Double Journey

The market opened down this morning and under some key support levels in the S&P.  The November lows of 740 on the S&P have remained strong technical support from any pressure downwards.  This is actually a long term level of support that goes back more than a decade.  Underneath that … well lets say there just is not very much support.

So as much as I think this market has more upside than downside, this market is trading on pure emotion and the downside risk still exists.  If the market gets much below 740 and stays there, I think you are going to see a tidal wave of selling as people finally give up on this market and just run for the exits.  If that happens, watch out below, because there really isn’t much of a floor anywhere below.

I did something stupid today, I broke my own rules.

I’ve been, rather successfully, playing the volatility in the market.  I have avoided playing the long side since it is extremely hard to do in this market , but when the market touched a low and bounced, I decided to go long the market.  I bought SSO at $21.62 a share.  I was willing to take a 10% haircut on this,  which would have put me at $19.42.

But one thing I have followed during the last few weeks was to not be on the wrong side of momentum in the last hour.  You see, this market has consistently accelerated in the direction of the day in the last hour.  That is, if the market was up the whole day, it goes even more up in the last hour.  If it was down, it goes even more down.  When I bought the stock I told myself I would not be on the wrong side of the momentum at the end of the day.  If the stock was down, i would get out before the last hour.

The stock actually touched $22.71, and I should have gotten out when it did.  Unfortunately, I was waiting for $23 and it never came.  Well it became noon, the last hour of trading, and I froze with indecision.  I couldn’t decide what to do, even though my own rules told me to get out.  At noon, the stock was right around $20.80.  The trend was down, and I should have taken my losses and gotten out.  I didn’t.  The stock, predictably kept going down.  I did a rookie mistake, and kept waiting for the stock to go up just a little more so I could get out.  It did not.   The stock went right though my out point and did I sell?  No.  I held on to it and saw it touch $19.10.   Some sense finally did return to me, and I sold half the position at $19.62.  That actually ended up being a local maximum, and the stock dipped below $19.00 before settling at $19.10 for the day.

One day, about $1000 lost.  Pretty sad if you think about it.  I really should have limited my losses better but I did not.  I could still lose even more considering I’m not out of the position yet.

The moral?  Know your rules.  Stick with them.  They are there for a reason.

Etrade was down another 20% today.  This stock is ugly.  I got out of it not too long ago, cutting my already significant losses.  But, if I could watch this stock like a hawk tomorrow, I would consider trying to buy up a few shares and then day trade it.  I still think it will sink down to around $2, but at some point very soon, the shorts are going to cover and you should be able to eek out a 5% gain or so.  Again, you would have to have a very tight stop-loss on this stock, because it still has a ways down.  That said, I won’t do this.  I don’t have the time nor inclination to day trade.  But it will be interesting tomorrow to check out the chart and see if it does indeed bounce.

For all other people thinking about getting in now and trying to pick a bottom, FORGET IT.  Do not go long this stock.  I promise you, it will go down more from here.  I honestly think this sell off is overdone, and that Etrade is worth more than this, just for the fact it still has quite a few customers (myself included).  If you have money that can sit dead for about two years, and don’t mind waiting it out, than maybe just maybe you can get in.  For everyone else, the risk of bankruptcy probably doesn’t outweigh the potential gains.  Don’t fight the stock at this point.

Wow, what a ride. I honestly didn’t think I would be in and out of this stock so quickly, but that’s what happens when you play in the small cap space. So overall, this was a pretty bad trade for me. Jamba opened higher but then traded down all day on pretty much no news, but the bears were firmly in control.

I actually didn’t check on the stock until it was down around $4.90 today. I should have sold there, but I was waiting for a better price. It didn’t happen. Like I predicted, as soon as it broke through its support it was straight downhill from there. Good to know I was right, but bad because I didn’t get out of the stock in time. Truth be told, I did not think that the stock would hit my stop loss point in one day, but it did. At $4.54, my stop loss executed, netting me a 10% loss in just under two days. Yikes! Lesson learned.

So that means I took a loss, including commissions of $243.42. Kind of painful.  Probably won’t trade rest of week and remain in cash.  I’m on my way down to California to start a new job.  Wish me luck.

So Jamba closed at $5.30 today. I bought at $5.03 at 11:55 a.m. which just so happens to be where the stock bounced on its way back up. So excellent, albeit lucky, timing on my part. That means if I would have sold on the close, I would have netted a cool 5% in just one hour. Including commissions, I would have made about $114. Of course that is irrelevant since I didn’t sell, and I won’t unless it breaks back through its resistance line.

I want to go into a little more depth into why I decided to buy where I bought so hopefully we can all learn from this. I think Jamba is on its way up, and up significantly, and wish to give you the technical reasons why. Here is the one month chart on Jamba.

The news on the Nestle deal came out on December 4th, and you can see the rather large spike in Volume there. The stock shot up to $4.50 that day, but then pulled back to close at the $3.70 level. This showed that the bears were still in pretty firm control over the stock, as they were able to beat back the bulls that day. But since then, the stock has soared, going from $3.70 to $5.30 today, a 43% gain. For the last four days, the stock has closed pretty near its highs for the day. This is a very bullish sign. When it broke through its 50 Day moving average of $5.00, and it stayed above this resistance line, it further strengthened my resolve that this stock was set for a good breakout here. The stock has been killed this year, losing over 2/3 of its value, so it seems primed to hit a bottom.

I fully expect this stock to retreat tomorrow. People are going to take profits at this level. Those who have seen this stock fall from $10 all the way down to $3 are going to see this as an opportunity to get out of this stock with a little bit of dignity. If the stock can stay above the $5.00 mark in the face of this selling, then that is a very good sign for the stock, and should signal that the bulls have taken over. This will mean that Jamba has hit a bottom and will most likely be in an accumulation phase. For a small stock like this, this could mean very big gains in the short term.

Tomorrow will be very telling.

Despite Rick’s urging, I’m probably not going to buy Apple today. Although I really want to get into the market, this isn’t the right stock to do it. There are many reasons I like Apple in the short term, but the price action on the stock just isn’t shaping up. Here is the one month chart on Apple.

Now look at the last five trading days. See that nice uptrend? That in itself doesn’t scare me. Most people don’t want to chase a stock that has gone up like Apple, and for the most part I agree. But sometimes it makes sense if a stock is taking off, which I think Apple has the potential to do. But look at the last candlestick. You see how it is red? You see how narrow the candlestick is? you see how it is hovering right near the bottom of the price action today? This is a perfect Gravestone Doji setup.

For those not versed in technical analysis, think of it this way. You had a great run up in the stock. Today, the stock tried to go higher, which is why you have the point sticking up. but toward the end of the day, the bears took over and started selling the stock. It ended up slightly lower (there is still about an hour left in the trading day so this could reverse). This is generally a weak signal, but still significant. What makes this sign stronger is the fact that the market overall is up today, so Apple is looking weak here. Confirmation will come tomorrow if there is another sell off in the stock. I think Apple could break 200, but I think it could also fall down to support at the 170 level.