Looking further into the MSFT chart, here’s some analysis.
There’s two resistance (trend) lines. The blue one is the first. The brown is the second. The brown one would seem to be the more prominent one for the moment. The CMF shows that the buying pressure is letting up. This doesn’t mean a buy signal by itself. However, it would show that heavy selloff is behind us.
MSFT - Oct. 29th.
The RSI is still sort of high but bent downwards at the close. The MACD is touching the trigger line but hasn’t crossed it yet. If tomorrow in general is a green day, it should help.
So Trader Mike has a post about the late selloff being due to a GE report released late in the day. This report, or rather the report of the report, can be read here.
Hopefully, the rally upward continues slowly tomorrow. While the DOW closed red, the NASDAQ closed green which is good. S&P was slightly red. So hopefully, this is going to be a sustainable upward trend.
I have seen a lot of $1,000 – $100,000 or even $1000 to $1,000,000 type of posts on message boards and those always seem to be good for some hope but almost never seem to get anywhere. However, JROCK at HSM is having good luck with his experiment of $2,000 – $100,000. While this kind of posts have been good for daydreaming, they rarely teach the newbies anything worthwhile in terms of standing the newbies on their own feet. That is why my current goal is to simply attempt to do a $1,000 – $2,000. If that is possible then it’s a 100% ROI and more can be targetted. Currently, I’m 77% down. Hopefully, the markets will maintain the momentum and the options that I’m holding will be worth more.
Overall market sentiment seemed to be positive with caution. Market seemed to wait for the FED announcement for the rate cut. After the announcement, it took a deep dive and then headed back up. Stayed positive except for the last 30 minutes where it nosedived. So what happened? I think it’s the basic people-being-cautious thing. They’re afraid to call a bottom too soon but on the other hand they are tired of seeing red and are willing to buy at prices they might think are good.
Looking at the overall sentiment, it would seem that the close today wasn’t a big negative. It might continue the slight upward momentum tomorrow. If it does, that will help restore investor confidence. It raelly is the investor confidence that drives the market up and not so much the trader confidence. Many traders are perfectly happy trading Put options and shorting stocks as long as there is market movement. But the investors that invest and buy big bundles of shiny shares with their money are the main market confidence source. That is my opinion.
Let’s see the DOW here.
DOW – Oct. 29th.
MACD seems to be still showing the buy signal. However, the MACD is a lagging indicator and so we must be careful of using that alone. RSI is above oversold and was headed up until today where it seems to be down. However, this is mostly going to be reflecting the downturn on the last candle. The volume seems to be lower than yesterday. In the previous sharp day long selloff the volume seems to be higher than on the green day and seemed to rise. On this bar, the volume is less than yesterdays. So seems as if the selling pressure is slowly down, even if temporarily.
It’s below it’s MA(50) and MA(200) so technically still in a downtrend. Well, the MAs and the actual candles and chart going down shows the downtrend. Is it bottoming off? No one knows and now has been able to successully determine a formula for finding that bottoms and highs, but this might still be a safe level to buy if the momentum upward continues.
Interesting day! A 889 point rally. Dow was nicely up. So all you call holder who are profitting did good. Congratulations. My own MSFT options were bought at a high price at the time of the last rally small rally. The trade was opened on the 21st. However, the price kept going down and after many red days, now, the trade is down 88%. Very stupid move. Very careless. Here’s is how it happened.
I bought 10 at .53. It went down. So I bought 10 more and averaged at .50. Thinking that when 20 options are sold at .70 it will be better profit. This was done out of desperation. Not by looking at the charts. Never looked for confirmation on whether the market is headed up or whether the security is headed up. Then it went further down. Bought 6 more and averaged at .45. Then it went down and bought another call at averaged all at .44. So in total 27 Nov 27 calls. Current value is .10. At one point it was .02. Luckily, I never looked at it when it was lower than .05, I think. Maybe .04. Now, I’m looking at this and realizing that it will need multiple green days before the option price starts moving up. The option price is derived from the security. That’s why options are derivatives. However, it has many reasons for staying. If no one believes the MSFT will go up enough, then what’s the point in buying the option. So it doesn’t increase much. If it has the possibility of going at least close to 27, then the price will increase. Now, I’m praying that I will be able to get out of the trade profitable. These expire on Nov 22nd. Current gameplan is to pray and hold.
This mistake of going all in and averaging down has been eye-opening. You can’t trade without identifying your risk/reward ratios and without having rules that you will adhere to. Will this work? In the long run? I don’t know. It depend on my ability to follow the rules that are carefully made and to make good trades. God willing, I will be successful. My current goal is to go from $1,000 – $2,000. So far I am successfully somewhere around $200.00 in account value. So very much in the wrong direction.
Let’s see below the DOW chart. Notice the first rally was with the pink circle. RSI showed oversold and MACD showed no buy signal. Today’s rally showed RSI heading up but well out of oversold territory. The MACD was sort of sitting around. Now it’s shows the buy signal. These two signals alone don’t say anything matching. So further green days will show whether this down trend is temporarily gone or really slowing down to start trend reversing action.
So the last week was pretty red. It was a brutal week for securities. However, many option traders made out good money. Buying puts was a profitable tade strategy last week. Additionally, a more risky move would have been to write calls. Covered calls would be less risky while the naked would have been very risky. Looking back tho, it is easier to say that any call writing would have been profitable.
So that means after a lot of red days, there’s bound to be some slight rallies and green days. Many people project that Monday would be green. I was not expecting Monday (today) to be green. I was anticipating that Tuesday (tomorrow) will be green. Since today has closed red, that leave the rest of this week to show what the markets will do. As logged in my journal earlier, I’m all in on the MSFT Nov 27 calls at an average of .44. Currently, it is trading at .05. Today’s range was .05-.13. This trade is not doing well. It is down 88%. The only reason to hold now is to hope for the best and hope that before Nov 22 it will rise and profitable. If not, then depending on market strength it might still be ok, to get out at 40-50% loss with the lesson learnt and memorized. Going in to live trading, one of my rules was to never put all the money on one trade. However, the real life is very different. The lure of averaging down and making a quick buck is so strong that while watching myself break my rules I couldn’t stop it.
Now, the pressure is on to never repeat that same mistake again. However, I must first close this trade. I have till Nov second week to decide whether I”ll be getting out with profit, with partial, or with complete capital loss.
This is a case of it was the worst of times and it was the best of times. DOW seems to be at a major support level. Since this month is really the only month in the last year where DOW has been this low, one month is ok time frame to look for support. If this holds, this should go up a little. DOW might continue it’s slow decline but it might not happen all of a sudden such as it did recently. On the other hand, when it break thrus this support, it might really fall.
MACD and RSI seem to still be low and headed even lower. So this might present a rally some mid tomorrow. After hours, most stocks are up. MSFT is up 10%. Goog is up nicely. YHOO is up a little. T is up a little. Hopefully, DOW will bounce off of the support.
Current market analysis shows that despite the grim outlook, the markets might rally up before EOD. This is based on the indexes forming wedges. Interestingly, the Nasdaq composite index is much higher, though following the same trend, as the other two indexes/indices.
Update: The grim part of the outlook was correct. The bottom was broken on those wedges and the DOW closed a good 400 some points down.
Today was a wierd day for the markets. In the morning the market headed up but then reversed directions late morning. This could be consistent with the normal market trend where it starts off in one direction and then late morning turns. However, it reversed again and headed up towards afternoon and formed a second top. Toward close, it just headed down like crazy. So it would appear to have just charted a double top. Hopefully, that fall won’t be that hard.
Normal conditions have been indicating that there might be small rallies in the market and then a longer term decline. However, if this starts the decline, that will be most inopportune time to have averaged downt to .50 on 20 Nov 27 MSFT calls.
Time will tell. There is a GTC order for limit of .70 set in my account ready to go and close out the position. However, it MSFT doesn’t hig 24.50 or during the day, the target of .70 might not be reached.
Form the morning’s close of yesterday position, the profit was $50.00. So the total account value before opening new trades was ~ $1187.00.
New trades are for 20 contracts (over exposed here) and should have been only for 10. But this is the emotional thing that got in the picture and said, it’s probably gonna fluctuate tomorrow and it’s better to buy more and average down and increase position size. Ideally, the first trade should not have been opened. The first position was at a price of .53 but without looking at the overall market direction or considering any technical indicators. The second position seems to be a little on the ok side. If the markets don’t fall thru the bottom of the screen tomorrow, the trade should be fine.
For a profit of $50. That’s 8% profit for investment of $600.00. Not much!
I have become convinced that when the profits run, let them run. However, when the markets aren’t moving much, it’s better to make a small profit and close position. Better to have cash on hand ready for opening a new position than to sit and wait out the market and wait for it to make more profit. Nov 27 calls were at .70 at one point but that was before I got a chance to monitor the markets today. I had set a limit for $1.00 last nite, but wanted to move it to .70 last nite. Didn’t get to it due to being busy. However, set a .65 limit and it executed sometime before noon.
Reentered the position at .53 for 10 Nov 27 contracts. Not much movement either way. But hopefully it will have a nice $50-$100 payoff. I know I could wait for more, but since Oct. is free trades, it feels good to enter and exit positions as if playing Forex – trade without abandon on the commissions point.
Another benefit of holding overnite is that it won’t count as a daytrade for the PDT rule.
So the Monday morning open was going down for a while but then it started heading back up. Bought 10 Nov 27 MSFT Calls at .60. It’s been up and down a little. We’ll see. This should rally to the upside soon. Even if there’s not rally, the options should head up slowly since the security price will be heading up.
There’s no guarantee’s in the market but as the markets stabilize and as more traders start buying and selling and as investors slowly starting bargain shopping it should return to the previous normals. All experts and Federal Chairman and others indicate it will a while before that happens. However, for traders it will get boring real quick to sit and not buy and sell. That is what a trader does. So the markets should slowly move up barring any other major issues. Overall trend will most probably be negative. That is to say the while for now the markets may stabilize and rise a little, they may not rise to previous levels and may with each dip start to make lower highs.
