Traffic & Ice Cubes

Sure, it was a V-shaped rally if there ever were one. But going without a trade for months and months didn't exactly give me pure confidence on the return.

I had a game plan, though, and it had nothing to do with frequency. It had a lot to do with specifics and caution. I will never profess to be the most sound, technical and fundamental trader on Planet Earth, but I had my devices and they served me fairly well when I re-entered the market in 2010: seven winning trades, one loser and three ties in my first 11 round trips back. All short-term trades from mid-February to the end of March.

The ratio of profit to loss was +48 for each dollar lost (including commissions). Yeah, I was on a roll, and it could've been far better if not for some bumbling decisions that left profits on the table.

Since then, I've had just two winners, three losers (including one enormous bust of a loser) and one tie in the short-term category. What happened? Some of it had to do with the market. Some of it had to do with sleep debt, seriously. Getting up at 1:45 a.m. (Hawaii time) ain't easy, so I usually just stay up through the night; my normal sleep time is 4 to 11 a.m. anyway.

But the many impurities in my trading system come to light in a schizo market, which we had this week. Especially when I became enamored with the idea of frequency and became impatient at times, settling for average (at best) entry points while disavowing hard stop-loss exits many times.

The result is a very disappointing April. Not to dwell on the disappointments forever, I've got two dorky analogies for the average guy (or girl) like myself who is far from a pro.

• Traffic

The best way to avoid traffic, at least in

Honolulu, is to travel when the roads are fairly empty. That means hitting the freeway before after-school hour. Or leaving after the rush-hour traffic passes. Better to wait an hour or two and get home quickly than to sit in that hellish muck anyway and get home in a sour mood.

The notion of traffic applies to trading in some ways. Take NFLX, for example. It traded down to 86 or so the day of its recent earnings report. Already on a huge ru

n, there were doubters, no doubt, before the report came out after the closing bell. Then when the news hit the airwaves and internet, it sold off immediately to 80.

I had no shares, wasn't familiar with the fundamentals of the company, but was finding the going entertaining. But as NFLX hit 80 in after-hours trading, it turned. 82. 84. 86. It kept going. What gives, I thought. Did people panic at the initial numbers, then find out more ... the kind of 'more' that was beyond impressive?

Turned out NFLX beat its numbers, to no surprise. But when it raised guidance, all heck broke loose. Within a week, the stock was above 100. Traders who stepped in on "game day" (earnings) got their reward. They entered when traffic was at a relative minimum. Then as they sat with their shares, it turned into a logjam on the buy side and drove the smallish float into a tizzy. NFLX has struggled this week, as many stocks did, but still closed above the century mark. Some smart traders sold above 100. Others are holding longer.

Bottom line: beating the traffic on NFLX led to a superb profit.

• Ice Cubes

Again, in the sense that a short-term trade can't and shouldn't sit in traffic, ice cubes don't belong out of the freezer very long. In fact, if ice cubes are in a container — a cup, mug, jug, whatever — they really shouldn't be in a deep well of water or beverage. Picture the ice cubes still visible and peeking out over the top of the water or drink. That's what makes it effective, when there isn't an oversupply of beverage. That's when ice cubes work best.

Yeah, it's a silly analogy, but hear me out. If your ice cubes are left there too long, of course they'll melt, especially if the beverage poured in has too much mass. Then it'll melt faster. The time horizon for ice cubes, or shares, has to be limited. There's only a certain span that permits them to be efficient.

I have way too much time on my hands (almost entirely as I drive), no doubt. Yet, I'll be more than happy to hear more analogies that have to do with household items or daily habits. No snark here. Just bring it on. It's a long weekend coming...

Freaked-out Friday

Dow 11,008 -158 (1.4%), Nas 2,461 -58 (-2%), S&P 1,186 -20 (-1.7%).

Greece, Goldman Sachs, Gulf oil spills. Market got toppy and barfed. All day.

DNDN held on to most of its gains and closed at 54.06 (day high 57.67), up 3.88 (+7.7%). FAZ up 0.82 (+7.2%) to 12.20.

Even NBG held on for a teeny gain of 1 cent to 3.26. All other financials bombed. Goldman Sachs cratered to 145.20 (-15.04, -9.4%). They're still in a zero interest environment like any other bank or financial. Come earnings day in a couple of months, GS will blow it out. But this isn't the time to get in, not yet. That day might be a move from 125 to 150.

So why do I hold BIDU and IMAX? I can withstand the near-term shelling. BIDU (688) will zig and zag until the next catalyst, but they're still the emperor and the only royalty in China search. Float is still scant until the split in few weeks.

IMAX had very little buying help today. I theorize that today was a pocket between earnings and the upcoming giant releases (Iron Man 2, etc.), and buyers held on to their recent profits rather than dive into a hellhole today. Smart. We're getting past a lot of heavy issues. The fog may clear by Monday. Or will it be Wednesday?

I would've been smart with proper execution on Thursday morning (premarket). But I forked up, missed my window. The selling opportunity was there before IMAX announced earnings. I was crashed out. One of the challenges of being in the middle of the Pacific and trading from 2 to 10 a.m.. I've stocked up on energy drinks since.

Today, BIDU was actually up to 716 and hovered at 710 while the rest of the market was in the early stage of tankage today. The spooky thing, of course, is that BIDU's gap up from 620 to 710 this week could get filled at some point. I don't believe all gaps necessarily have to be filled, though.

Bottom line is I'm holding both. It's like the old saying: sell early or not at all. They'll be back in spite of my crappy loss-cutting discipline.

AAPL (261.09, -7.55, -2.8%) shed all of its gains from Thursday and is tilting toward the bottom of its near-term range. If it can hold that 256 area, that's relatively cheap. Greece and Portugal and Spain might spin into economic chaos, but oil drilling issues are under a microscope. I don't see more spills coming with the global media and superpowers addressing the cleanup in the Gulf. The Goldman problem will linger, but they're in no danger of closing shop. There will be scrutiny, who knows, maybe a few convictions. But that'll bring discount prices, maybe bargain prices to the financial sector.

Citigroup closed at its low for the day, 4.37 (-0.19, -4.2%). That's normally a great buying opportunity at this level.

Monday will be intriguing for DNDN traders. Is there any short interest left after today? That'll provide us outsiders some entertainment value.

But the past few days have been a painful lesson in the importance of execution and staying in cash through market chaos. Opportunities in financials and DNDN were available this week. It's not about the specific stock; it's about timing. It's not who, but when.

My when has been forked up the past few days. We need someone or something to rescue this market.

Iron Man, save us.

Oh hall yaa! Ima Dick Tracy

Bloomberg reports that Apple will soon make us all Dick Tracys because, well, we want to see who we talk to on the phone. Right?

Sure, more people will stare into their new iPhones while driving and cosmetics sales will spike because a lot of women just can't bear the thought of being seen, even on a tiny LCD screen, without their Sephora stuff on.

Despite my whining, I'm appreciative of all this advanced technology because AAPL keeps going up, up, up. Nobody dominates tech and stock news like good ol' Apple Inc.

Phil Town know his bidness

He's right about the scam of almost all mutual funds. He's also right about basic, no-frills investing in the best growth stocks.

Love it or hate it: IMAX

Yes, I like IMAX. I really like it. Frickin' film industry kicked tail through the recession, especially on IMAX screens. Even after prices jacked up to $19 for 3D. It only gets better...

A couple of weeks ago, my game plan was to keep trading other stocks like C and F until the week before Iron Man 2 is released. Then hop on the IMAX wagon for a nice ride up. Instead, IMAX announced theater deals in Japan and China and the stock exploded over 20. I started a position on Wednesday, failing to enter below 20, but scaling in at 20.15 and 20.40. Today's pullback? I missed the chance to sell in premarket, before the earnings report (2:30 am Hawaii time), after sleeping through my alarm.

I'm not letting go of my shares below 20, though. Not with IM2 and a promising slate of flicks out on the giant screen this summer.

IMAX 19.72 -0.58 -2.86%, low 18.50
> Pro: Dominant leader in 3D
> Pro: Expanding in Japan, China
> Pro: Iron Man 2 out May 7

> Pro: Low float (51 mil)
> Con: Run-up has been huge, even with the pullback
> Summary: Long term, very good prospects, but price action always volatile. Likely to hit 23-24 soon.

> Chart analysis: Sell Confirmed (today) American Bulls

Love it or hate it: Apple

AAPL 268.64 +7.04 +2.69%, low of day 262.01
> Pro: 3G iPad coming next week
> Pro: Souped-up iPhone coming this summer
> Pro: Earnings last week were fantastic (didn't include iPad sales)

> Pro: New revenue stream starting (iAd to take market share from Google)

> Pro: new stores opening in Europe and cellphone-crazy China

> Pro: iPhone has a 70% share of the smartphone market in Japan already

> Pro: Sooner or later, Apple will start its own search engine

> Pro: Forward P/E 17.81

> Pro: Profit margin +21%, oper. margin +29%, ret. on assets +18%, ret. on equity +34%, yoy rev. growth +48%, yoy earnings growth +89%
> Con: Run-up has been extreme, from 192 to 271 in two months; profit-takers abound
> Summary: As safe as any growth stock in our generation. I like it better at 250-255 (pre-earnings)
> Candlestick chart analysis: Wait (today) American Bulls

I approve of these

Vehicles for short-term trading

• AAPL. The next catalyst, 3G iPad, is near. Anticipation is there, though this is probably baked into the stock price. Nothing, though, would've indicated a month or two ago that the iPad absolutely would have the Apple store filled to the gills like it is — at least when I'm there.

So that's in a week or two. After that, nothing, really, until the new iPhone is launched this summer. So, any breakout above 271 has to be handled carefully. Maybe a move to 280, and then 271 would become a new support level. Maybe.

Would it come with the 3G iPad? Probably. If not, AAPL will likely continue trading in this 256-271 range.

• C. Definitely ranges between 4.30 and 5.05, give or take a few cents. Discard emotion and trade this vehicle like a machine.

• DNDN. Great day for all supporters of Dendreon and prostate cancer patients. But emotion has no stake in these new levels, 51-52. I first bought DNDN at 7, saw it sink to 4 with the FDA's rejection of Provenge in 2007. There must be some folks who had the same experience, but let their shares sit still for the past three years. Hat's off to them. Not touching DNDN here, though it could start moving again with any kind of partnership or takeover talk.

• F. Ford moved nicely today (2.5%) to 13.60. It's stabilized at 13 plus and worth exploring again as a swing trade.

• GS. Closed at 160 today, up from 152 earlier in the week during the public flogging by Congress. With interest rates still basically zero, GS and the banks are printing money, making easy profits. So why am I not in GS or C?

• IMAX. Not happy about this morning's blunder, but I am expecting a run to 23 or 24 as Iron Man 2 premiere day nears (May 7). This is not a long-ter hold for me. It's strictly in and out, maybe even from week to week. Buy Thursday or Friday; sell Monday. Rinse and repeat all of May and June.

• NFLX. Up to 103 today, but smells too much like Blue Nile to me in price action. Too much competition coming soon. A day trade at best.

• PCLN. Have never studied this.

• SBUX. Howard Schultz is king of all coffee. Missed this comeback.

Specs like JMBA and NBG are on the backburner. I'd love to toy with them, but I've got to make some solid profits first.

Allocation comfort zone

I'm almost 100% in equities right now. My game plan was to be out of IMAX and BIDU by the opening bell this morning. Fail.

I'd rather be in 60% cash (and still 40% long AAPL). I'm leaning toward short-term trades in stuff I can rely on, like AAPL. Speaking of which ...

Reliability ranking

Stocks that have both good growth and relative stability.

1. AAPL. New stores to open in Europe and China. Coolest products on Earth.
2. C. Pandit has cleaned house, cut toxic assets and plays the PR game astoundingly well.
3. F. On a roll. Earnings were superb. Mullaly is king.
4. GS. The worst is over. Higher-percentage move more likely in C, however.
5. BIDU. No real competition and serious China penetration is still in the early stage.

There are a ton of good stocks I don't mention. That's fine. I'm interested in narrowing down to a group of vehicles that I can get comfortable with and understand well. I don't need a list of 100 stocks to make a good profit every day. And when I'm interested in going outside the box, there are great traders with great ideas I can glance at.

Rerun

I'm not referring to some people's favorite 1970s sitcom character, though he was definitely funny.

No, it's just good time to start sharing and learning through this blog again. Since returning to the trading world in January, I've been reading and hearing a lot, absorbing many new ideas and fundamentals that I unconsciously boycotted in years past. It's that "more I learn, less I know" thing.

So, after walking away last June or July (after making around 35% in early 2009, then losing most of it back in the downturn), I spent most of my free time doing something new. I took care of some basic heath issues, nothing serious, yet I knew it was time to get some of the flab off my sad, middle-aged body. Working out after work in the midnight hour did me wonders physically and mentally. So did sleeping in during market hours (3:30-10 a.m. here). So I skipped early-morning Hawaiian time Squawk Box, opening bells and even Fast Money and Mad Money.

Staying out of the market for seven or so months was all to my detriment as the market roared ahead the rest of '09. So I've been back, learning, trading cautiously, then not so cautiously ... trying to trade with more discipline, then failing, then more. It's a battle that has been worthwhile to this point despite my floundering ways at times. Between actualized and paper profits, up about 18% since January. Again, should be much higher if not for 1) profits I left on the table waiting too long to rein them in, and 2) issues like oversleeping (re: early hours) through premarket.

Classic example was this morning. The game plan was to sell IMAX before earnings (2:30 a.m. Hawaii time) for a quick profit after scaling in on Wednesday at 20.28. Shares reached 21.60 premarket, then earnings news came out and the stock took a dive.

I didn't sell. I was in bed, having turned off my alarm (I guess?) at 1:40 a.m. By the time I was up, IMAX was down below 20.

The solution is simple: Never go to bed after midnight. (Normally, I'm usually up until and through the opening bell anyway.) And pop open my favorite energy drink(s) once it's past midnight, especially if my strategy for the day involves premarket selling.

So there I go. Trying to narrow down mistakes and challenges while boosting profit. I will tend to dwell on my screw-ups. It's a habit. But more importantly, I hope folks can give me solid, constructive information beyond what I've read and listened to.

Ultimately, trading is a skill in itself that no book can do for me. All tips and shared knowledge, though, are always, always welcome and appreciated. See, all the journaling I do, all the record-keeping I keep on every trade, every thought of a possible trade ... it helps a lot. But at some point, feedback is crucial to really expand and grow. Maybe it's a form of accountability. Or maybe it's just that two heads are usually better than one.

And now, the focus is on execution, which requires discipline, a game plan and more discipline.