Line up the hit men

3:17 am (Hawaii) So, to no surprise, crude oil opened down in premarket trading and is stuck at 101.70 (-0.85). That's put me underwater already for the day and I've opened a small position in SCO at an average cost of 43.80. Naturally, SCO  is down, too, to 43.55 now, but the hedge is important. UCO could easily dip below 50 (there it goes just now), so I've got to be hedged.

AGQ was up above 222 while I took a nap. I woke up and it was at 218 and it has dropped as low as 213 (below yesterday's close). Too bad I didn't sell at 218, but Spot Silver is in decent shape with the dollar below 75. I don't advocate holding anything silver overnight. CME (Comex) are devil bastards, but I've come to think of them as just another tool to read in this twisted market. If there's a way to make money off CME, do it. For example, if I had sold my UCO position before the closing bell, I'd have made a little profit, then I'd still go long (short, actually) through SCO after CME screwed crude oil longs with the margin hike. (The news came out after the bell and SCO was at 42.60 or so at the time.)

And as I type, crude craters more. Now down 1.70 to 100.85. Question now is whether to cut losses or wait for a bounce. Or just let SCO do the hedging. Not sure it's going to be big enough of a hedge.

Update 3:43 am (Hawaii) The best move with my crude positions would've been to dump UCO at 50.80-50.90 in premarket. I was napping at the time, hadn't slept since Sunday morning. Hindsight.

UCO now back up above 50, and though I think it will get back to my entry point (51.40), it won't be anytime real soon. Just a matter of patience here. It's not a loss unless I cash out.

Update 4:03 am (Hawaii) Three minutes ago, at 4 am here, AGQ spiked up from 216-217 to 218 and then 220 on major volume. UCO also spiked to an extent. (And my SCO dipped, now 43.40.) What's going on? My guess is short covering. We're now back to normal volume as of 4:05 am. Someone got scared as shit and unloaded. If PMs and crude keep pushing higher, I need an exit point for SCO. Maybe 42.80.

Update 4:11 am (Hawaii) Whether you look for bloggers or analysts or the stars above to give orders to buy or sell, I was thinking along the same lines as crusty SGS on Friday. He thought it was time to buy physical silver, and that coincided (the next day) with my first purchase of American Silver Eagles at a nearby coin shop. There's no question that a 5-10% allocation for precious metals makes great sense in any portfolio, but only when PMs are at low prices. Though I got my ASEs for "only" $40 and change, well below other prices I saw online — Spot was at 35 — nothing beats paying 50% less for the physical. To do that, of course, required vision and conviction ... in 2009 or '10. 

I can't see buying more physical with Spot at 38 or 40 or 50. I'd rather wait for another pullback. (Over the weekend, I expected Spot to fall as low as 30 before rallying.) I'm far more picky and stingy about actual physical shopping than I am about stocks, it seems. Something wrong with that picture. 

It's odd and new for me that owning just a little bit of physical silver while watching Spot zoom higher leaves me bittersweet. And more inclined to hold my AGQ position. Or add another silver play like EXK or GPL, both small miners. XG, my favorite small gold miner, is up 1.8% to 10.06. 

Update 4:36 am (Hawaii) Sold my small SCO position at 42.80, as planned. Sure, I lost a little bit of fiat there, but it was very good hedging in case the crude market fell off a cliff. Don't think that could happen? I bet you it could, if just for a few days or a week, with one or two more margin hikes from the CME mafia. And with that, UCO has now moved up to 51.62, above my entry point. SCO gave me quite a bit of peace of mind. If I were the kind of trader who could sleep through any market, I wouldn't have needed insurance. But I'm not sleepy, I want to score small and big wins during the trading day, and I'll only be disappointed with this morning's action if crude craters again, i.e. CME mafia maneuvers.

If they announce another margin hike, it's back into SCO for me. I'm a pilot fish.

Update 4:54 am (Hawaii) Will we see another CME assassination attempt on Spot Silver? Probably. I'm 95% sure. But the question is really, When? I noted not so long ago that the run from 19 to 49 would lead to a reasonable pullback of 50%, which was 34. Spot eventually bottomed at 33 (or 32+ overseas if you want to be exact). Point is, there is possibly a line of reasoning for CME when it comes to pressure and margin hikes. I doubt Spot Silver will run to 49 as quickly as it did the first time, and that is likely in the plan for CME. They know they can't keep the price fixed at 19 forever, or even 10 seconds. 

So maybe we don't get another silver blindside crash for some time. Maybe it's not just about price, but volume. Velocity and speed of increased price. Maybe CME mafia can handle a 10% gain in Spot Silver in 30 days. How about 15 days? Maybe. How about 7 days? 33 to 36 or 37 in one week? Seems more acceptable for all parties, including silver bulls who really don't want the froth and momentum trading. 

Of course it's just a guess. But if 10% up each week keeps the market "stable", maybe there won't be another hike for weeks or months. Maybe. That would take Spot from 33 to 36.30 to 39.90 to 43.90 by the end of this month. Then we enter June, the Fed stays quiet about QE3, people get nervous and everything begins to sell off, a crescendo of concern, then worry, then fear, then terror. Does Spot go back to 19 then? Nobody really knows. I doubt it would stay there very long, though. Maybe a flash crash (when volume is almost nonexistent) kicks in to give the battered market a bottom in mid or late June.

I don't see Spot Silver going below 19. At some point, it will remain more valuable than many stocks. Only a hike in interest rates, at least 50 points, would keep the market buried through July. But, but, but . . . if, as I expect, the Fed keeps pumping the economy with billions of fiat currency "under the table" without a QE3, that lifts PMs. No matter what, the dollar won't hold any gains for long. Worst-case scenario, Spot Silver ranges between 26 and 34. Best-case, 34 to 42. 

Actually, Spot's true best-case scenario would be China announcing a gold and silver backed currency. Then there's no way to gauge how high PMs would be valued. Not that most physical investors would unload any. There's not much that can be done with dollars that would be depreciating (by that time) at a horrific rate. 

Update 5:12 am (Hawaii) Watching that dude doing the urban gold mining thing on YouTube is inspiring. No, I have no desire to become a gold and silver jewelry buyer/trader. He is special in that niche and very generous with his knowledge. But it's clear that there is great value out there that isn't being appreciated. Stuff sitting around people's homes, collecting dust, and he found a way to benefit these folks and himself (of course). He was ahead of the game, if you watch his videos and see. He was serious about collecting and investing in gold and silver two years ago. 

He doesn't post videos much anymore, but they're awesome viewing. Go here and enjoy. 

Update 6:12 am (Hawaii) For me, it's good to think about patterns and possibilities and probabilities. Otherwise, it's pure guessing without substance. So if Spot Silver gains more than 10% in a week's time, I'm going to be even more cautious, unload any positions lest CME mafia attacks overnight. I know SLV trades at a .975 rate to Spot. There are other correlative ratios I like to test. 

Update 7:09 am (Hawaii) Something about UCO did not smell right or feel right the past 10 minutes and my hunch turned out right. It sold off from 51.80 to 51 except for a blip higher when CNBC reported on crude oil not being hit for long by margin hikes. I got out at 51.05 for a small loss. Sucks that I didn't get out at break even or at 52, which would've been a decent profit. But somethings wrong with UCO. This was still a far better exit point than anything early this morning when it traded down to 49.30. 

Update 7:14 am (Hawaii) Smells like the run is done for PMs short term. Spot Silver went from 33 to 38+ in three trading sessions. If I were truly neutral, I'd start thinking about getting ZSL (double short silver). There's just not enough buying pressure and AGQ has lost its heat. The oven is on simmer and getting cold. And now AGQ just traded below 219. 

Update 7:17 am (Hawaii) Sold AGQ at 219.33 for a gain of almost $10/share. Had enough of this flatline — 40 minutes with almost no positive action. The less time spent in it, the better. There will be many other points of entry. Maybe better ones. But post-lunch is when a lot of hotties start cooling off and when they do, things get frigid real fast. 

There it goes, 219.16 and falling ...

8:27 am (Hawaii) Top-heavy action in AGQ. Not long after I exited at 219.33, heavy-volume buying entered. The MACD and stochastics lined up beautifully bullish, but I paused on the buy at 221.65 and it ran from there to 224+. Crazy fast. I entered a position based mostly on buyer's remorse, it seems, and got out with a $1 loss, very small. I'm still up for the day with a modest gain. 

Spot Silver jumped to the 38.80 area, but has come back down to 38.60 since. 

Update 1:15 pm (Hawaii) Finally got some sleep. So good. Now I'm wondering why the hell I a) got out of AGQ when I did, and 2) re-entered at 223.99. That turned out to be a waste of time and energy. AGQ ran out of steam there — no surprise after leading my metals list in gains today — and I sold out at 222.90 for a very small loss. Apparently, I am getting emotional with my trading, which is interesting and stupid. I have no real emotional attachment, there's no CEO talking up a new product, no lines around the block for the store . . . no attachment. But there's always remorse and greed, and that has more to do with my own emotional state, and I believe I should've shut the computer down and gone to sleep (none since Sunday morning except for a nap early this morning in my car) rather than continue trading. 

Part me wants to be in AGQ for an overnight bounce, but with Spot hovering just below 39, the wise words of Teacher Turd echo in my hollow cranium. This is probably not the ideal time. He knows a second bottom is coming. I was far less optimistic, thinking Spot had to fall to 30 before rallying. So why would I chase AGQ now? What I may do before afterhours closing is done is open a partial position. Nothing huge (by my standards). 

Spot Silver, silver miners, gold miners, metal stocks, metal etfs, physical metal . . . it's amazing what all of it adds up to, and how it is all universally connected in so many ways. When the Hong Kong exchange begins trading gold futures, and then silver, on May 18 things get ever MORE interesting. 

As nations hoard precious metals, even sending agents abroad to collect more bit by bit on the open market, I realize that there's only so much value to a retail peon (me) buying physical at these high levels. The time to gather physical was last year. The year before. So I'm staying perched on the lookout for news, the kind that is golden, the kind that involves major nations and more "investment" in PMs. Again, the pilot fish mentality. I'll ride these whales all I can without losing my natural aversion to risk. The goliaths of earth can hoard all they want. I can profit from their wise economic decisions. The markets are often rigged, but they can't kill off us pilot fish, not those of us who are nimble. 

Looks like I sold out of UCO far too early. I took a small loss and sold at 51.05. UCO is at 52.61 after hours. That 25% margin hike by CME mafia 24 hours ago (7:30 pm Eastern) knocked crude down, but not out. (Crude oil is at $104+.) Not even close. Shows that crude would be even higher today without that hike. Today's move also shows that there are more hikes coming. Spot Silver took five whipsaw cracks to the chin from CME for a total of 87% in hikes last week. I expect the same for crude. 

Better to stay out, stay tuned in and jump on the shark's back when the news comes out. SCO is a favored weapon now along with UCO. 

100% cash. Locked and loaded.

Handling discomfort

It's been awhile since I thought in terms of hedging a long position. I'm not a short kinda trader, not at heart. But back a year or so ago, when the Flash Crash had most traders hanging by our scrotums for an entire day, I was willing enough to counter my long position in AAPL by opening a small position in VXX. To my surprise, it worked nicely. As AAPL cascaded down with the market, VXX rolled up, and that little position kept me net even (almost) for the day before I sold out of it.

I've come to completely distrust VXX for most situations, particularly as an overnight hold. But this week, with the volatility and schemes behind the scenes of silver and oil, has me searching for a more comfortable way to approach the market. An approach that goes beyond simply sitting out entirely, which I did for most of the week.

Below, a look at QID, SLW and UCO as adopted 'hedges' against a long position in AAPL.

AAPL vs. QID, SLW, UCO

5-day, 15-minute

Simply shorting the QQQQs via QID isn't much, but it's better than no hedge at all. With AAPL constituting 20% of Nasdaq, a small amount of QID wasn't a bad way to handle discomfort. 

But as oil goes up, equities go down, and that made UCO and other ultra-bullish oil plays remarkable counter strategies. Silver is another way to deal with the noise if you can believe that the market is extremely lacking physical silver, which means short parties will go up in flames and the squeeze will be gargantuan. As the dollar disintegrates, precious metals zoom higher, and silver has a lot of catching up to do in relation to gold. 

I missed the majority of the silver run, but that is immaterial now. Where does silver go from here? Will JP Morgan snag the rug out from under the buyers of silver stocks/ETFs? Will the Fed prevent any potential default of Comex? What does it mean for holders of SLW? 

Means little to those who own physical silver. For the rest of us, the questions remain. One answer, for me anyway, is to relive discomfort by hedging. 

Stretch run

Out of BIDU at 77.65 (+1.60 day trade). Volume thinned out with a 8-plus% gain for the day — not for me, but for the traders who got in yesterday and prior. Getting back to the 77.97 high is unlikely, so I didn't want to stick around with the odds against me. Shares keep bouncing off the 77.15 area, though.

If BIDU can crack 78, it'll rocket like it did at 77 and 76 as the shorts run for cover. But I don't think even then it would close above 78. More like 76, maybe 75. The beautiful thing about BIDU is that it traded in a rather orderly fashion, with plenty of heavy feet on the gas pedal.

More thoughts on VXX. A small position would've sufficed. Instead of an 18% lot, more like 5% would have worked fine. Dropping from high 25s to mid-24s would've cost me very little. Instead, I took a bit of a loss that was larger than my BIDU gain. That's too much insurance, but I'm learning.

A 5% lot of VXX works in the other direction, too. Had the market turned sour, VXX could've made another run to 30, and that would've covered any reversal in AAPL for the most part, as it did on Friday (paper loss). The good thing is, I monitored all of this closely today and kept things on a short leash. Costly lesson, but invaluable for future decisions.

BIDU below 77 now. I got out in the nick of time. Now, if I was more sophisticated, I'd short some shares. I'm content to just watch here and not fiddle with dangerous chemicals in the lab.

Fibonacci retrace (based on today's low and high) for BIDU:

38.2% 75.99

50.0% 75.38

61.8% 74.77

A full-blown lawsuit by HTC has hurt AAPL in the past hour. Shares now below 261 after trading above 263 early on.

No insurance needed (today)

So much for the hedge in VXX. A lesson, indeed. When there is no fear in the market, stay out or trade without restraint. Then get the hell out before the roof caves in from froth, arrogance and irrational exuberance.

Got out of VXX at a loss (-1.29/share), but it's not the loss itself that this trade was about. There was no ying-yang, give-and-take with AAPL because the market has no volatility whatsover. It's been green since premarket, and that's when I should've played the percentages right and lightened up on the hedge position.

Sold VXX at 24.54. It hit bottom at 24.26, so my inclination was right, like escaping 1% of a swarm of bees and saying, "At least they didn't all get me."

AAPL holding well above 262. As it crested earlier to 259-plus, I was ready with a soft limit buy at 260.21, knowing how traders love their round numbers and breakouts. But as soon as it hit 260, it went at warp speed to 260.60 or so and wouldn't let up. I never added more shares and AAPL is at 262.47 now. I had a Fib retrace price on a limit buy order in, but no chance, not today. AAPL is a tiger on the move.

Took a quickie position in BIDU at 76.05, another pure momentum play. It's already up 6%, a high-risk move. Currently 76.32, which is a pre-split 763. Even with last week's crash, and especially because of it, this is pure insanity. Not out of BIDU just yet.

Wednesday premarket

AAPL has stayed plus $3 since yesterday's afterhours close. Most stocks on my primary list are still up through premarket, though GLD has lost some early gains and is struggling to stay above 121. SLV is still above 19.

My AAPL/VXX interplay is not working well. Unlike last Friday, when chaos reigned and the two danced beautifully together, both are down since yesterday's afterhours trading. AAPL is up roughly 1% (since afterhours) to 258.68, while VXX is down 3% to 25.05. It's a hedge, an insurance tool, but this tells me that waiting until morning works best for buying VXX.

Now let's see if the market can stay positive or yield to all these challenges. John Nyaradi has a cautious perspective.

Running in place

What a weird day. It had a little of this and a little of that. Sure, at least one eff-up by me, too.

• After taking two tiny losses on VXX trades yesterday, I gave it another shot this morning right after the opening bell. (I usually don't mess with anything that close to the open.) The trade fizzled and I got out with a small loss. The market wasn't quite rebounding just yet, but VXX offered an omen, dipping from a gap up to minus territory. I got in at 26.35 and out at 25.95. I left it alone then, realizing that it works far better as a pure hedge than a pure trade.

• I bought more AAPL at mid-day, but I didn't enter at 255. My intuition said get in, but the market was still negative (slightly) and I saw no indicators that worked at that price and time. Sure enough, AAPL went up and up. I didn't chase. Yet.

Later, I got shares at 259.65, close to the top. [Note: Horrible to an extent; had I relied on my usual Fibonacci retrace levels (based on today's gain), I would've waited until the price returned to 256.29 (38%), 255.18 (50%) or 254.06 (62%). AAPL later traded at 255 in after hours.]

I decided to get out with a $1 loss (per), but it wasn't a hard stop-loss. The plumbers arrived to fix the broken stuff in my place, I left the computers and AAPL dropped to a $1.50 loss almost instantly. So I decided to hold out at a $2-loss range, which would still be a small loss. There were buyers, but they couldn't overcome the selling pressure; AAPL was 225 just two trading sessions ago.

So I sold at 257.70, or so I thought. A minute later, I was in stunned silence. Instead of registering a small loss, my account showed a sizable profit. Yep. I accidentally sold my long shares that were bought at 214.40 in January instead of the new shares. I planned to hold those January shares for at least a year mainly to prove to myself that I can mix things up. (And to see how effective buy-and-hold can be in doses.) It had been my best decision so far this year, to hold those shares.

Mixed feelings, for sure. I had to adjust and realize that my new shares were now underwater. I held out, but AAPL kept sliding slowly. I decided to hold them, just as I'd held the previous shares. It was time to use the strategy I employed on Friday: use VXX as a hedge.

I had opportunities to get shares at 25.50, but I didn't pull the trigger. VXX went quickly to 25.75 as the market (and AAPL) sold off. Impressive. Then the directions changed and VXX returned to 25.50.

I decided to wait until afterhours or maybe tomorrow morning, when VXX sometimes is much cheaper. In AH, VXX slowly creeped higher and I put in a limit buy at 25.40. Long shot, but worth the try. By the close, VXX was in the 25.80-25.90 range. I wanted it cheaper, but I realized by then that the price on VXX has less to do with anything than just having it as a hedge. It will (normally) run opposite of AAPL in such an efficient way, like they were born for each other. I opened a position in VXX at 25.83, well off today's high of 26.60 and the low of 24.58.

Why hedge? It's insurance. Great insurance. I don't expect a turbulent day tomorrow, but if anything should hit the fan, I'll be ready. I'll also have a better understanding; last Friday, VXX peaked a couple of times and I didn't get out with a good profit either time. It's simple, but not easy to execute: AAPL dips, VXX rises; AAPL reverses, sell VXX for a tidy profit; AAPL tops out, VXX is cheap again, buy back in. Rinse and repeat. Easier said than done, no question.

If the market remains range-bound, this is not the worst plan in the world. I could've stay away from both and just bought gold, but at this point, it may be getting toppy and overbought. As several analysts have mentioned, gold may get sold off as hedge funds start to deleverage out of losing positions by selling their profitable lots of gold.

So, for now, I'm 44% short-term trading (AAPL), 18% hedged (VXX) and the rest (38%) is cash. Might add more VXX (or AAPL, or sell both) depending on what transpires in the morning. By tomorrow afternoon, I'll have a conclusion (maybe) about whether to step away for the rest of the week or not. For all my trying, I'm just running in place. Trying too hard, typical guy behavior, as opposed to being content to really pick and choose my spots as I did in February.

The Right Balance?

Hmmm...

Hostile market:

2/5 long-term growth

2/5 hedge or cash

1/5 cash

Flat market:

2/5 long-term growth

3/5 cash

Bull market:

2/5 long-term growth

2/5 short-term trades or cash

1/5 cash

Profit vs. Hedge

To sell or not to sell VXX, that is the question. I love how it hedges my floundering positions in AAPL (you will buy the new iPhone, grab a new iMac, toss in a new iPod and get your kids one iPad each by summer) and IMAX. Yes, IMAX, which held strong through Thursday's Mister Roboto Ass Kicking, only to give up the sphincter today. Inexplicable. Don't the longs who sold out know that Iron Man will hunt them down with a fuuuurious angerrrr?

But my question is about VXX, which is back over 30, which I considered probable going into the close. I could take profits here, but it works so effectively as a hedge on my AAPL and IMAX positions ... it's a mental thing. A little bit of peace of mind being hedged.

So, what to do? This is my plan: Sell half of VXX, then re-enter before the bell at a proper price, or sell the remaining half and go without a hedge over the weekend. Wait to re-enter on Monday in premarket, if at all. Seems sensible enough.

Then again, cashing out of some AAPL and/or IMAX shares to get more evenly hedged with additional shares of VXX (or GLD) wouldn't be horrible, either.