10-Minute Rule for Intraday Stop-loss (GMCR short update)

Twitter entries are 140 characters only and instead of an 8-part explanation there of my stop-loss benchmark now for GMCR, I'm going to lay it out here instead.

Readers at home can see how I suffer a position going against me. Oh my God, I'm meltinnnnnnggg!! ...tune in to GMCR today and watch me burn.

Follow Centrifugal to fade trades in real time

Would-be Tweet in 8 parts:

>11AM [EST] now, so I'll explain my 10-min rule 4-intraday stop-loss bnch. It's based on NH or NL (intraday, depending if you are long or short)..

...I will often take punishment early, whereas tighten-up a benchmark later-session. Beg. 11AM I consider the early mkt as ended...

...$GMCR early high 2day = 33.33 and %-gain + vol-pace not forcing me out (5%+ on 2x's+ vol-pace would-have forced me 2cover short)...

...No such vol or %-gain on $GMCR & rise is on take-over chatter, so I held; but 10-min rule now in effect (given >11AM now)...

...10-min Rule for short = cover-short post-11AM if name makes new intraday high & remains > previous high 10min later...

...For $GMCR now, that means if it trades 33.34 or higher, then I am stopped-out if pr is 33.34 or > 10 min later. Stop then placed 33.34

...the reason this works is that a brief spike to nh's will not shake you out, but if it sustains at new intraday high, you must exit

...33.34 stop-price would then be in place for remainder of session. The more liquid a name, the better this works; $GMCR liq-enough.

That's all for this one. This rule has saved me many times (from getting taken out too early, but still taking me out if ultimately necessary) and was designed after numerous times of being stopped-out because something made a new high intraday (or new-low for a long), stopping me out, but only to mark the high (or low) on that very spike (you'd be surprised how often this occurs at mid-day). Waiting 10-min at that time gives it the further necessary proof/confirmation that you are only screwed (whereas when they jack to new intraday high and then re-trace, you survived). Again, this is if you decided not to blow out a loser sooner (and for me, higher volume and %-gain forces me out no matter what I might think). This rule works for when you are not perfectly sure and the name might re-trace later in the session. In this case, if GMCR re-traces in the last 90-minutes - I'm less of a chump and the rule gives me a better chance to still be involved. Finally, if a stock takes out a high in the final hour (or new-low if this is a long), then the 10-min rule is not important - the stock is taking you out at a time of day you can better trust.

Who is going to buy/takeover GMCR, by the way? That's a funny one :^)

right-lick and expand to view chart

Archived Repost - The Contrarian: Root Canal Bottom (10 Oct, 1998)

The following is an archived post which I published in October, 1998 (from The Contrarian - notes from the wall street underground). This month would mark an important bottom, on the heels of the Russian financial crises and which culminated with the blow-up of Long Term Capital Management (LTCM). Emotion was high during this period, and while leadership stocks were considerably strong, especially in terms of relative strength, sentiment throughout the investing community was resolutely negative.

This material was poorly archived, as it was published pre-Blogger and with a password-protected site. I'm beginning typing these up now because I am using some of the material on a related work.

Saturday, October 10th, 1998
Root Canal Bottom

A great time to be alive, this week was. CNBC was especially entertaining. You must understand, dear reader, that I am tortured throughout the day, and throughout the week, by CNBC. It's not that I hate CNBC, it's more that I like very little of anything. And for such a spiteful sort as me to have to listen to that show, endlessly mind you, well it is every bit like torture. Subtle, continuous torture; the very worst kind. It doesn't end there either, my sweet. This is a dark little hole I live in but there is no lack of light really. Not with this mess of computers and that dreadful tele. I am continuously and forever bombarded with flashing lights and incessant noise. It's never quiet here. Add to that the jet planes and freeway traffic and you can see that I am not to be envied. Perhaps you can relate. Perhaps you live in this modern world as well. I cannot envy you either, it seems.

So it was with genuine pleasure that I witnessed my oppressors losing their talking heads. There was no sign of greed this week at all (bond traders excluded). This week it was no longer a question of BEAR, it had become a question of how big! Yes, it is religiously preached to us to buy low, and for the "long run." But on such a week as this it always seems more important to raise cash; all of a sudden. Never mind that back in July the market looked as bad as it did - we were "long term" investors then, right? Never mind that the T-bill rate is now a point and a third below the discount rate; is that even positive? Never mind that the 10-day CBOE Put/Call ratio is at historic highs. Never mind that the top two Wall Street heroes (Abbey and Ralph) lowered targets and estimates for the market, the Dollar was free-falling against the Yen (thank you), the President Clinton was again doomed, and the entire financial sports world was crumbling faster than the Ruble on a bad day.

In fact, the market looked quite good. It is undeniable to me now. Consider this - in the throes of all this tragedy and emotion, the market itself didn't behave panicked at all. It was hardly down relative to the contagion of fear and panic evident throughout the investment community. If you had only watched the reaction, you would have thought the market was down a thousand points, three days in a row.

It was not all roses here, however, don't let my cool tone fool you. I was buying illiquid small cap stocks on the way down, while covering shorts, and I went into Thursday fairly long and with no hedge. I'm not telling you this to brag, dear reader, I think you should be aware I am insane.

By Thursday's end I was fully margined, long only. And those pretty little dental Biotechs I've been touting? Well I hope you didn't expect them to go "straight" up. I did say they would double from the lows made on this wave down, I'll stick with that. But KNDL, and PPDI in particular, reminded me of root canal - sans Novocain.

Other buys this week included Japan (EWJ), GENZ, YHOO, AOL, SEPR, ENMD, INTC, ORCL, MU, LIPO, SNAP, ...go team

GMCR (pivot-entry reached for short)

right-click and enlarge chart in order to view properly


Getting back to GMCR again, the stock this morning has reached my pivot-entry for re-loading short. Should it manage a close above 32.44, on rising volume, I will be stopped-out for now - whereas a close below 32.44 (the lower the better) implies that gap-resistance is still maintained and we can focus then on what might happen again below.

I call this a pivot-entry (re-entry in this case), because now (32.08-to-32.44) is the level that defines whether or not I am on the right side of the trade (the 50-day moving average today is ~32.08 and the lower gap-level from the breakdown is 32.44, from September 30th).

Sure, a position being above or below water in your account is a good measure of whether we are on the right side of a trade, but in fact we could be profitable on something and ultimately be in the wrong place (give it time, give it time). When and if the name reaches a key level (in this case, GMCR has poked above the 50-day MA for the second time since breaking-down AND the stock reached the lower-end of the gap, 32.44). Note that some will always point to a stock filling a gap, but in fact the best shorts only reach into the lower-end of a gap before losing the ability to continue bouncing).

Important: Over the weekend I mentioned (re GMCR) that when a leadership stalwart breaks-down hard and initiates a new downward trend, it is not until the 3rd or 4th jab above the 50-day moving average that it is optimal for entering short (it usually takes time to kill a giant; for reference, scroll down to the GMCR paragraph here). Understand then that I am cheating now, on faith that GMCR is going to lose steam at this area, therefore I must keep stops tight and acknowledge there is a good probability that A.) GMCR may in fact survive as a leader and in that case I have no business shorting; and/or B.) The likelihood the name will ultimately poke above the 50-day a third and fourth time down the road are strong.

In other words, I am getting ahead of the more optimal trade, as we generally need to give a falling giant more time before coming in with swords. I will do this at a key entry point, however, because I will know very quickly if I was too eager (I'll take a quick loss if the name survives and closes >32.44, while I can consider myself on the profitable side as long as it does not). Therefore I've got an enviable risk vs. reward trade at hand, beginning now - assuming there is no take-over or other news which gaps this one through my heart.

As always -don't do what I do, especially when I am discussing shorts. I lose money on something every day. If you play along with GMCR short because of me, it will most surely occur for me with this one!

Try this instead - Follow Centrifugal to fade trades in real time

Beast out.

Oh, I should add that time-of-day is meaningful to my entries. If this were the end of the session that GMCR had managed to recapture the 50-day and then the 32.44 lower-gap, I would hold off entering at that point. I always give more credit to the end of the session that prior to 11AM est, certainly.

Repost - The Contrarian: On Heroes and Chiefs (22 Oct, 1998)

I'm going to start punishing you guys, as an aside, primarily to use you whilst working on a related project. Stop reading now and you're off easy!

You'll see too - I'm old suckers. Old like the fine-rug outlet that's been going out of business in your town for 20 years!


The following is from an early online stock market newsletter (The Contrarian - notes from the wall street underground), published in 1998 and 1999. The material is poorly archived, as it was published pre-Blogger and with a password-protected site. I'm beginning typing it up now because I am using some of the material on a related work. That's what I get for being born too soon - I get to re-type shit 12 years later. I'll be mixing these in with my usual amount of too-little work on the blog here, so just learn how to ignore them as we go forward ;^)

Thursday, October 22nd, 1998
On Heroes and Chiefs

Crash and burn - look out below. Did anyone notice Time and Newsweek nailed the bottom in the market - again! Now, two weeks later, the world is a much saner place, but there's still risk - it's choppy out there; be wary; don't be a hero.

I don't mean to be sarcastic (of course I do) but every time the market started a wave down this week the sentiment immediately crashed. CNBC had been running story after story, question after question, considering the possibility that we're in a bear market bounce, while guest after guest has confirmed that risk still outweighs reward, that we're near the upper end of the market's trading range, and caution is recommended. I'll tell you this: the market has been nothing but up for two weeks, and yet put buying has not let up. Near term pullbacks are going to be short-lived and largely a blue-chip affair. And these same cautious people will see safety in higher prices! It's always that way at a bottom - no one wants to stick their neck out too soon - not until the market proves it can rally 30 or 40%. Yes, give the public 30% and things certainly seems safe again.

I'm still holding plenty of stock, you may have noticed. And according to some I'm about to get nailed. I'm taking on too much risk, especially with these small caps; the Techs; the Biotechs and - God save his soul - the Internet stocks. But I am insane, dear reader. You have come to know that. I even bought back into my gold stocks the last two days.

Okay, speaking of heroes, I can't let this go. It's fire season again. Not a terrible time really, except for all the woo over firemen. I get so sick of these guys, riding around and making big noises - the blowhards. It amazes me how everyone only loves them. "Oh, they worked non-stop for four days battling that blaze - what heroes." Meanwhile, the rest of us work all year long. They get away with murder, I tell you. Hell, half the fires out there must be caused by you know who - firemen!

Then there's the paramedics (you were right to bring them up). They're no better. Out there busting their asses every day saving everyone's lives - bullocks! In New York they will run you down in the street if you don't scramble fast enough; all for some fossil or other they're trying to revive. I wouldn't be so sure. I've seen these people. They hate their jobs like everybody else, and like everybody who hates their job they want revenge; they want sabotage - anything to break up the monotony. And if they're willing to run you over out of sheer boredom, I'd hate to know what they're up to in the back with those suckers they bring in. Just stop with all that noise and and I would despise them only half as much. The Coast Guard, Search and Rescue...thank God I don't have to hear the likes of them. They're worse no doubt.

Updated Position (plus some insight as to why and what for)

Remember that trader in Reminiscences, the guy who impresses Livermore by always always always holding onto his position, while traders all around are trying to pick tops and selling, because, "...after all, it's a bull market."

Well, let me tell you, I was rat-jack prepared for last week's slice lower. I think it took place on Tuesday. I'd have to check.

Okay, it occurred to me (finally!) that I spend a lot more time discussing the nuances of the market itself and much less my specific position. I'm going to try an experiment in boring you to death and see if it's worth the ink. Brace yourself in the event that it lasts for longer than tonight, at it reads like an appendix. I can't make a magazine layout of why I'm in or out of a specific stock. I try to focus on the discipline itself and to get the market right. From there I attempt to hate all the underlying parts of my position equally; these parts are filtered in from my discipline but they are not the discipline itself - I never want to mistake one for the other, since one changes gradually while the other can snap in half almost out of nowhere. I don't want to promote love (of individual names or themes) since I do not want to hesitate letting these go (don't try this with real life - you'll live a terribly lonely existence). Trust me, when you think you know something, or you find yourself truly believing in something, you have less of a chance getting away from it before it damages you. Better to distrust all stocks equally - that is what is really meant by not marrying your stocks. The best trader hates them all, indifferently!

Regarding current longs:
-Cloud-stalwarts CRM and CTXS are back in my long line-up. CTXS reported Thursday night and I would note the sequential rise in both revenue and earnings, and that the stock managed to rally on strong volume Friday (following an early fight). While I'll admit to having a bit of a tight leash on these, I'm not so judgmental that I won't allow them a chance to prove powerful again. So far, they are only mediocre vs. the broader market in terms of relative strength (RS), but they are at least challenging their downward trend lines here and we might see them gather upward steam again. You may as well throw VMW, FFIV and AKAM into the list to watch (the other larger-cap cloud plays which are having issues with RS), but note that $18.5B-cap NTAP is winning on price and RS, while several smaller to mid-cap cloud plays are also hanging tough (RHT, CVLT, APKT, NTGR, ISLN, ULTI, ARBA, and especially now RVBD). RVBD is the beast of the bunch now and I'm looking to re-load into that one as soon as possible; NTAP as well for that matter.
-MOTR was Cramer's Mad Money feature on Friday and I am looking to sell now Monday morning; hopefully above 19. Cramer deserves credit this last year (since March 2009, actually) as his style of investing and this market go well together and he has consistently detailed a lot of the better stocks. That said, I am always going to cash-in a coupon for free turkey when I own a speculative play pumped by Cramer. If he covers an ORCL and I am long that one, I don't pay any mind (whereas if I am short I usually just short more of it). But a name like MOTR may or may never get as high again, for all I know. I'll exit on the hype and let the name re-prove itself before venturing back.
-I'll (possibly) discuss more of the longs later this week. This is not a complete appendicitis I guess. Did you notice I gave props to Jim Cramer? Maybe we'll deal with that again. Certainly it is less fun than attacking him.

On the short side:
-I'm not so bullish on the Dollar bouncing, but I know my long-position (below) will get hit if this occurs further and this explains why I'm currently focused on SLV-short. I am not especially bearish on gold or silver here, but the metals-short were a good hedge with the market weakness Tuesday and I want to have something in this area should they follow-though (or else take a small loss if they pivot upward instead).
-I covered CRUS on Thursday and Friday, following earnings posted Thursday morning. That one is just above the 200-day now and I would/will try to get short again if I suspect it is ultimately going to break below the key-average. I'm not especially excited with CRUS at this particular hour (talk to me tomorrow at 2PM). Some few hours back though, it did provide good feelings ;)
-I am also on the sidelines now with the GMCR short, but looking to re-load at either the first sign of trouble, or else the next emotional thrust higher. Either of those makes sense to me to get short again - the latter then becomes benched above the corresponding thrust-high, which may even turn out to be a little above the 50-day moving average (MA), which would appeal to me. Note that time is still young since the GMCR breakdown. I know an entire O'Neil book which details how a former leader will regain the 50-day 3-to-4 times, following the initial break-down, before getting short has a high probability of succeeding. Getting short sooner might be more profitable when that works, but once you add in all your failed attempts to short earlier, whereby you are stopped-out at higher prices for battling a name which refuses to die so suddenly, you come out further behind in the end than if you had sat back and let it mature as a short (let it re-capture the 50-day MA 3 or 4 times, following a major-volume + dramatic price-breakdown.
-CVS is a low-beta short idea and I have covered again for now (out for now). CVS hails from a terribly ranked industry group (Retail-Drug Stores rank 173 out of 197 on O'Neil's industry group ranking. This database rank is is updated every day in IBD and should be paid attention to; since rapidly rising or declining industry groups provide opportunity for gain and for avoiding pain). CVS sports a low RS of 21, whereby the RS-line is almost at lows, coincident to a stock price still ~17% above that relative low. Right-click, open and expand this CVS chart. If CVS is going to confirm the charted RS line (lower-right of chart, now at 21), then price is going to test that August low. If so, I am looking to re-load short and am looking for any sign of a renewed downtrend with which to enter. Otherwise it is too dull a place to park money not to be making something on it (it might snooze higher for many percentage points for all I know and I'm bored already just talking about that). Again though, now that you're looking at the chart - note how the RS-line at 21 is well-below the July lows and not far from August lows, while the stock price is well-above both (price is almost 11% above the July low and more than 17% above the Aug. low). Not so boring when you graph that divergence, huh? zz zzzz zzzzzzz. What this illustrates, to state the obvious, is that CVS is still weak weak weak - relative to the broad market and that degree of divergence is in fact - exciting! ...get my jet!
I'm also still short ZMH, but am (even more) exhausted now and am going to move on instead of discussing it. I suspect there is something about a negative RS divergence in the ZMH chart as well (good answer!). And both ZMH and CVS are more mature as shorts than the whippersnapper GMCR.

Sorry for the rambling. If I edit this down it will cost me (even more) sleep and if I don't then there is no lesson tonight and obsolescence can strike so suddenly - rendering the work here largely unimportant, if not worse. Sucks to be you for reading down so far, but at least the futures are up big right now. Oh wait - you're under-invested - or short even.

Bah!

Follow Centrifugal to fade trades in real time

Total Position: Currently 3.43-to-1 net-long, 99% invested

Currently Long (according to size): BMC (8.1%); ULTA (7.4%); CRM (7.2%); DAL (7.2%); NTGR (7%); QLIK (reloaded Friday, 6.8%); CTXS (reloaded Friday, 6.7%); OVTI (reloaded Thursday, 6.2%); LTD (6%); MOTR (added Thursday, 5.4%); AVGO (5%): LPSN (added Thursday, 4.1%)

Currently Short: SLV (increased Friday, 8%) DISH (7.3%); ZMH (7.1%)

Futures: no current position

It's light, it's fluffy, it has to go up.

Updated Position (re-shifting long)

Tough to criticize today's triumphant turn off of yesterday's broad meat-slice lower. A terrible close today or a sizable gap-lower tomorrow would cause me real concern, short term. Otherwise I am accelerating the long-side again and consider further strength likely at this point; whereby further strength will lead to only further strength near-term.

In other words, without a trip-up on this rally rather soon, I am going to push much harder long (letting go on shorts and increasing longs).

Follow Centrifugal to fade trades in real time

Total Position: Currently 1.91-to-1 net-long, 91% invested

Currently Long (according to size): BMC (8%); VALE (added today, 7.6%); ULTA (7.3%); DAL (added today, 7.1%); NTGR (reloaded today, 7%); CXO (6.8%); LTD (6%); VPHM (5.5%); AVGO (4.9%)

Currently Short: DISH (7.4%); CRUS (reports tomorrow am, 7.1%); ZMH (7.1%); CVS (reloaded today, 8%); SLV (reduced today, 3.9%)

Futures: no current position

Lost Leaders (plus making enemies on twitter)

I was drafting much of this post over the weekend, but couldn't hit the publish-button in the end. The main reason for my indecision - I’ve knowingly become an especially mean-old ass behind the scenes (in general, but especially in my trading life), but I was having a difficult time being a complete jerk in public.

Then I read the Nick Denton article Search and Destroy in the New Yorker and I wondered - why should I be so god-damned nice?

I've been conveying pretty much everything I do here the last couple of years (I didn't realize I'd live this long), so I may as well stop holding back. I'm just trying to make a living after all. Scroll to the bottom here for the dirt.

First, enthusiasm (sentiment/animal spirits) had risen measurably lately, coincident to everything no longer working in equities (whereas just a couple weeks ago, everything had been working, throughout September, and yet sentiment was considerably more cautious at the same time).

The general environment remains favorable, sure, maybe, but there have been some dramatic blow-ups lately and themes blowing-up do matter (the site of blood slows down investor appetite).

The education stocks (not a leadership group) were destroyed last week, while the previous week saw the cloud-space tech leaders lance dramatically, on tremendous volume, and fail to recover by any significant degree (normally, a first, sharp-slice lower in a leadership stock or group is a buying opportunity only, certainly in the short-term; the wall of worry is built on such bullish slices, followed by a gradual return to higher prices; but the cloud space did not return to higher prices). Microsoft news today that they will put their Office software on the cloud may be the best reason for this, but that is a guess only (it may be the market is telling us something instead, that leadership is waning). But whatever is going on, I still insist EBIX blowing up was not worthy of creating as much damage as it did.

If I sneeze on the Pope and he dies soon after - there were more negatives to his health than my little germs. EBIX did not kill the cloud space. The cloud space was apparently sitting on a pin prick.

Today, for example, cloud stalwart VMW sold-off, managing lower-lows from the day EBIX collapsed, even though posting strong earnings and guidance last night. The negative market helped today, but lower lows on good news is not going to come out positive when you call your boss with the bottom-line news.

If you go back a little more than a month (few will recall, I suspect, since so many of the Twitterscente have more recently been piling into similar names which are/were rallying late in this cycle), the US listed stocks of Chinese growth companies began a new trend of blowing-up, coincident to indications of ill-accounting, shuffling auditors, resigning CFOs, etc. In other words, the underlying fundamentals of these Chinese companies listed only in the US were not very-well reflected in the information at our disposal.

Imagine that.

Since I wrote on this young phenomenon September 9th, a few more have blown up and a fabulously interesting article + ensuing drama has surfaced with another, UTA. This trend is likely to grow, in my estimation, and the throngs of Twitterbugs piling into RINO, CHBT and the junkier solar names (LDK, SOLF, CSIQ, etc.), are scooping up nickles in front of a proverbial steam roller. These names will rally 10% on a good day and they will halve your balls when stories of fraud surface.

I featured a fundamental look at RINO's technicals yesterday, one of the Chinese companies listed only in the US, which had become a favorite long recently with traders posting to Twitter. There have been no stories suggesting fraud with RINO and this will not be one of them. But given the accumulation of fraudulent stories surfacing in similar names, I think the reward for Russian Roulette needs to be higher. I'm avoiding anything Chinese which is listed in the US-only now, especially if it is not making higher highs.

Ok, let's get to the ugly...

I've nothing against Twitter. I'm quite big on the application, actually, especially as it relates to the stock market. It's just that I'm becoming a bigger fan of Twitter.

At the risk of coming off as a scumbag, I'll admit (far down on the page) the inverse genius is easier found these days on Twitter than any source I know right now (except for Scott, perhaps). And I love the inverse genius. I'm accumulating a mostly secret anti-follow list, whereby certain inverse superstars keep me in the loop - of what not to do, when not to do it, what I should do the opposite of, etc., etc. If you're on this list, it's no guarantee I'm fading you, since most the list is informational, or peer-leaders, or something banal like a reserve bank of Philadelphia (there you see, I'm not actually fading Philadelphia).

About a third of this list though are followed for pure contrary reasons. A couple of these are highly coveted. Twitter names I follow on my regular Centrifugal account are respected-only, for one reason or another. I might fade a trader here from time to time as well (I fade myself, so anyone is eligible), but ultimately it's because I respect your moves, insights, etc. and am interested in these in real time (such a nice guy, see?).

If themes in the market are going to blow up, then accounts are going to blow up. I've blown up and I know what it looks like. Now though, I am stepping over the dead bodies of my trading past, trying to get ahead on other trader's lessons. It's not a reflection on intelligence or anything other than aligning yourself to a blow-up, for whatever reason. We're all winners - we're all losers - but some of us at certain times are more aligned with the former.

I'm going to take the other side.

Follow Centrifugal to fade trades in real time ...(hey, if you believe in Karma than I can most certainly make you money tomorrow;)

New equity blow-ups on earnings tonight as I in fact hit the publish-button: CREE, ISRG and JNPR.

Beast out!