PANL Huge 100% rally, and then what?

After a huge 100% gain in the last weeks, I thought the price might collapse again, so I took a short position.

Things weren't developing clearly, so I exited while in positive territory with 1.5% profit in 3 days. I still think PANL is way overbought, so will watch for signs of a definate collapse. There is a lot of hype out there around this stock, and the Vice President sold $750K of stock yesterday, so it could still happen.

Trading CIGX bounce for 32% one day profit after patent lawsuit issues caused massive 70% drop

32% profit in 1 day after collapse in CIGX due to confusion over value of the company due to lawsuits. Risky situation but worked out well.

Could have made a lot more holding another 4 hours, but when I saw the Bloomberg article reporting “This is a complete loss for Star and basically makes their business worthless.”  I was glad to be able to exit gracefully.

This is the four hour chart showing the worthless company producing a 32% one day profit.

Trading a bounce like this requires extreme care about the entry because of the huge volatility. Here are the notes about how I chose the entry point.

Trading the bounce after Hewlett Packards bad earnings and weird business decisions

When a company like HP (disclosure: I'm an HP employee) makes major business decisions that no one appears to really understand, and has disappointing earnings as well, the stock market often reacts a little more than strictly neccessary. Great conditions for profiting from a bounce!

HP has been on a downward slide for three quarters now, but this 20% post earnings drop outdid the previous ones even. So there was an opportunity for a bounce trade.

Entry was at $23.77 on August 19, which was a whole dollar off the low of the day, and underneath the lower bollinger band. The bollinger band represents the tension of the movement in price, so when the price is below the lower band, there is a tendancy for the stock to spring back.

The trade hit my 1% per day profit goal after four days, so I put a very tight trading stop in on August 25, and was stopped out the next day. 4.8% profit in 4 trading days. In this sort of bounce, the trades should be short term. The reason is that that when the bounce occurs, it usually then drops off again, just as a ball does. Drop, bounce, drop, bounce, with each bounce getting smaller until the stock stabilizes at the new level.

Missed the boat big time on my AREX bounce trade

Sometimes, it's hard to decide whether you are smart or an idiot. Looking at this chart, in hindsight, this exit from AREX looks insane. Technically, the setup looks perfect for a bounce. I nailed the bounce entry point, took a day or two of a beating, then it looked like a recovery was starting.  This trade made 4.63% in 2 days in wildly swinging markets which is not bad, but it missed out on a 25% profit in 4 days if I had stayed in for the ride

Here is why I exited. This is the 5 minute chart from the morning I decided maybe the market was turning to the downside, not the upside. The last bar shown below is where I decided the market was going down, not up. In hindsight, waiting 15 more minutes would have shown me that the trend was upwards again. But 15 minutes in last weeks market could have also erased the entire trade profit from two days in the most volatile and unpredictable market since 2008. The 75 cent swing in the first hour of trading on a $17 stock was really scary, and AREX is a twictchy, unpredictable stock at the best of times. I took my 4.5% and ran, thereby missing a 25% profit in the following three days.

Accumulating dividend payer CPLP during the crash

Here is a picture of my 'dividend accumulation strategy' throughout the crash and bounce.

I'm still down 11% on CPLP, but the stock I bought at $5.95 will pay 16% dividend at the price I paid. If I'd had a bit more courage, I would have bought three times as much, and with today's huge bounce, would have been profitable already on the overall position, with an average dividend payout for the whole position around 14%.

This position was by no means perfectly managed. I missed the bottom of the bounce by a whopping 15%, but things were so damn scary 5 days ago I just feel grateful that my stomach is no longer turning knots. However, monthly SPY chart still says this bear market is only getting started, so this is still a longer term position designed to accumulate dividends in a sector that the global economy cannot function without.

You could argue that accumulating into a crash is crazy, but I've been trading CPLP almost every dividend cycle for 2 years, so know this stock is extremely cyclic, and bounces back over the next dividend quarter. Supertankers don't dissapear overnight, so when a stock like CPLP dives 40% in a month, you can be fairly confident the market is incorrectly valuing CPLP and a bounce will occur.

Another Recovery day - huge 18% bounceback for CPLP on merger news

Huge bounceback today helped my 'dividend accumulation' strategy on CPLP.

I SPY carnage: Financial Crisis 2.0

Disclosure:  Personally, I have over lost 20% of my portfolio in the last two months. Today I dumped everything that wasn't already past the point of no return (i.e. less than 15% loss, and paying less than 10% dividend at todays price).  I'm keeping my dividend payers (AOD, AGD, CPLP) that are past the point of no return.  The losses in these are now too great to think of these stocks as anything more than 5-10 year dividend reinvestment vehicles for my future. Lock em away and forget em.

On the bright side right now, dividends reinvested in AOD will be making 14.6%, dividends reinvested in AGD will be making 12.83%, and CPLP 19.02%.  CPLP dividend is payable in few weeks, AOD and AGD pay monthly, so the dividends average out the losses as quickly as is possible in this situation.

The other reason I liquidated half my portfolio is that I need money to trade short in the bear market, or just have some cash sitting around to pick up the unbelievable bargains that are going to appearing in the next few months. The next few months will see some stocks so devastated by the lack of confidence that we are seeing in governments, business and our financial system, that 100%, 200% and more gains will be possible. But you'll need cash available to make those gains.

Here is why I think the bear market is just getting started. Have a look at the monthly chart for SPY (S&P ETF).

1. Bearish Engulfing Candle. This months candle is a monster bearish engulfing candle that exploded through the 17 month moving average (pink on the top graph) like is wasn't even there. See when that last happened? January 2008. It took 16 months for the market to recover when that last happened.
2. MACD is just crossing downwards on the monthly chart (blue crossing yellow). That means this downtrend is just picking up momentum. There is no good economic news out there. Europe is in disarray, the US public has utterly lost confidence in both the contribution of Wall Street to middle-class society, and Washington's ability to make any sort of coherent economic decision whatsoever. Corporations are sitting on piles of cash, but CEOs are paralyzed by fear of their boards, their big investors and of losing their inflated compensation packages.
3. Bollinger band Look at how far away this months candle is from the lower bollinger band. This months down trend has now built up so much momentum to the downside, that it continuing down to the lower bollinger band is a high possibility, taking the stock market right back to 2003 levels. Technically, if that does happen, it could even accelerate downwards, which is what happened in 2008
4. RSI is still at 15, meaning that a bounce is possible, but by no means certain, especially if small investors start to panic and yank their money out of the market to stem further losses. RSI is a great indicator that a bounce may be coming, but really only if it gets below 10. We are still some way off that, and RSI can stay low for some time.
5. Volume. Look at the volume in Jan 2008. It's about what we have seen so far this month. So, the panic is just setting in. Regular investors are only just starting to get how bad this is.  If more investors panic, then volume could increase, adding fuel to the fire, and getting panic based selling up to similar levels that we saw in Financial Crisis 1.0.

In conclusion: We may see a huge bounce in the next month. Or the entire global market could crater from here on out for the rest of the year as people brace themselves for Financial Crisis 2.0.  Either way, you want to half at least half you whole portfolio is cash right now and do nothing with it until things settle. If you haven't taken at least half your 401K out of ALL stock market funds by now, I recommend you consider that seriously. (Disclaimer: I am not a financial advisor, just a blogger).

Anything your broker or financial advisor says to you about global diversification right now should treated with contempt - the US debt downgrade is as global an issue as any we ever see in our lifetime. If you don't get out of funds and have a big chunk of your 401K in cash or bonds,  long term stock market funds in your 401K funds will probably be well on track to being back to 2004-2005 levels, erasing the last five years of gains if there is not an immediate bounce.  Sit on the cash, then watch for the recovery in about six months and seek to use your 401K as a trading account to be invested in only when the market is in clear uptrend.

Meltdown

First, Wall st causes the financial crisis in 2008.  Next, the Tea Party and their insane ideology drives fiscal irresponsibility into Washington and causes this one.

A Tea Party market

Yep, this is the market response to Republican political antics. Lets hope all those Senators who were playing Russian Roulette with the debt ceiling debate got stopped out of all their open positions today.

How well will these 10%+ dividend payers weather the debt crisis?

My entire portfolio is high dividend stocks right now. I don't have the time to second guess the Russian Roulette being played by Republicans in congress who would rather destroy the worlds largest economy than pay more taxes, and as a result the market is simply too volatile for my usual style of swing trades to work.

Here is the breakdown of my current dividend only Portfolio

CMO (finance) - currently paying 14.5% 

NLY  (finance) - currently paying 14.87%

AGD - (Global Dividend Fund) - currently paying 10.17%

AOD - (Global Dividend Fund) - currently paying  11.32%

CPLP - (Supertankers) - currently paying 11.44% 

My income portfolio is fairly diversified, but did get hammered in the last week, so I was glad to see the recovery today. Look at this graph of the bounce back from the last weeks vicious drop.