Come Into My Trading Room

Hey Everyone:

Keith Volz has asked me to post the charts for the recent plays I made, and I am happy to do so. The charts should be pretty self-explanatory. I do this with ALL my charts, I set my BUY target area (or "bounce" area), as well as my "Target Price," which is one of my decision points to either take profits at resistance, or sell a Covered Call. By putting these right on the charts, it is very easy to see where I am in my trades. Reviewing them takes all of 2-5 seconds.

You'll notice that my plays usually are entered when the stock is at support and my MACD and STO are at their very bottom (or as close to them as possible). I normally DO NOT WAIT for 3 Green Arrows as I find that while it may be more "convincing," it is also less profitable. By playing earlier (when the MACD and STO begin to head up) I am buying at a lower price and therefore have less risk if I just play the 3 Green Arrows.

If I see a severe bounce, I may nibble a bit to test the waters, then wait for a pullback and buy more shares near support. The nibble gets me into the trade and if it soars from there, at least I have something. If it pulls back to support, I buy more because the Stop-Loss is the same (1% Swing, 3% Trend below recent support), but my entry price is lower, exposing me to less risk if the stock falls.

BHP
CLF
GRMN
PCL
PICO
SWK
Calling a Bottom

I also got into a small position of SBUX today. Now, from the looks of the chart, you may ask, "why would he buy a downtrending stock?" The simple reason is, "I believe it hit bottom." Here is the chart:You'll notice it hit this level twice before and bounced. It has bounced again and I got in a small position. I really don't know how high this could go over the following months. I suspect maybe those horizontal resistance levels may come into play, or even some Fibonnacci lines too if I draw them. Anyway, my reward/risk ratio seems pretty good, so we'll see how it plays out.

By the way, I bought SBUX back on 9/12/06 when it bounced making a Higher High and a Higher Low. That trade worked out very well! Needless to say, after exiting that trade (after 2 Covered Calls), I have waited patiently for it to come back to me. Maybe it has? Or maybe not?

Finally, let's revisit HUM:
The stock has definitely made a bounce here (making a Higher high) and I would consider getting in. You see a couple of Price Targets, make sure your portfolio positioning is reasonable (I never expose more than 1% of downside in any one stock), and go for it (not a recommendation to buy).

Happy Trading!

A "Mayoral Candidate"

Our esteemed "Mayor Pro Tem" of Jamestown, Keith Volz made a comment on yesterday's post. He asked me my thoughts on WCG as a Covered Call trade. While I don't know if Keith is already in this play, let's take a look, shall we? Here's the chart:First off all, where the HECK was I when this baby broke 3 Green Arrows last July? Holy smokes, talk about a stock "en fuego" (that's "on fire" for you Gringos). WCG has doubled in price in less than a year. Certainly a strong, uptrending stock. However, it is at the top of an Ascending Channel and the MACD and STO indicate a pullback is imminent. I would wait until this drops into my highlighted area (or at least to that bottom line) and look for a bounce to get in. I would then ride it up to the top and depending on how much it rose, sell a Covered Call. Say it drops to $75, I buy. Then if it gets close to the top of the channel again, I wait till it begins to fall back, then sell my CC. For example, if the top of the channel is $88, I would sell an $85 instead of a $90. Why? Well, the premium would be much better since I am already $2-3 In The Money, so I would get that intrinsic value. But also, since it is falling, I expect it to fall below $85 before expiration. Since Delta is working in my favor on the downside, once the stock hits the channel support, I buy back the call for a little bit of money and retain ownership of the stock. I may even add more to my position down here on a bounce, then let it ride up to the channel top and sell even more Calls. I'll try to create an example of this method in a few days so everyone can see what I mean.

Anyway, great stock Keith...why didn't you tell me about this back in July/August? =P

Happy Trading!