for example, a tailor followed a pattern to make that suit or dress that you are wearing. A builder built your house from a set of plans. A programmer used a set of formulas to design the programs that you use. For all of those formulas to work and give good results, they had to be followed carefully.

There's an old joke about a pharmacist who was grinding a prescription that called for as much strychnine as you could put on the face of a dime. He didn't have a dime, so he used 2 nickels.

Sound like something you would do? Bet you'd hate to be the one taking that prescription. Unfortunately, that's about how carefully some people follow the formulas they've learned in life, and in trading.

What is
KASH? KASH = Knowledge + Attitudes + Skills + Habits = Success.

Here's a useful exercise for you to evaluate yourself:

1) What additional knowledge do I need?
2) How can I improve my mental attitudes?
3) What additional skills do I need?
4) What new habits should I develop? (For me, I need to get to bed earlier!)
5) How can I improve my success personality?

Monday, June 29, 2009


We are still in consolidation and may still be forming the right shoulder of a H&S pattern. No new developments.