Friday, September 30, 2011

Abstain? (updated 120 pm HST)

8:32 am (Hawaii) I have no problem sitting out for hours, days, weeks at a time. The past year has been erratic to say the least. It takes conviction to trade or invest in this market. To trade well of course, it takes more than belief and empirical data. I wondered yesterday whether the pullback in FAZ to 60 was a discount or a trend to come. I looked up the 2-year chart and found that FAZ meandered for a week back around May 9, 2010, when the first Greek bailout was approved. After that, price exploded in FAZ, not because of Greece necessarily, but external, regional blowups related to Euro debt crisis, political cowardice. When you get down to it, nobody willingly accepts a lower standard of living. Of course there will be anger and conflict and violence in the streets.

Bankster stocks, which exploded yesterday on bailout approval from German politicians, are down from 2.5% to 9.3% today. Banks are being targeted more and more, fairly or unfairly, as the culprits behind this vice-tightening threat. So I lacked conviction this week when I traded four round trips (Wednesday) on an up day (from 60+ to 59+ to 65+) and didn't make a profit. I lacked belief when I held FAZ from 63.60 (Wednesday) to 65+ to 59+ before selling at 62+. This is something that I now realized has more to do with the mechanics of my trading process than actual thesis.

Today, I still have very, very little doubt that the banksters will suffer as the people have suffered. They can put it all off over and over, but the flames below get higher and higher. I went long FAZ at 64.00 and 64.40 today, used a stop sell order to manage my process, got stopped out with a tiny loss. I don't like using stops normally, but with FAZ, it's a necessity for me. The Dow is down 134 points (-1.2%) with 75 minutes left in the session.

The weekend. Few will go long. More will go short. I am undecided.

Update 9:33 am Little boxes. I wonder what Nicholas Darvas would do with FAZ. Hell, what would he think of FAZ? The man could trade from 6,000 miles away in an era long before the internet just on numbers. Boxes. A bouncing price within a box that breaks down or breaks out. If I apply a version of this theory to FAZ, today's trading can be "contained" in a sense. It helps some. I don't normally like buying on breakouts like I did before, just a sign of the times, the difference between a bull market and a bear market. FAZ clearly is used by the big algos to take out stop sell orders down. That's how they make the bulk of their money, my guess, regardless of how flat the market may be.

I just re-entered at 64.60 based on a breakout and massive volume. The most recent intraday box I see was at 63.80 to 64.40. But I didn't draw this out until after my earlier trades.

FAZ intraday wackiness in little boxes.
A late-day run to 66+ followed.

Update 9:52 am Stopped myself out at 63.87, fished out by the algos, I know I know. But I re-entered at 64.50 and it's been parabolic since. FAZ high today is 65.82 with 7 minutes to close. Now 65.31. Tempted to get out here. If I hold over the weekend, I'd be slightly comfortable. If this trend continues, I can add more on Monday. It's a long 2 1/2 days...

Update 12:07 pm The last time FAZ propelled to this area (65-66) I held and saw it dip the next morning. It gets tempting to hold a position for the longer term (anything longer than 2 days) and another position strictly for intraday trades. Yesterday and today prove it might be better to be two-pronged. FAZ went from 60 to 59 to 65 to 60 yesterday. This morning, it gapped up to 63, dropped to 62 and went to 66+ before the close. Now at 65.85 after hours.

So, those "cheap" shares I got back at 56 (and sold at 61), I could've held. And kept holding. And trade all the noise in between. But in noise trades would be disciplined with little exception. Sure as FAZ can close at 65, it can open at 60 the next morning. Or close at 60 and open at 65. Simpleton thinking might work best.

FAZ daily: Each pennant is followed by big upside move, big downside move.
Net-net: Higher.

I do believe: FAZ can return to 55, 50 and 40; FAZ will return to 73 and 81; FAZ will eventually hit 100.

Update 12:18 pm Didn't like the FOUR PENNANT look, though it supports a thesis of higher-then-lower post-pennant. Here's my previous THREE PENNANT look. Not as sexy. Ups and downs follow closing pennants. So what. FAZ is hyperactive and it's basically the same difference. If you think banksters are eventually going to face the grim reaper, your position will win. Me? I'd like to get discount shares, even if I have to sell for a small loss soon.

FAZ daily with only 3 pennants.
Third pennant closing, big move ahead? 
Maybe we consolidate here for a few more days.

Update 1:11 pm Out of FAZ at 66.00, made $1.50/share. Not bad for a late-day trade, but overall I was down a teeny bit today. I'd love to have a longer-term position in FAZ, but I want that entry point to be closer to 60, ideally 55 or 50. It's more see-saw action next week, might get my wish. For now, keeping my eyes on gold (DGP), silver (AGQ), AAPL and FAZ. If we get mixed news every day next week, I might start trading FAS and FAZ, flip-flop between each based on what I see in my little boxes.

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